Vanguard’s Joe Davis on AI vs Debt, NVDA $4 Trillion, the US Dollar Plunges, Next Hot IPOs

Summary

Podcast Summary: The Compound and Friends Episode: Vanguard’s Joe Davis on AI vs Debt, NVDA $4 Trillion, the US Dollar Plunges, Next Hot IPOs Release Date: July 1, 2025

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Introduction

In this episode of The Compound and Friends, hosts Downtown Josh Brown and Michael Batnick delve deep into the economic outlook with a special guest, Joe Davis, Vanguard’s Chief Global Economist. The discussion navigates the pivotal question of whether the coming decade will be defined by soaring AI-driven productivity or crushed by escalating debt and deficits. Additionally, the episode explores significant market movements, including Nvidia's monumental valuation, the plummeting US dollar, and the resurgence of the IPO market.

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Interview with Joe Davis

Vanguard’s 50th Anniversary

Timestamp: [02:49]

Josh Brown opens the conversation by congratulating Joe Davis and the Vanguard team on celebrating Vanguard’s 50th anniversary. Joe reflects on the legacy of Jack Bogle’s investment philosophy, emphasizing the importance of low-cost, long-term investing:

[03:20] Joe Davis: "What one of the beauties of Jack Bogle's philosophy... [is] just long term investment philosophy was just what he would always say, stay the course."

Economic Outlook: AI vs. Debt

Timestamp: [05:29]

Joe outlines a binary future for the next 5 to 10 years:

1. AI-Driven Boom: Artificial Intelligence acts as a General Purpose Technology (GPT) akin to the Internet or electricity, sparking unprecedented productivity and economic growth.
2. Debt and Deficits Sink the Economy: Escalating debt, deficits, and entitlement spending hinder economic stability and growth.

Understanding Megatrends

Timestamp: [05:53]

Joe explains Vanguard’s framework for analyzing megatrends, focusing on four key economic drivers:

1. Earnings Yield – A proxy for valuation and profitability.
2. 10-Year Treasury Yield – Indicative of long-term interest rates.
3. Inflation – Reflecting the purchasing power and cost of goods.
4. Economic Growth – Real, inflation-adjusted GDP growth.

[07:21] Joe Davis: "Stocks and bond returns... are the catalysts for return drivers... These forces really drive the earnings and hence stock performances."

AI as a General Purpose Technology

Timestamp: [10:00]

Joe discusses the transformative potential of AI, comparing it to past GPTs like electricity:

[11:02] Joe Davis: "We're modeling three types of technological change... the lack of automation and a service-based economy are pushing down growth."

He emphasizes that for AI to justify current valuations, it must deliver substantial earnings growth within the next four years, but he maintains a 60% probability that this will occur.

Deficits and Fiscal Policy

Timestamp: [39:30]

Challenging the common perception that inflation is solely a monetary phenomenon, Joe argues that chronic fiscal deficits play a significant role in driving inflation:

[39:06] Joe Davis: "Deficits... chronic deficits... can start to raise inflation expectations... affecting the US currency."

Demographics and Economic Impact

Timestamp: [35:23]

Joe counters the notion that aging populations inevitably doom economic growth. He presents historical instances where technological advancements spurred growth despite unfavorable demographics:

[37:42] Joe Davis: "Periods like the Renaissance and the Industrial Revolution experienced technological acceleration even with worsening demographics."

Investment Strategies Amid Uncertainty

Timestamp: [15:36]

Given the two probable economic scenarios, Joe advises investors to adopt strategies that perform well under both:

[46:47] Joe Davis: "You don't have to pick a side because whether AI is a boon or a dud, you can diversify and manage risks accordingly."

Concluding Thoughts and Book Discussion

Timestamp: [44:30]

Joe Davis introduces his book, "Coming Into View," which expands on the paper discussed, providing a more accessible analysis of economic megatrends and their investment implications. He emphasizes the importance of diversification and risk management in navigating uncertain economic futures.

[46:47] Joe Davis: "This is around diversification and risk management. There are opportunities ahead, not just mitigating risk."

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What Are Your Thoughts? Segment

Hot Topics in the IPO Market with Aaron Dillon

Timestamp: [51:50]

Hosts Josh Brown and Michael Batnick welcome Aaron Dillon, their resident IPO and pre-IPO expert. They discuss the revitalized IPO window and highlight several high-profile ventures poised for public debut:

• Safe Superintelligence
• Circle
• SpaceX
• OpenAI
• Stripe
• Databricks
• Anthropic
• Revolut
• Anduril

Tokenization of Private Company Stocks

Timestamp: [96:31]

A significant focus is placed on Robinhood’s pioneering efforts in tokenizing private company stocks, making previously inaccessible private equities tradable on their platform. This move is seen as a game-changer, democratizing access to investments typically reserved for accredited investors.

[97:46] Josh Brown: "This paves the way for investors to access private companies without hefty capital requirements."

Market Performance Insights

Timestamp: [81:57]

The discussion shifts to the impressive performance of international markets compared to the US:

• Europe: Up ~24% YTD
• International Developed: Up ~20%
• International Emerging: Up ~16.5%
• US Stocks: Up ~6.2%

Josh highlights how a weaker US dollar has significantly boosted international stock performance:

[92:15] Josh Brown: "The weaker dollar added 7.3 percentage points to international performance."

Nvidia’s Soaring Valuation

Timestamp: [107:11]

Nvidia's valuation reaches nearly $4 trillion, with projections suggesting it could climb to $10 trillion. This surge is attributed to its foundational role in AI infrastructure and sustained high earnings growth expectations.

[109:24] Michael Batnick: "Nvidia is expected to generate $250 billion in revenue by fiscal year 2027."

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Conclusion and Key Takeaways

• Dual Economic Paths: The next decade hinges on whether AI can drive substantial productivity gains to offset growing debt and deficits.
• Megatrends Over Demographics: Technological advancements hold more sway over economic growth than demographic shifts.
• Investment Strategy: Diversification and risk management are essential, given uncertain economic outcomes.
• Market Opportunities: The resurgence of the IPO market and innovations like tokenization present new investment avenues.
• Nvidia as a Bellwether: Nvidia’s extraordinary valuation underscores the critical role of AI infrastructure in future economic growth.

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Notable Quotes:

1. "What one of the beauties of Jack Bogle's philosophy... [is] just long term investment philosophy was just what he would always say, stay the course." — Joe Davis [03:20]

2. "Stocks and bond returns... are the catalysts for return drivers... These forces really drive the earnings and hence stock performances." — Joe Davis [07:21]

3. "You don't have to pick a side because whether AI is a boon or a dud, you can diversify and manage risks accordingly." — Joe Davis [46:47]

4. "This paves the way for investors to access private companies without hefty capital requirements." — Josh Brown [97:46]

5. "Nvidia is expected to generate $250 billion in revenue by fiscal year 2027." — Michael Batnick [109:24]

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For more insights and detailed analysis, consider purchasing Joe Davis’s book "Coming Into View" available on Amazon and Barnes & Noble.

Transcript

[Josh Brown]

Ladies and gentlemen, welcome to the Compound and Friends. Tonight's show is sponsored by our [e-mail] and the public trading app. We are also sponsored by Rocket Money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. What if there were an app that showed you everything you're subscribed to all in one place? How much it costs, how much you're spending on it, and then you could say, you know what? All right, I got 40 subscriptions. I'm only using 32. These eight, let's get rid of them. That's Rocket money. Over 5 million users has saved a total of $500 million in canceled subscriptions, saving members up to 740 a year when they use all the app's premium features. Cancel those unwanted subscriptions by going to Rocketmoney.com compound today. That's Rocketmoney.com compound. All right, tonight's a big show. We had Joe Davis, who is the chief global economist for Vanguard, come and tell us why he thinks the future, like the next five to 10 years, is a pretty binary situation. Either debt and deficits and entitlement spending absolutely sink us, or AI sparks the biggest productivity boom since the onset of electricity and we find our way out of this mess. And he thinks, well, I'll let you hear what he thinks. So we're gonna do that. And then straight from there, it's an all new edition of what are your thoughts? It's Michael Batnik and I. We talk about the US dollar crash Nvidia at almost a $4 trillion valuation. The next slate of hot IPOs coming in the second half this year, and so much more. Thank you guys for listening. I'll send you into the show right now. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of 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 positions in the securities discussed in this podcast. Hey, guys, it's your host, downtown Josh Brown. Welcome back to Live from the Compound. We have a very special guest with us today. His name is Joe Davis. Joe is Vanguard's global chief economist and the global head of Vanguard's investment strategy group. Joe leads a team that is responsible for Vanguard's research and thought leadership agendas as well as the development and oversight of of the firm's investment methodologies and models. Joe, welcome to the show.

[Joe Davis]

Oh, thanks for having me.

[Josh Brown]

This is like, this has been a big, glaring event on my calendar for weeks now. I've been so excited about it, and I did spend the weekend reading your most recent paper, and we're going to talk about the book. But I just want to first start by congratulating you and everyone at Vanguard on the 50th anniversary of the firm, which you guys celebrated in May.

[Joe Davis]

Yes.

[Josh Brown]

Okay. And there was a big bell ringing, a big ceremony.

[Joe Davis]

Oh, it's been really special.

[Josh Brown]

Okay. What is, what is 50 years of Vanguard mean to you?

[Joe Davis]

Well, I think it's really just a testament to investors.

[Josh Brown]

Okay.

[Joe Davis]

I think what one of the beauties of Jack Bogle's philosophy, really, I think just long term investment philosophy was just what he would always say, stay the course. And what that means is that you don't. It's not that you don't care about market volatility, Josh, but you just, you got to stay invested in the markets and let compound just, just take its time and lower the cost of investing. So it's, it's been truly wonderful. See, the. Actually the entire industry is really embrac that it's not just a Vanguard story.

[Josh Brown]

Yeah.

[Joe Davis]

And so that's where I think we're celebrating 50 years of lowering the cost of investing, which means investors get to keep more of their hard earned, earned dollars.

[Josh Brown]

The first 35 years were the hardest.

[Joe Davis]

Oh, my.

[Josh Brown]

Because Vanguard was really out in the wilderness. It was kind of like you guys were running, running beautifully. But the zeitgeist was very much active investing for all of that time.

[Joe Davis]

Yeah.

[Josh Brown]

And then a switch flipped and it became the Vanguard era. We're very much still living in the Vanguard era now.

[Joe Davis]

And I remember being there. I don't remember the day, Jo. I remember I started working at Vanguard early 2000s, and it was. Right. And I knew I had the privilege of knowing Jack, and he would famously say, you get what you don't pay for, which a lot of things in life that doesn't seem to be intuitive, but, you know, quality, all those sorts of things you associate with cost. But it's just really having driven down the cost of investment, it's just been phenomenal. And to see that, you know, because ultimately it's not, it's not Vanguard's money. It's.

[Josh Brown]

It's.

[Joe Davis]

It's the end investor's money. It's just been a privilege to be.

[Josh Brown]

A part of it. Okay, well, you guys have Done an incredible job. And today we're going to talk about your new paper and your new book. We'll start with the paper because I spent a day on this yesterday in preparation and I really love the way that you framed what the, I don't want to say battle, but what the central conflict of the next five to 10 years in terms of the economy is going to be. Will it be the decade where we will offset the, the population issues that we have, the demographic issues that we have and we'll find a huge productivity boost because AI in your estimation is a GPT, a general purpose technology revolution akin to the Internet or electricity. That's one outcome.

[Joe Davis]

It's one path.

[Josh Brown]

The other outcome is debt and deficits will unfortunately have a bigger impact than the impact of AI. And you have that as your second highest probability for how things play out. Yeah. Give us the background on the way you think about megatrends and the way that you think about the foremost important drivers of the, of the economy and investing.

[Joe Davis]

Well, again, where I started with all this, Josh, as you can imagine my role, you get a lot of good questions from investors. It's not just what the Fed's going to do if the stock market say the next six months. It's actually very poignant questions. I mean, you'll get it from clients. You have it on. You talk about it on the show here. Like are we de globalizing? Which means are we in a higher inflation world? Is the bond market ever going to care about the high levels of debt we have? And is AI overrated? Is it underhyped?

[Josh Brown]

These are the questions people come with.

[Joe Davis]

On a regular question all the time. And again, there's a lot of, in my profession, respectfully, there's a lot of narratives being told. But if I'm an investor, tell me what are the probability and odds of some of these outcomes? Because if we can start talking about that, we can start talking about risk management, maybe modest portfolio diversification. And so I didn't have good answers to the questions from clients. And so we tried to provide, you know, create a data driven framework is it is a model. So it's got limitations by definition. But I'm proud of the fact that we're starting to put quant quantify these outcomes. And that to my surprise was the eye opening finding. I cannot generate the consensus view that most have on the US economy over the next five or 10 years. It is very unlikely we're going to have stable growth and stable inflation. I'm not here spinning narratives, Josh. It's coming out of this push and pull between the deficits you mentioned on the fiscal side, which can be negative, and then the promise of AI, which can be disruptive, but, but can also power on growth. We're going to get one of the two. We're not going to get the consensus.

[Josh Brown]

So the framework that you use, the, the megatrends, these are, these are. And we'll put these charts up ultimately. But you're saying since 1890, megatrends have been a powerful driver of changes in the most important four aspects of the market. What are those things? Earnings yield.

[Joe Davis]

Yeah, earnings yield. So it's on the stock market, the real driver. It's interest rates.

[Josh Brown]

Is it. Earnings yield is a stand in for valuation and profitability.

[Joe Davis]

Yeah, it's a standard for profitability valuation.

[Josh Brown]

Okay, so that's one, it's the inverse. What's number two?

[Joe Davis]

10 year treasury yield.

[Josh Brown]

Okay. What's number three?

[Joe Davis]

Inflation.

[Josh Brown]

And then interest rates.

[Joe Davis]

Yeah, just growth. Well, the ten year treasury or the interest rates.

[Josh Brown]

Okay, so then economic growth.

[Joe Davis]

Yeah, economic growth.

[Josh Brown]

You specifically say real economic growth, meaning inflation adjusted.

[Joe Davis]

Yeah, inflation adjusted.

[Josh Brown]

Those are, what are those four things to you for the investor?

[Joe Davis]

Well, again, stocks and bond, I mean, they're the catalyst for stock and bond returns.

[Josh Brown]

Okay. That's the drivers of return drivers are.

[Joe Davis]

Performed for most portfolios.

[Josh Brown]

Okay. When you think about those four things, one of the things that you do in your paper, your team does in your paper is you try to get at to what extent are each of those driving the returns in the market over time.

[Joe Davis]

Yeah.

[Josh Brown]

And they're not necessarily constant.

[Joe Davis]

No, they're moving all the time.

[Josh Brown]

They're moving all the time. That's what makes it so hard to forecast stock returns totally. Because you don't know which of these things is going to be the driving force for the next six months.

[Joe Davis]

Well, the big eye opener for me, Josh, is that everyone, even central banks, the Federal Reserve, they do this all the time. They're at press conferences and they talk about all the demand. You know, they got to raise interest rates or cut interest rates because demand is weakening or not. Yeah, but that's part of it. But what the megatrends really is getting at is these forces that really drive the inflation that drive growth and hence stock earnings. Earnings. No economist is going to debate that. Technology is important, but also deficits and borrowing costs. We got globalization and demographic factors such as immigration, those are driving the business cycle. I'm talking GDP, I'm talking stock S&P 500 returns. They explain half of the Variance from like month to month. I'm thinking this is a long term issue. I'll worry about it in year 2035 when I'm retired. Josh. Hopefully I'm retired by then. But I'm like, no, this is actually mattering much more in the near term than people thing.

[Josh Brown]

Okay. One of the points you make is that the consensus forecast for growth going forward.

[Joe Davis]

Yes.

[Josh Brown]

Is that it'll look just like it just looked.

[Joe Davis]

Yeah.

[Josh Brown]

It's. So that's like the consensus view and you have it as kind of like a bell curve. But effectively most of the, most of the forecasters are clustered around 1 1/2 to 2, 2% growth and then 2 to 2 and a half.

[Joe Davis]

Yeah.

[Josh Brown]

And of course there are some outliers but you don't think it's going to be that simple. Why is that?

[Joe Davis]

And again I was in that camp.

[Josh Brown]

Yeah.

[Joe Davis]

I've been there for, for two or three years. If you had asked me what's, what's growth for the US next three or four years at 2%. Why?

[Josh Brown]

Well, it's the easiest thing to do is extrapolate.

[Joe Davis]

So I'm not, I'm not, I'm not disrespecting. I was part of that issue. It's called what I call the status quo. Like it's not going to change. The question is where do you see the risk? And it's only when you start thinking about the interplay like a living breathing organism. Think of how debt can change the interest rate in the bond market and inflation. Think of how technology which has not driven growth for, for 25 years materially since the computer and Internet does that have the prospect for doing now you can see if you can start interacting these forces. You can start get a better handle of where the risks are shifting and that's what is eye opening to me. So you're. We are unlikely to get the 2% growth.

[Josh Brown]

Can we double click on something you just said? One of the premises in your work is that we've been missing this next technological shift since the Internet age started, which is now 30 years ago. The beginning.

[Joe Davis]

At least that's the irony. In today's economy we don't have another GPT. Yeah. And we talk about technology all around us, all around us. We're modeling three types of technological change. What I was shocked to find is that we don't have any of those new that just called general purpose technology. Not since Internet social media you can maybe call if you're stretched. A GPT has done zero to economic growth.

[Josh Brown]

It's an offshoot of the Internet.

[Joe Davis]

The Internet and the computer, which lifted growth in the late 90s. Okay, so we have that and we actually have a lack of automation, a service based economy. So those two forces are pushing down growth on a trend basis, and that is financial ramifications if we can, if we persist over the next 10 years.

[Josh Brown]

You think AI has the potential to be bigger than the Internet and computer age? Yes, in terms of its impact on economic growth.

[Joe Davis]

Economic growth both through automation and in what I would call copilot, some call co pilot. Right. So augmenting you and create.

[Josh Brown]

Augmenting workers.

[Joe Davis]

Augmenting workers. So tell me what I can do better. Not just save me time, but we need both because we have an aging society. We're losing millions. We're at the peak of 65 year olds. So we are simulating what AI and other technologies will do next quarter, next year and 5, 10 years out based upon today's signals. This is not magic, Josh, and this is not speculation. We are taking of what the companies are doing, the labor and investment they're doing. The beauty is we have 150 years of seeing when there was past flops in the pan and when there was the early emergence of electricity or the personal computer. And we're seeing similar signals as those early stages of electricity.

[Josh Brown]

So you're not saying that tech hasn't been important. What you're saying is the last general purpose technology wave is already 30 years aged and we need something to replace it.

[Joe Davis]

It's like a movie sequel. I mean, it's a new movie, but it's just not as good as the original.

[Michael Batnick]

Right.

[Joe Davis]

And so there's just diminishing returns.

[Josh Brown]

Okay. All right. I think, I think I could. I think I could wrap my head around that. As I was reading, I was like, wait, all the earnings growth is still coming from technology?

[Joe Davis]

It's still, It's.

[Josh Brown]

Your answer would be yes, but it's old technology.

[Joe Davis]

But how do you get a lift? We're going to have a flat labor force 10 years from now.

[Josh Brown]

You're thinking more about the bigger picture, not just corporate earnings.

[Joe Davis]

Not just corporate earnings.

[Josh Brown]

You're thinking about societal impact.

[Joe Davis]

Societal impact. Yeah.

[Josh Brown]

Okay. All right, got it. So talk to me about, talk to me about how that affects your outlook for the economy. Then if the, if the most probable case to you is that AI is going to be transformative enough to overcome the demographic headwinds and the deficit problems that we face, what does that mean for your outlook? And how do we translate that into how investors should think.

[Joe Davis]

Yeah, I mean that's really the key one, Josh. Right. Tell me how I can and be very specific. I will be as specific as possible. So one is, is from the US equity market, at least from the tech perspective, is effectively saying with 100% certainty AI is going to be the next thing and we're going to get that high 3% growth. Let's say if consensus is 2 GDP growth. GDP growth. Right. Low inflation, I'll justify the higher multiples. We'll grow into it and the market's not overvalued at all.

[Josh Brown]

And that upside to the growth outlook is going to come in the form of productivity.

[Joe Davis]

Productivity, new new business opportunities which happened to pass. It's not just efficiency play and you're just the current multiples. My point being is the tech sector in the US and the NASDAQ and those they're pricing in. Effectively that has already happened. I'm saying it's a roughly a 60% probability that's going to happen, which is a pretty bold forecast on my part. So that's code word for saying that part of the market is stretched even.

[Josh Brown]

If you keep the technology.

[Joe Davis]

Even if you're the. Yes. Even if you're the most bullish on AI as you could be. Put another way, you need to see earnings growth in the next four years to be stronger than electricity was unleashing through the the to the US economy.

[Josh Brown]

1920S twice to just to justify current multiples in tech.

[Joe Davis]

And I am not bearish on on tech and I'm not bearish on AI. What I'm saying is the current price paid for that is just. It's a little bit stressed now. How do you navigate this path? Because I just told you, Josh, that there's AI can. We could drive up 3% growth but if it doesn't accelerate in the next four years, we have a deficit problem with higher interest rates and lower growth, which is. Which is a more nasty mix. So how do you navigate that? And I will answer your question. There are a few investment strategies that actually do well in both those states. So you don't have to pick a side.

[Josh Brown]

Okay, so your next highest probability case for the future.

[Joe Davis]

That's what I call deficits dominate AI just is delayed in its impact or it's more marginal. It effectively says the ChatGPT that you're using or the Microsoft. It kind of. That's as good as it gets.

[Josh Brown]

So I don't think anyone believes that.

[Joe Davis]

No, I don't believe it either. But the signals are still too weak to say that that's going to overcome millions of people retiring. And we have structural deficits of 6% of GDP during peacetime. That's outrageously high levels.

[Josh Brown]

Yeah.

[Joe Davis]

So you got it. I'm not saying we're saying more odds than not we're going to overcome them and we're going to have growth that's stronger than we've seen in 40 years with disruption. But it better be that strong. And then if it's not, now we're in the world of risk management. Because now you're talking about growth that's well low, below expectations five years out, and you have an interest rate that's continued to rise with our deficit pressure. So what we saw in April with the trade and we saw the bond yield and the bond vigilantes, we saw the weakness of the currency. That is a glimpse of my other scenario. If AI doesn't prove out to be.

[Josh Brown]

As transformative as you think, well, that's a very discouraging. It is.

[Joe Davis]

The stakes are high on this. I'm not being sensational. I did not see this divide. I was not looking for this outcome.

[Josh Brown]

There are two things that saved the stock market this April. The first was Trump walking back those nominal rates of tariffs. But the second was earnings season.

[Joe Davis]

Yeah.

[Josh Brown]

And in April and May, we ended up getting some of the strongest tech earnings in the history of the stock market.

[Joe Davis]

Yes.

[Josh Brown]

And Nvidia was last. So it was Microsoft, it was Meta, it was Broadcom, it was Oracle, it was everyone involved in this AI buildout. So not only will it save the economy, in your most probable case, it's already saved the stock market on multiple.

[Joe Davis]

And we're early. So, I mean, this is consistent. If AI is going to be that next electricity personal computer, you need to see the tech sector doing what it is doing. We saw it before. It doesn't guarantee. My only point is it doesn't guarantee the outcome. We've seen investment cycles the past. Now we look back and say, well, it wasn't as important. Biotech had this in the 60s. We had some flashes in the pan, and that's the only reason why my odds are below 100%. Josh. We didn't have any of those false signals, but there's enough of them that it says it's not.

[Josh Brown]

So when you're right, the tough part about being around for as long as you and I have is we all remember 3D printing. Like we have this.

[Joe Davis]

Metaverse.

[Josh Brown]

The metaverse. Like we have this.

[Joe Davis]

You got to respect it a little bit. But I tell you what though, maybe you will want to get into then. Okay, what's the second half of the chessboard though, if you are Bolshevik? Because there's two phases to what I call a tech cycle from an investment standpoint and they can last. These two phases combined last at least 10 years.

[Josh Brown]

Is the second phase. All of a sudden the S&P 493, all of the non AI direct plays become beneficiaries and grow earnings faster.

[Joe Davis]

You're really smart, Josh. Yeah, you beat me to the punch. But it's not, it's not criticizing. There's two reasons what happens. You actually want to invest outside of tech in the second half. And that's because if this technology, whatever it is, I'll call it AI. If it's that transformational, what is it doing for you and I if we run a hospital? If I'm an energy company, how am I getting more efficient? What new products is unlocking for me? What new drugs is it discovering for medical treatments? That's what needs to happen. That's what happened. The electricity powered the assembly line which powered GM and Ford Motor Company. Without electricity, we don't have those companies.

[Josh Brown]

You use an icon of an electric drill.

[Joe Davis]

Yeah.

[Josh Brown]

To illustrate that on the power paper. And I thought that was a really great way of just like wrapping your head around what does it mean to be augmented by a, by a GPT wave. So people building is a really easy thing for everyone to imagine. Bringing power tools to a job site versus however we had been doing things for the hundred thousand years prior. Hitting objects with heavier objects. That instantly unlocks the workforce.

[Joe Davis]

Totally.

[Josh Brown]

To be doing more at a higher level which allows you to think more ambitiously and imaginatively about what else you can accomplish.

[Joe Davis]

And there's going to be a lot of. There's going to be a lot of disruption in the labor market. I mean, we're showing 20% of occupations are going to see significant job loss in the next seven, 10 years. We started doing this work a decade ago because we, we got some sense of. Well, I was trying to get some sense how important is AI going to be? And so it's. Yes, it's going to unlock these opportunities, but I'm not going to sugarcoat it. There's going to be copilot, but there's going to be some significant.

[Josh Brown]

Just to get out of jail free card the demographics themselves. We're going to have this, we're going to have this wave of people leaving the labor force at the same time.

[Joe Davis]

Yes.

[Josh Brown]

That this transformative technology theoretically will create this disruption.

[Joe Davis]

AI will come at the right time, given our commitments on the debt, on the debt side. I mean, unless we're going to raise taxes, entitlements and cut the entitlements. And I just care about the gap, I don't care about the politics. I'm talking about closing the gap over, you know, seven or ten years out. I'm not talking about tomorrow. But if the AI would come at the right time. Again, the demographic headwinds that we face. And you think the US is alone on this. You got Europe and you think Europe, China, everyone else has small potatoes in terms of demographic headwinds relative to China.

[Josh Brown]

Okay, you refer to this as a J curve, I want to quote you. And then you can react to it. Transformation recurs to a technological advance, a GPT, or again, general purpose technology that unleashes creative destruction on a massive scale throughout the economy. As GPT cascades across it, the economy is reorganized and a new ecosystem is built around harnessing the GPT's benefits. Think of all the people who have Internet jobs now, which did not exist 25 years ago. During this period there may be a dip in productivity, which is commonly referred to as the J curve, associated with the adaptation to the GPT. In short, humans and machines learn to reorganize themselves to produce at higher levels than before. Was the 1930s in part exacerbated by the fact that it was in the midst of that electricity J curve, or is that too far?

[Joe Davis]

I think that's too far. There was a lot of big bad policy errors, trade, the Fed tariffs.

[Josh Brown]

Sound familiar?

[Joe Davis]

Yeah, sound familiar. Although the Fed really did it.

[Josh Brown]

So you don't think that that conversion of a non electricity to an electricity economy.

[Joe Davis]

I wouldn't want to portray it that way. I think though, like, how are we even simulating technology change? Why we're saying that AI could be very disruptive. Because by the way, every economic forecast that I've seen and most central banks assume the debt levels we have on the negative side, Josh, and the AI, let's call it on the positive side, will somehow magically offset each other and balance out so that we'll get no change in the economic regime we've been in. If you're skeptical of that view. But now I'm questioning a lot of consensus forecasts, a lot of respected institutions, Federal Reserve, imf, cbo. So these are powerful institutions.

[Josh Brown]

Where is the danger of us getting that wrong? The deficits are much more substantial than we are projecting.

[Joe Davis]

Yes, or part of the AI is overhyped. Which is why we wanted to bring data driven frameworks. This is not me. On a bad day I'm more pessimistic. On a good day, I'm more optimistic. We're trying to bring math to it. Josh. Watch why it took us two years to collect all this data. And we want to be as scientific as we can. And that's how we're simulating the effects of future of AI. We're looking at what you know, this J curve comes out of VC in venture capital. If you have a. If CEOs around the country right now are adding more labor than typically would be expected. That's one. And they're investing more. You said about the earnings than typically would be expected. So you got labor going up and capital going up. The current ROI is low. Why would any CEO and CFO do that?

[Josh Brown]

Because they're thinking five years not.

[Joe Davis]

Which is why you get that. Which why the J curve goes from negative to go positive. We pick up those signals, not magic. In real time. We go back 150 years. So you can anticipate the sand shifting on the undergrads of economic growth because the technology leads economic growth by 3 to 5 years. New products in the lab. You know what I mean?

[Josh Brown]

Michael Batnick and I were looking at CapEx versus employee headcount for the largest US tech companies. The only one not furiously adding Capex relative to its employee headcount is Apple. All the rest are investing at a higher rate than they were during the original.com boom.

[Joe Davis]

And that is the J curve in real time.

[Josh Brown]

That's the J. Right. That's the reverse of the J curve.

[Joe Davis]

And this is out of just great theorists at MIT and elsewhere. We need to make a new theory. You can then project out when the S curve reverses. Now the S curve is going now.

[Josh Brown]

S curve is the adoption.

[Joe Davis]

The adoption. Right? So right now there's two phases of technology stuff. Think of it this way. There's the companies that produce the tech and then there's that consume it. So right now we're in the production phase.

[Josh Brown]

Right.

[Joe Davis]

Which is great for AI tech. I'm not belittling any of that. It's amazing work. But at some point we're going to move into phase two and no one's talking about that investment opportunity. Phase one outperforms the tech sector always outperforms. It was the computer companies, it was the dot coms, it was the 10s and it was called the rolling 20s. At some point it shifts. It doesn't have to be a bubble, Josh. It shifts to the consumers. It's all like the value based companies. Tell me how a financial institution, a Vanguard, a bank, is going to get more profitable from consumers. How is your firm going to get more, how is a hospital going to triage patients more effectively?

[Josh Brown]

I think we're going to, I think we're six months to a year away from a consensus among small business owners that AI is improving their profitability, enabling them to serve more customers or doing all of the things that we hope it does. I don't think most small businesses could say that right now, but we see B2B uptake amongst larger publicly traded companies and what we're, what I'm focused on now. So I look at the stocks that are leading the market. It's the prism through which I look at stocks. I'm finding companies like Viva Systems. This is a healthcare software company that's been around forever. All of a sudden they look as though they will be the key implementer of AI for their healthcare industry customers. You are absolutely seeing that uptake in a major way when you view it through that prism. So I don't think it's reached me yet. We're, we're playing, we have all the tools, we're doing all the things.

[Joe Davis]

That's what I'm seeing it from a macro perspective you have from the investors.

[Josh Brown]

Looking at it from companies, companies that are not in the AI business and making chips, implementing it has to happen.

[Joe Davis]

If AI is going to be transformational and on defensive. If you think AI is hyped. So let's say you say you're skeptical. Well, you're running for the 493 on the S and P to diversify and I'm not picking on the Mag 7. I'm truly not because they're doing amazing things from an innovative standpoint. I'm thinking about second half of Chessboard. Where are people not talking about the investment opportunities three years from now? Because if we're talking, you know, if we're talking about AI now, if I just woke up today, it's like too late. Too late. Joe. Yeah, think about like you think about the underperformance of small caps, the underperformance of non US companies. You talk about US exceptionalism, it's all been driven by the top seven and then also the value space, massive 100 year relative differentials. Now I'm not saying all those sectors, all those areas. I just mentioned non US equities, value based companies or an ETF and non mag 7 are all going to outperform in the future because they underperform the stock.

[Josh Brown]

This is the most interesting thing, the most out of consensus thing you could say is that from a stock investor's perspective, the biggest beneficiaries of the AI boom going forward will not be GPU and chip manufacturers like Amazon Alphabet, Nvidia, Broadcom, and will not be the cloud service monopolies, Amazon, Microsoft, Alphabet, but will instead be companies that have their profit margins expand by 500 basis points in the next two quarters because they're implementing.

[Joe Davis]

That's Josh, you could get a re.

[Josh Brown]

Rating in small cap value. You could get a 20% re rating with no change whatsoever.

[Joe Davis]

Simple mean reversion, which is, is a dangerous. You know that Joe. So it's like, no, this is how economic growth and cycles work. During transformational change, it's got to unleash, it's got to spread and we got to go from producing to tech. And I'm not saying those companies are going to crash and that's a bubble. We don't have to get into that debate. I don't have to drag Bob Shiller in here from Yale. We're going to have to. You don't need to answer that question. All I'm saying is what the next phase is. And that is the phase that. And you don't have to pick sides because whether if AI is a dud like social media, we all use it, but doesn't really lift growth. Okay, well, the Mag 7 is going to come back down to earth.

[Josh Brown]

Well, I think, but it's the physics. The physical AI is really going to be the thing.

[Joe Davis]

But I think that, I think you're on to something. It's like, tell me how I think we have a little time on this. I don't see it like in the next six months. But yeah, there's going to be a consciousness that's consistent with other market cycles. And I at least didn't see this until we got into this work, you see with electricity, see with the combustion engine. And I'm not telling history just for nice stories. I'm talking about from an investment standpoint, what do we talk about the next four or five years? It's actually pretty exciting. And I think that's good for the durability of the equity market because it's so concentrated right now and more of a handful of sectors. I think it would be healthier. And that's, I think for your listeners just to consider like what's the next opportunity set? Knowing the Mag 7 have done fantastically.

[Josh Brown]

The Mag 7 were a much bigger proportion of the S&P 500 in February during the last high.

[Joe Davis]

Yeah.

[Josh Brown]

Versus now. So now we're. The S and P has broken through to a new high.

[Joe Davis]

Yeah.

[Josh Brown]

But the mag 7 as a percentage have declined in importance. They're still gigantic, they're still dominant. But we are seeing an S and P that's less concentrated this time.

[Joe Davis]

And I think it's a really good.

[Josh Brown]

Was four months ago.

[Joe Davis]

I think it's a really good development. If I had to pick one of the market indicators to continue to be looking at is that, is that that share that you just mentioned, Josh, going down in an up market that means this J curve is spreading and this is not six month cycles. These things that you don't have to be, you don't have to be obsessed every single day to watch the news. You can think oh this is a four or five years. It's a trend that can be at a tailwind and you don't have to be cute trying to time it.

[Josh Brown]

But I think the answer that we're giving people, if this is the era of AI, aren't I making a mistake sitting around in mid cap value small cap bank stocks, you know, other companies that are not playing in AI? And the answer hopefully is no because you own the beneficiaries. The Mag 7 have nothing but capex bills in front of them for as long as far as the I can say.

[Joe Davis]

And they're going to lower the cost, the cost of technology going to radically down. It's I think people on the tech side, they just underestimate. There's some stars that emerge, you know this Josh, but they underestimate new entrants.

[Josh Brown]

I want to talk about one of the other megatrends which is inflation.

[Joe Davis]

Oh yeah.

[Josh Brown]

One of the things that I think you do really well is debunk a lot of false perceptions that people have. And one of the biggest ones is that we had this era of globalization, specifically the entry of China into the WTO which had this like massive impact on keeping inflation subdued because everything they were exporting deflation effectively from China to our shores. And that's what kept inflation in check. And now the, the result of the trade war is that inflation is going to be with us in a major way because we no longer have cheap goods coming from overseas. You sort of say the China shock, while noticeable in the data is not as pronounced as people think in terms of keeping prices low, therefore may not be that important going forward. If we have this bifurcation of the two economies.

[Joe Davis]

Good summary, Josh. I mean, again, all we're trying to do is quantify these issues in a complex system. The key insight is that we're allowing all the other factors in a horse race to hit inflation too. Because it's not just globalization that can drive prices up and down. You got technology that can move stuff. How about the Fed? We got deficits that can lead to higher inflation. So we're controlling, we're letting the data speak. And what I found is globalization. Yes, the more we globalize, which means the more we trade and have more imports and exports coming into the U.S. yeah, you have cheaper goods, it's comparative advantage. But it's been 22 basis points, so 0.2% of inflation with the acceleration of globalization over the past 25 years. In other words, we would had an inflation of 2.2% rather than 2.0%. If that sounds like a small difference, then bingo. Globalization hasn't affected inflation. That's important because some people are out there saying we're in a deglobalizing world, ergo, which I'm not cheering for, by the way. Ergo, we're going to have a high inflation future. And you hear it and it's like, what do you mean? 6, 7, 8%?

[Josh Brown]

I would ask the question differently. I would argue if the China shock was not really that big of a shock and did not give us as much disinflation as people think it did, probably it was more damaging from a societal standpoint politically. Maybe it would have been better if it never happened. And Trump is right and we should.

[Joe Davis]

But here we go.

[Josh Brown]

I'm just asking the question because it's a logical conclusion.

[Joe Davis]

Well, I know I don't talk about some of the paper, but I started talking about in the book and yeah, listen, there is definitely. When you find that when you, when you globalize more, open up your markets, your own domestic investment rate goes down.

[Josh Brown]

And that's what happened this time.

[Joe Davis]

And I found it. You find 150 years it's been happening and you boost the profitability at the same time. Yeah. So are there signs of, oh, a little bit higher income inequality, lower domestic investment which could have had the manufacturing sector, the middle class. Yeah, it's in the data and there's not, I mean from my pers as a macroeconomist, there's not a debate to that. The whole question. This is not just that open ended question, Josh. I would just rephrase a little bit to say, well, what's the alternative and what other policy measures are we talking about from global stage? You do not want to, what's going to happen is you don't want to just cut off your borders. I think it is, where are those pockets of production? Where are they going to move? And most economists, myself included, have done a poor job. Everyone says economists, oh, we believe in free trade. There's an asterisk there. It's a level playing field. It has not been level. There's been abuses made across multiple countries for 100 years, by the way. And so I think we have to, we do have to account for. And some of that is coming up in the current.

[Josh Brown]

These are all dialogues, these are all trade offs.

[Joe Davis]

They're all tradeoffs.

[Josh Brown]

And the idea that one is right, the other is wrong is not true.

[Joe Davis]

No, no.

[Josh Brown]

Okay.

[Joe Davis]

No. So you don't want to push people on. Like I always worry about what called corner solutions. You know what I mean? Like it's all right or all wrong. It's like there's, this is a complex web. But I'm not going to back. Well, yes, there are trade offs.

[Josh Brown]

Like if you think what most rational people would say at this point is yes, there were trade offs, we can now look back and study them. And the reality is that in some cases the pendulum went too far where we got too little benefit for giving up way too much.

[Joe Davis]

Or you got, or you got concentrated gains versus spread out losses that a lot of people see. I think that's the other thing.

[Josh Brown]

Yeah, I would agree with that. Let's talk about demographics. You find this to be important, but not as important as the people who have made a career of studying demographics seem to say. When I say important, I mean the impact on inflation, on the economy, on the stock market. So what's the Vanguard House view based on this research about the impact of demography and where do we stand from a demographic standpoint?

[Joe Davis]

You know, there's that old phrase, demographics is destiny, which means it determines your fate for growth, inflation. But it doesn't. It doesn't. It's actually not just.

[Josh Brown]

Nobody should say that anymore.

[Joe Davis]

It's not true.

[Josh Brown]

Okay.

[Joe Davis]

And so I'm going against a lot of studies who have looked at some of these issues in isolation. When you put them all up against each other, I'll think of inflation. People say, oh well, fewer people. Oh, so we're gonna have high inflation because we have fewer workers. Simple Econ 101 would tell you, Josh, if you have one fewer worker, you'll probably also have one less consumer.

[Josh Brown]

That's right.

[Joe Davis]

Supply and demand moves in that way, prices are unaffected.

[Josh Brown]

Right.

[Joe Davis]

So this is actually Econ101, but it's become this narrative. I mean, I even heard the Federal Reserve talking about we have lower interest, net neutral interest rates because the demographic given, it's amazing how the R star and all these neutral rates have risen, yet the demographics haven't changed the past 10 years.

[Josh Brown]

I would say I've seen more people have wrongheaded ideas about investing as a result of demographics than maybe any other source.

[Joe Davis]

I know. I don't know why that is.

[Josh Brown]

Well, they, I think they look at Japan.

[Joe Davis]

Yes.

[Josh Brown]

And I think they see this kind of sclerotic.

[Joe Davis]

Yes.

[Josh Brown]

Generation of less and less younger people and they match it up against this like endless disinflationary, deflationary cycle. And they say these two things explain each other. Therefore, if we find other countries with this demographic problem, the returns in the stock market will be weak.

[Joe Davis]

And I tell you, listen, if you have a slowing population growth or even goes negative like parts of Europe are right or parts of Asia, listen, I'm not cheering for poor demographics. It's a part of growth, like GDP growth at Den Day, which is like earnings growth. Loosely. GDP growth is equal to number of people changing plus the technology. But it's that last one, Josh, we were just talking about 97% of the ups and downs of GDP growth over a five year basis. 97% are correlated with technology, effectively zero correlation with demographics. So yeah, we want skilled immigration. Yes. We want also equal higher population growth. You have a little bit higher economic growth, but there's no correlation in the investment outcomes we care about.

[Josh Brown]

Right.

[Joe Davis]

And actually it's never been true. And in fact, here I'll give you a little factoid. Some of the greatest periods of technological just acceleration were periods when demographics were worsening. I'll give you four. The Renaissance.

[Josh Brown]

I was gonna say let's start with coming out of the bubonic plague.

[Joe Davis]

The bubonic plague. The Renaissance Industrial revolution. The roaring 1920s. And if AIs. If AI is correct, we're going to have the. We're going to have another one added to the list.

[Josh Brown]

When you say weakening demographics, you mean the larger portion of aging people?

[Joe Davis]

Both, we look at both dimensions. It's either aging of society like the percentage of. It's not. I mean, you know, to be blunt, the mankind's been aging since we've been on planet Earth.

[Josh Brown]

I'll give you a concurrent example. A lot of headlines last year about the Korean, South Korean population going Negative. Effectively, young single people are just not marrying each other and starting families. There are a lot of societal, cultural reasons for that we're not going to get into today. The Cosby is up 30% year to date this year. And I think it's called the 2550 index, which is like their NASDAQ is up 42%. There's absolutely no correlation whatsoever between South Korea's demographic problem and the returns of their stock market, the profitability of their companies. It's just not as.

[Joe Davis]

It's not there. And again, all sequel, you're going to lower GDP growth or raise it a month. But all the big moves up and down are around the technology side. The only time that Democrats become an issue, and that's hence my deficits dominate scenario, Josh, is if you tie the aging of society to your debt burdens.

[Josh Brown]

Which we are doing.

[Joe Davis]

We are doing. And so again, I'm not saying it can't matter, but it's gonna be now through debt and deficits, not because we have an aging society per se.

[Josh Brown]

Yeah. Okay, let's do another myth bust. Inflation is entirely monetary phenomenon. Rising fiscal deficits don't matter. That's a common perception right now. What's wrong with it?

[Joe Davis]

Well, it's just that what I find and what we find, and there's some academics who wouldn't disagree with, with my statement, and that is if deficits, the gap between revenues and tax revenues and spending, if they're chronic. So they're not just because of COVID or because the global financial crisis. And you know, deficits blow out, deficit every year forever. It's just every year forever. It just keeps rolling over you. You can, you can start to raise inflation expectations. John Cochran at Chicago talks about this called the fiscal theory of the price level. We weren't looking for it, but we find modest evidence of it now. It's small in the United States right now, but remember, we're attributing underneath the surface we have like this is like a sonar radar system. We can see what's driving inflation. Not just the cyclical stuff, but these forces. And it's starting to modestly put up inflation. It started during COVID The last time we saw this was in the 60s and 70s when we started at the rise of inflation and hence interest rates. So I'm not saying that the 70s is coming. What I'm saying though is you can have high deficits that people. And why does inflation expectations start to go up? It's because you and I start to think, you know, what Congress is never going to raise taxes, Iranian spending. Now you start to see pressure in the US Currency and you have some out there talking about the potential of a fiscal crisis. I think some of those are overblown. But that dynamic is why deficits, fiscal deficits can matter for inflation.

[Josh Brown]

This is when you hear the Fed say things like inflation expectations are well anchored.

[Joe Davis]

Well, they was well anchored. Again, the Federal Reserve has them. But that doesn't mean that they're omnipotent. Now, those that want to paint a fiscal crisis picture, and they're out there, there's a probability, in fact, we've quantified it in the book, it's 5% that literally the US currency goes through massive depreciation. We have a really spike in interest rates because of our debt levels. High inflation. It sounds like an emerging market. Why they're not that high and not higher is because you have the Federal Reserve. To your point, Josh, where I'm going, the Federal Reserve is going to try to fight this, whether the inflation is from COVID and supply chains or it's Congress continuing to, to print money from a deficit side. But I mean that's, I think thematically what we're going to see and I think we're starting, we're living it a little bit this year. We're going to pass potentially another fiscal package deficit's going to go up. Yet you have the Federal Reserve on hold for longer cutting. That's a little bit of a little.

[Josh Brown]

And now specifically saying they're on hold because of developments on the fiscal.

[Joe Davis]

And there's tension. You see the headlines. There's tension. That I think is one of the thematics here. You can navigate it. That that's the deficit world that we could be in.

[Josh Brown]

The last thing I want to tackle from the paper is this idea. As America ages, US debt is projected to set record highs. You have a chart in here and we'll add it. But effectively you're showing these spikes in US Debt throughout history and you're showing the one that's coming soon, 2024 to 2054. The next was 30 years.

[Joe Davis]

Yeah.

[Josh Brown]

And according to the CBO forecast, that would land US at about 171% debt to GDP.

[Joe Davis]

Yeah.

[Josh Brown]

Okay.

[Joe Davis]

Which is not good.

[Josh Brown]

Not good. Are there. Is there any way out?

[Joe Davis]

Yes, there is. There is a way out.

[Josh Brown]

Does it rely on Democrats and Republicans doing something Because. Well.

[Joe Davis]

Which may not leave you in a great deal of confidence.

[Josh Brown]

Okay.

[Joe Davis]

That's why you've had your bets a little bit outside. Invest outside the Us and I'm not joking, that's always been a core compromise.

[Josh Brown]

Is the way out or. No, we're not outgrowing that.

[Joe Davis]

You can get a little bit on the gross side. You can buy time. And when I talk about, Listen, yeah. Whether or not we'll get the political sort of meeting in the middle, I don't know. That's why I think you could see a little bit pressure in the bond market. Not tomorrow. This is probably 27, 20, 28 issue. Not to put a timestamp on it, Josh. I'm not complacent on it, it's just. But yeah, the bond, I mean if the bond market applies a little bit of pressure, that's where you start to see some of the interest rate pressures. Not tomorrow. We generate scenarios where interest, the 10 year treasury yield is 6 or 7%, not 4 and a half. This is not for tomorrow. And I don't mean for people to be scared of their fixed income investments. The irony is if you're in this world and AI doesn't sort of unleash.

[Josh Brown]

Growth, you're going to see a lot of demand for bonds, a lot of demand.

[Joe Davis]

I mean you got real rates of, rate of inflation of 4 or 5%.

[Josh Brown]

It'll counter itself. Well, this is, this is an, it's an awesome paper because you did something that I see a lot of people have opinions. Not many people have opinions and they can say, but this is what the data said and this is why this is my opinion on the drivers of all of these things. So I want to congratulate you on that. Before we let you go, let's talk about the book. So it's called Coming Into View. Very clever cover. I like what you guys did there. And the subheader is how AI and other megatrends will shape your investments. What's the premise of why it's a book and what people very tough to write about AI in book form. I would point out totally.

[Joe Davis]

Well, we had AI write the book.

[Josh Brown]

Because it moves very quickly. The technology moves very quickly.

[Joe Davis]

Well, actually it's what we were just talking about though, Josh. We took the paper and the eye opening results of the economic diagnosis and the investment opportunities. Only reason why we felt compelled to write the book and to write it for a broader audience. The paper you mentioned, I mean, again, Josh, you have a deep and your listeners have a deep investment background. Well, what if I'm just reading the Wall Street Journal a little bit?

[Josh Brown]

I'm watching my four typical person at an airport sees this and says I love books like that.

[Joe Davis]

So if I sound like an economist in that book, people can take that book and smack me in the head with it because I tried hard to take those papers and just put in digestible form. I don't want to read all these white papers. Just tell me like demographics, does it matter or not? And we, and we use some stories.

[Josh Brown]

Like the story we looked at.

[Joe Davis]

So we use that. Some stories, deglobalization is it. And they say no, it's a fallacy. We're not de. Globalizing, not in the, in the dimensions that matter most.

[Josh Brown]

Yeah.

[Joe Davis]

So like. But we're just all the, the data framework you talked about in the paper, that's the same empirical engine we're using behind the book. And we talk about portfolios that investors could think about. And I channel Jack Bog, you saw and where we started. You talk about 50 year anniversary and so forth. And you know, I'd be remiss as a Vanguard employee not, not representing Jack slowly. In fact, I lead the group responsible for thought leadership. You know, we have over 100 people now. It probably takes 100 people to fill Jack Bogle's shoes. I think we only got one, one shoe. But it's just people for someone who don't want to go all the technicals. But the heft is, is behind in the paper.

[Josh Brown]

So the book concludes with a couple of chapters. And this is like, I love when books do this. It's like, okay, I just gave you a lot of information. Now what do you do with it?

[Joe Davis]

What do you do with it?

[Josh Brown]

So the last two chapters, chapter nine of Victor's portfolio, act one, divide and conquer. Chapter 10 of Victor's portfolio, act two, choose wisely without ruining the end and telling us who dies or spoiling what is the investor walking away from the book having learned?

[Joe Davis]

Well, I think you're saying, listen, the future is not going to be the recent past, but here's an investment portfolio where you don't have to be heroically smart and pick sides.

[Josh Brown]

Yeah.

[Joe Davis]

Can you hedge? Regardless of which path unfolds, there's going to be an optimistic or pessimistic one and you don't have to bet the ranch on it. And so this is around diversification and risk management. Josh. And some of the things we talked about today on the, on the equity, on the stock side, you know, it's not all tech, even though it feels like it now. And on the fixed income side could be a source of ballast, despite the concerns of deficits I mentioned today. And I talk A little bit about the role of active management for those. Yes. From Vanguard. Role of active in a low cost way to amplify some of the risk mitigation you want to think about. So there's opportunities ahead. It's not just mitigating the risk. There's opportunities emerging that are not apparent right now. And I'm glad that you talked about some of them today.

[Josh Brown]

Now, who will play you in the Netflix movie version of Congress?

[Joe Davis]

Oh, my goodness. Economist. I'm just happy I have a job.

[Josh Brown]

Can I give you. I got one for you. Guy Pearce. You know the actor Guy Pierce. Oh, yeah, terrific actor. You got a little facial structure. Oh, I don't know. I feel like that works. I don't know who's gonna play me. Listen, I'm excited. I'm gonna read this this summer.

[Joe Davis]

Ah, thanks.

[Josh Brown]

And I wanna tell people they can get coming into view on Amazon, Barnes and Noble, wherever fine books are sold. The airport. So I find most people buy my book in the airport.

[Joe Davis]

No, I enjoy it.

[Josh Brown]

All right, this is awesome. I any, any parting words for the audience of investors, advisors, people that follow your work? What do you, what do you really want to land on them as a result of this?

[Joe Davis]

Well, again, I think start thinking about living in a deeper AI world and what's the next investment opportunity?

[Josh Brown]

That's awesome. Joe Davis, thank you so much. And where can people follow your work other than buying the book?

[Joe Davis]

LinkedIn. And as you're big on LinkedIn.

[Josh Brown]

I know.

[Joe Davis]

And you guys, right, you're talking to all the investment, the smart investment folk out there.

[Josh Brown]

Absolutely. All right, Joe, thank you so much for doing this. We appreciate it. Thanks to all of you for watching, listening. We'll see you soon. Welcome back. It's another all new edition of what are your thoughts? First time viewers, first time listeners. My name is downtown Josh Brown. I'm here with my co host as always, Mr. Michael Batnik. Michael, say hi.

[Michael Batnick]

Hi. All right, I do what you say.

[Josh Brown]

The usual suspects are behind the scenes making magic for us all. Nicole is in the chat. Duncan, John and the team are on the ones and twos. We have a packed show for you guys tonight. I want to say a couple of quick hellos to those who are joining us in the live chat which we always so much appreciate. Giancarlo, Georgie, Ben, Cliff, Jack, Chris, all the regulars are here. Magnus is back. James Dell, I see you. Let me see who else. Steve. S Tuesday routine for me too. What a coincidence. Lance Howe is here. Banzai fan. We appreciate you guys. Thank you so much for coming, Biff. I see you as well. Jackie Sosa. The Racers Bank, Patrick Authro. All right, we got a whole. Got a whole squad. Mike.

[Michael Batnick]

What? What's with the Pink Pony Club? This is not. I'm not online enough, I guess. What are you talking.

[Josh Brown]

Stuck in my head. I just can't stop. I can't stop. I sing it to myself in the shower.

[Michael Batnick]

Who's the artist? Who's the artist? I don't know that song.

[Josh Brown]

Chapel Rowan. It's. I mean, it makes perfect sense for my. For my whole Persona. I think it's about a girl singing about.

[Michael Batnick]

All right, I'm sorry I asked.

[Josh Brown]

Being in like gay clubs in Hollywood and. And coming out to her mom or something. I don't know. It makes perfect sense. I can't stop singing this song. All right, we have a sponsor. Let's tell everybody who's sponsoring the show.

[Michael Batnick]

We do have a sponsor. Today's show is sponsored by Public. It is the investing platform for those who take it seriously. Me. So let me tell you something, Josh. AI Naoi. It's not just a feature. This is like what they do. It's woven into the entire experience. Portfolio, insights, call recaps. They give you smarter context at every single touch point.

[Josh Brown]

Yeah. They also have a 1% match on IRA deposits, IRA transfers and 401k rollovers. You know, a lot of people watching the show or listening probably have an orphaned account out there or an account that's sitting somewhere for no particular reason, just because that's where it started. Public might be a great destination for you to consider moving it over to. Takes 5 minutes or less to move an account. Funding an account is even faster. Find out [e-mail] w a y T huge thanks to Public. All right, we are going to start with IPOs. And I. I think that the most exciting thing. Hang on, let me hold that thought.

[Michael Batnick]

Look who's here.

[Josh Brown]

Yeah, it's Aaron Dillon. You guys, do you need to borrow a cup of sugar?

[D]

We're back, man.

[Josh Brown]

We're back.

[D]

IPOs, baby. Come on.

[Josh Brown]

IPOs. All right, guys, for those of you who aren't familiar, Aaron Dillon is our resident IPO and pre IPO venture backed startup expert. Aaron knows more about this topic than anyone that I know and we're super excited to have him back on the show to fill us in on what's going on. Summer is and fuego in the IPO market again. It's cool. You excited?

[D]

Oh, yeah. Very excited.

[Josh Brown]

It's gone. What are you most excited About. Tell us what's going on.

[D]

Well, I mean, first of all, IPO window definitely has opened back up. I mean, core weave ripped.

[Josh Brown]

Yeah.

[D]

Open. Right. I love it, man. So, like, there's. There's a buzz, but there's a lot of really interesting things happening in the private market, too. Right. Which I know don't. Most people in the public markets don't talk about this stuff a whole bunch, but it's in the news all the time. But, yeah, I mean, it's good. It's really encouraging to see, like, a circle come out and rip. A core weave come out and rip. Right. And those are kind of playing in two major emerging tech themes.

[Josh Brown]

Which of those are. Which of those are more surprising for Michael? Which of those were the most surprising to you? The success of Core Weave or the success of Circle?

[Michael Batnick]

Both. Can I say both? I mean, not just not the success, but the degree, the magnitude of the success.

[Josh Brown]

Yeah.

[Michael Batnick]

I thought that Core Weave was the only pure play AI company to come out, so that. That wasn't super surprising. But. But from 40 to a buck, where did it go? Like, I don't think anybody had. Yeah. I mean, wild. I don't think anybody saw that coming.

[Josh Brown]

Aaron, what about you?

[D]

I mean, listen, Circle was like, talk about timing. Timing's everything, right? With the genius act, I mean, that was incredible. I don't know if they dialed it up that way, but, man, that was perfect timing. So. So, I mean, that genius act doesn't come out or doesn't get close to being passed and signed into law. I'm not sure.

[Josh Brown]

I think the market understood that that was going to happen.

[D]

Oh, yeah.

[Josh Brown]

It's the only explanation. Like, it wasn't an upside surprise to anyone, really.

[D]

But smart bankers, right, Josh? To pull the trigger right when that's.

[Josh Brown]

Happening, I read a severely caustic take about how Circle employees and shareholders were effectively robbed by the IPO process. And, I mean, look, you have an IPO. What did it go up 7x? What was the. Yeah, okay.

[D]

I mean, that's. If you sold at the ipo. That's tough, right?

[Josh Brown]

Well, so you have a company. Well, no. It's about how much cash was left on the table.

[Joe Davis]

Right.

[Josh Brown]

That should have been in the. In the hands of shareholders. Now, I understand this is an imperfect process. I also understand anything. Crypto, it's like triple suspect on Wall Street. But still, if you have a stock come out at 30, that's trading at 300 within two weeks.

[D]

Right.

[Josh Brown]

You sort of have a right to be a little bit Angry, like, why didn't this come out of the hundred dollars a share? Yeah, right. Like, okay, so the speculators buy it, they get a. They get a triple. Why do they get a triple?

[Michael Batnick]

This is impossible. Because for every circle, there's a wee ball that prices at. Wherever it did, it ran to 76 and then ran back down to 12. We only say this with the winners.

[Josh Brown]

It's crazy how they have no idea.

[D]

Yeah.

[Josh Brown]

Because one of the cause, right, Aaron, One of the things you always hear is like, oh, such and Such deal is 2x or 4x over subscribed.

[D]

Yep.

[Josh Brown]

Okay, that's. Is that always just a lie by the underwriters to keep people excited? Because they said about Facebook.

[Michael Batnick]

Yes.

[Josh Brown]

And Facebook bombed on the first day, so they don't even really know.

[D]

Yeah, it's marketing. I mean, I suppose if you're putting together a book, there's a spreadsheet somewhere, right. With people's names and numbers next to it, and you can only fit in so many people with so many shares being sold at the ipo. But still, I mean, well, how would they know?

[Michael Batnick]

I mean, how would they know? They do the best they can.

[Josh Brown]

They obviously indications of interest. It's a process. Ioi you do a roadshow.

[Michael Batnick]

Well, it's.

[Josh Brown]

And then a salesperson follows up with the people that were at the road show.

[Michael Batnick]

It's obviously a highly imperfect process, maybe a bad analogy, but NFL scouts and analysts, they have all the data in the world and they still can't figure out who's going to be a good quarterback. Like, those things are just predicting the future is hard.

[Josh Brown]

I want an AI program that tells me where to price an ipo, and I want to run that alongside the actual ipo, the debut. And let's see who gets closer. I don't know, will AI do that for you yet, or did all the platforms, like, make it so they can't?

[D]

I'm sure someone's going to have an agent soon that will do that.

[Josh Brown]

I mean, I get it's an imperfect process, but, like, does it have to be as imperfect as it was 50 years ago? Seems absurd. Okay, let's put up your slide.

[D]

Yeah.

[Josh Brown]

So these are the top 10 pre IPO stocks. And some of the names that you think compound viewers and listeners should be paying attention to before they come out. Run these down for us. Let us know what's happening.

[D]

All right, so a lot of the names on the left hand side here on this table. On the Left, the top 10 companies by valuation. So these are all Private companies, Venture capital backed private companies. You're probably reading about these in the news all the time, every day. Right. So you're seeing some. Yeah, some familiar. Some familiar places. There one name that maybe people might not have seen on this list is Safe Superintelligence. So that's Ilya Scootskavar. He was a senior guy, co founder at OpenAI and split when Sam Altman and crew kind of had the blow up a year and a half ago.

[Josh Brown]

Right.

[D]

And then Altman came back, like after the weekend was over, Ilya left and he started Safe Superintelligence. And that was right out of the gate at a $32 billion valuation, believe it or not.

[Josh Brown]

Dumb question. Dumb question from me. Chart off. My understanding was he quit because Sam Altman was becoming too capitalist and wanted to convert to a for profit and take even more money from Microsoft. And now here he is a year later, readying his own ipo, which I would imagine is a for profit enterprise.

[D]

Yeah.

[Josh Brown]

So maybe he didn't like shortcuts OpenAI was taking or. Yes, or maybe he changed his mind. Maybe he changed his mind.

[D]

Zuckerberg at Meta just tried to buy Safe super intelligence and they said no. So, I mean, think about it, Josh. You and I start a company, the three of us start a company, right? $32 billion valuation. Zuckerberg shows up six months later, wants to buy it for 32 billion, and you say no.

[Josh Brown]

Right.

[D]

So I think this guy's operating on a different, you know.

[Josh Brown]

Yeah. Also, I'm not interested in backing anyone. Who's, who's doing this, who's doing this shtick with like, oh, no, we're like, here to save the world by making AI safe. Get out of here. You're here to sell ads. Shut the up just like everybody else. All right, let's put the chart back up for the listeners. Let's run through some of these names. SpaceX 400 billion, implied valuation. OpenAI 315 billion. These are not nonsensical because this is the price that, that these shares are currently changing hands at. Do I have that right?

[D]

Yeah. There's an active secondary market for all of these companies. That's right.

[Josh Brown]

Right. So you might say they're overvalued, but they're not made up. Like, people are buying and selling these.

[D]

These shares, proper volume, Josh. Like I would say this stuff trades like fixed income. It's like a who, you know, market. Right. So you can definitely buy it, but you gotta have relationships and there has to be trust and then you can get access to the stocks.

[Josh Brown]

Okay, let's do. Let's. So let's, let's do a few more xai we don't have to talk about. That's Elon Musk's company. They just raised $10 billion yesterday.

[D]

Y.

[Josh Brown]

They're also raising debt capital, which I find interesting. And I think they're working with like Morgan Stanley. Do I have that right?

[D]

You got that right. Yeah. A lot of these guys are doing debt for the data centers like Core we've did. That's why. One of the reasons Core we've went public.

[Michael Batnick]

They're pausing this. Why. Why would a company opt for that for debt? Yeah, so I think it's.

[D]

You literally have. You have customers on the. Like Corey, for example, right? They can't build these data centers fast enough. There's so much demand for AI compute, right. Whether it's training or inference compute. So like training a model or running AI models that they can't build the data centers fast enough. So use debt. I got the contracts, revenue contracts already lined up.

[Michael Batnick]

But why? It's quicker.

[D]

Well, you're not diluting your shareholders, right? Your equity shareholders. And you know, it's revenue. Good. On the other side, you got these multi year data center contracts. So you just finance it, right?

[Josh Brown]

You need a lot of capital. But the equity guys can't keep putting up money at that rate. And they don't want to get elbowed aside on the other table.

[D]

I think they could, Josh. There's plenty of money that wants to go into these companies. It's just, I think it's a smart way to manage your cap table.

[Michael Batnick]

And the debt's coming from where? Blackstone and the like.

[D]

You got it, man.

[Josh Brown]

What actually, what actually ends up happening is Elon goes to the debt holders if he has to and says, rather than make the next interest payment, let's convert you guys. And they also. And who says no? Because you know, it's gigantic firm. They have equity, they also have debt. It's like, all right, fine, shift it over.

[D]

Now Elon Musk takes care of.

[Josh Brown]

He just did that. He just did that with Twitter, did he not?

[D]

He did it with SolarCity, did it with Solar City and Tesla. Like that guy takes care of his investors. He makes sure that they make money.

[Josh Brown]

They come, they all come back for the next deal. You could say whatever you want about him, but they come back to the table. Even when he loses, he still finds a way to win.

[Michael Batnick]

That's right.

[Josh Brown]

And there's a lot of duplicate. There's a Lot of people on the Twitter account table that came right back in for SpaceX. Starlink. They want it.

[D]

Oh, yeah. And they make money. They always make money with him.

[Josh Brown]

All right, chart back on. All right, these next two have been venture backed, private market startups since I was a young man. Stripe and databricks. Why do I feel like I've been hearing about these two for my entire life? Like my entire adulthood? What is forever?

[D]

Yeah, the Colson brothers started Stripe a long time ago. Right.

[Josh Brown]

It's $100 billion. If this comes public tomorrow, it's probably 150. What do you think?

[D]

Listen, so the call the Colson. I agree with that. Okay. Plus all this stuff, again with crypto, like all fintech companies are crypto companies, in my opinion, now that this genius act got blessed by the government. Right. So that's gonna happen. But the Colson brothers, the guys that started Stripe, they basically came out and said, we're never going public.

[Josh Brown]

Okay, so we'll be hearing about this forever. Databricks is snowflakey, correct?

[D]

That's exactly right. Yes.

[Josh Brown]

Okay.

[D]

That's right.

[Josh Brown]

All right. Anthropic. There's talk of Apple maybe plugging into Claude, and obviously Amazon's a really big backer of anthropic. 75 billion. Revolut is European fintech or no. What is that?

[D]

You got it. Yep. Online banking, all right.

[Josh Brown]

Is Anduroll. So last one we'll do from this side of the thing. Chart off. Anduril being valued at 42 billion. Is this going to be the hottest deal of the year? I think it is.

[D]

Oh, for sure.

[Josh Brown]

This seems like the stars are aligned.

[D]

It's an AI play.

[Josh Brown]

Yeah, yeah, yeah.

[D]

It's an AI play. They have this lattice. Lattice AI system. It controls all these autonomous robots. That's effectively what it is.

[Josh Brown]

It's autonomous. It checks every box. It's founder led. It's got a long history. They didn't start the company last year. Right. It's physical, but also AI because they're building military equipment and hardware. It's defense tech, which is the hottest tech flavor of tech.

[Michael Batnick]

It's private.

[Josh Brown]

Thanks to Palantir. Right. Thanks to Palantir. It just. And then the pedigree on the cap table, it just. It checks every box for an IPO that you could possibly want.

[D]

That's right. I think so. Palmer Luckey is the fellow who's the CEO, Right. He's the guy that created Oculus and then sold it to Meta. So he's already a billionaire. Right. But he Came out and said they're not going to go public and do an IPO until the market really understands their business model. Right. So I think this idea of, like, AI controlling drones and then those drones being used in warfare is obviously a new thing, I think, you know, not to be cheeky, but you're seeing it with the. In the Ukraine war, right? What drone? Like the power that drones can have on the battlefield. So that. That might actually pull the IPO forward a little bit. Cause I think people are seeing it.

[Josh Brown]

I think investors fully understand they completely bought into Alex Karp and this idea, like, look, somebody's gonna have the best technology in the world backing up their military. It should be the United States. I think there's widespread approval of that concept. Is this gonna be a direct listing, or are they actually gonna sell stock and raise money?

[D]

Oh, I think they'll. My gut is everyone's gonna be doing regular, traditional IPOs.

[Josh Brown]

They're all doing regular IPOs.

[D]

That's what I'm saying. That's what I'm hearing. Right. But again, I think Andrew's like a 2027. That's where I put it.

[Josh Brown]

All right, what are your other stocks to watch and tell us why?

[D]

Okay. I love this stock Rock. Grlq. It's the private market. Nvidia. Okay.

[Josh Brown]

So really rock.

[Michael Batnick]

Yeah.

[D]

Jonathan Ross.

[Josh Brown]

That's, like a crazy statement to me.

[D]

Jonathan Ross is the CEO. He created the Google TPU tensor processing unit, the AI chip at Google. Like, from a sheet of paper. This guy built it into a big business, ran Google cloud segment of it, and then decided, I'm out. I'm going to do it myself. He started Grok. Okay. I love this company.

[Josh Brown]

So it's chips, like semiconductor, but it's for.

[D]

For inference, running AI models. Right. They fab them here in the United States, no tariffs. They use, like, kind of old tech. So they store memory on chip. It's. I'm telling you, these guys are so dialed in. I love this company.

[Josh Brown]

Do people get this one confused with the Grok that xai? Oh, it's for AI because it's. That one's with a K. You got it with a Q.

[D]

With a Q. That's right. Groq.

[Josh Brown]

That's. What stage is that at?

[Michael Batnick]

Early.

[D]

They're early. So it's $4.6 billion secondary market valuation. Right. But I'm, like, hearing buzz that these guys are going to go to, like, a 9 12. I wouldn't be surprised to see these guys. I have one advisor I work with. He thinks it's $100 billion company.

[Michael Batnick]

All right.

[D]

I mean, at 4.

[Josh Brown]

Yeah. Can we have it at 4? So you have a bunch of these in funds and you're doing single stock funds so that investors in the private market can access these. What's the most in demand? Like other than SpaceX and OpenAI, which I think for obvious reasons, what are you getting the most calls about? From either wealthy people or financial advisors. What do they want to own?

[D]

Yeah, so we build like. So we do these single stock funds, right, Josh? And then we help people build portfolios. I'm a big believer in like diversification. Right. But some people like, like love Elon Musk and they want a lot of his stuff in there. And some people don't like the guy. They don't want any exposure. So these are kind of tools. You can kind of build what you want. I get tons of demand for Andrew right now, to answer your question.

[Josh Brown]

That's what I would have guessed. That's why I think that's going to be the big one.

[Michael Batnick]

That's right.

[D]

That's right. And then listen, The Elon Musk, Xai and the like, SpaceX and the like, those are all big ones as well.

[Josh Brown]

Can you tell me about Harvey? This is AI for law firms.

[D]

AI for law firms. That's right, yeah. So it's an AI app. So just 30 seconds on how I think about AI. There's AI infrastructure, chips, electricity, data centers, et cetera. There's AI platforms, that's OpenAI, XAI, Anthropic, et cetera. Right. And then there's AI apps. And AI apps are just starting to come out. So those are apps that are built on top of an OpenAI and XAI and anthropic. Right.

[Josh Brown]

Okay.

[D]

So Harvey uses anthropic and OpenAI to deliver solutions specifically for lawyers.

[Josh Brown]

Okay, Right. It's surprising that somebody that like, that's a pre IPO startup, that's like law tech, I guess is what they call it, 100%.

[D]

So they, you know, like you take the model and then you train and fine tune the model on like a specific law firm's data. Right. And that's what Harvey does. So you take a great law firm, whatever, Davis Polk, right. They go in, I don't know if they're working with them. Just an example. Right. And they train all, they take all Davis Polk's data, they train the AI and then the associates and everyone can use Harvey AI when they're writing contracts, reviewing contracts, et cetera. And it's trained off of their unique data.

[Josh Brown]

Oh, interesting. So you're still getting the Davis Polk like, advice, legal advice, but it's codified in an engine that anyone working there can access. That's hot. All right, let's do a lightning round and then we're going to let you go.

[D]

You got it.

[Josh Brown]

Kalshi vs Polymarket. I read that Kalshi is twice the size of Polymarket by valuation because Polymarket can't work with Americans as clients. And Polymarket and Kalshi can. Do I have that right?

[D]

Yes, you got that exactly right. That's right. Yes. Wealthfront just filed, and Kalshee's also got a lot of connections. Cowshi's also got a lot of connections into the broker dealers like Robinhood and other broker dealers. So they got like distribution channels set up too, Josh.

[Josh Brown]

Okay, We've talked to those guys. We like them. Wealthfront just filed, so this is kind of a retread. They tried to get acquired by ubs. UBS paid the breakup fee and walked away. Four years went by. I'm sure they've raised a little bit of money since then, but this does not seem like anything that people are terribly excited about. Or maybe I have that wrong. What do you think?

[D]

I mean, first of all, I wish them the best. I hope they kill it in the ipo. I just, I'm a little leery. Like, my understanding is half their assets are in a cash product, like a high interest savings account production.

[Josh Brown]

Is that. Michael, is that true? Can that really be real?

[Michael Batnick]

They were aggressively promoting that early on. Not in a bad way.

[D]

It's.

[Michael Batnick]

It's cash, you know, it's yield sealed, but that's hard to believe.

[Josh Brown]

So they should just call themselves a bitcoin treasury then.

[Michael Batnick]

Wow.

[Josh Brown]

All right. Meta bought half of scale AI.

[D]

They bought it.

[Josh Brown]

They wanted the founder. The Aqua hired for the founder is.

[D]

Can you imagine the cocktail party talk? I'm a $15 billion man.

[Josh Brown]

That's pretty impressive. Okay, what's this poached chart? These are all the people Meta has stolen from other AI startups.

[D]

It's like the who's who of AI man. These people have built a lot of the tech that everyone's using and excited about. And Meta's got a lot of them.

[Josh Brown]

Right, okay.

[D]

It's pretty impressive.

[Josh Brown]

So Mark Zuckerberg is personally calling people and emailing people and poaching them out of these companies. Yeah, it's all right.

[D]

And paying like hundreds of millions of dollars. Packages. Comp packages for these guys.

[Josh Brown]

If you're not bullish on AI Just look at the way this guy is operating right now.

[D]

Yeah, I mean, listen, it won't be for lack of effort if Meta doesn't win the AI race. It won't be for lack of effort or trying. They're going for it. Right.

[Josh Brown]

Tell us what Clulee is.

[D]

Okay, clearly this is so first of all, I'm a big believer that in a couple years time, we're literally going to have AI devices, listening, seeing, hearing everything that we're doing. It's going to be like, you know.

[Josh Brown]

Not the phone, something else, whatever it is.

[D]

I'm not sure what that is, but if you know what it is, Josh, tell me, because I want to invest into it. Okay, so there's that, but something's going to come out and devices will be listening to everything that we say will be getting cluly is like a first sign of that. It's tech. You download it on your desktop computer. It sees everything that you see on your screen and it hears everything you say and listens to everything. Everything. But here's the thing. This is so Google's talking about this. Everything. So here's the thing though, guys. Everyone's talking about this. Google's I O conference, right? They're developing developer conference. They're talk. They're using the term personalized context. Yeah, personalized context is code for the AI sees everything that you do.

[Josh Brown]

Creepy.

[D]

That's what that is. So once you got that, the AI is like your. That's your personalized assistant that everybody loves.

[Josh Brown]

So, all right, so maybe we'll all grow more accustomed to that, but at first blush, I don't love it. Last slide, high potential. Second half, 2025 IPOs. This is what you think is coming. Like now you have Klarna, which is buy now, pay later, Kraken, which is crypto, Gemini Crypto. What's Navon that I never heard of.

[D]

That's the old TripAdvisors, right? They rebranded. So that's like corporate travel solutions. Yeah, Texas.

[Josh Brown]

All right, and you think, and you think these, this is the class of second half. 25.

[D]

That's. That's right. Yeah, that's right. So listen, I just parting thought, opening the IPO window is open. But here's the rub. Like a lot of these companies do not want to go public.

[Josh Brown]

Yeah, they're not.

[D]

Right.

[Josh Brown]

I guess their founders are not pushing. Excuse me. Their backers are not pushing them too.

[D]

Oh, Josh, we could go have a beer, man. I could talk to you for hours about all the different, like structural, really solid Structural things that are happening in the private market, that generating liquidity for employees, early investors. It's all very organized, very thoughtful. Like, these companies can raise billions of.

[Michael Batnick]

Dollars in weeks and maybe at higher valuations. So who needs higher markets?

[D]

And it's all very orderly. Michael, that's a good point. Right? It's all very orderly. So there's not a lot of volatility. It's like very thoughtful. It's all institutional.

[Josh Brown]

Well, we're going to talk about the tokenization of private company stocks later on in the show. And maybe that's the monkey wrench. If you have a de facto public company and all the scrutiny that comes along with it, you might as well just have a public company. And that's something that's coming in the second half of this year as well. So, Aaron, you're the man. Tell people where they can visit to learn more about what you do. Yeah.

[D]

So go to ag Dillon.com right?

[Joe Davis]

You can.

[D]

And just ag Dillon.com subscribe that as we send out a research report every Saturday morning. That's the best way to get in touch.

[Josh Brown]

All right. Awesome. And Nicole, we'll throw that link in the live chat for everyone watching. Thank you so much for joining us. We're going to goodbye you and move on to the next thing we're talking about, which is the big beautiful. Bill, is this already in the market? If you had to guess, who knows?

[Michael Batnick]

But I don't think that this is moving the market, do you?

[Josh Brown]

No, I think it's a, I think it's like in the minds of the investor class, they've already decided this is going to happen.

[Michael Batnick]

I don't know. I don't follow this stuff closely. I spoke to Bill before we hopped on and I said, hey, what do I need to know about this as far as it impacting investors? And he said this, It's a snoozer. Like, there's really not a lot in here. I could tell you some, like minor things, but nothing with nothing.

[Josh Brown]

It would have impacted the markets if it looked like it was going to fail, but it doesn't. I think it would have been a negative because a failure to pass this bill, at least now would have meant a sunsetting of some of the tax cuts from 2017. That's why it matters to investors. But if, as long as it's going to go through in some way, shape or form, I don't think the details are important to the market and I don't think investors are hanging on every word. It's a Weird thing. So because it's predominantly a bill about the federal budget, they were able to push it through the reconciliation process, which is kind of like a parliamentary trick where they don't need a 2/3 majority vote in the Senate, they could just get a simple majority. So like 51, 50, using JD Vance as the tiebreaker. And that's what they did. That's what they accomplished today. So they basically, they holed up in the Senate. They had like draft legislation from the House. They kept Everybody there for 24 hours straight. Nobody could leave. Some of these people are 120 years old. And basically the whole thing came down to whether or not they could convince Lisa Murkowski from Alaska to sign on to this and agree to it. And in order to like shore up the Republican votes, they were, they're cutting a ton of money from Medicare, which is not going to be popular, but everyone will find out about this later. But in order to shore up the vote from states like Alaska that are like, wait a minute, my people are not going to love how much you're cutting. And they're doing this rural health fund, which will be like hospitals for red states, basically, like basically just bribes. And both parties play this game. But it's just like when you read the details of how they got this through, it's kind of remarkable. I think the way that this became a market story was the Elon Musk angle because he decided he wants some more smoke. Look, let's put up these Elon tweets says this started last night. It is obvious with the insane spending of this bill which increases the debt ceiling by a record $5 trillion, that we live in a one party country. The Porky Pig Party. Time for a new party that actually cares about the people. How can you call yourself the Freedom Caucus if you vote for a debt slavery bill with the biggest debt ceiling increase in history? Then he starts threatening. Every member of Congress who campaigned on reducing government spending and then immediately voted for the biggest debt increase in history should hang their head in shame and they will lose their primary next year if it's the last thing I do on earth. Chart off. How do you think Trump responded?

[Michael Batnick]

Deported.

[Josh Brown]

Chart on. Elon Musk knew long before he so strongly endorsed me for president that I was against the EV mandate. It's terrible. It is ridiculous. Was always a major part of my campaign. Electric cars are fine. Not everybody should be. Anyway, I'm going to deport Elon. I'm going to shut down his rocket launches. No more subsidies for satellites or electric Car production. And we're going to save a fortune. Perhaps we should have Doge take a good hard look at this. Money to be saved. That's the Trump reaction. Tesla stock sort of reacted. It was notably red in a green tape yesterday, and I'm really surprised that he wants to do this again. It looked like they were. It looked like they were literally going to come to physical blows. The last time they had a fight was that two weeks ago. And apparently Elon wants more smoke. The stock went down five and a half percent, now back at 300. What are your thoughts?

[Michael Batnick]

It's nuts. I don't know. What are your. I have nothing to say other than the obvious. This is insanity. That there is political fighting that is causing tens of billions of dollars to swing around in market cap. It is not, not normal.

[Josh Brown]

If you're a shareholder of Tesla and a Donald Trump fanatic, you just treat this like a comedy, right? You don't pick. You don't like. You don't pick sides. You just like, all right, I'm backing the President on this. I want his big, beautiful bill to pass, but I also want Tesla stock to go up. So you're, like, rooting for them to start laughing and stop fighting with each other. What do you think?

[Michael Batnick]

I have no idea.

[Josh Brown]

Okay, great. All right, all right.

[Michael Batnick]

Sorry. You want me to just make up thoughts? So I have no thoughts. Let's move on. This is boring. That's my thought, asshole.

[Josh Brown]

I think if you're a long Tesla, it's not boring. Unfortunately not. I don't think you are either, but.

[Michael Batnick]

If you're a Tesla Shale, then this is not boring. It's annoying. This is an absolute distraction. It's a clown show.

[Josh Brown]

Yeah. I wonder if it gets worse. I guess I.

[Michael Batnick]

Well, what does worse look like?

[Josh Brown]

Well, the House is. The House is now going to vote on this, and the majority of the House is fairly slim. Republicans control by maybe 10 votes. Nine votes. And a lot of House Republicans are making noise that the bill in its current form is not signable. And Elon seems like he wants to be part of this process and he.

[Michael Batnick]

What is his involvement with this?

[Josh Brown]

He's passionate about not raising the debt by $5 trillion. No.

[Michael Batnick]

But legally. What's his involvement?

[Josh Brown]

That part doesn't matter. He owns Twitter. He has the biggest megaphone on the planet. So he's decided that he's against this bill and that he's willing to risk the market cap of Tesla in vocally being against it. So he has no involvement. His. His involvement is like As a, as a peanut gallery. But it's the loudest. He, he is the loudest person in the country when he wants to be. He's louder than Kanye. He's louder than Obama. He's louder than like a former president.

[Michael Batnick]

Nobody. Has Trump have a nickname yet for Elon? What?

[Josh Brown]

Oh, I bet he does. I bet he does. Privately.

[Michael Batnick]

No, I bet privately, yeah.

[Josh Brown]

Mushroom Jones or something. I don't know, it's probably something.

[Michael Batnick]

Can we talk about the bull market? Can we do that?

[Josh Brown]

Yeah, go ahead.

[Michael Batnick]

Okay. All right, we're gonna, we're chart heavy here, so we're gonna run through some stuff. All right, Turn on, please, John. So The S&P 500 is at an all time high and the first half of the year is in the books, as they say. So I had Sean make us a table of the top 60 performing stocks in the S&P. And number one should be no surprise, it's Palantir. What else jumps out to you on this group, Josh? This is pretty diverse. I mean, that's my first.

[Josh Brown]

Sorry. Matt Furlong in the chat says Elon's nickname is Special K. Oh, that's good.

[Michael Batnick]

That's good. All right, so the, the thing that jumps out to me right off the jump is this is a diverse list. If you look at the top 10 names, we've got Palantir, NRG Energy, Hamad Aerospace, Seagate, Geo, Vernova, Super Micro, Newmont, CVS, Uber, General Electric, Philip Morris, Dollar General. I mean, it's. We're all over the place here, Josh.

[Josh Brown]

It's a mix of like stocks that have been going up for years, like Micron crowdstrike, you know, like the tech names. But then you also have stocks that just got so crushed last year that it's not surprising. I mean, it's still surprising, but it's not insane to find them in the top 20 performers because, like, some of these were in 70% drawdown. CVS, Dollar General, CVS, an obvious example. Some of these, like Doordash, I think was not a great stock last year. So this year is a recovery. So I think there's like a. I think there's a mosaic. Definitely had not been having a great, great time up until recently. So I think there's a mix of like, comebacks and then stocks that have been trending higher for, for years now.

[Michael Batnick]

Okay, next 20, let's take a look. We've got, oh, Royal Caribbean's on the list. Oh, IBM. We've been speaking a lot about that. Okay, again, I just see a Lot of diversity. There's a lot of information technology, but there's a lot of discretionary. Anything here for you, Josh.

[Josh Brown]

Almost all of these names, if they're not consumer, are AI. Like, it's just like one thing that jumped out at me. Like Vistra is a utility on the surface, but it's the utility supporting like all the inferencing and AI and cloud stuff. Amphenol is like connectors, like cables and chips. And all the AI stuff has to, to be put together, like has to work together in rugged conditions, and that's Amphenol. Sean and I wrote this up in the best stocks. KLA is chip equipment, Western Dig, obviously. So a lot, like a lot of the IBM, Oracle, these are like all feeding into the same AI spend.

[Michael Batnick]

All right, lastly, the next group, what I see here is just a lot of financials, which is interesting. We've got, let's see, we've got WR Berkeley, not a name I'm super familiar with. Northern Trust, Goldman, Schwab, Intercontinental Exchange, Citigroup. A lot of things are working this.

[Josh Brown]

Year for the listener. This third group of 20 best performing stocks. So number 41 through 60, they're all up between 23 and 30%. These are way better than the S and P would be the point I would make. And if they, if the market closed tomorrow, nobody that owns these stocks would be upset. Like if the market ended the year tomorrow. I made 24% in Charles Schwab this year.

[Michael Batnick]

Yeah, I'm happy.

[Josh Brown]

You know what I mean? Like, think about that. I made 26% in Meta. Like, like it's, it's a, it's great. So being number 40 through 60 is not, is not bad.

[Michael Batnick]

It's really good. All right, this next chart has some face blowers on it. I want to show you the sector performance where with the maximum entry year drawdown, which was a big kick in the teeth, and the one that jumps out to me, and there's many is technology. So Information tech had a 26% drawdown. That happened mostly in the month of April, and yet it's still up 8% year to date. Wild.

[Josh Brown]

I don't even think anybody would know that. I don't even. I know it, but I don't even know that.

[Michael Batnick]

I mean, seeing it this way, do.

[Josh Brown]

You think the average person would even believe you if you said the tech sector at its worst point this year was in a 26% drawdown? No way. Right?

[Michael Batnick]

The average person.

[Josh Brown]

No, it's just like there's no way. It felt like that to somebody who casually observes the market. Yeah, it just because it was too fast. Like how long was it in a 26% drawdown? 10 minutes.

[Michael Batnick]

It was fast. It was over before you knew it.

[Josh Brown]

Okay. All right, this is what jumps out at me. This is exactly the way that it's supposed to be. The least painful drawdowns were in. Utilities negative 8% now up 9% on the year. Staples negative 9% now up 6.5% on the year. So this is the minimum variance. Am I saying that term right?

[Michael Batnick]

Defense was defensive.

[Josh Brown]

Defense was defensive. And even like health care, healthcare sucks. But negative 13.6% is not as bad as tech. Now the thing is you're still not making any money. Health care is one of only two sectors that's still negative year to date. But like the defensive sectors did act defensively when they were supposed to.

[Michael Batnick]

Yeah. So John, we could skip the next chart because we have something similar coming up.

[Josh Brown]

Up.

[Michael Batnick]

Let's throw this chart up by Eric Sota. So I saw Eric tweet this last week and I thought it was really interesting, worth talking about. And we got some follow through today. So the tweet is this. The surprise to me is that with a NASDAQ at new high, only 10% of the index's stocks are at a new 52 week high. They have a lot of room to run to reach their 52 week highs. Can you say bullish? So throw up today's heat map cap. Today we saw a wildly rotational day. I love today out of mega cap tech. So Nvidia was down 3%, Broadcom was down 4%, Palantir was down 4. Tesla got pounded. And look at not just the green across the screen, but the absolute bright green. And I think we've got a chart from chart kid. John. Did we have that one? Boom. Thank you. So we're taking a look at, for those of you who are listening, the S&P 500 daily return against the S&P 500 equally weighted daily return. And there is obviously a highly, highly correlated data set here. But there was a big outlier today because the cap weighted index was actually down three basis points, dragged lower by the giants that we just mentioned. But the equal weight, holy mackerel. The equal weight was up 1.17%. And this is something that you don't see too, too often. Often on really no news.

[Josh Brown]

Quarterly rebalance. Today's July 1st.

[Michael Batnick]

Yeah, well, that would be probably the most probable situation.

[Josh Brown]

It's the only answer. Big money. Maybe it's institutional, maybe it's wealth. Whatever channel people looked at first, second quarter performance or first half performance said all right, halfway through the year we got to add to whatever's been lagging and we got to take some profits and whatever's been going up and that's it. And the effect of this will probably last another half a day and that's it'll solve back to business as usual. Don't chase small cap rallies.

[Michael Batnick]

The most improbable part of this bull market that we experienced in the first half of the year, and it's hard to say that it was a bull market because obviously there was a bear market in between. But nevertheless we're sitting at all time highs. The US is up 6% on the year, but the rest of the world. My God. John, please. Josh. Thoughts?

[Josh Brown]

Let me take a look. Yeah, I told you and Ben 2 days ago I was looking at my 401k which I almost never do, and it said the S and p was up 4.75% on the year and my 401k was up 9 and a half percent. And the reason why was a 39% allocation to international stocks. And, and I had to rub my eyes because it's been so long since I've seen international stocks help an equity portfolio. But this is it. So for the listener, Europe, up almost 24% year to date, international developed, which I guess includes Europe, but then is also Japan and select countries in Asia up 20. International emerging, which is China, India, Brazil, blah blah blah, 16 and a half and then US stocks 6.2. I don't know, it's been, it's been a minute. I think this is the biggest outperformance for international versus the S&P going back to 2001. So it's a quarter century since we've seen a first half like this and people are, people are taking notice. I don't know, know, I don't know if you're going to see that in the fund flows. Are people going to chase this? What do you think?

[D]

Nope.

[Josh Brown]

No. Why? Because they won't believe it'll, they don't, they won't believe that it's, it'll, it'll sustain.

[Michael Batnick]

It's just too short lived. It's not enough time. If you, if you zoom out of the US divided by the rest of the world, it's still, it's a blip.

[Josh Brown]

Do you think international stocks will finish the year ahead of s and P500?

[Michael Batnick]

Yes. The gap, the gap is too wide to close at this point in My opinion, it would be, we, it would.

[Josh Brown]

Be weird if this whole thing reversed. What would have to happen? A land war in Europe, something in Ukraine spills over into Poland, then you could, then you could kiss the whole thing goodbye. It'll be gone in two seconds. But absent that, Sean and I were looking at earnings growth for the different regions of the world. I didn't get around to this on CNBC today, but I wanted to make this point. I ended up talking too much about something else. But like you've got earnings, you've got not just the dollar falling, which we're about to get to, but you actually have earnings growth in, in a lot of these places that it's just like it's, it's been a while so, and not small. So let's look at the dollar. Thanks chart kid. Matt, what are we looking at here? Michael?

[Michael Batnick]

So this is the worst performance for the dollar at this point in the year, through the end of June, in 50 years. And this has been a tailwind obviously for US investors that are invested in foreign stocks.

[Josh Brown]

Yeah. But it's not the whole story.

[Michael Batnick]

And.

[Josh Brown]

I think that's kind of because people knee jerk like oh, international stocks went up. I guess that's because the dollar. Yes, in part. So it's the worst first half of the dollar in 50 years. But you have expectations now for earnings growth 13% for Japan next year, Europe 11%.

[Michael Batnick]

Wow.

[Josh Brown]

EM earnings are growing already this year 15% and are expected to grow by 12.4% next year. And again that's versus US earnings expected to grow 8% year over year. So if you actually pull out the impact of the US dollar and Sean did this work for me, international stocks would still be up 11% year to date. So the weaker dollar added 7.3 percentage points to international performance. So, so it's a factor, the big one, the big dollar. But there's more to the story.

[Michael Batnick]

Yeah.

[Josh Brown]

Want to laugh?

[Michael Batnick]

Go ahead, please. I have to laugh.

[Josh Brown]

This is October 2024.

[Michael Batnick]

Wow.

[Josh Brown]

This is the Economist cover with rolled up hundred dollar bills blasting off like a rocket ship. And it says the COVID the Economist, the envy of the world.

[Michael Batnick]

You know, we've said a million times over the years to be careful of magazine indicators and they're only obvious and that's still true. But man, the Economist in particular has a knack for really nailing tops and bottoms, do they not?

[Josh Brown]

Maybe. Or maybe their covers are just so aggressive that the stupid one they do every year or two just becomes like perhaps so pronounced in our imagination.

[Michael Batnick]

It Just feels like it's always the Economist. All right, I want to, I want to end with, with, with this. Two more quick charts. Number one, it's not just the US as we're discussing, obviously, but 55% of global markets is from Willie Dubich. 55% of global markets made new 52, 52 week highs last week. That's the best level in over a decade. You love to see it. And then finally there is this tendency for people. I would put myself in this chart off for one sec. I would put myself in this category. There's like the antennas go up a little bit at an all time high. Is this too good to be true? When does the crash happen? Like when's the next shoe to drop? For whatever reason our antennas go up, we feel like it's gonna, we're gonna be rug pulled. And that is just not true. Stocks don't make all time highs because everybody's dumb and the world is about to end. Chart on, please. So this is on exhibit A via chart, kid. We're looking at the average one year forward return one, three and five years after an all time high. And guess what, folks, Tentacle, you know, even better. You are better off, you are better off investing at an all time high than all other days on average.

[Josh Brown]

So it seems so counterintuitive.

[Michael Batnick]

It does.

[Josh Brown]

Because of the gambler's fallacy. We've talked about this before. Like you go up to the roulette table and it's red, red, red, red, red. And you happen to walk up and see five in a row. No, it's going to be black, of course. And there's like, it's not totally insane because if you think about like 100 coin flips, it's of course probabilistically, it could be 100 heads. It's just unlikely. So you think this is the time it's about to flip too many reds, Right. So that's why you see a new all time high or you see a string of new all time highs. You're thinking like it's about to be black. The problem is most new all time highs aren't the all time high.

[Michael Batnick]

Well, the other thing, when you think about it this way, what does all time highs do? It sucks in buyers.

[Josh Brown]

Yes. Well, of course it sucks in people that are worried about missing it. And that's what gives it that momentum all to itself. All right, I think Robinhood just checkmated the entire industry with what they announced this week. And I want to get into this.

[Michael Batnick]

Are you serious?

[Josh Brown]

Yeah. I'm super bullish on this. I know it's surprising. It's surprising. I really think that they just cracked the code on something that probably other firms aren't going to be able to follow them quickly into doing. And it's going to give them a huge advantage.

[Michael Batnick]

You think tokenization is that much of a game changer?

[Josh Brown]

I think building the rails for tokenization puts them in a position to be at the front of the, of the tokenize everything movement that is clearly coming. I think doing this with traditional financial assets is really powerful and arguably they're the only firm that could have done it. I don't like. I don't think Coinbase has the tradfi bonafides to be screwing around with stocks. In fact, we know that they regulatorily. They can't. Robinhood is the only firm that could have done this, the only firm that wanted to. But I really, really feel like what the market response to what they just did is not carried away. Let's do this chart. This is.

[Michael Batnick]

This is mine.

[Josh Brown]

Oh, okay. I asked for a chart. I don't see it here. I wanted to see Robinhood versus the Broker Dealer Industry Group Index. I don't have it. All right, well, let's put yours, put.

[Michael Batnick]

That chart back out because this, this tells the story better than the bullshit chart that you were asking for. No offense.

[Josh Brown]

Thanks.

[Michael Batnick]

All right, so I'm looking at. I've showed this chart before. It is wild. So in 2023. Way back in 2023. Okay, so what are we talking about? Two and a half years. Two and a half years ago, Schwab was 22 times the size of. Of Robinhood. 22 times. And it is now only twice as big. Holy shit.

[Josh Brown]

Yeah. Mark Aguilar in the chat is saying they are the Uber of investing. I agree.

[Michael Batnick]

Go ahead.

[Josh Brown]

J. Ford points out they also announced mortgages. No brainer. I don't know why other people haven't. Haven't thought of connecting those dots. People in their 20s eventually are going to want mortgages. Why wouldn't Robinhood give them a way to do that? I don't know the specifics of it.

[Michael Batnick]

But why do you think. Tell me about the checkmate. Why do you think the tokenization thing is such a big deal?

[Josh Brown]

Okay, a couple things. The first thing is they took shares of OpenAI and they took shares of. I think this is how it went. And they took shares of SpaceX and they dropped them on their users for free. Smart gift. Okay, so they had a million dollars worth of one and Half a million worth of the other. And they tokenized them. They used the Arbitrum layer 2, which is like effectively built on Ethereum. And they basically said you now have tradable shares of private companies that other people can't get access to or have to buy a big chunk of in order to qualify for a fund or blah, blah, blah. So they're basically saying, look, you're accredited, you want to be involved in private companies. These private companies aren't public yet, but you want to have access. Here you go. Can't have the shares. We built a tokenized version of those shares. You can have them, you can sell them, buy them. The Rails that they're built on are specific to Robinhood's platform, so you can't move them out of your account. But that's all coming. Robinhood has talked about, you know, working with other blockchains and interoperability and making it so you can transfer stuff in and out self custody assets.

[Michael Batnick]

Yeah, I believe that you could transfer and you're not going to transfer out. I can't even get my Bitcoin off Robinhood.

[Josh Brown]

No, no, no. I'm saying the share. The tokens of the, of the. There's no one else that could take those tokens from you. So if you want to sell them, you have to find another buyer. On Robinhood. It's in its infancy, but ultimately what this does is it paves the way for other assets that are not currently traded to become traded using Robinhood's protocol on their platform. That's number one. Number two, it's 245 trading. Remember that. So not only, not only are they tokenizing private companies, the next phase is tokenizing public companies, which multiple brokerage firms are currently working on, multiple asset managers are working on.

[Michael Batnick]

Wait, you said it's 24 5. It's already 24 5. It's going to be 24 7.

[Josh Brown]

20. It was 24 5. It'll be 24 7. But like having tokens representing company stock that are tradable all the time, that are available in the crypto ecosystem at Robinhood, I feel like it's a gigantic leap to where stocks and crypto are completely blurred. And this is the thing that Robinhood has been working on for 10 years and they're actually doing it.

[Michael Batnick]

I'm surprised to hear your posture because I feel like, like six months a year ago you would have been like, this is bullshit. Nonsense.

[Josh Brown]

Well, it's traditional financial assets that are now easier to access and fractionalize. And I don't need to need it. I don't need the service. And actually one of the points that Vlad made, I thought very successfully somebody from the crypto world said, well, why is this a big deal? Who really needs this? And he's like, you know what, you're right. For a US investor, we're already 24,5. We have markets that are liquid. We already have medium speed rail. So me showing you high speed rail, it's not that impressive. It's not that meaningful. European investors or investors in other continents, other countries that can't access U.S. stocks with the ease that we can in a tokenized crypto environment. They can or they will be able to. That's game changing. There are a lot of countries where their local investors, they have to buy funds in order to get access to the US stock market. Now they'll be able to buy the tokens that represent these shares. Think of this like ADRs here in the United States for European companies. Now it's hard for you to understand why, for people to understand why this is exciting because we don't care about other countries stocks. Like we're not dying. Oh my God, I wish I could buy lvmh. Well, you can. It's an ADR and nobody wants it.

[Michael Batnick]

It.

[Josh Brown]

If you're from another country and you're watching Palantir, Nvidia, all these stuff, you're like, oh my God, I can't believe I can't buy these things. Robinhood's got a huge audience in Europe. They are now opening up tokenized versions of US companies to everyone. So when you hear people say we're democratizing this and that, me, you know, you and I, we laugh. Lol. This is like actually they are democratizing access to US stocks and to private company stocks. And I think where this will go by the end of this year, I think you'll have probably that whole list that we did with Aaron Dillon of all those pre IPO startups. There'll be a token for each one of those. And why that's exciting is because when they do go public, you'll have people involved that ordinarily would never have been able to get involved.

[Michael Batnick]

Yeah. I will say this humbly because this is not my lane and I can't see the future any better than you can. But I don't know. I know that there's going to be a supply of tokens. I'm not sure that there's going to be the demand.

[Josh Brown]

Okay, here's a token that represents a share of Anduril you think there's going to be a demand problem for that and will go public in 2026 or 2027. Think there's going to be a demand problem? I don't. I think people are going to lose their mind.

[Michael Batnick]

Guess what? But. But my understanding is you still need to source the shares. You can't just create tokens out of thin air.

[Josh Brown]

Correct.

[Michael Batnick]

You convert.

[Josh Brown]

Correct. A lot of these startups that we just talked about, OpenAI, they have hundreds, thousands of employees. Some of these employees are vested. They have their stock. They can do what they will with it.

[Michael Batnick]

So here's where tokenization makes a lot of sense to me. Let's say that you have a lot of money at Coinbase, for example, and you don't want. You sell some Bitcoin or whatever it is. You don't want to transfer out to a different brokerage account. You're on the blockchain, you want to stay there. Tokens there make a lot of sense to me.

[Josh Brown]

Yes, yes.

[Michael Batnick]

The tokens at Robinhood.

[Josh Brown]

This is the first time that Robinhood has leapfrogged coinbase. Robinhood has been chasing Coinbase.

[Michael Batnick]

Yeah. Wow.

[Josh Brown]

They did this first. And again, they're weakly positioned because they're in the TRADFI world. They're finra. They're FINRA members. Coinbase could not have done this.

[Michael Batnick]

Yeah.

[Joe Davis]

Yeah.

[Michael Batnick]

So it's. Listen, it's interesting. I'm. I'm very, very curious to see where it goes. I didn't read this yet, but Jenny Johnson had a headline in Fortune. I'm the CEO of a Fortune 500 company and we're going all in on digitization or tokens or something along those lines.

[Josh Brown]

Yeah. Wisdom Tree's got something they're doing here too. Everyone is. Everyone is all in on tokenization.

[Michael Batnick]

Yeah.

[Josh Brown]

All right. The idea is it lowers costs and it speeds up. Settlement is instant. And with tokens, the transaction happens. It's on the blockchain, that's the end of it. There's nobody filing paperwork in a manila folder. Put up this thing from Dan Dolev, please. So. Nope. The Mizuho Mizuho. So this is Dan's take party. Like it's $99. Get it raised his price target on Robinhood. Dan's friend of the show. He's kind of our informal fintech analyst. On balance, we believe Hood should get rerated. Unmatched product velocity availability in 30 plus countries. Myriad of new products, including stock tokens, staking advanced charts on mobile crypto perpetual futures, which we don't have. Time for today. We'll talk about that another time. They are just innovating in multiple lanes 100 times faster than the incumbents.

[Michael Batnick]

They are. They are. Let me just one final thought here. The stock has gone absolutely vertical on gigantic volume. It put in a potentially gnarly candle today. If you want to buy the stock, you can buy it back at 70 bucks. How do I know that? I don't, but we'll see.

[Josh Brown]

Yeah, the route. Look, I'm not saying the price should be the price. I'm just saying the rally is justified. I agree.

[Michael Batnick]

Yeah. I always have the posture, for the most part, that the public is not stupid. This stock is rallying for a reason.

[Josh Brown]

Yes. Anyway, let's. I have one more. This is tokenized real world assets. You. You know how small the tokenization of stocks is?

[Michael Batnick]

It's zero.

[Josh Brown]

It's zero. You can't even see it on this chart because it's one of the few things that hasn't been done.

[Michael Batnick]

Well, this entire thing is zero. It's 15 billion bucks.

[Josh Brown]

It's. I know, but like, it's. It's early, and someone's gonna own it, I think, is the point.

[Michael Batnick]

Yeah, no, I'm not. I'm not fighting you. I don't disagree.

[Josh Brown]

Okay, let's do Nvidia.

[Michael Batnick]

Okay. Nvidia. This is funny. So throw this chart up. Chart kid shared this today. Remember this chart? Because I do. These charts have a tendency of disappearing when they don't work out. And what we're looking at for the listeners is the. The price of Cisco and the price of Nvidia. And of course, what they have in common is they both went up into the. Right. Not only they were. They're both the. The. The giant behemoths of their day. Okay? And we know what happened with Cisco.

[Josh Brown]

What if Nvidia is the same as Cisco was in. In.

[D]

In.

[Josh Brown]

In 2000? Yeah, that was the thing.

[Michael Batnick]

So chart kid was kind enough to update us, and here we go. So now I guess Nvidia did follow the path, like, kind of. But. But it. It. It blew past it today. So there we go.

[Josh Brown]

Yeah, there we go. Sorry, the matchy match chart didn't stay matched.

[Michael Batnick]

So anyway, Nvidia is a $3.89 trillion company. I mean, it's going to four. Where does it ultimately go? You think this thing gets to 10? Is that. Is that crazy talk?

[Josh Brown]

Well, let's just start with can it go to 4 and hold 4 before we start 10? There's a lot of tease in between. 4 trillion and 10 trillion.

[Michael Batnick]

4 trillion. It's only 150 billion away. Come on.

[Josh Brown]

It's like one day Barron's did a piece, I put this on LinkedIn, and people got upset about it.

[Michael Batnick]

Which part?

[Josh Brown]

Nvidia, if it gets to 4 trillion, will be 36% higher than the entire FTSE 100, which is the Dow Jones of Great Britain. And. And only 18% short of Japan's entire Nikkei. 25.

[Michael Batnick]

Wow.

[Josh Brown]

It would look it's biggest company in the world. It's not. It's not that crazy that it's now the biggest company in the world considering how important its product is.

[Michael Batnick]

It's crazy.

[Josh Brown]

And I mean, it's always going to be crazy, but somebody has to be the biggest.

[Michael Batnick]

So Beth kindig tweeted in October 2023, Nvidia was expected to generate $96.6 billion in revenue in fiscal year 26 and 112 billion in fiscal year 27. Now it's expected to generate 199, 200 billion and 250. So just in October 23rd, expectations for 26 were 96. They're now 200. After 27, it was 112 and it's now 250. So. So again, the market is not dumb.

[Joe Davis]

High.

[Josh Brown]

50%.

[D]

Right.

[Josh Brown]

They were in, in. In October of 2023, when Nvidia is already the hottest stock in the world.

[Michael Batnick]

Yeah.

[Josh Brown]

The expectations were still 50% below, but they are now.

[Michael Batnick]

But at the time, they were scorching hot. They seemed unreal. Unrealistic.

[Josh Brown]

Right. And that's because the big thing that people forget is it's not just how many chips can we sell? Once people have spent a trillion dollars on these chips, they're locked in to that architecture and they have to continue to pay. Nvidia. Yeah, because it's a platform, it's not just a chip. And people forgot, like, people forgot what? Like how much more there was behind the sales of the chips.

[Michael Batnick]

Yeah. All right, all right, Josh, we're already an hour in, so let me just move on to this last part real quick. So you and I spoke about this with Cole. I mentioned the Bloomberg article that for those who missed it, this is like. Actually, I'm reading this. This is not me making this up. I'm not on mushrooms, ketamine or acid. Here's the quote. A footwear startup is teaming up with two space companies to design a shoe in orbit as part of a mission to make artificial intelligence and blockchain less expensive and more eco friendly than it is on Earth. Yeah. Sure, why not? AI enabled computer sneaker. Yeah, sure. We have the CBO files 19 before for first of its kind pengu and pudgy penguins NFT ETF. Sure, why not?

[Josh Brown]

Buy.

[Michael Batnick]

And then we saw an article in the FT. This is, this is hilarious. OpenAI's former chief technology officer has raised $2 billion for her new artificial intelligence startup in a deal which values the mysterious six month old company at $10 billion. Basically this is, this is getting funded at $10 billion. Nobody really knows what it does.

[Josh Brown]

Doesn't matter.

[Michael Batnick]

So here's, here's the point that I want to make. Anytime you have all time highs in the market, it is a green light for stupid behavior. Right? By definition you will never not have dumb behavior at a, in a bull market, especially at the top. I think one of the big takeaways for me with my maturation as an investor over the years is that this dumb behavior that you see at the margins and maybe this is a little bit less marginal. It doesn't matter. It is a distraction and a sideshow now it is like sort of a temperature on the market maybe, but all of these micro bubbles within a bull market it noise as dumb as they are.

[Josh Brown]

Chris Hayes says. Hold on. Sodak Jackson says Boiler Room. Josh would have loved pitching those companies. Oh man, I'm writing the pitch in my head right now. Space Nikes.

[Michael Batnick]

All right, make the case.

[Josh Brown]

All right. This is not as exciting as the stuff Michael just walked us through. People think that being a professional investor or being a good investor means you have to have a new idea every day and it's just not like that like in the real world. You should have a few like really core insights and just follow them through to their conclusion. And you shouldn't have a new stock every five minutes.

[Michael Batnick]

That's wise. Well said.

[Josh Brown]

I want, I want to visit, Revisit Toast because I think we're on the verge of the next breakout.

[Michael Batnick]

I, I think you're right. I want the pitch because I told you I was going to buy it. I didn't buy it and it is hanging so high. I have to.

[Josh Brown]

It's just going to go.

[Michael Batnick]

It won't rely one day.

[Josh Brown]

It's just going to go.

[Michael Batnick]

I agree.

[Josh Brown]

This is not investment advice. For those of you within within earshot of my voice, please. I don't know you. Okay. Basically for people that have never heard of this company, if you go into a restaurant these days there's like a 1 in 5 chance or 1 in 3 chance that the waiter or waitress comes to your table for the check and they have a device in their hand and they hand it to you or they just take your credit card from you and do it table side. If you go into a place that sells food without a waiter or waitress, there's a very good chance Toast is the screen in front of them at the counter. Their products range from point of sale hardware, which is what I just described, but also kitchen displays, payment processing, supplier and invoice management to payroll, delivery, delivery management, menu consultation, marketing programs. They have an AI program called sous chef that helps restaurant owners become more efficient at running their business. They have 100 something different products that they sell you as a restaurant owner. Once they get in there and they, and they get you using their payments terminal, their take rate is about 50 basis points. Okay, it's a lot of money they're making. And their gross value across their platform, what is it as they add more restaurants? It's just, it's absolutely booming. The March quarter was a breakout quarter because it was their first profitable quarter. And from here on out, hopefully you're going to see gross margins rising, net margins rising. In Q1, gross margins hit mid-20s, net profit hit mid single digits like 4 or 5%. That's versus big losses the year prior. They spent a lot of money up front to equip restaurants with these handheld devices. But then inertia takes over and it becomes like a salesforce. You can't get rid of them. Them restaurant owners are not ripping this equipment out ever. So it starts with point of sale and it ends with Toast selling you every other software service that you need to run a profitable establishment. This is a $25 billion market cap not yet in the S and P because it hasn't been profitable for long enough. Just announced enterprise deals with Marriott, Applebee's, topgolf. Anywhere that they're selling food or hospitality, there's a toast machine in the building. We're talking about 130,000,000,000 customers. Businesses all over the country now standardized on Toast. UBS just upgraded it. A bunch of upgrades recently. Annual recurring revenue, which is the only number that really matters, rose 31% in Q1. It's now 1.7, 1.7, I think that's supposed to say billion, which, which is explosive growth for a company in this business. Live customer locations are now 140,000. So this is in my opinion. Let's put this chart up. Look guys, not complicated. The share price is following the growth in trailing twelve month ebitda. So you're literally witnessing a Company go from losses to growing cash flows every quarter. I think going forward now will be a better earnings picture as they keep adding locations. Two potential negatives here worth talking. Three potential negatives. Chart off. One is the whole restaurant business slows down because of a consumer driven recession. Okay, fine. It's the same risk for every other stock you own.

[Joe Davis]

Grow up.

[Josh Brown]

Two, competition. Clover. Clover Square, which is called block now, but square and you know, other, like, other payment. Okay. Every company is competition. Grow up. And then number three, their costs are rising because they keep adding all these new services like AI and all this stuff. The market doesn't care about that right now. Stock is at. Well, that one I kind of get. The PE is at 45 times earnings. So market's telling you, don't worry about that. It won't matter until it does. But the bottom line is if anyone's equipped to deliver AI to the hospitality, travel and leisure industry, Toast is the best position player to do that. It's also a payments player. They also, since 2020 have been making loans to restaurants, which is hugely profitable.

[Michael Batnick]

Tokenize them. Tokenize these loans.

[Josh Brown]

Strategically important. They should tokenize. Anyway, the stock rocketed up to 45, which was a new 52 week high. It's backed off a little bit. I think it's biding its time. They'll report again in August. And I think if that's a good report, and I don't know if it will be, this, this name gets into the 50s or 60s. So that's my. Make the case. What are your thoughts?

[Michael Batnick]

You had me at Applebee's.

[Josh Brown]

Great.

[Michael Batnick]

I like it. I do like it. I do like it. And why don't I own it? I. Coward, basically.

[Josh Brown]

Oh, sorry, I thought that was your inner monologue. I was just vocalizing it.

[Michael Batnick]

Okay. All right, I've got some mystery charts.

[Josh Brown]

All right, let's head.

[Michael Batnick]

We're going to zoom out. Okay. This is a. This is a decade. Needless to say, this is not a great stock.

[Josh Brown]

Is this a price?

[Michael Batnick]

In fact, yeah, it's the opposite of a good stock. It's a horrible stock.

[Josh Brown]

Okay. This is the price of a stock.

[Michael Batnick]

Yeah.

[Josh Brown]

Can I have one clue?

[Michael Batnick]

I'll give you two more clues or two more looks. We'll. Let's zoom in, please. All right, this is the last five years. Not great. And year to date, please. A little better. A little better. Would you buy this?

[Josh Brown]

Do I own this? Is this Pfizer?

[Michael Batnick]

It could be. No, no, we. We.

[Josh Brown]

Looks as shitty as Pfizer.

[Michael Batnick]

We spoke about this last Week. This is a great American. There's a great American stock that I threatened to buy, which I haven't bought. I'm probably not going to, but I kind of want to.

[Josh Brown]

Oh, Intel, Yeah, yeah, that's the one. Look, I'm sure it'll.

[Michael Batnick]

Look, look, just rewind, just rewind two charts please. John.

[Josh Brown]

At some point of the recover, I.

[Michael Batnick]

Just, I don't know when there's just no more sellers.

[Josh Brown]

Well, my argument is like, why wouldn't you just buy it? Why wouldn't you just buy it when it breaks the downtrend and not get it at the all time low?

[Michael Batnick]

Yeah, yeah, fair.

[Josh Brown]

Like that's how I, I'm not saying like never own Intel. I'm saying like why put yourself through that, that do you have to have the bottom?

[Michael Batnick]

It's not. But I will say it's gone sideways. Literally Since August of 2024, it has gone sideways so far that it is now above its 200 day moving average. Only because it just stopped going down.

[Josh Brown]

By accident just for getting out of bed. I could picture this at 18. Could you?

[Michael Batnick]

Well, I think it's binary. I mean it's not going to go sideways forever. I think it's going to either be at 30 or 15.

[Josh Brown]

Yeah, it looks bottomy, but there's no but there's no fundamental story for why it's going to turn. Yeah, you know, like maybe wait for that. I'd rather buy it up 10 points after they crush an earnings report like Dell just did. Or like.

[Michael Batnick]

See, that's the difference between you and I. I don't.

[Josh Brown]

Wait, one thing though, one thing though is these things do sneak up on you. Like Cisco looks amazing. IBM the worst. IBM looks amazing. IBM looks amazing. These are stocks that went sideways for 10 years. Yeah, so, but I'm not, I'm not doing it.

[Michael Batnick]

All right, Pink pony, huh?

[Josh Brown]

All right, guys, thank you so much for joining us for this extra long edition of what are your thoughts? It's been a pleasure for Michael and I to see you here for the live. Those of you listening in podcast land, please give us a like and subscribe to the channel for God's sake. Also want to mention tomorrow's an all new animal Spirits, Michael and Ben and we will be back later this week for the Compound and Friends. Other than that. Wait, we're not back.

[Michael Batnick]

I'm back, I'm sober.

[Josh Brown]

You're back. Okay. Michael will be back with an all new edition of the Compound and Friends. I will be on my fourth bowl of pasta Bongiordo. Guys. Thanks again. Have a great night. Whether you're just getting started as an investor or you're managing a multi million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial Planner today, visit ritholtswealth.com don't forget to check us out at YouTube.com thecompoundrwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, guests check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.