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
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.
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:
- AI-Driven Boom: Artificial Intelligence acts as a General Purpose Technology (GPT) akin to the Internet or electricity, sparking unprecedented productivity and economic growth.
- 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:
- Earnings Yield – A proxy for valuation and profitability.
- 10-Year Treasury Yield – Indicative of long-term interest rates.
- Inflation – Reflecting the purchasing power and cost of goods.
- 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."
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."
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.
Notable Quotes:
-
"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]
-
"Stocks and bond returns... are the catalysts for return drivers... These forces really drive the earnings and hence stock performances." — Joe Davis [07:21]
-
"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]
-
"This paves the way for investors to access private companies without hefty capital requirements." — Josh Brown [97:46]
-
"Nvidia is expected to generate $250 billion in revenue by fiscal year 2027." — Michael Batnick [109:24]
For more insights and detailed analysis, consider purchasing Joe Davis’s book "Coming Into View" available on Amazon and Barnes & Noble.