Episode Summary: Prof G Markets – Meta’s AI Promise, Microsoft’s Disappointing Beat & Why Google Should Spin YouTube

In this episode of Prof G Markets, hosted by Scott Galloway and featuring co-host Claire Miller, the discussion delves deep into the latest developments in the tech and financial markets. The episode provides insightful analysis on the earnings reports of major tech giants like Google, Microsoft, Meta, and Reddit, explores the challenges faced by Eli Lilly in the pharmaceutical sector, and examines Elon Musk's ambitious AI startup, XAI. The conversation is enriched with expert opinions, market data, and strategic predictions, making it a valuable resource for listeners seeking to understand the current economic landscape and its implications for the future.

1. Market Vitals and Economic Indicators

Timestamp [05:13]
Claire Miller opens the segment with a weekly review of market vitals, highlighting key economic indicators:

• S&P 500: Declined
• Dollar: Fell
• Bitcoin: Rose
• 10-Year Treasury Yields: Increased

Timestamp [06:48]
Scott Galloway provides context to the US GDP growth of 2.8% in Q3, comparing it to other nations:

"Japan's annual GDP growth was up 0.3%, so we're growing nine times faster than Japan... our growth is impressive and 2.8% may not seem a lot, but what that means is about every 25 or 27 years, the size of the American economy would double."

Claire adds that inflation has decreased to 2.1%, underscoring the relative economic strength of the US compared to other developed nations. This economic performance, she suggests, should bolster support for candidates like Kamala Harris who advocate for economic stability.

2. Tech Earnings Overview

Timestamp [26:05]
Claire Miller summarizes the recent earnings reports from major tech companies:

• Google: Revenue grew by 15%, with cloud revenue skyrocketing, resulting in a 4% stock rise.
• Microsoft: While cloud revenues surged by 33%, the overall revenue growth guidance was softer than expected, leading to a 4% stock decline.
• Meta: Posted a record revenue of $40.6 billion (a 19% increase) but fell short on user growth, causing a 3% stock drop.
• Reddit: Achieved profitability for the first time, with revenue up 68% year-over-year and daily users approaching 100 million, boosting shares by over 40%.

Scott and Claire dissect these results, noting that while Google’s performance was robust, Microsoft and Meta faced investor disappointment due to weaker forward guidance and user growth metrics, respectively.

3. Reddit’s Remarkable Performance

Timestamp [09:23]
Reddit's earnings take center stage as Scott discusses its significant stock performance:

"I believe the stock is now at about triple where it priced in its IPO about two months ago."

Claire highlights Reddit's strategic use of AI for multilingual content translation, exponentially increasing its global reach. Additionally, Google's algorithm update, the "Hidden Gems," which favors authentic user-generated content, has inadvertently boosted Reddit's visibility and search rankings.

Timestamp [10:01]
Claire praises Reddit’s innovation:

"It's such a simple innovation... it's so effective. It essentially just 10x's your total addressable market."

The duo underscores Reddit's growth as a combination of intentional AI-driven strategies and favorable market dynamics, positioning it as a burgeoning giant in the tech arena.

4. Challenges for Eli Lilly’s GLP1 Drugs

Timestamp [13:24]
The conversation shifts to Eli Lilly’s recent earnings, where the company's GLP1 drugs, Mounjaro and Zepbound, underperformed against Wall Street expectations. Despite claims of supply chain issues, analysts suggest that this only accounts for a 20% revenue drop, indicating other underlying problems.

Timestamp [14:47]
Scott hypothesizes potential reasons:

"I wonder if it's some of the new guys or these compounded GLP1 producers maybe slowed their growth."

Claire concurs, pointing out the emergence of compound GLP1 producers like HIMSS, which have seen significant revenue increases, suggesting increased competition. Additionally, she notes a potential branding issue:

"It could be just a simple issue. It's just a marketing problem and a brand awareness problem."

The hosts agree that Eli Lilly may need to ramp up its marketing efforts to enhance brand recognition and combat competitive pressures effectively.

5. Elon Musk’s AI Venture: XAI

Timestamp [19:06]
The discussion moves to Elon Musk’s AI startup, XAI, aiming to compete with ChatGPT. Scott expresses skepticism about the company's valuation and competitive positioning:

"I would imagine that Anthropic has dramatically more traffic revenues, better technology, et cetera."

Claire outlines XAI’s strategy to build proprietary data centers and develop frontier models, striving for true independence in the AI supply chain. However, Scott remains unconvinced about Musk’s ability to sustain such a high valuation, viewing it as a risky investment.

6. Big Tech’s Capital Expenditure and Market Strategy

Timestamp [34:05]
Claire and Scott analyze the massive capital expenditures (CapEx) of big tech companies:

• Microsoft, Meta, and Alphabet: Projected to spend over $150 billion on CapEx in 2024.
• Nvidia: Accounts for roughly 40% of sales from these tech giants, making its performance crucial to the broader market.

Scott suggests that these companies are engaging in a "big dick contest" of AI investment to avoid being outpaced by competitors, likening their strategy to the overextension seen in the COVID-19 stimulus plan.

7. YouTube’s Underrated Market Position

Timestamp [30:50]
Claire emphasizes YouTube’s impressive revenue:

"YouTube's combined ad and subscription revenue over the past four quarters has surpassed $50 billion, compared to Netflix’s $37 billion."

Scott speculates on the potential of YouTube as an independent entity:

"If YouTube were spun off, it would be a half a trillion-dollar company, more valuable than Oracle, MasterCard, or Johnson & Johnson."

The hosts argue that YouTube's undervaluation in the market presents a significant opportunity, suggesting that its robust revenue and market dominance are not fully recognized.

8. The Decline of Legacy Media and Rise of Digital Platforms

Timestamp [44:29]
Scott and Claire discuss the shifting advertising landscape:

"Advertisers are redirecting their budgets to platforms like Instagram, TikTok, and YouTube, leaving legacy media like CBS and MTV struggling."

Scott highlights the economic challenges faced by traditional media:

"Ad spending is up because it's a strong economy... but incremental ad revenue is shifting towards digital content creators."

Claire adds that platforms like podcasting are poised for rapid growth, potentially outpacing other digital platforms in ad revenue due to their expanding audience and engagement.

9. Political Predictions and Market Sentiment

Timestamp [49:57]
In a surprising turn, Scott shares his bold prediction regarding the upcoming election:

"I'm predicting that Vice President Harris is going to win the election... In January of 2025, we're going to inaugurate Vice President Harris."

He acknowledges this stance may be contentious but underscores his confidence in the current economic indicators supporting such an outcome.

10. Conclusion and Future Outlook

Timestamp [37:24]
Scott reflects on the broader implications of tech investments and economic strategies, emphasizing the importance of capital allocation in maintaining market dominance. He predicts that with continued AI investments, companies like Microsoft, Meta, and Alphabet will sustain their growth trajectories, albeit with increasing CapEx burdens.

Timestamp [53:34]
The episode concludes with acknowledgments of the production team and a tease for future episodes, promising deeper dives into election analyses and ongoing tech market evaluations.

Notable Quotes

• Scott Galloway [02:07]:

  "20 decillion dollars. That's how much Russia has fined Google for blocking its News channels."

• Claire Miller [16:55]:

  "It's such a great use case for AI, just simply translating the language of your content... skyrocket your total addressable market."

• Scott Galloway [20:24]:

  "I have a bias because I'm not a fan of Musk... on a straight valuation standpoint, this feels to me like a bad deal."

• Scott Galloway [48:19]:

  "In social media, one of the things I've learned over the last 10 years, we're in an attention-based economy, full stop. If you can command attention, you can get revenue."

Key Takeaways

1. Tech Giants Show Mixed Results: While Google and Reddit exhibit strong performance and growth, Microsoft and Meta face challenges related to revenue guidance and user growth, respectively.
2. Reddit’s Strategic Expansion: Leveraging AI for content translation and benefiting from Google’s algorithm changes, Reddit is emerging as a formidable player in the tech landscape.
3. Pharmaceutical Sector Challenges: Eli Lilly's struggles with GLP1 drugs highlight the complexities of supply chain issues and competitive pressures in the pharmaceutical industry.
4. AI Investment Dynamics: Elon Musk’s XAI presents a high-risk venture in the competitive AI market, with skepticism about its valuation and market positioning.
5. Legacy Media Decline: Traditional media platforms are losing ad revenue to digital creators on platforms like YouTube, Instagram, and TikTok, signaling a shift in the advertising landscape.
6. YouTube’s Undervalued Potential: With substantial revenue growth, YouTube stands as an underrated asset, potentially deserving its own high market valuation.
7. Economic Confidence: Despite minor setbacks in tech earnings, the robust economic indicators suggest a strong US economy relative to other nations, influencing political and market sentiments.

This episode of Prof G Markets offers a comprehensive analysis of current market trends, providing listeners with a nuanced understanding of the interplay between tech advancements, economic indicators, and market strategies. Whether you're an investor, entrepreneur, or finance enthusiast, the insights shared by Scott Galloway and Claire Miller are invaluable for navigating the complexities of today's economic environment.