Why Valuations Don't Matter

Summary

Podcast Summary: "Why Valuations Don't Matter"

Podcast Information:

• Title: The Compound and Friends
• Host/Author: The Compound
• Description: Join Downtown Josh Brown, Michael Batnick, and a rotation of their friends every Tuesday and Friday for expert insight and hot takes on the latest in business and investing.
• Episode: Why Valuations Don't Matter
• Release Date: August 1, 2025

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Introduction

In the "Why Valuations Don't Matter" episode of The Compound and Friends, hosts Josh Brown and Michael Batnick engage in a deep dive into the evolving landscape of stock valuations. Joined by guest Adam Parker and occasional mentions of other contributors, the discussion navigates through the complexities of modern investing, challenging traditional valuation paradigms and exploring the impact of quantitative strategies and artificial intelligence (AI) on the market.

Time Perception and Studio Dynamics

The episode kicks off with a lighthearted conversation about how quickly time seems to pass when engrossed in enjoyable activities:

• Josh Brown [00:00]: "You know what I notice when I'm here more than almost anything else I do is how fast the time goes by."

This sets a relaxed tone for the episode, emphasizing the camaraderie among the hosts and guests.

Recap of Previous Episode

Josh reflects on the success of their previous episode titled "Buy the Election, Sell the Inauguration," highlighting accurate predictions that have aged well:

• Josh Brown [00:34]: "The title I looked at, I thought, okay, at least that aged well. Because we told people, buy the election, sell the inauguration. And that worked perfectly."

Key Takeaways and Top Predictions

The discussion transitions to Sean's key takeaways, setting the stage for the episode's central theme:

• Sean's Top Takeaways [00:46]:
  • Prediction markets beat polls.
  • Gross margins matter the most.
  • Sentiment is a risk.

Josh and Michael delve into these points, particularly focusing on the notion that "valuation only hurts when companies miss."

The Problem with Traditional Valuations

Josh Brown introduces the core argument of the episode by questioning the relevance of traditional valuation metrics in today's market:

• Josh Brown [01:14]: "We wrote a big note about valuation this last week and... we're going to talk about it."

He elaborates on feedback received, including resistance from traditional value investors:

• Josh Brown [01:43]: "I got some incoming... an old school value PM... he wants to unsubscribe because he doesn't like being insulted. And I'm like, I didn't mean to insult you."

Impact of Quantitative Strategies

Adam Parker and Josh Brown discuss how quantitative (quant) strategies have revolutionized market dynamics, making traditional valuation less relevant:

• Josh Brown [36:02]: "The only thing these quant guys don't do is play during earnings. It ruins the alpha of their algo."

Adam expands on this by explaining the mechanics of quant funds:

• Adam Parker [35:03]: "They run market sector and valuation momentum neutral. And they have a three hour to two day holding period."

This approach neutralizes the impact of traditional valuations, as quant funds simultaneously take long and short positions based on diverse signals, rendering valuation metrics less predictive.

Case Studies: UnitedHealth and Microsoft

The hosts examine specific companies to illustrate their points about valuations and market perceptions:

UnitedHealth (UNH):

• Josh Brown [06:07]: "UNH is up 10,000% as a stock... backing up is plot like drug stocks the last 30 years."

He critiques the disconnect between the stock's performance and the underlying business fundamentals, highlighting issues like rising healthcare costs affecting small businesses.

Microsoft:

• Josh Brown [41:53]: "They have $368 billion of contracted backlog we need to deliver not just across Azure but across the breadth of the Microsoft cloud."

Michael Batnick points out the massive capital expenditures (CapEx) by Microsoft, questioning the sustainability of its valuations amidst heavy investment in AI infrastructure.

The Role of AI in Investing and Jobs

A significant portion of the episode is dedicated to discussing AI's dual impact on investing and the labor market:

• Adam Parker [65:17]: "The Gen Z's are gonna, are gonna hate, they love AI now for their homework. They're gonna hate it."
• Michael Batnick [73:06]: "The worst part of this show for me... when you ask about, like, what TV shows I've watched... and then I feel like a time."

The conversation explores how AI disrupts entry-level jobs, making it harder for recent graduates to secure positions, and how AI-driven efficiency affects stock valuations.

Personal Anecdotes and Interludes

Throughout the episode, hosts share personal stories and experiences to illustrate broader market concepts:

• Adam Parker [02:08]: Discusses taking up golf lessons after an 18-year hiatus, emphasizing personal growth and resilience.
• Josh Brown [02:30]: Jokes about balancing work and fun, highlighting the importance of enjoying the process despite market challenges.

Discussion on Market Efficiency

The hosts debate whether the market has become more efficient, making traditional valuation metrics obsolete:

• Michael Batnick [60:16]: "Maybe it makes sense that the biggest pods of money are talking about three day windows because over the long term everything's already in the price."
• Josh Brown [60:38]: "I think the median company could probably have gross margin expansion in the next six months."

They argue that increased anticipatory behavior in the market, driven by real-time data and quant strategies, reduces the effectiveness of traditional valuation approaches.

Conclusions and Final Thoughts

Wrapping up the discussion, Josh Brown and Adam Parker emphasize focusing on company fundamentals like margin expansion rather than relying solely on valuation metrics:

• Josh Brown [60:58]: "I just find margins. It just makes sense."
• Adam Parker [61:16]: Agrees, underscoring the importance of understanding margin dynamics in investment decisions.

Notable Quotes:

• Josh Brown [41:53]: "They have $368 billion of contracted backlog we need to deliver not just across Azure but across the breadth of the Microsoft cloud."
• Adam Parker [65:17]: "The Gen Z's are gonna, are gonna hate, they love AI now for their homework. They're gonna hate it."
• Michael Batnick [60:16]: "Maybe it makes sense that the biggest pods of money are talking about three day windows because over the long term everything's already in the price."

Final Remarks

The episode concludes with light-hearted banter about personal interests and book recommendations, maintaining the engaging and conversational tone that The Compound and Friends is known for. The hosts reiterate their key message: in the current investment landscape, traditional valuations are less predictive due to the influence of quantitative strategies and AI, urging investors to prioritize company fundamentals like gross margins and productivity.

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Visit Trivector Research for more insights and research tools mentioned by the hosts.

Transcript

[Josh Brown]

You know what I notice when I'm here more than almost anything else I do is how fast the time goes by. Like we do an hour or whatever. We do an hour, 10 minutes. I just feel like it races by.

[Michael Batnick]

It does.

[Josh Brown]

Right? I mean, when I'm with my trainer, one minute takes so long. I mean, the guy's like killing me. But an hour in here flies by.

[Michael Batnick]

Love it.

[Josh Brown]

You know what I mean?

[Michael Batnick]

What I thought you were going to say is that. Yes, I do know exactly what you mean, but I thought you were going to say between appearances. Because the last time you were on, I think it was November by the.

[Josh Brown]

Election, sell the inauguration.

[Michael Batnick]

It felt like yesterday.

[Josh Brown]

The title I looked at, I thought, okay, at least that aged well. Because we told people, buy the election, sell the inauguration. And that worked perfectly. Yeah, that aged pretty well. Because sometimes you say stuff that doesn't age so well.

[Michael Batnick]

All right, so this is what Sean went back and said. The top takeaways, prediction markets beats polls. Yep. Gross margins matter the most. We're going to talk about that again today. Sentiment is a risk.

[Josh Brown]

Supposed to look at you and smile.

[Michael Batnick]

You just.

[Josh Brown]

I'm not, you know.

[Michael Batnick]

All right, so you said sentiment is a risk with nearly everyone bullish. And Wolf, where he left overly optimistic. That was a good call.

[Josh Brown]

Yeah.

[Michael Batnick]

And then I driven margin expansion ahead.

[Josh Brown]

Yeah.

[Michael Batnick]

And then lastly, valuation only hurts when companies miss.

[Josh Brown]

We wrote a big note about valuation this last week and. Josh, we're going to talk about it. Talk about it.

[Michael Batnick]

That's cool.

[Josh Brown]

Yeah, I've gotten a lot of feedback.

[Michael Batnick]

Were you. Were you afraid to publish?

[Josh Brown]

No. Not.

[Michael Batnick]

Not even a little?

[Josh Brown]

No. You know, there are like a. I did get some incoming. I got one old school value PM and a long way firm who asked me to unsubscribe because he said he doesn't like being insulted. And I'm like, look, I didn't mean to insult you. I don't know what you mean. And then he, like, unwound it.

[Michael Batnick]

But you know what? You've been. This is not new.

[Josh Brown]

Right. You've been saying, put these on. Right.

[Michael Batnick]

You've been saying something like this.

[Josh Brown]

Slide this way. Gotcha.

[Michael Batnick]

We've been having this conversation for a decade.

[Josh Brown]

Yeah, we know. We can't buy super cheap stocks. Right? Here, let me. Is there a right in the left?

[Adam Parker]

Yeah. On the inside? Yeah.

[Josh Brown]

The wire comes down the left. Yeah, the wire.

[Adam Parker]

Toward the end of the show. We're gonna get a print from Amazon. Right. And Apple.

[Josh Brown]

I know.

[Adam Parker]

Jesus.

[Josh Brown]

I know.

[Michael Batnick]

Adam was paying us a compliment before you walked in. He said, it's unbelievable how fast these episodes go in the studio.

[Josh Brown]

I was saying, it's really. You know, time flies when you're having fun. And I was saying, I don't know if this happened to you, but you go to your trainer and, like, he's like, you got 90 seconds and, like, a wall sit. And that 90 seconds seems like two hours. And this hour flies by because it's so fun to see you guys. Are you work.

[Adam Parker]

Are you working out with a trainer right now?

[Josh Brown]

No, I. I try to work out every day. I just also eat too much. You know how that is.

[Adam Parker]

But. Oh, really? I don't know anything about that. So I. I'm taking golf lessons this summer.

[Josh Brown]

Nice.

[Adam Parker]

I started in April, and I can actually. I played golf when I was younger. I stopped to raise my kids for, like, 18 years, right? And then this summer, I said, you know what? My kids are big. Nobody needs me on the weekends. I should pick it back up. So rather than screw around for no reason by myself, which I did last summer, this summer, I said, I'm gonna get lessons. And, like, it's amazing. You forget how good it feels when you're terrible at something, but every. But you keep trying and you, like, improve. Because I'm already the best in the world at what I do for a living. So, like, this is an endeavor where I'm the wor. I was waiting for the kick. No, but this is something I'm really bad at, and I'm still really bad at it, but I'm not as bad as I was when I started. And that feels really good.

[Josh Brown]

It's a good feeling when you hit one, like, high and sort of straight and toward the green or just, like.

[Adam Parker]

What'S in the air or just like. Or just, like, you don't expect to do well.

[Josh Brown]

Right?

[Adam Parker]

It's like, all right, this week we're gonna work on chipping onto the green. And I'm like, oh, here we go. And then, like, you can actually do it. And it's like, holy shit, I could do this. It's a really good feeling. I forgot about it because I haven't really challenged myself in a long time, so.

[Josh Brown]

I think you are great at what you do, by the way. I. I didn't. I didn't.

[Adam Parker]

What do I even.

[Josh Brown]

I didn't need to correct that. I think this is.

[Adam Parker]

I'm not even sure what I do, so I'm really. I appreciate you saying that.

[Josh Brown]

I'm not like. I feel like when people meet me, they think that I'm gonna have that like sense of humor where I like to like make fun of. I'm more like a lover. Like I'm like when people ask me to speak at stuff, I don't like doing the whole like insult thing. I like to do like the compliment positive vibes. Yeah. You know, I like people. I like people.

[Michael Batnick]

I was saying to Josh and Ben earlier, have you. Can you recall a stock in the Dow that is crashing, talking about UnitedHealth, it's down 60% while the index is at or near an all time high. That's got to be rare, right?

[Adam Parker]

I think, I think intel, while it was a Dow component, looked that way. Maybe not as fast, but as damaging. But I can't think of a lot.

[Michael Batnick]

The speed of the decline, you know what I mean?

[Adam Parker]

Like it's ge. GE was crashing.

[Josh Brown]

Maybe, maybe say maybe Boeing.

[Michael Batnick]

I looked, I looked at Boeing. So Boeing was falling and then 2020 happened.

[Adam Parker]

It's rare. To your point?

[Josh Brown]

No, it's totally unusual because usually by definition to be that big, you're like a barometer blue chip. Some industry, right.

[Adam Parker]

I think as a Dow 30 stock, it's more. You'll have a gradual decline a la IBM for 15 years.

[Josh Brown]

Like a melting ice cube. Not usually. It's because debt and arrogance cause massive declines. And like this one doesn't have a debt issue.

[Michael Batnick]

What's the story with you? I don't even know what the story is.

[Josh Brown]

Look, if you, if you plot, they're.

[Adam Parker]

Making too much money.

[Josh Brown]

If you plot. Yeah, if you plot. Look, I, I complain about them all the time because I run a small business and we use, we use UnitedHealth and UnitedHealth. You know, if you're married with kids, it's around $4,000 a month for their, for their plan. And they raise it like they raise it at an average of low double digits per year. So you know it's gonna be 4,500amonth next year. Well, when you run a small business and you have nine employees and you add all that up, it's just, it's a role in our P and L is the healthcare. And as you guys know, you don't get a lot for that service. So. But I'd say backing up is plot like drug stocks the last 30 years, Pfizer or whatever, it's kind of unchart. Right. We all have good buddies, I assume that are like general practitioner doctors. And honestly like it's really disappointing, but they're kind of middle class. What's really captured all of the money in the system is, UNH is up 10,000% as a stock.

[Adam Parker]

So funny you say that. It's so funny you say that. Like when you, when we were growing up, like the biggest, the most like, honorable thing in the world in like a Jewish family in the suburbs in New York. I'm going to grow up to be a doctor.

[Josh Brown]

Right? This is like, it still is honorable. It just unfortunately doesn't, in some aspects of the profession, just doesn't get paid what you feel like it should, given the education and the effort it costs.

[Michael Batnick]

This is XLV divided by Spy. It's at the lowest level since 2001.

[Josh Brown]

Right?

[Michael Batnick]

Just crashing.

[Josh Brown]

Yeah. I think UNH is interesting, you know, just to finish on that one question is just, look, I have a buddy who's like a accounting based short guy. He's a total like ninja. And he told me, I've been trying for 20 years to actually understand how they make money. And it's like every time I get down like a hallway, they like close the light off and tell me to redirect. So I think it's getting a light shined on if for some awful reasons the CEO was killed, some other stuff. And I think people are sort of saying, oh, oh, this is a value stock and it could double. And I'm just not so sure. I don't really know.

[Adam Parker]

Well, that's the answer the question.

[Josh Brown]

There's a lot of uncertainty.

[Adam Parker]

They make too much money relative to what the average household can afford to pay. And the amount of denials of claims is the reason why they've made too much money.

[Josh Brown]

Right. It's hard to get.

[Adam Parker]

They don't deny everything, but they deny too much to serve the profit.

[Josh Brown]

I'm sure you know this, probably some of your viewers know this, but there's a whole cottage industry born out of this where, you know, idiots like me can say, you know what? I can't figure out how to get down getting those payments. And you can pay a service to capture some of it for you and just give that person a percent. So I say, hey, yo, you know, we owe 10 grand in various things for, you know, my wife and my kids and me. And like we're, you know, and they'll battle for you. And it turns out that a lot of the way you get your money back is you just have to keep going for an answer. And then that person takes 15% or whatever she takes, and you're like, all right, I'll take my eighty five hundred back. Give her fifteen hundred. That's Better than me. Seven, ten grand. And that's just how hard it is. You need to actually hire people to berate themselves.

[Adam Parker]

Our health insurance comes through the peo and that's their Trojan horse. They offer you a teaser rate for your firm and you say yes, and then they boil you slowly like a frog. And then it comes time for renewal. And all these other PEO.

[Josh Brown]

How does 17% increase sound right?

[Adam Parker]

So all the PEO providers are like, looks like you're up for a renewal next year. And then they offer you a teaser rate. But we learned like it's always fake. It's gonna eventually calling them on the.

[Josh Brown]

Nine employees at Trivarit. And we had a bunch of like outsourced relationships. And like it really helps if you have scale. Like once you get to 50 employees, you know, there's, you can really lower it. So. Yeah, I don't know what's going to happen, but I'm not that tempted to think it's a value, a great value there. And look, if there's a recession, obviously small, medium business, go out of business, whatever, but you know, like everyone else, I'm, you know, going to be a Florida resident, you know, next year and move my business there. My kids are, we're empty nesters now. And so, you know, when I try. Yeah, thanks. And I travel all over anyway, so it's not that hard to spend 200 days outside of New York. And you know, the prices, you know, are more reasonable for insurance and health insurance in Florida.

[Adam Parker]

You're going to have to move your business.

[Josh Brown]

Yeah.

[Adam Parker]

Like the paperwork, you have to say Florida.

[Josh Brown]

That's right.

[Adam Parker]

Because they don't want to hear about six months in a day anymore. New York State now wants to know, but where do you get paid from?

[Josh Brown]

That's true. And it's a very complicated process. You have apps that track the cell tower where you are all day. You have to report it's.

[Adam Parker]

There's too many people.

[Josh Brown]

New York is incredibly diligent at like that one thing which is going after people for taxes, nearly everything else. They're an abomination.

[Adam Parker]

What do you think Hulk Hogan's net worth was when he died?

[Josh Brown]

I have no idea.

[Adam Parker]

Take a guess.

[Michael Batnick]

13 million.

[Josh Brown]

That sounds low. I'll take the over. I think there's been a lot of stuff.

[Adam Parker]

This is one of the, this is one of the most famous people in the world.

[Josh Brown]

I'll take. The way you set that up is probably lower than he's guessing, but I feel like he's gotten a lot of. And I Wonder how they count net worth. Is that like everything? Like the.

[Adam Parker]

I'm picturing Zach Galifianakis. Yeah.

[Michael Batnick]

For God's sake, just give me the damn number.

[Adam Parker]

With the calculations running past your face with the formulas.

[Josh Brown]

I think the other thing is people got paid less back when he really ascended. Right?

[Adam Parker]

That's a good point.

[Josh Brown]

Yeah. What'd you say, 13? Yeah. Could we go. Prices, Right. Rules. And I'll just take the over.

[Adam Parker]

Okay, over.

[Josh Brown]

I'll take over. Double that. 13 million. Triple that. 13 million. One. I'll take 40 million.

[Adam Parker]

Okay. You're close. 25 million. So that was very surprising to me. Died at 71. Wait, which part?

[Michael Batnick]

Which part?

[Adam Parker]

That it was that only 25 million. This is one of the most famous people in the world.

[Josh Brown]

I think that, you know, it's like.

[Adam Parker]

Like, I think if you showed a picture of him to people on every continent, more people would know him than would know Joe Biden.

[Josh Brown]

Probably more Americans. You don't need every contestant.

[Adam Parker]

I think he's one of the. Maybe famous is the wrong word. Most recognizable characters in the history of America.

[Josh Brown]

One of my best, best friends was the head women's tennis coach to the University of Florida for, like, 25 years.

[Adam Parker]

Slept with Hulk Hogan.

[Josh Brown]

No, I'll try to make the bridge. This could be a bridge too far. But he tried to convince the players not to turn pro. And the way he did is he showed them, like, earnings from that career. And I went back and looked at, like, 80s and 90s when Hulk Hogan was, you know, and like Nabra Tolova or whatever, she won like, nine Wimbledon's. Like, her career earnings are so much less than yours.

[Adam Parker]

Yeah, I mean.

[Josh Brown]

I mean, you know, I mean, it's like. So I just didn't pay that much during maybe his ascent.

[Adam Parker]

Maybe. Yeah, I think that's. That's definitely part of it. Also had a bad divorce. No prenup.

[Michael Batnick]

But 25 seems high. Like, to Adam's point, he wasn't making that much in the 80s. Wrestling. I'm sure he's making fine money, but where did all that come from?

[Adam Parker]

Movies and other stuff. Yeah. So, like most, I would bet half of his net worth was earned in the last five or 10 years with licensing stuff. So he died 71. It's under Florida's spousal elective share statute, the surviving spouse, he has a new wife. Is entitled to a minimum of 30% of the deceased estate, even if the will was not updated after they got married. So a third is going right to the new wife.

[Josh Brown]

Then there's the ex wife, two ex.

[Adam Parker]

Wives and an estranged daughter. He left behind an $11.5 million mansion in Clearwater, Florida. So if you're moving down there, you might want to look at the Hulker mansion.

[Josh Brown]

Is that not part of the 25?

[Adam Parker]

I assume it is. I assume it is. This is crazy.

[Josh Brown]

By the way. It's now worth 9.6 because the people. That's worth less because the people who got.

[Adam Parker]

That's like the grace. But that's. That could be. You could position that property as like the Graceland of professional.

[Josh Brown]

But didn't like Michael Jordan's house. Stay empty for like 15 years in Chicago. I don't know what that's in the market. Nobody, nobody, nobody could buy it. Crap all over it. I want it.

[Adam Parker]

According to Trust and Will's 2024 probate study only. This is crazy. Only 2% of American adults realize that probate would take 20 months, which is the average time needed for the process to run its course. 56% majority are totally in the dark about the associated costs. 10% expected would cost less than $1,000. Only 4% of the survey participants are prepared for the probate process to cost more than ten grand. So a lot of people are just not prepared for this kind of thing at all.

[Josh Brown]

This is a big thing. I mean, we're all over the place. But this is a big thing with the nil money these college kids are getting where they actually don't realize they have to pay taxes on.

[Adam Parker]

Yeah, so don't tell them that until next year.

[Josh Brown]

Right. So then April comes around and they got 400 grand for being a third string offensive tackle. And April comes around and you know, they owe 170. They don't have it.

[Adam Parker]

He won $140 million judgment against Gawker Media.

[Josh Brown]

Oh.

[Adam Parker]

In 2016, Gawker Media is a website, a gossip website. They published a sex tape of him with his friend's wife.

[Michael Batnick]

And Peter Thiel backed that case.

[Adam Parker]

That's huge. And then Peter Thiel, like secretly. And then he came out and said, I did this. Backed Hulk Hogan's lawsuit. And they won and he put them out of business. Oh, yeah, yeah, I remember that. I don't.

[Josh Brown]

I forgot that.

[Adam Parker]

I don't know that we need the media to be doing stuff like that. All right, we ready for the show? A lot of adjustments being made. I like that. A lot of preparation.

[Josh Brown]

Preparation. I didn't know we hadn't started. Three claps coming in. 0% chance 0% episode 202 Whoa, whoa, whoa.

[Michael Batnick]

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[Adam Parker]

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[Michael Batnick]

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[Adam Parker]

Visit globalxetfs.com and start exploring new opportunities today. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Holy shit. Episode 202, ladies and gentlemen, you are now rocking with the number one investing podcast in the world. I only have that data because John told me that. Do I have that right? All right, Nicole's dancing in the studio. A lot of enthusiasm. Duncan is here.

[Michael Batnick]

Welcome back, Duncan.

[Adam Parker]

Yeah.

[Michael Batnick]

Were you here last week? Ah, well, good to see you again.

[Adam Parker]

We have a special guest in the studio, my friend Max Frank, who's helping us out with a special research project this summer. You having fun? Yeah. Best special project ever. All right.

[Josh Brown]

I wish I looked like him.

[Adam Parker]

Yeah, well, this kid's. This kid is. He's living the life. Binghamton. Binghamton, okay. And this summer, working on the docks, filling up boats and jet skis with gas. Could there be anything better?

[Josh Brown]

Do I want to be taller or thinner working outdoors? Okay. It's a call a crowded long.

[Adam Parker]

Yeah, no doubt. All right, Max, welcome to the studio. All right, let's start with the Federal Reserve. So we. We had a kind of non event FOMC this week, but not really a non event because I think the narrative coming from the Fed has now gone to a new place. So this is my take on what happened yesterday. Obviously, no cut, but what he said put the September cut, which we thought was a done deal, in doubt. The Fed is now using this term efficiency. They don't want to make too many adjustments. They want to be efficient with the adjustments they do make, which sounds a lot like higher for longer, but they would not say that phrase higher for longer any longer. Cuz. That'll piss off the White House. So immediately we have a chart on this. Immediately the Fed funds odds changed and I think I didn't look at it today but immediately what happened was they went to like 45% odds for September cut, which I think was down from 80 something percent odds. And the efficient Fed monetary policy is now the new hire for longer. What are your thoughts?

[Josh Brown]

First of all, congrats on having the number one show. Yeah, it's amazing.

[Adam Parker]

Well, you make that possible.

[Michael Batnick]

We also have the best cup of coffee in the kitchen.

[Josh Brown]

No, I'm serious. Let's just face it. You're competitive people and they rank stuff. Who number one's good, everything else is not as good.

[Adam Parker]

Agree, totally agree.

[Josh Brown]

I'm just, somebody just asked me to smell the roses out there and I did.

[Adam Parker]

Yeah.

[Josh Brown]

So I'm bringing that in here. Love that.

[Adam Parker]

The second thing is bring his, bring his mic up.

[Josh Brown]

Of all the things that are hard to do.

[Adam Parker]

Yeah.

[Josh Brown]

And I'm not saying I can do it, but I think interest rates is really, really high up the list.

[Adam Parker]

Hard to decide where the.

[Josh Brown]

Hard to forecast the 10 year yield six months out, hard to forecast the front end. There's a function on Bloomberg that most of us have access to W I R P. Right. It's like what, you know, people think rates are going to be probabilities of rates and it's really funny that we're talking about this right out of the gate because I'm moving my office to six floors higher tomorrow. In fact I'm running out of here to get the first stuff moved out a little later today. And I was digging through the file cabinet and I saw something I published as a strategist in 2010 I'd done a detailed survey of institutional investors asking when they thought the Fed would cut rates. And by far and away the highest probability raised rates. The highest probability was six months later, people thought and it turned out to be Expo six years later.

[Adam Parker]

Yeah, they never wrote, they never raised.

[Josh Brown]

So people have a very poor algo for forecasting what the Fed's going to do. They're consistently wrong. I worked at Morgan Stanley for seven years. The interest rate strategists were wrong all seven years in a row about what was going to happen. Again, I'm not saying I can do it. I'm just saying these people are paid for living, they're really smart, they have access to the treasury, the Fed, really smart people and they get it wrong. So the idea that like any of us have any clue, I don't know what I thought I learned through the years is they pay attention to full employment and stable pricing. And if you look at that, I'm not sure they need to cut rates. Right. Obviously you mentioned the key point, which is the president is been clear that he would like lower rates and so that, you know, the economy is too.

[Adam Parker]

Strong to have rates this high.

[Josh Brown]

It feels to me what? It feels incongruous. Right? It feels incongruous. I'm with you. And you know, also like, I'm not 100% sure that if you're bullish on equities, you want them to cut a lot. Like, think about the sequence of how we get data, right? We get the price action and you and I talk about the four prices lead everything, right. Certainly the economy. Then all of us are getting better and better at sweeping new data points. Whether it's on X or LinkedIn or we look at natural language processing, memory, earnings call, transcript, whatever. Then the companies report earnings, then economists do whatever they do. And then the Fed acts. It's like, like by the time the Fed tells you something, it's already way after so many things have happened by design.

[Adam Parker]

That's the data depends on totally we.

[Josh Brown]

So like people are like, it's lagged. I'm like, yeah, no kidding it's lagged. So I look at and I think to myself, well, what was the. What was the best call you could have made? December 22nd. Cover your massive Nvidia and Meta shorts. Get long those same stocks. Why? The Fed was really close to the end of the hiking cycle. They were going to hike a couple more times. We're bullish. What I'm a little worried about is we're kind of close to the end of the accommodation cycle and like, how much more are they gonna really cut until you're like, whoa, they're cutting. Cause things actually got worse. Not, you know, so I'm a little bit worried that eventually people won't be like, the cut's awesome. It'll be like, oh man, things actually did erode at a rate that's surprisingly bad.

[Adam Parker]

He made it really clear that unemployment's the only number that matters now.

[Josh Brown]

Full employment. Yeah.

[Adam Parker]

So we're at 4.1%. My friend Nicolas pointed out in his note this morning that is a lower unemployment rate than 84% of all the time that we've been keeping this data. So it's a historically low. It's not at the low low low, but it's a historically low unemployment rate. And the Fed is only Looking at unemployment at this point, and that is.

[Josh Brown]

Not changing, then they're not gonna cut, right? Yeah.

[Adam Parker]

Thanks to immigration, we have a smaller labor pool. And that's political. That's by design on the political side. And everyone's got those fresh memories in their mind of when they had to hoard employees three years ago. So unless there's some massive AI breakthrough where the Fortune 500 can let go of 10% of their staff and not lose anything at all in the process, which maybe is coming in three years, I don't know. I don't really see what changes the equilibrium.

[Josh Brown]

Yeah, we do a lot of work on that topic and productivity because, you know, it really impacts stocks and how people perceive stocks and margins. And then actually at Trivarit we do a ton of work, you know, you know, on that same front. And. And I think more companies are apt to grow the revenue without net hiring than they are to do a ton of wholesale firing. I think it'll really depend and it depends on the business. Sometimes you have to run things in parallel before you can fire people. So I don't think It'll be a 2026 or 2027 issue. We see massive firing as things are good. Yeah, I think there'll be businesses that could say, you know what, we can less hiring. We can go 3% a year and maybe do no net hiring.

[Adam Parker]

So let's.

[Michael Batnick]

Do you think the stock market rallying? Was the stock market rallying in anticipation of the Fed cutting? Like it seems to not be bothered by it.

[Josh Brown]

I didn't. This is a. You're asking a feel question. And you know, I'm kind of more like a quant nerd about it. But I'd say my feel to your question would be I felt like the market was reacting more toward, you know, this concern that the Fed wasn't going to be independent or Trump could fire Powell. And then when he wasn't like that reaction than it was maybe about the actual cuts or not. But that was like intro, you know what I mean? Yeah, there was like big moves around like, oh my God, he's not really.

[Adam Parker]

Gonna fire him, he's gonna jail him. It should have occurred to me. We didn't give you your intro. You're a three or four time guest here.

[Josh Brown]

Fourth time guys. Almost 2% of your shows.

[Adam Parker]

I know, I'm pretty proud of that. Adam is the founder and CEO of Trivariate Research. For those who are not aware, Trivariate Research is a US equity focused boutique research platform. Adam was the chief US equity strategist at Morgan Stanley from 2010 to 2017. Of course, you see him on all the shows that I'm on. Closing bell, cnbc, halftime report. You've done squawk. You've been everywhere.

[Michael Batnick]

You missed that job.

[Adam Parker]

So I apologize for missing you.

[Josh Brown]

No, I love that. And if I could just do one plug. You know what? Months ago, since we were last on, we started a business selling to financial advisors and individuals insights. It's called Trivector. We got some nice new stickers on the phone here. And. And so that's like $100 a month service. It's been awesome. We do ETF analysis. We give a lot of advice to advisors and people like why they should still, you know, should stay fully invested and how do they dollar cost average new business and you know, how do they think about leverage and things that they asked me. And then we do, you know, sector and industry ideas and recommendations and how should they react to news. And this ETF analyzer we're doing is pretty cool. We give it like letter grades, like portnoy sort of pizza reviews. So people seem to like that because as you guys know, a lot of ETFs aren't exactly what you know.

[Adam Parker]

That's a great business. You know why that's great business? Because there are like 20,000 raas and the vast majority of them just do not have it in their budget to have in house research. The CIO is the founder, right. The portfolio manager is the founder's adult, young adult son. They don't like. There's a lot of firms that need help.

[Josh Brown]

And I'll tell you, you said there's 20,000. There's actually 400,000 individual advisors. Come on.

[Adam Parker]

I mean, like actual firms.

[Josh Brown]

Well, actual compared to your standards, like 20. What I'm saying, compared to like, you know. So that's what you're saying exactly. Right. Because Triv, the institutional business has every day for the biggest 3,000 equities, we download or compute hundreds of pieces of information so we can kind of give them dashboards for data they don't have access to. And I do a monthly webcast where, I mean, you guys have these massively successful road shows where people want to see you. And so for us, like, people can dial in and ask me questions. And I'd say they like that. They. It's almost like they don't even want me to say anything. They just want to ask me, like.

[Adam Parker]

Don'T give away too much though. For 100 bucks. Don't give 100 bucks.

[Josh Brown]

A month.

[Adam Parker]

Yeah, don't give them, don't give away too much. You'll never be able to raise the, never be able to raise the price.

[Josh Brown]

Yeah, you know, it's, thanks, you know, but it's been, it's been great. And, and we're at, we're five, you know, in our fifth year now at Troy Barrett. And so it's, it's good. Like we're investing in new opportunities and bolting on some stuff and, and I'm working a ton but loving it. So it's, it's good. But thanks, thanks for this plug. I forgot about that because I, I just sat down and talked to you guys. I haven't seen you while I'm happy to see you.

[Adam Parker]

We usually don't get 22 minutes into the show before we, I'm cool with that.

[Josh Brown]

I actually, it's funny, I forgot too. I was just enjoying being with you guys.

[Michael Batnick]

So Adam, how do you think about.

[Josh Brown]

Like, we'll play some golf now that you're doing that.

[Michael Batnick]

This might be too short term for you, but I'm just curious. So we have Microsoft up 4% today.

[Josh Brown]

Yeah.

[Michael Batnick]

Meta is up 11% and the market is flat. RSP maybe looking like a double top. Who knows? Like, do you, do you get caught up in like the short term nature of these moves or are you like, dude, it's just a day. What are you talking about?

[Josh Brown]

I try not to, but it's unavoidable. I, I, I'd like to answer your question this way, which is, you know, I try to think about what new news changes my mind. And if you said me like, look, Adam, you've got this optimistic view on equities, but what are you worried about? I can give you a couple of data points I'm worried about and you just hit on one. One is ASML said when they reported that there were some tariff issues. Okay. And I'll call ASML a very real company. They basically have a monopoly in a key portion of producing semiconductors. Okay, so they missed a couple quarters ago. Everyone thought it's China, it's Samsung. It was kind of idiosyncratic. But Taiwan semi reported the same day ASML did beat and raised made a tariff comp but nobody noticed. The correlation between semis and the market are so high that I'm really focused on other semi companies talking about tariff stuff because I just think that the market you mentioned when we were chatting, maybe the market acted great when unh did it, but the market won't act great if semis Don't. Okay. And so I got to sort of understand the contagion on tariffs. The second point is your question you asked me, which is I thought the banks had great earnings provisioned, less good trading like multiple business areas and the stocks didn't go up very much. And you always hate it when there's like a beat that doesn't go up very much.

[Adam Parker]

They had gone up a lot.

[Josh Brown]

They had up prior totally. But you know, you know, you know the best thing is when they miss and it doesn't go down and you're like, all right, it's a cyclical goal with an all clear signal. So on that opposite logic. So I'm a little, little bit worried about your question of like I would have thought the market be up a little bit more today with you know, when I was sitting there last night going like whoa, look at Microsoft and Meta's numbers and look at ebay's numbers and like, you know, this is like, you know on like Donkey Kong and like the market didn't. I thought we're up 1% down. That's what I'm saying. You know, if you asked me at 5:30pm last night, I thought we're gonna be up big today.

[Michael Batnick]

Same.

[Josh Brown]

So I'm a little bit, you know, sensitive to the fact that we're like gonna digest the good news or what's.

[Adam Parker]

Great for Microsoft and Meta doesn't necessarily translate to 90 then ask them 100.

[Michael Batnick]

On the other hand, we've gone straight up since the April lows. You get back 5%, whatever. I mean kind of who cares?

[Josh Brown]

You know, I just think that what's been really hard for most institutional investors who are benchmarked against the S and P is that since the President said it's time to buy stocks, which was probably the best quant signal of the year, just President said, When was that? April 9th at 10am or whatever. I mean he said it's a good time. He was right. You know, what's worked has really been low quality. What we call like hypergrowth junk stocks. So you know, most institutional investors, they raise money from serious people and so they have to kind of say I buy top half quality businesses, they've lagged. And so I've been sort of thinking at some point maybe good fundamentals would result in a bit of rotation out of I don't know what you call your junk proxy. A lot of people would say ark.

[Michael Batnick]

We call it the DJ Dow Non profitable, non profitable.

[Josh Brown]

Goldman's losing less Ark, which is like a hyper growth junk Kind of asset.

[Adam Parker]

We made a Dow Jones out of the most degenerate stocks, just not ETFs and not crypto.

[Michael Batnick]

And it was ripping.

[Adam Parker]

And I think it's. Sean knows the number, but it absolutely.

[Josh Brown]

Has to be dominating Q2. In Q2 it dominates. So that's hard because you want to participate when things are on. Usually the junk stocks work when you're close to the bottom of a recession and you expect a recovery in margins and earnings or you think there's going to be a lot of fiscal stimulus or monetary policy that juices that. What's unusual we had and we saw that on the election. Great red sweep regulatory release, M and A. So you saw it last November and December. It kind of made sense. Okay, there's a bit of a risk on rally small caps worked for a couple weeks around the election too. But then for it to work in April when people generally think the economy is decent but slowly eroding and we don't think there's going to be a massive fiscal stimulus because that's kind of anti doji or whatever. We're already running at a wartime deficit anyway. It's just a little bit unusual to bet on a four month period like we've had of the junk running. So I think that's been harder.

[Michael Batnick]

This is a good segue into the conversation we're about to have with earnings last night. What we're. What we have on screen is the Mag 7 names since the low chart can. Matt knew that Adam was going to be on and he had to step up his game and he did. So the best elite, absolutely the best performing stock since the bottom is Broadcom, which I know is not in the Max 7, but it's Broadcom, Nvidia. And then there's a gigantic gap, gigantic gap. Apple's at the bottom, Meta, Microsoft are 2 and 3 and then Tesla, Amazon, Google are sort of in the middle.

[Josh Brown]

Yeah, but look at those returns.

[Michael Batnick]

91% for Broadcom, 88%.

[Adam Parker]

The point being, there was no need to gorge yourself on junk because look at the returns you got with the AI trade. Microsoft, you know what I mean?

[Michael Batnick]

$4 trillion market cap.

[Josh Brown]

No, totally. And I mean anecdotally, I sort of think Broadcom is even more crowded than Nvidia just because I feel like everyone's there and Hock 10's done a great job and he's on Meta's board. He's kind of like moved himself into the inner circle.

[Michael Batnick]

What is the quant stuff that you look at, say in terms of Crowded trades.

[Adam Parker]

So what was the chart on the right of that?

[Michael Batnick]

It was just a bar chart.

[Adam Parker]

Oh, okay.

[Josh Brown]

Yeah, yeah. I feel like the word crowding is kind of a weird word. Like we used to think of it ten years ago as like, we don't want crowding.

[Adam Parker]

Now you want crowding.

[Josh Brown]

I think, I think, yeah.

[Michael Batnick]

I think depending on the market cap.

[Josh Brown]

I think I did a dinner with eight chief risk officers of big funds this past week and a legitimate huge fund said that they now have a strategy where they get long the meme stocks. So they see, they see Opendoor, they see Kohl's. It's got a lot more options activity, a lot of short interest, a lot more options than equity activity. It's got a lot of short interest. And they see it squeeze from 50 to a dollar, they buy it from a $2. So you're seeing like, you're seeing behavior that's totally different because they can, they can measure that and make money.

[Adam Parker]

So the earlier point that you were making that it's weird to see the low quality junk stocks rallying.

[Josh Brown]

Yeah, people just, yeah, they just reacted to it.

[Adam Parker]

So what if I tell you those stocks are not economically sensitive, they're not borrowers. In a prior era, junk stocks had a lot of debt. These days they could sell equity. All they have to do is make some shit up about we're inventing a flying carpet. So that's 1, 2. So I don't think they're.

[Josh Brown]

Access to the capital markets isn't the issue. I get that.

[Adam Parker]

So I don't think they're economically sensitive. I think they're demographically sensitive. And the demographics, meaning the young investors that's on their side. It's a flood tide of 27 year olds with lots of money who want to have fun. I think it's nothing economically sensitive to those guys.

[Josh Brown]

These guys are just. It used to be a couple years ago when the first meme stuff came out with Gamestop or whatever that people said, all right, what are like, do we sweep X? Do we look for words like what are the household name stores that the 27 year olds will try to squeeze up higher? But when you look at Kohl's, I think people have been shorted for years. It's basically going to be pickleball ports, courts. At some point the whole thing makes no sense. And it's gone from 60 to 7 or 8. And so people were just happy to be short this melting ice cube forever and then it gets squeezed to 14 in one minute.

[Adam Parker]

I'm surprised that they didn't learn anything, though, from three years ago.

[Michael Batnick]

Yeah, clients, like, still doing this.

[Adam Parker]

Why would you be short. Kohl's down 95% from a tie with. With 35% short interest in the stock.

[Josh Brown]

When we ran our hedge fund, we, you know, really didn't short any stock that traded below $10 a share. It's just. It's dangerous. Yeah. You know, you shortened to five. So the open door thing to me is crazy. Was 50 cents, and you were shorted. Like, what are you doing? Like, I mean, right.

[Adam Parker]

Why are we shorting 50?

[Josh Brown]

It goes up 5 cents, it's 10. I mean, whatever. Like, you know, that's just insane. But I. I think. I think the point is just that, you know, the. The retail investor is a little less sensitive valuation.

[Michael Batnick]

A little.

[Adam Parker]

No, it's irrelevant. It's not even in the conversation.

[Josh Brown]

It's not in the conversation. I did this several years ago. I had this guy, Igor Tolshinsky, who runs World Quant, at a conference, and he did this whole thing. Talents everywhere. We have 2 million. We're creating millions of signals a year. And it was like 250 people in a room when I was in strategy, Morgan Stanley. So I said, hey, just give us one of the 2 million signals, man. Help a brother out. Give us one signal. And he goes, low price. And everyone laughed. And I went back to the office and I met my team, and I said this was like hiding in plain. This guy's not frigging kidding.

[Adam Parker]

Okay?

[Josh Brown]

You go to certain countries at that time, I said, it's Vietnam and other areas. People just buy $3 stocks. They think they're cheaper than 8. Then we studied splits in America, and they generate subsequent return. You can divide a numerator and denominator by 3. Why does it generate subsequent return? Because people think it's a better deal when it's lower. They don't even know about the denominator, even here in the U.S. even some retailers.

[Michael Batnick]

So it's stupid. It's genius, right?

[Josh Brown]

Okay, so this guy was in our face in front of 250 of the smartest quants, every firm. And he's like, low price. And so. And so I think that's. That's an important issue. The other thing is a lot of money now is being run valuation, neutron purpose. So I don't know if you guys talk to, like, folks who run quant money, but it's kind of important for people to hear this. So take any of the big multi strats. You know, they're just 15 or 20 of them. People know the names, okay. And I don't want to, you know, single anyone out because they're all clients of Trivarit. But a lot of them have like 35 quant teams. Quant team can be one to five.

[Adam Parker]

Guys, separate pods doing different quantitative things.

[Josh Brown]

And they run 50 to $150 million each. You may be like 50, 150 million, that's nothing. Okay, calm down. There's 35 teams, they run 6 to 1200 gross. Now it's a $20 billion quant business. Does that sound bigger to you? Here's the part that's crazy. Each one of these teams has hundreds of longs and hundreds of shorts. They run market sector and valuation momentum neutral. And they have a three hour to two day holding period. Their long dated strategy is, is 10 days a turnover, 10% of the day. So you want to know like why you, you bought a stock like Microsoft. It was up a lot in the aftermarket and then it faded afterward. Because the only thing these quant guys don't do is play during earnings. It ruins the alpha of their algo. As soon as his earnings is over and there's a lot of liquidity there, they're going to grab that with something else. So you see a lot of guys short stocks that miss and they're happy and then it goes up the next five days. Their longest stock competes and it goes down a lot of that system. There's 15 firms that are doing what I just described to you. So everyone thinks like nobody cares about valuations. They don't care about valuation because they're long crazy expensive stocks and short crazy expensive stocks on purpose.

[Adam Parker]

And they watch.

[Josh Brown]

Yeah, they're valuation neutral. So some of that stuff, the impact that that has in the market when there's 10 firms with $20 billion on balance sheet with three hour to two day holding period is massive. And you're like a long only guy. You're doing real work and you're holding stocks for three years. Why is my stock going down? Why is it going down? Because everybody who's trading a day does not care about what you care about.

[Adam Parker]

Yeah.

[Michael Batnick]

That's opportunity.

[Josh Brown]

Yeah. Over and so durations they're focused on two days. Yeah.

[Adam Parker]

So if you're focused on five days and, and you, and you can like make it through the next two days.

[Josh Brown]

But if I told you your job and any of all these multi strats have fundamental guys who do who they have to call the quarters. If I told you, look, you're going to cover a consumer book right now. 30 longs, 30 shorts. You're a smart guy and I told you you're going to get paid. If you get the quarters right, all you're going to care about is what's in the price, who's going to be and who's not. And you have to be long, short, you're going to be neutralized. And then These guys make $20 million in one year.

[Adam Parker]

You know what's so hard about that? Michael makes this point all the time. If you were to do a sports betting strategy like that, at least you know the odds. So like if, if the Giants beat the Green Bay packers, they were supposed to lose, right? They were getting 10 points. And not only do they not lose, but they win. Everyone knew what the expectations were going in. They're published, they're literally published on the Internet.

[Michael Batnick]

So these guys get paid.

[Adam Parker]

We don't know.

[Michael Batnick]

These guys get paid $20 million to figure out the odds before they report.

[Josh Brown]

Right. I would argue that real long term investors are really doing some kind of Monte Carlo. Like they're saying, well what's in the prices thing has a 10% chance of being successful. I think it's 40% and there'll be asymmetric upside. Like that's really what they're doing.

[Adam Parker]

They're guessing the expectations of everyone else.

[Josh Brown]

Playing a distribution game. But the guy's calling the quarters like they're, they have to bet on upward.

[Michael Batnick]

They're Vegas. They're basically handicapping the stock.

[Josh Brown]

But they have the ability to do things in detail. Talk to experts, go to court case. Like they're diving in at a level that somebody who's running $50 billion with 20 names or 40 names trying to be at this. They're, they're not. Right. So it's, they're playing a different game.

[Michael Batnick]

But how do they know what's like expected? Is it just like the whisper?

[Adam Parker]

Remember the whisper number back in the day.

[Josh Brown]

Talk to every sell side analyst, Talk to your peers on the buy side. Go to idea dinners, hear what people are saying. Go to sector specialist dinners, ask what they're saying. Look at every natural age processing for a two day trade. It is. But if you're running 100 million at 8 to 1200 gross and you get it right?

[Adam Parker]

Yeah, no, totally get it. The reaction stuff adds up the reaction to Microsoft. So just, let's, let's just go here because I think this is, put the table up. So we're looking at what do we think the reaction is by the close.

[Michael Batnick]

Well, it's a pretty big fade. It's on the lows of the day. It's up 3, but it's up, it's up 4%. It's still, you know, all time highs. It gapped up to 555 and it's.

[Adam Parker]

Now at 530 on a stop. That's 35 times. Yeah, 35 times forward PE. And based on, based on this chart, what you can see is in Q1 of 2023, which is really not that long ago, it went into the earnings at 23.8 times. So it's a lot of turns higher on forward multiple and it's still rallying.

[Michael Batnick]

So this is interesting.

[Josh Brown]

This is from the revenue was massive.

[Michael Batnick]

I mean we'll talk about that in a second. This is from consensus media. They do great work here.

[Josh Brown]

I was just about to look up the revenue.

[Michael Batnick]

What stands out to me here is that they've beat on EPS the last X number. What is this, 10 quarters in a row? Whatever it is, whatever it shows, it's beat every time. But the single day reaction, lot of pretty deep red, right? Like a lot of pretty deep red.

[Josh Brown]

It can be, you know, it can be.

[Adam Parker]

I think that's the part that's hard. You don't know where the number, the, where the whisper number is.

[Josh Brown]

And it's also like you said, how much is rallied for first and you.

[Adam Parker]

Know, how much is it up before the.

[Josh Brown]

And it's not just what they reported but what's the implied guidance. Did they change the full year guidance enough that people, we saw that a little bit yesterday where a company beat, like carrier beat but didn't raise the full year number. It's. People thought the applied number was low, whatever, there's a lot of that. Then there's. What about the gross margin? Was there a mix issue? Some people focus just on the Azure growth or the aws, you know, so it's really hard sometimes to isolate. One of my friends said this to me years ago, it's a 19 variable problem and we have to isolate it to one so we can understand this is too many variables to get right.

[Michael Batnick]

Last night G Monster said tonight is a breakout moment for AI Meta and Microsoft. Meta and Microsoft just sent a message.

[Josh Brown]

Who said that?

[Michael Batnick]

Gene Monster. Meta and Microsoft just sent a message to every company. There's gold in those hills.

[Adam Parker]

I believe he met Herman Munster.

[Josh Brown]

I don't know who Gene Munster is. I apologize.

[Adam Parker]

No, Gene is like one of the top technology analysts. They call Gene when Dan Ives is busy.

[Josh Brown]

Gene's good Oh, I just don't know who it is.

[Michael Batnick]

Gene, I'm shocked that you don't know this guy. He's been around forever.

[Josh Brown]

Okay. I just don't know him.

[Adam Parker]

Yeah, we'll connect you. Finally, somebody said something positive about AI is important.

[Michael Batnick]

So throw this as your chart up, John.

[Josh Brown]

So the guy's bullish on AI and he's kind of saying we got what we on.

[Adam Parker]

Well, breakout moment just in terms of like it's another capex guide hire from Microsoft that's rewarded Meta. Yeah, and meta reaffirmed and actually raised.

[Josh Brown]

The lower bound point of the thing came up. Yeah, yeah.

[Michael Batnick]

So this looks fake. This is from Alex Morris. It's Microsoft's Azure revenue run rate.

[Josh Brown]

Look at, yeah, look at Nvidia's revenue run rate looks, the chart looks the same.

[Michael Batnick]

Yeah, it's unbelievable. It's unbelievable.

[Josh Brown]

I put one in my note on you. You respond, you email me, Josh, I put one on Nvidia. It looks exactly the same.

[Adam Parker]

This is one of the stocks. Look at the consistency of this growth. Every single quarter for seven years. You, you almost like you couldn't, you couldn't have a better business. And it's insanely profitable by the way.

[Michael Batnick]

So listen to that. Speaking of profitability, this made me laugh. This is, this is in the deck. Microsoft cloud gross margin percentage decreased year over year to 68% given driven by the impact of scaling AI infrastructure. They're spending all this money and the margins are still 68%.

[Josh Brown]

Yeah.

[Adam Parker]

How about 120 billion annualized capex run rate which is almost 40% of revenue.

[Josh Brown]

I'm not surprised. We used Azure out of the gate at Trivarit to do storage and compute because they charge a little less for storage than AWS and we don't use as much compute. So given what we do. But we ended up getting rid of them. I'll tell you why they, it's, you know how like in a casino you can't find like the exit door on purpose? Like they don't want you to. So we were, I forget what our bill was.

[Adam Parker]

No clocks, no windows.

[Josh Brown]

Yeah, exactly. So maybe our bill at Trivaria was 6,7 grand a month to do what we did. And then one month I get a bill beep ten grand. So I just email like, hey, that seems on a percentage basis like a fairly chunky, you know, increase. Is there any. Did we use more compute? Did we, you know, did we use more storage? Like, and like it took three months to get an answer back from these guys. And I'm like, look, I'm not going from 84 to like 120k annual run rate without an email. And so I found these two dudes who do my it, these two guys. And I was telling this to a client, they're like, what's the ticker? I'm like, no, no, it's two guys from New Jersey. Yeah, exactly, it's two guys. Anyway, so. And they kind of like kind of got me my own serves for way less money. So I got rid of. I think the Azure just has pricing power that people aren't paying attention. They just keep raising on you.

[Adam Parker]

You don't notice I think within. So one of the things why the.

[Josh Brown]

Mars is so high.

[Adam Parker]

One of the things about Azure, early on, like 10 years ago, 2015, at the dawn of the cloud computing era, there was a debate, is Microsoft better positioned than Amazon or any other competitor Google? And the smart answer, which I didn't know, but somebody explained this to me, the smart answer is Microsoft. Because the world is filled with people who have earned IT credentials as Microsoft experts for the companies they work for.

[Josh Brown]

So if you already are, there's GitHub, there's LinkedIn, there's a lot in the Kuritsu there that people use. I mean we use it, we use it a lot, you know, but the.

[Adam Parker]

IT professionals working at the Fortune 500 their Microsoft credentials. So that's what I'll give you.

[Josh Brown]

One other data point. At the beginning of this year Gartner, which is a big kind of IT services company, came out with the 10 technology trends for the next few years. So we thought let's search Every earnings call transcript 400 tech companies and let's look for any evidence of what these, you know, and I'll keep ambient intelligence. Your computer's off, it's monitor you disinformation security. So people send you bullshit and IT has to flag it for your it. Poly functional robots, post quantum cryptography, agentic AI, so agents, all these things. So we tagged the stocks and we kind of created baskets and we follow their returns and multiples, whatever. And one of my big summary points, we wrote this in January of this year was holy crap. Like Microsoft's in a lot of these areas. Like Microsoft it was in like five or six of the nine areas. And so one of our main conclusion points was people might be slightly underestimating like the number of balls they have in the hopper and a number of these areas. So it's kind of funny you say that because I kind of feel like they've invested in A lot of different areas. I sort of feel that way about Google too But we'll see 100 million.

[Adam Parker]

Monthly active users on CoPilot. 800 million monthly active users using different products within Microsoft that include AI.

[Josh Brown]

I don't think the product is that awesome but I think I'm a user too. It tries to predict what words I'm going to say Teams is the worst.

[Michael Batnick]

Thing ever which is completely irrelevant. So the big question now is the capex like that the whole market is hanging on that and Josh mentioned that they got it to over $100 billion. They're talking about 30 billion for fiscal Q1 and I mentioned that chart earlier looked fake. This sounds fake. I don't know what this number means but here's a quote from the call when you think about the full year comments I've made on CapEx as well as a Q1 guidance of over $30 billion. Here's the part you first have to ground yourself in the fact that we have $368 billion of contracted backlog we need to deliver not just across Azure but across the breadth of the Microsoft cloud. I don't even know what that means. $368 billion in backlog. I meant to. Even if it's half of that.

[Josh Brown]

Well these businesses were high single digits capex of sales and now they're going to be like 15% so that math kind of checks out. That doesn't seem crazy to me.

[Adam Parker]

Michael has a capex. Michael has a capex to revenue chart or a capex to headcount chart of all of the gigantic and they're all spending this way. The only one that's not is Apple. Apple's capex for this year is 11 billion.

[Josh Brown]

So I guess the question kind of back to your world are they living in. Back to your crowded question. So there's a lot to talk about unpack here. Right. Because a cynical person could say look, they're not going to get the return on this investment. The depreciation burden their cogs goes up.

[Michael Batnick]

Because I've never seen anybody talk over the bike. You got to talk into it.

[Josh Brown]

I feel like it's in my way.

[Adam Parker]

I'm telling you a secret.

[Josh Brown]

I feel like it's in my way. Sorry. Thanks for. I'm not as comfortable with this number one shit as you guys are. No. So the CapEx sales, the CapEx has like a three to four year useful life. Right. So the problem is you depreciate that really quickly over your P and L and so there could be a burden on your cost, your gross margins go down, then your multiple multiple goes down because that price forward earnings you showed is really correlated to gross margins for most businesses. So the risk would be they don't get return on it and depreciation is up, margins are down. And so that's definitely one of the biggest couple of big investment controversies. But I think it's a little bit like the crowded question. I think you may ultimately be proven to be right if you're bearish. The return isn't there, but you might not know the breadth of proof cases till the end of 2027 or 2028. And so it's a long time to sit out. You're saying it's 8:30, the main course is about to be and there's a massive party after with the most beautiful people in the world and like the hottest singers. But you want to leave now because like you want to, like you're worried about your parking, like, like the exit, like how fast you're going to get onto the highway.

[Michael Batnick]

Check this out.

[Josh Brown]

Last thing I have in Microsoft, right, like your parking spot at the stadium is, you know, also from Alex Morris.

[Michael Batnick]

All right, so R and D expense of Microsoft nearly tripled over the past decade from $12 billion to $32 billion over the same period. But it declined by 150 basis points as a percentage of revenue. This is unbelievable.

[Adam Parker]

That's productivity. Sounds like productivity.

[Josh Brown]

Unbelievable. They came out saying they, they saved 500 million on something a couple, a couple weeks ago. Right? And you know, I don't know how to think about that because you know, you can do some monkey business with the accounting. I don't want to, you know, take people deep in the depths of the accounting. But like, you know, I remember years ago when I was a semiconductor analyst, I used to cover intel and others. Intel would do this thing where they'd have a new technology like a new wafer. And so they would first have that in the depreciation and then they'd say when we're really close to doing it, we'll count it as R and D. Or they'd move dollars from R and D back to cogs. And so what happens is the gross margins go up even though the operating margins doesn't change. But the stock market reacted to changes in gross margin. So there's some fluid stuff around what you're investing in. AI, whether you call it Capex, whether you call it R and D. I wouldn't spaz about it. I think it's just that the Net Margins and the revenue have been good. And the stock's up because of that. That chart you showed earlier.

[Adam Parker]

Let's do Meta quickly and then we have other stuff to get to.

[Josh Brown]

Yeah, let's talk about cooler stuff than this.

[Adam Parker]

So Meta said there are 8 billion people on earth and Meta said 3.4 billion of those people actively use either WhatsApp, Instagram or Facebook on a daily basis.

[Josh Brown]

Seems right.

[Adam Parker]

There's never been a company in the history of the world that has had this percentage of humanity as a daily active user. The Stock is now 27 times earnings. Is that high enough? Given like how powerful this company's ability is to reach into everyone's minds and decide what we buy, where we go, how we shop, who we talk to, it's pretty scary. Here's a chart from shark kid matt. 43% of the world uses Meta every day. And that number for context was 26% of the world in 2018. So. And that was, I don't know, they had a billion users and people said, how do you get bigger than a billion? Well, this is how time.

[Josh Brown]

Yeah, I think that it's hard to know like what the right multiple is. I'm taking your question. Sorry, I keep leaning over the thing, put it right in my face. I think it's hard to know what the right multiple is because if I said to you, let's rank order these big companies about which ones we're sure are going to be around in 2040 or aren't going to be majorly eroding in 2040, I might put Meta higher up the list than some of the other companies on the list.

[Adam Parker]

Yeah.

[Josh Brown]

You know what I'm saying? Because you're not sure like, you know, do the kids. They gonna use the next generation gonna use it? You know, they do.

[Adam Parker]

They're on Snap and TikTok, but they're on Instagram.

[Josh Brown]

They do, but, but, but you don't know about 2040. Right? Like I didn't know that, you know, when I was a kid. Sorry, I'm the one.

[Adam Parker]

No, it's us.

[Josh Brown]

It's false. Making you look. You made me insecure about my face and over it. I'm not used to having large cylindrical objects in my face, so I'm just trying to get it right. So, you know, I think that there may be some longer term logic to why it doesn't trade at quite as high multiple as the other businesses. And I would argue like some of the other ones have like we talked about Microsoft, they have like eight or different nine or different things that could work out. Right. Like, I know LinkedIn, when people first saw the sides of the deal, were like, whoa, they overpaid for LinkedIn. Well, now it's like, I see a Data point like, LinkedIn says there's 38,000 more job openings this week than last week. And I'm like, oh, that's much more interesting than the jobs report that comes out the first Friday.

[Michael Batnick]

Crushing it for them.

[Adam Parker]

Actually, LinkedIn revenue for back to Microsoft is up 9%. But they said every quarter, they said there's been a slowdown in hiring activity.

[Josh Brown]

So is that more interesting to you than whatever the fright. Right, that's what I'm saying. Exactly.

[Michael Batnick]

All right, last thing for me on the meta thing. Adam, we can move off. This is again, the capex.

[Josh Brown]

I think 30 times seems right. I'll give a number, John.

[Michael Batnick]

Charlotte on, please. So they have a chart showing their quarterly and year to date capex in the most recent quarter versus the prior year. And it's just unbelievable. I mean, and they were getting killed in 23 and 24 for losing all the money in reality labs and investing so much money. Last year was $15 billion year to date, and now they're 30.

[Adam Parker]

Half of that is hiring people.

[Michael Batnick]

What do you mean?

[Adam Parker]

Paying a billion dollar salaries.

[Michael Batnick]

I don't know if that's in here, but either way, it's just, it's wild. They are all the way in.

[Adam Parker]

I think if you read Zuckerberg's letter, which he put out the day of earnings. Yes, he put out yesterday. It's basically like all these other companies that are doing AI, they envision it as a way to replace people and we see it as a way to empower people. And that's why we're different. I think their vision is like, they're going to standardize the whole world. They have 3.4 billion in their audience. We're going to stand, get everyone standardized on our AI tools.

[Josh Brown]

Do you have the array bands? Do you have the meta bands? I feel like, I feel like you, me, I feel like you're the kind of guy who would have them at all.

[Adam Parker]

I'm not. I'm the opposite of that.

[Josh Brown]

You're not an early technology adopter.

[Adam Parker]

No, it's not that I'm not an early adopter. It's that, that particular kind of thing. Walking into a room and having people feel like I'm filming them, that's like what I'm trying to. I'm trying to avoid attention when I, when I move these days, I'M not. I would not be that person.

[Josh Brown]

Interesting. You know, I think if you were.

[Adam Parker]

If you were at a house.

[Josh Brown]

I don't have my. I don't want.

[Adam Parker]

If you were in a backyard barbecue with a whole bunch of people you're friends with, some of them, some of them you've never met before, and somebody walks into the backyard with cameras on their sunglasses, how anxious are you to be in that person's line of sight throughout the course of that day? Because I am going in the house to watch tv.

[Josh Brown]

Yeah. I. Yeah, I don't really go to parties or have friends, so I fair. That's a fair point.

[Adam Parker]

I did know that.

[Josh Brown]

It's a weird application. Like, the worst part of this show for me, and I thought about this for the first time ever, is at the end of the show, you ask about, like, what TV shows I've watched. And then I feel like a time. If you want to talk about, like, the books, I'm in. But, like, I just. Everyone's like, did you see this one? And I'm always like, I hate tv.

[Adam Parker]

Now, what is a book?

[Josh Brown]

All right.

[Adam Parker]

You wrote. You wrote.

[Josh Brown]

I actually prepared this time to think. Now you won't ask me.

[Adam Parker]

Of course I will ask.

[Josh Brown]

You shouldn't have mentioned it.

[Adam Parker]

You wrote this week. You wrote a piece about why valuation doesn't work.

[Josh Brown]

Yeah.

[Adam Parker]

Was it last week?

[Josh Brown]

No, Sunday.

[Adam Parker]

Fantastic. It was so good. And it's not. Look, value investors don't need to be piled on. And that's not what you were doing. I think you're trying to catalog the various reasons why it's been so difficult. I could answer it with one term. Just say cloud computing. And if I just say that and I show you a chart from 2015 that pretty much answers everything. But you, I thought, did this more thoughtfully than I would. What's the message about why valuation doesn't work for picking stocks anymore? And after we go through that, we'll diagnose whether or not some of those things will ever reverse.

[Josh Brown]

Yeah, I mean, part of me thinks it's like, I could teach a semester at school about that. Like, to answer it in 30 seconds isn't easy, but I'll just say we.

[Adam Parker]

Will spot you 60 seconds.

[Josh Brown]

60 seconds. I'll say it's because the market makes stocks cheaper. Stocks that get cheaper on average get cheaper for a reason that the fundamentals are more likely to be impaired and stocks that get more expensive get more expensive on average.

[Adam Parker]

Has that always been the case?

[Josh Brown]

Less than it used to be. And it used to Be listen, I'll answer it this way. I used to think value investing made sense and growth investing was crazy. In the late 90s when I was forming my investment mistakes, I'm like, all right, well I know like how much of a discount should happen in recession. I know where demand and supply is and when they'll run out of ability to borrow money and I'll just kind of dimension the value. And growth was like I'm licking my finger and there's something called a tam. It's a total available market and that guy doesn't know, you know, whatever. And so it just made more sense to me. And now I'd say it's like the exact opposite. Like if I show you every stock that trades about 10 times forward earnings in the mega large cap universe, there's in a single one in there, you'd be like, whoa, that's kind of surprising that American Airlines is cheap. Like of course it's cheap. It's going to file for bankruptcy in the next 10 years or whatever. Like you know the auto, the traditional autos. Did you know that General Motors traded a low price point? Like there's nothing on that list. It's all cheap for a reason. A reason we understand. And so the value guy is just gambling on some future improvement that they can't see and have no visibility on because if they could, we would see it too.

[Adam Parker]

That sounds more speculative than betting that people will still want iPhones next year.

[Josh Brown]

Betting on AI working, you know. So I was at this pitch for a public AI high fee fund from this billionaire investor was raising money on JP Morgan's private network and I was like, I don't want, I'm going to hate this. I want to hear this pitch and I'm going to be so cynical I'm going to mumble about it. When I walked out and even with my negative pre attitude, the guy crushed it.

[Michael Batnick]

How much did he give him?

[Josh Brown]

So it's funny, he said the answer is zero because I'm a cynical guy, but I was with somebody, I'll answer the question. So what happened is it's like a high fee public and you're buying Nvidia and Broadcom and infrastructure. And by the way, it's all up 50% since the guy raised them. So the person dog and pony show said hey, isn't this all obvious? And then he gave an answer and I was like, this guy's money. He goes, yeah, you know, this guy's got several billion dollars personally. And he goes, is it chamath he goes, I have made 120% of my net worth on things that everyone else told me was obvious and then lost 20% on everything else everyone's ever told me about. And I was like, huh, okay, so you bought some cloud computing 10 years ago, you're buying some AI stuff now and you're trying to get me to sell it when there's seven years left in the cycle. Come back to me. And like I said, you at the party, it's 8:30, there's a dinner and a band and a party till 2am and it's 8.30pm you want me to leave because it's at 27 times earnings on Meta. Great.

[Adam Parker]

Show us these charts.

[Josh Brown]

That's how I feel about it.

[Adam Parker]

Here's a price to forward earnings over time. So how does this figure in? This is part of the AI answer.

[Josh Brown]

So I just think Costco is a poster child for a company where you get margin expansion. It gets a higher multiple. This thing is a low margin business and the multiple got to over 50 times late last year on forward earnings. And the reason is because their net margins were going up and people thought they'd do a better job of monetizing at the door and all that kind of stuff. And I pointed it out because there are a lot of really low margin businesses in the market. I'm recommending McKesson and card Olinsencore. They're drug distributors. For people listening. If they knew what the revenue of McKesson was, if you guys knew, I'd be shocked. Okay, McKesson is 360 billion revenue company one year at 1% margin. They're a drug distributor pass through. If they can somehow predict employee and customer behavior better and margins go to 1.5%, that's 50% earnings growth. It's going to trade at 25, 30 times earnings. So there's a lot of these like tens of thousands of employees, tons of revenue, billions of dollars, low margin. And if AI enables them to predict behaviors better and margins go up a little, you'll see Cintas and Costco and Walmart and all these businesses. So there you want to not one, but a valuation mean reverting guy is going to say, oh well, this thing looks expensive. And all they're really doing is shorting companies that have potential for margin expansion and productivity. And so that's like a key to why I don't want to use valuation in like a three year window to pick winners or losers. Another thing would be, and I don't know if you're about to show another chart.

[Adam Parker]

You have Nvidia as the poster child of AI revenue beneficiaries.

[Josh Brown]

Right. So this looks like your Microsoft chart you showed. Looks fake. The right half of that looks fake. They got it up in May of 23.

[Adam Parker]

It looks like a projection.

[Josh Brown]

Right. It just looks like some idiot first grader dragged across an Excel.

[Michael Batnick]

Yeah, like in Silicon Valley.

[Josh Brown]

Exactly what you criticize, nuanced for. Like, dude, did you just drag that across Excel? Like put some cyclicality in. Like, what are you doing? You're fired. Right, so that's an obvious. You know, everyone knows the revenue beneficiaries. We talked about that. I think the part that's tricky for people, I don't know if you have another one, is just the impregnable businesses. So whether it's, you know, aggregates or toilet paper or, you know, water or waste management or whatever, like those stocks can trend higher not because things changed at all, their growth algo changed, but because in 2030, I know I'm still gonna have waste, I'm still gonna need water and toilet paper. And so the relative 2030 estimate achievability got better. And all you're doing if you short them on valuation or sell them is saying you don't wanna sell. You're selling businesses that have a higher probability of being around than others. Right. I showed another one. I think I picked Getty Images or something of like. That looks really cheap versus history. Do you think that makes any sense to get long? Cause it's cheap? No, like you don't want a long. Companies that have a whole like tax, accounting or there's a bunch of software companies were like, they're not going to exist. So they got cheaper for a reason. The reason is they're more likely to be disrupted.

[Adam Parker]

Number two, the way quantitative money is managed, we're going to go. We'll go through all six reasons.

[Josh Brown]

Yeah, so that's what I was talking about. The whole valuation neutral stuff with the thou, you know, 100. Yeah, so that, that they don't care. They're long and short the valuation.

[Adam Parker]

All right, three, we did this too. We tell investors the less valuation. We know that. Okay, wait, hold on.

[Michael Batnick]

I have a question. So. So cheap stocks, shitty companies, let's call them shitty companies get cheap, they stay cheap, they get cheaper until they just die. Does that mean that the market is more efficient now than it used to be? Because there used to be an overreaction to the downside.

[Josh Brown]

I think it just means that the market has gotten more anticipatory it used to be years ago people would say, well, I want to buy the stock because it's already discounting most of recession. So even if we have a recession, it's already discounting it now. Stocks that get cheap into a recession are still the worst. During a recession. The market is right to take them down in an anticipatory fashion because the market knows they're most imperative. The market gets increasingly anticipatory. I think that's the answer to your question.

[Michael Batnick]

So maybe it makes sense that the biggest pods of money are talking about three day windows because over the long term everything's already in the price.

[Josh Brown]

I think that valuation will work and I want to avoid incredibly expensive stocks and incredibly cheap like the top and bottom decile.

[Adam Parker]

But stay in the middle.

[Josh Brown]

I think in the middle, then I don't have to worry about valuation at all. I just find margins.

[Michael Batnick]

It's all about margins.

[Josh Brown]

Yeah. Margins are accelerating revenue or other fundamentals. So yeah, I think that makes sense. Yeah.

[Adam Parker]

You point out that valuation has not worked for a long time. Like this is not new. No, it's just getting worse. Seems more extreme. Right, okay. Behavior into a recession. Did we just talk about that?

[Josh Brown]

Exactly.

[Adam Parker]

All right. And then valuation being related to margins, I think that's like a really key point. It feeds into my cloud computing shtick. It's like these are companies that used to have a computer room. Like if they wanted to expand they would have to buy more servers from Dell and hp. They would have a cost that just isn't there anymore. It's a different type of cost.

[Josh Brown]

Part of who we talk to are like these cross asset guys or usually like if I go out of the US or I'll say people over a certain age and I'm 56, so I'll say my age or older, they tend to sort of use like Grantham or Shiller, PE or Cape or like a valuation mean reverting framework. And they'll say, well, I want to be underweight US equities. This is a TMT bubble like 2000. And I don't agree with that. What I push back on them is I say all you're saying is you think margins are going to get killed for US equities because if I show you how much market cap has above 60% gross margin today versus history, I show you how many companies have high margins. All you're saying is that you think margins are going to get killed. So I like the example of do you think there's anything that's Worth more money than anything else. Do you think the Four Seasons is worth more money than Motel 6? If they were both $40, which one would you choose? Yeah, right, like they're not going to trade at the same multiple because one is growing faster and has higher margin superior to the other.

[Michael Batnick]

So this is what they got wrong. The Bears. This is from Duality research. And in 2017, 2018 when we were hitting quote peak profit margins, it was really difficult to foresee that the mega caps would continue to take market share to expand their margins. It was impossible. But that's exactly what happened. We're still at all time highs in the market because we have all time highs, all time highs in profit margins.

[Josh Brown]

Yeah, the median stocks margins in the top 500 aren't all the way back at highs but they're certainly up a lot from where we were six, nine months ago. And the mega caps are high. So yeah, S and P maybe on a dollar basis that's true. But I look at even the median stock and I think the median stock probably has. I know capex is up for the big hyperscalers but the median stock has lower capex year over year. Wage pressure's down year over year. I haven't seen a lot of companies, maybe we'll see it like you said in the illegal immigrant stuff with healthcare services or restaurants or roofers or home builders but generally we haven't seen companies talk about labor shortages at all yet. So I don't think wage pressure is there. Commodities Bloomberg Commodity Index they're kind of down. Currency is going to help a little bit. Some companies have trouble with pricing but a lot haven't so far. So I think the median company could probably have gross margin expansion in the next six months.

[Adam Parker]

This is the funny thing about tariffs. Even if that becomes a problem for companies, it's happening at profit margins that are starting at 14%. They'll figure it out.

[Josh Brown]

Yeah, and also I'm underweight Staples. We're underweight discretionary. We have kind of a cautious view on stables because I think they're the most vulnerable. But 58% of the S&P is Techcom services and financials and on the margin they're not really going to be that impacted by tariffs. Tariffs in terms of the bulk of the earnings and we've seen that so far during this earnings season with who's reported generally in tech and financials come services. So sure. Like if you're a staple company and you kind of have no game and Walmart comes to you and says yo Eat it. You can decide like either you eat it or they put you on shelf 912 on the back and they hurt your sales. Right.

[Adam Parker]

It's always a trade. That's a trade off price.

[Josh Brown]

But Walmart and Amazon are 1.5 trillion in revenue, so they got the oil, you know, so you gotta kind of, you know, so I, I, I think it makes sense to be cautious on most of the staples and select this consumer stuff. But I don't know why I'm negative on, on JP Morgan or negative on, you know, the tech companies that are exposing. It's funny, you were talking before about like the long term growth rate. I was thinking about Palo Alto Networks and they announced a deal this week. And I was remember thinking like, man, these cybersecurity things, this is like, like five years ago. Like this is so obvious. Like of course you need security in the stock space.

[Adam Parker]

It was the most obvious trade on earth since then. Yeah.

[Josh Brown]

And by the way, like this, talk to any IT guy, it's like the last thing they'll cut. Like a move I told you to move.

[Adam Parker]

Can't cut it.

[Josh Brown]

I'm moving my office tomorrow and the guy came today to make sure the firewall on the thing that I'm starting tomorrow is like 100% good.

[Adam Parker]

I think this was, I think this is one of the layup trades. Even before AI still picture a board of directors at a publicly traded company taking a vote.

[Josh Brown]

Right?

[Adam Parker]

Let's reduce, reduce disinformation security by 10%. We have time for one more. And I really wanted to get to this because I think it's, I think it's low key. One of the most fascinating things to be following going forward, the Wall Street Journal did a really good, very data heavy piece about AI already disrupting new college graduates. And my daughter's 19, so her friend's older siblings have all just graduated college in the last year or two and, and every one of them wants to have a conversation with me for some reason, as if I know anything about how to get a job, how to do an interview, how to present myself on Zoom. I literally can't help anyone.

[Josh Brown]

That's not true.

[Adam Parker]

But I also will never say no to a young person who, especially if.

[Josh Brown]

We have more interns than employees, especially.

[Adam Parker]

If we know the family. So anyway, I'm doing meetings like that and I'm trying my best, but anecdotally, and I now have the data to back so up anecdotally, it really feels hard, harder than ever, other than in a recession to be Coming out of a great school. Bu, Tulane, Michigan, schools where people should get hired. Whoa, what?

[Josh Brown]

I went to Michigan. Let's not. I know you not lump that into some of the other places you mentioned.

[Adam Parker]

People should Tulane and comparable schools like Michigan.

[Josh Brown]

Let's calm down with the Michigan Tulane compromise.

[Adam Parker]

It feels anecdotally, talking to parents that kids coming out of school are having a tougher time than ever.

[Josh Brown]

Totally.

[Adam Parker]

And now we have the data to back this up. So I'll just show a couple of charts.

[Josh Brown]

Yeah.

[Adam Parker]

So here's one share of graduates in the labor force with a bachelor's degree one year after graduation. So this is just really showing like the big picture, the backdrop. And then here's some stuff from the piece. The unemployment rate over the last 12 months ending in May for recent US college graduates. These are people between the ages of 21 and 24 is 6.6%. That's compared to 4% for the overall labor force.

[Josh Brown]

Just googling. What is Burning Glass Institute just cause.

[Adam Parker]

I made it up for the purpose of this conversation.

[Josh Brown]

Okay, I just wanna know.

[Adam Parker]

50% drop in entry level hires at major tech companies. That's down by half since 2019.

[Josh Brown]

Look, ChatGPT, it's really tough. ChatGPT Deep Research 03 is like 10, 10,000 interns. Okay, we. I'm like you on this front. We have a ton of interns because everyone's kid, niece, nephew, friends, kid. I just say yes. The truth is none of them are useful to me because all that we do is code in Python against our database and it takes us time.

[Adam Parker]

Are they faster than UberEats though?

[Josh Brown]

Oh, right, right, right. No, but I don't want to do that stuff. So I try to. I try to give them a real project and have their name go on a piece of research and have them help. And so what we've been using the more for is spot checking some of the work we're doing with natural image processing or that kind of stuff. Where for example, I mean, we have. I'll give you four or five products I'm working on with intern, different interns, friends of mine's kids, whatever. One we did a piece looking at activist investing. We published it this week and I think you're on my distribution list. We kind of looked at the history, the distribution of returns on activists. So we had the person help us kind of really define who the correct attributes were, remove some individual names that didn't make sense, that kind of stuff. We're doing a piece on variable compensation of management teams. That's really hard to do with natural image processing because it's not like it's on page 151 of the Bank America, you know, 10k of what the guy made. And you know, it's really complicated. So we're trying to do some kind of spot checking, reading, like trying to use them to do something that I can't do with NLP litigation. We're doing a big piece on lawsuits because there are a lot of stocks that look optically cheap. You know, maybe they had a fire at PCG or Y Electric, or maybe they did a PFAs at 3m or maybe they did an opioid or whatever.

[Adam Parker]

So you have the interns helping you? Helping us with an AI?

[Josh Brown]

Yeah, with natural language processing kind of output to sort of make sure it makes sense.

[Adam Parker]

So are you guaranteeing them all full time jobs when they finish school?

[Josh Brown]

No, we. There's no way. We don't. You can't. We just try to help my friends and relatives kids have on their resume that they worked at my firm and that kind of stuff.

[Adam Parker]

Here's the question, last chart.

[Josh Brown]

But your point's well taken. Like you got to have differentiated skills and for us it's like coding or other.

[Adam Parker]

Pay attention to the slant. Hire under bachelor's degree in the fourth column. This is unemployment rates by educational attainment and age. People with a Bachelor's degree in 2018, 2019, 3.8% unemployment. Now it's 4.9. That is a really big jump in a four year, six year span of time.

[Michael Batnick]

Look at graduate degree.

[Josh Brown]

Same thing.

[Adam Parker]

And graduate degree is as steep a slope from, from then to now. And these numbers are not all of a sudden gonna reverse.

[Josh Brown]

I think that what I struck my eye immediately was where your mind was, which was the graduate degree at 4.2, 23 to 25 is the same as some college. No degree in 1819, 4.2. That's a little bit, that's a little bit messed up. If you stayed in College from 1819 to get your master's degree in 25, you got nowhere. You know, that, that would be a rough six years, you know, so. Yeah, I, I think, I think.

[Adam Parker]

What do you think is the trajectory of this?

[Josh Brown]

I think it's because you have to get a degree in something that's useful. I mean, you know, and, and look, we, I have friends that are very senior at big law firms, investment bankers. Everyone's having the same conversation, like how are we going to train people to be like our generation? Because if I can already get a 30 page brief written that's 70% accurate in one second for free. Why did I pay a first year if I, you know, you know a bunch of money bill a client 500 grand and they write something at 70% accurate and it takes them a month and I have to yell at them like there's every profession investment banking like come on, what do they do? They take the pro forma P and l combined from two entities or I can use ChatGPT.

[Adam Parker]

The Gen Z's are gonna, are gonna hate, they love AI now for their homework. They're gonna hate it. I'm really worried about this. I think there'll be the second half.

[Josh Brown]

Of the year I think there'll be a new body of stuff that forms and whether it'll be. I'll give you a great example in healthcare where we may have talked about this last time but if you get better at image recognition with AI models let's say right now 6% of women are told they have breast cancer when they don't. Cause you gotta have zero type one error. You can't have anybody have cancer and told them they don't. So somebody comes in, you tell em they have it.

[Adam Parker]

There's more false positive, there's always false positives.

[Josh Brown]

False positive, type 2 error, right? So what if it's 6% right now from the best radiologists in the world and it goes to 0.01% with AI but when it's 0.1% somebody finds out you screwed me type 2 with a machine and there's a lawsuit like there's going to be, there's no lawsuits at 6% but there will be a 0.01 if it's not a human. So there'll be a whole body of new things that happen on, on checking and quality control and on legal and I think there'll be new jobs that form.

[Adam Parker]

There'll be, you know, like become an expert in the things that AI usually gets wrong.

[Josh Brown]

Gets wrong or there's going to be new stuff that happens. I'm not.

[Adam Parker]

What do you think about this?

[Josh Brown]

I think there's a lot of possibility of a first and I think you just hire less people to do the high paying jobs that they have. One last point is The S&P 500 is way different than the economy and I think people like economists always like oh we don't want to see, we want Capex to pick up and whatever. So I just think the top 100 companies can be superior for sure.

[Michael Batnick]

I think that entry level jobs are now Superfluous. And it is a huge, huge issue.

[Adam Parker]

And agree with me, this is not going to be great.

[Michael Batnick]

No, it's awful because I think I saw something that only 10% of respondents, business respondents, are using ChatGPT or any sort of AI system. Now when it is more pervasive, when it's 20 and 50 and 70 and eventually everybody.

[Josh Brown]

I think it's higher than that.

[Michael Batnick]

But whatever it is, you just don't need kids to be doing entry level roles, which is catastrophic. Now I also know that there's always this fear with new technology and there's always new jobs created.

[Josh Brown]

So I'm a little bit in that camp.

[Michael Batnick]

So I don't want to be hyperbolic.

[Josh Brown]

Yeah.

[Adam Parker]

But eventually I would say like, I.

[Josh Brown]

Would say like, look, used to use, you know, you know, it's the Milton Freeman thing, right? Like there used to be, you know, used to use, you know, shovels to dig ditches and then you got like big machinery. And you know, if it's a jobs program, you tell people to use spoons, like people will just, they'll navigate towards some other, some other skill things. And there's a lot of stuff that's going to happen there. I mean, you know, I think there's going to be AI software, there's going to be AI semiconductors, it's gonna be power and infrastructure, there's gonna be energy transition, there'll be all sorts of life services. Of course there's gonna be, you know, life sciences, there's gonna be tons of old people demanding, you know, tools and diagnostics and services and other stuff. So look, I also get that there's a lot of really high paying professions that don't require an education or where I can get the knowledge for free. I mean, anytime I have some H Vac guy at my house, we got a new air conditioner in my kid's room today I'm thinking the PhD in 30 years experience got me shit on my h vac guy who can just drill me with pricing and I have zero of demand, right? So I mean, there's a lot of professions like that where, you know, plumbing that I think are going to be so those impregnable dads, the moms in.

[Adam Parker]

My town are all getting this content fed to them by the algorithm. Now on Instagram about like push your son and daughter toward like these types of professionals.

[Josh Brown]

My son goes to culinary school.

[Adam Parker]

He'll be fine.

[Josh Brown]

I'm kind of happy about that. People get people like eight.

[Adam Parker]

Yeah, until the robots come, right? We could, we could Cap it there, because this kid Max is going to throw himself out the window. Everything's going to be fine. You'll be fine. I promise you.

[Josh Brown]

This is the. This is the longest he's.

[Adam Parker]

You have fun on the show today, Adam.

[Josh Brown]

You know, honestly, you said it goes fast.

[Adam Parker]

Did it go fast today?

[Josh Brown]

Crazy fast. And I'm sitting there thinking, like, I wish I had in my life something like this I could do all the time. Like, I. I'd come on once a. Once a month to be like, well, listen, I love being with you guys. Great to see you.

[Adam Parker]

We'll take you up on. We'll take you up on that anytime.

[Josh Brown]

Honestly, it's. It's easy for me, and I love being here.

[Adam Parker]

All right, so we want to hear about all the books you're reading. Big, big brain. Let me hear.

[Josh Brown]

No, I. I just. I just. Not like I was kind of kidding. It's just that the.

[Adam Parker]

Are you reading books still? Because Michael gave up, and so did I.

[Josh Brown]

No, I. I'm going to read one.

[Adam Parker]

Book by the time this morning, I'm.

[Josh Brown]

Reading a book, and this guy will be psyched that I'm plugging this. And I didn't. It just literally was on my stack. It's called On Board. This guy, Jonathan Foster, runs a fund called Current Capital, has been a bunch of boards of companies, and he gave me his book. And obviously, because I'm a sucker, he references some of my work in the book, so. But he's good. And actually, I'm looking at your shelf there. Barton Biggs on finance. I'm also in that book. So this is a good little moment for me.

[Adam Parker]

I know Adam's in 13% of the.

[Josh Brown]

Books, 2% of your shows, and about 9% of your books. So this is a great way.

[Michael Batnick]

I love it here. I started listening to books, and I think I could do it.

[Josh Brown]

I think it's not. It's funny you say that. I just. I've learned. I didn't know this about myself till two years ago, but I. And maybe this is, like, bad thing to say, but, like, I just don't remember stuff when I hear it. Maybe my wife.

[Adam Parker]

My mind drifts listening to a podcast.

[Josh Brown]

I'll listen to podcasts. And afterward, like, I. My wife's like, we listened to that in the car when we were driving together. I'm like, I. I wasn't there.

[Michael Batnick]

I drift sometimes.

[Josh Brown]

She's like, no, no, no. You literally. We were talking about. I'm like, I don't remember.

[Michael Batnick]

Yeah.

[Josh Brown]

If I read it and I See the chart. I remember it forever. If we play golf, I will remember all 18 holes. The right, the left. I'm like a visual guy and, and if you tell me like the name of the guy we played with, I will not remember.

[Michael Batnick]

But that happens to me when I read a book too. I'll read a 400 page book and a week later I'm like, wait, I don't remember anything.

[Josh Brown]

See, I, I, I'm, I, I, I, I'm just more visual that way. So I, I just prefer to read it. And I think it's also, you know, I'm still like, you know, I guess I'm like in the generational gap of like, I physically hold the book.

[Michael Batnick]

It feels weird to say that I'm an audiobook guy now, but no shame.

[Josh Brown]

No, you're, you're in the, you're in the majority. I'm, I'm wrong. You're right. I just don't, I don't enjoy. I just also, for some reason, don't have a lot of time in my life. My wife's got me on this guy Jay Bernstein's podcast and I will listen to it. He has this thing where people talk for six minutes and I walk to work and it's like, it's like a 15 minute walk. So I can actually tolerate the six minutes. He's pretty, he's got some very interesting guests on, but I just not other than compounded friends. I'm just not a regular, you know.

[Michael Batnick]

I think I've got my AirPods on three hours a day, honestly.

[Josh Brown]

Oh, really?

[Michael Batnick]

Just.

[Adam Parker]

I read a physical book. I finished it yesterday, very proud of myself. So I don't.

[Josh Brown]

What does the word physical mean?

[Adam Parker]

I don't read nonfiction anymore. I only read novels because I'm a writer.

[Josh Brown]

I'm the exact opposite. I only read nonfiction.

[Adam Parker]

I want to get, I want to become, I want to improve my writing. And I don't think you can do that unless you read good writing. So I read. Our friend Gary Steingart is out with a new book. Gary's one of my favorite authors ever. Probably my favorite novelist right now. Give him a. So Gary wrote super sad True Love Story, which was a smash hit in the 2000s decade. And he's had some huge hit books and the new one is really short. I read the large print edition and it's only like 200 pages. It's the perfect summer novel. And when you get to the last two chapters, like, your heart breaks in half. It's like, this is the thing that only novels can do. And you don't get from reading.

[Josh Brown]

I like this nonfiction. I love this side of you. This is a very nice side of you.

[Michael Batnick]

Like success did that for me.

[Adam Parker]

Yeah. This book will. This book will completely break you when you get to the list. But it ends in a decent place. But it's. This is, this is the only books that I am going to give time to. Is like things that are evocative and bring emotions out. It's an experience.

[Josh Brown]

I love it. I love where your head is right now.

[Adam Parker]

It's called Vera or Faith. For people that are like, what's the book? Really, really great summer book.

[Josh Brown]

So I have a stack on my, on my bedside. I just try to like, you know, kind of put them in and read unless people recommend them. So. But 98% non fiction. But I should be better. I like where your head is. What about you? What are you.

[Michael Batnick]

Mike, I'm listening to the Godfather.

[Josh Brown]

Oh, the original Mario Pizza. Okay.

[Michael Batnick]

Breaking news. It's good.

[Josh Brown]

I like it. Hey, you know, many years ago, might have been 2000.

[Adam Parker]

You and the mafia.

[Josh Brown]

No, there was, there was like a, you know, top, top books of the last century or whatever. And, and I like got them all. And I was like committed to 2020 and I plowed through like 12 or 13 of them, but I couldn't make it all through because some of them are like, you know, a thousand pages or whatever. But you know, it was like forced me to read like the old, the old east. But goodies. It's smart, it's good. I like, I like this. Don't you feel like this has been a good ending as opposed to like I watched. What's the TV show?

[Adam Parker]

Yeah. It's amazing.

[Josh Brown]

Michael listened to a book based on a movie.

[Adam Parker]

So we got, we got that going.

[Josh Brown]

For us and you and I read.

[Adam Parker]

Large print edition of the 200 page book.

[Josh Brown]

And I'm reading about this guy who's like on the board of a bunch of companies. He's actually very interesting talking about things. So. But I, you know, I'm like, if it's not, you know, stocks or sports, I'm kind of out.

[Adam Parker]

I got it. I got. I'm trying to broaden my.

[Michael Batnick]

Everything.

[Josh Brown]

Yeah, yeah. You know, well, pleasure. Thanks for having me.

[Adam Parker]

Yeah, thanks.

[Josh Brown]

And if anyone, if I can do the 30 second plug, just please do it. Go to trivectorresearch.com oh, I was sending people.

[Adam Parker]

Let's give them the URL though.

[Josh Brown]

We'll give them the URL.

[Adam Parker]

Okay.

[Josh Brown]

Www.trivectoresearch.com. And if you say you're, you know, Compounded Friends fan, we'll give you a month to check it out.

[Adam Parker]

Look at that. All right, ladies and gentlemen, this has been Adam Parker.

[Josh Brown]

Great to see you.

[Adam Parker]

Follow Adam on LinkedIn where he's active, and please check out Trivector and Trivariate his research products. Great job on the show this week, guys. Great job on all the shows. Thank you so much. The entire amazing Compound crew experience continue to crush it. All right, guys, thanks for listening. We'll see you soon.

[Michael Batnick]

Welcome back.

[Adam Parker]

Thank you, man.

[Josh Brown]

Appreciate it.

[Adam Parker]

We gotta get it.

[Josh Brown]

Clip.