BiggerPockets Money Podcast - The Bear Case vs The Bull Case for Megacap Tech

Episode Date: August 21, 2026

In this episode of The BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench are joined by special guest Carl Jensen to explore the bull and bear cases for megacap stocks, the future of AI, and what rapid technological advancement could mean for investors and the broader economy. They break down tech valuations, surging AI investment, market concentration, the potential for AI to transform the labor market, and the risks of overpaying for future growth. To go beyond the podcast: Interested in a Flat Fee Financial Planner? Go to biggerpocketsmoney.com/fipro Get 50% Off Your First Year of Monarch by using code ‘Pockets’: https://www.monarch.com/pockets Follow BiggerPockets Money on Social: Facebook: https://www.facebook.com/groups/BPMoney Instagram: https://www.instagram.com/biggerpocketsmoney Connect with Carl: https://www.1500days.com We believe financial independence is attainable for anyone no matter when or where you’re starting. Let’s get your financial house in order! Learn more about your ad choices. Visit megaphone.fm/adchoices

Mega cap stocks have been some of the biggest winners in the market. But does that make them a smart move for someone pursuing financial independence? With huge valuations, strong cash flows, and increasing concentration in major indexes, there's a compelling argument for both sides. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen. He's Carl Jensen. And with me, as always, is my doesn't have many single stocks co-host, Scott Trench.

Hey, I'm so excited to be here with you and Carl today. to talk about this subject. And Carl and I had a great conversation about this at lunch the other day. So we're going to be hashing out some of those points here. And just to frame the debate at the highest level, 11 companies make up about 38% of the S&P 500. Actually, nine companies make up about 38% of the SMP 500 in the mega cap tech complex. These companies are Nvidia, Alphabet, Apple, Microsoft, Amazon, TSM, which is not the SMP 500, but is a major semiconductor manufacturing company. Broadcom, SpaceX, Meta, Tesla, and Oracle. And also call out that SpaceX is not yet in the SMP 500 following their recent IPO.

But these 11 companies add up to about $32 trillion in market cap value, $33 trillion in market cap value. And 30 trillion of that is in the SMP 500 or about 40% of the SMP 500. And these companies are richly valued. I think the aggregate multiple is well north of six to seven times of total sales for this aggregate. It gets worse if you exclude Apple, for example, as many people want to argue, and it gets even worse if you exclude the sellers like Nvidia and TSMC. The question is, can these companies win and what do you have to believe for them to win? I am skeptical of that, and I am so skeptical that I've made significant moves. I have paid taxes in order to do so to shift my wealth away from the S&P 500 index fund to an equal weight index fund and to factor tilts in small cap value U.S. international.

Carl and Mindy have done the exact opposite and I think are bullish on this AI world and the AI complex and think that there's many paths to winning here. And you have heavily invested your personal net worth in these stocks and continue to hold these positions as they've grown over the years. Is that the right way to frame it, Carl? Yeah, I'd say that's the right way to frame it. But one thing I will say is we are big fans of index investing. We have put more money into index funds than anything else. It's just that these stocks have done better than the index funds. We bought a lot of these a long time ago.

Like Tesla, I think we bought for $2 a share in 2012. Google was $85 a share in 2004. I think if you extrapolated that to now without the splits, it would be $15,000 a share, something around there. So we bought these companies a long time ago, but we do strongly believe in index investing, even though we are holding on to these stocks, too. Let me frame my argument with one example of a company that I think you're really familiar with, which is Alphabet. Also, before I get to this, I want to call out, this is something that we, in the wake of the, Money Guys podcast. You know, you guys were saying, hey, we're index fund investors and they're like, are you? Well, yeah, I think you are. I think you just said it. You've put more of your money into

index funds than you have into tech stocks. And many people invest in different things other than index funds, but small percentages of their wealth. And that's exactly what you did. You just happen to hit these huge winners that you've let ride for many, many years. And that's why your wealth is so heavily skewed or concentrated in these tech stocks. It's because you hit the winners. in the space. And somehow that makes you not an index fund investor. But if they've gone to zero and you are 100% index funds, then nobody would have a problem calling an index fund investor. So, you guys, I think that's kind of fun internet mental math or however, whatever the term is there. So yes, you guys are index fund investors in my book. You also have huge winners

that you've hit. But here's my argument for Alphabet, right? So Alphabet trades at about 31 times trillion 12 month earnings. It's actually about 28 and a half. I'm citing a source from about a month ago when I wrote this. And you pointed out something here, Carl, yesterday when you're texting me. What was your reaction when I said that Google trades at 31 times? I was looking at the PE ratio. And specifically, I looked at it on like Yahoo Finance and Google Finance and they have it at 17. And then you told me why you have it a different number there. It looks like Alphabet's operating income for the last 12 months is $147 billion as of today's recording. Their market cap is $4.2 trillion. So $4.2 trillion divided by $147 billion is going to be $28.5 times.

So it fluctuates day by day, but 31 is what I was using when I wrote the article. It's about 28 and a half times core operating income. But their official price to earnings ratio is closer to 17, like you said. And the reason for that is because of these unrealized gains, like he's mentioned. They're investments in Anthropic and SpaceX, although they've not been officially and fully disclosed what those are. It's almost certainly the investments in those two companies. So we have this issue where more than half of Alphabet's earnings, about half of them, are coming from unrealized gains in companies that they're investing in in this technology ecosystem. That scares me

because when Google invests 40 billion in Anthropic, and Anthropic is committing $200 billion over the next several years to Google's cloud revenue service, they're buying compute from Google that Google is building out. That's a pretty circular mechanism here. And somehow, some way, Google and Anthropic must generate enough revenue from somebody else in order to cover that. And so my issue is Google can win, Anthropic can win? There's cases for all of these, but can both of those two companies win together? And when you stack in the competition, the same thing's happening with Microsoft where they're building out hundreds of billions of dollars in compute for AI services. And they happen to renting most of that out to OpenAI. Now we've got the same thing going on over there. We've got

Amazon doing something very similar. We've got meta entering the race with similar volumes of investment. However, their KAPX investment is primarily for internal use, although they keep flopping about whether they're going to rent it out or they're going to use it solely for their own buildout. And then we've got GROC and SpaceX and X, you know, entering that fray, supposedly with parts of their approach. We don't know what Tesla's going to be doing from a wildcar perspective. And we've got Apple. sitting on the sidelines, apparently, investing the bare minimum in AI to continue offering core services. And then we've got the sellers, right? We've got Nvidia, Broadcom. We've got

TSMC, Taiwan, semiconductor manufacturing company. And these guys are selling in various, you know, Nvidia is typically selling to Apple, Microsoft, Amazon, and meta, whereas Alphabet is one of the primary customers of TSMC and Broadcom here. And so we've got this interconnected chain and they're all valued as if they're going to win. And my view is, the combination is going to really struggle to make this work. It kind of reminds me of that quote from Harry Potter, neither can live while the other one exists or whatever that is. Do you remember that? Neither can live while the other survives.

Okay. I think this kind of applies to this. And one thing, Scott, to build on what you said, I was reading an article in the Wall Street Journal yesterday. And they pointed out that a lot of the CAPEX that these companies have committed to, I think it was $3 trillion, isn't even accounted for. It's some kind of accounting trick where it's on the books. They have signed the contract. but it's in the future so they don't have to formally record it now. So I think it's even worse than what you've said.

You're Mr. Numbers, so you might have a better idea of what I'm talking about here. This is about one month old, but I wrote an example a little bit ago in preparation for this. And then, of course, Google releases their earnings call, so it's all updated. But price to earnings is a bad way to value Alphabet right now, not just for the reason we discussed, but also because of AI CapEx. For example, over the last 12 months, before their Q3 earnings call here, Alphabet had spent $110 billion on CAPEX. About 60% of that was on compute. They don't use GPUs. They use a device called a tensor processing unit. That's their bet on AI, basically, is that they're going to be

cheaper, faster, safer, happier with these tensor processing units. And then about 40% of that spend is on buildings, land, power, the data centers, and the other components that are needed to facilitate this compute. And so that is considered an investment. It does not hit the P&L, profit and loss statement. It does not hit earnings. in that calendar year. It begins to depreciate once it is placed in service. So we can spend the money now and we'll hit the expense part of the P&L later. In 2025, they spent $91 billion. Through the 12 months leading up to Q2, 2026, they had spent $110 billion. In 20206, we're estimating $180 to $190 billion in CAPEX. And their CFO, when asked about what's 2027 is going to look like, said, we're going to

significantly increase this. This is our famous quote. So all you can do is guess. I put, I put down $215 billion, but Wall Street varies because that's all we have, right, is this significantly increase remark from the CFO in terms of what they're going to invest. So at least through 2026 and 2027, they're going to be spending this money to invest in AI capex. And that means that their cash flow for the last 12 months is going to be $64 billion. dollars. And if you value them on the $4 trillion market cap, and again, these numbers move a little bit with market valuations day to day, but they were trading at about 71 times price to free cash flow. That's an extremely expensive valuation. In 2026 full year, they're spending effectively all their

cash on this. So the numbers get very silly, right? We could say, oh, we're expecting net free cash flow of $8 billion in 266. So they're trading at 568 or some crazy multiple of cash flow next year. And in 2027, you can basically put a zero or something very close to it. again. You know how the change in seasons hits and suddenly you just want to declutter the garage, clean out the closets, and get everything all organized? That same feeling hits me with my finances every spring. I used to have accounts scattered everywhere, making it hard to stay on track with my money goals. Let Monarch do your financial spring cleaning for you. One dashboard that gets your entire financial life organized. No more clutter, no more mess, no more scattered logins,

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post your job for free. That's upwork.com to connect with top talent ready to help your business grow. That's UPWRK.com. Upwork.com. And so what this brings is your bet on Google, right? right now is you know they're going to generate no cash flow this year. You know they're going to generate no cash flow next year, at least if you believe what they are saying. And so you're betting on a ramp, you're betting on them to stop spending this CAPEX and for it to generate real long-term cash flows on a go-for basis. And there's real reason to believe that. However, we've got a triple cash flow excluding these investments in order for that to work. And we've got to really ramp it

and stop spending as a precondition for that. That's what concerns me. about Google, but I'm also not betting against them. There's a real possibility they can win, which I want to talk to you about. My broader issue is once you make that same story across five or six different companies that are building almost identical and directly competitive products here, and that where the suppliers, like Nvidia, their bull case is that Google continues to spend. And Google's bull case is that they stop spending one day and harvest those cash flows. How can they all win? That's my broader question with this analysis. Yeah, I'm not sure. they can all win, but one thing that I want to back up and mention or talk about a little bit

is one thing I always wondered when I started, when I did discover index funds like J.L. Collins and Madfcientists, all these people praise them. And the question I had was, why does this go up into the right? What causes that up movement over time? And so I actually remember asking jail and man scientists, and their answers were both the same. They said, I don't know. And then we're at the Berkshire Hathaway Conference and Warren Buffett started talking about it. He said, well, there's two things that make this go up into the right, and one of them is much more important than the other one. The first, less important one is population gains. The second, much more important one, are productivity gains.

You think of historical things that have caused productivity gains. The tractor was a huge one. I think back around 1900, almost everyone was a farmer. The tractor came out, and then, no, I think it's less than 5%. So that went down like crazy, the numbers, the steam engine, the Industrial Revolution. When you take a look at AI, well, to back up a second, the tractor, the steam engine, they revolutionized certain parts of the economy. AI has the potential to change everything.

You read about the first jobs they're going to go, and there are probably white-collar jobs, like accountants or attorneys, things like that, because coders, that's what the computers can research and figure out online. But there's plenty of companies working on robots to take away the physical jobs, too. So my question, back to you, would be, what is Google betting on that they think they can spend hundreds and hundreds of billions of dollars in CAP-X, they're betting on a future that's wildly different than the present. And I think the main thing that a lot of these people are afraid to say because they don't want the backlash, although I think Dario, the Anthropic guy, has said it,

is that human jobs are going to go away if these companies, if their vision is fulfilled. And if that goes away, maybe some of these huge, huge multiples are justified because right now who is paying for AI? And it's hard to tell. That's another important point, like, open-end, AI and Anthropic are not public companies, so we don't know how much they're bringing in. But I'm sure it's not nearly enough to justify their spend. It's probably a fraction. But once you start taking human jobs out of the way, what is an AI agent worth that can replace a lawyer? I would say maybe hundreds of thousands a year, maybe millions, because that thing doesn't have to take breaks.

It's never going to call in sick. It can work nonstop, and it's not going to make mistakes on and on. It might be able to do the job of 10 or 20 different people. So that's when you see the real money start to flow to. AI. And I think that's what these tech companies, that's why they're betting hundreds of billions of dollars on. But to your point, I don't think they're all going to win either. And it's interesting there might just be one, whoever gets to AGI first, recursive learning where the computer becomes hyper-intelligent. So I think what's interesting here is I would argue, I think you would

agree, I'm the AI power user here. You use them lately and you've used them in the recent past here. But I have a subscription to Claude. I have a subscription to GROC. I have a subscription to chat GPT. and we use Gemini to run basic operations here at Bigger Pockets Money. I think my bill last month for AI in aggregate for personal use was $169.99. I'm using it all the time, right? For heavy coding for these applications, I'm using it to, you know, review very basic, not high stakes, basic legal documents. I'm using it to help me IDA content.

I'm using it to grade, you know, arguments and those kinds of things or preview them to various degrees. I can't imagine personally using more AI right now. And I know that the use case is an always on AI bot. That in practice is much more of a pin in the rear than it is a value producing play for me so far. Maybe that will change in the future. For now, I can, I can spend very little. And what's more is every couple of months, one of the AI models leapfrogs the last one. And so if Claude, for example, if I ever got too dependent on Claude, I could bet you that within a few months, GPT is going to figure out something, catch up, and flip the switch on it. And so that's the question I have is, is I completely agree that if you are going to build the bowl case for the

complex as a whole, okay, it's going to divert revenue from, that goes to human labor right now in the white color workforce in the near future, and maybe all jobs, including the physical world in the long-term future. But the question is cost, right? If you can do that, if accounting is now an AI bot, there's a race where the community, compute gets better and better and cheaper and cheaper at an exponential rate, given the investment that's going on, and does it become effectively free to provide those services from the AI? And so that's a threat there. But yes, I would definitely agree that betting on the complex right now is fundamentally in some form about that idea, that concept that you said, which is AI will

substitute for a significant portion of today's current labor force and will actually be able to realize revenue as it substitutes for that. I pay $100 a month a half my car. drive me around, which is an AI system. You pay a couple hundred bucks to find your answers, but how much would someone pay to have an AI that can solve cancer that could create a customized thing to produce antigens to destroy your tumors? I mean, something like that would be worth billions and billions of dollars. And I know things like that have already been done, like the Mayo Clinic uses AI now for pancreatic cancer, early detection, and supposedly you can detect it like three times earlier than a physician reading. And I wonder if these tech,

companies just keep it to themselves. If they know they have that kind of power, why would they solve to anyone? I think that that's a great segue here. I think it's what do you have to believe for this to work? So right now, these 11 companies, Nvidia, Alphabet, Apple, Microsoft, Amazon, Taiwan, Semiconductor Manufacturing Company, Broadcom, SpaceX, Meta, Tesla, and I included Oracle, because at the time I did this, they were worth a trillion dollars, and were part of this complex. They've since imploded to 60% of their value here. But those 11 companies, including Oracle, make up about $30 trillion in market cap. After net cash, it's about $29.5 trillion in market cap. And their combined free cash flow today for 2026, TTM is $450 billion. So that means that they're trading at 65 times

price to free cash flow at today's levels. If you want a 10% return as an investor and you give them reasonably generous assumptions here, you're going to need for them to compound that free cash flow total at 35% a year for the next decade straight to $4.3 trillion in free cash flow as a complex in order to generate 10% returns. If we're very generous and assume that after 2027, the hypers will slow significantly their CAPEX investments and Nvidia and Broadcom and TSM still find other ways to generate revenue, maybe new buyers, for example, and they collect their cash flows. Then from there, they will need to compound free cash flow at 27% per year for about a decade

straight to deliver a 10% return to investors. So I agree with you that there's places to win, but that magnitude of that bet for my model at biggerpocketsmoney.com slash mega cap, and I put all these inputs here for people to change, is to me fairly preposterous. And especially once you think about, hey, like, what does that mean on a planetary scale? And this is, you know, some people roll their eyes at the planetary scale argument. And I get it because, you know, you could have made that 10 years ago to some degree. But you're basically requiring at today's margins these companies to generate $17 trillion in topline revenue to generate this $4.3 trillion in free cash flow.

That's 17% of the entire global corporate pool of revenue for these companies. And it's $2,000 per person. If you just want to put that into countries with affluent consumers, then you're talking about $14,000 for everybody. $14,000 for you, Mindy, for you, Carl, for Claire, for Daphne, right? For all of those guys, you're going to need to be paying about $14,000 to some degree, and they're going to need to profit $3,500 for that. So this is by far the biggest revenue line item in every affluent human household.

And so that's where I get tripped up is these numbers are. so large that it's very difficult for me to believe that story from here to there based on the current valuations. And I also think that, remember, that as a complex, they have to do this to some version of this. You know, you can lighten some of the assumptions and make it slightly easier, but they have to do some version of this as a complex in order to get to that point. And my belief is that there will be some winners and some losers, of course. But if there's one winner or two winners, for example, I believe now you've got a secondary bet if you believe those because is the American population or the worldwide population going to politically allow a single

entity of that size to exist and harvest that revenue or cash flow? And that's going to be another challenge with this thing. I think there's actually a political bet embedded in the valuations of this complex in today's environment. So what's your thoughts on that? Those are very big numbers. I think you said $4.3 trillion. And what's the current US GDP? It's like I think it's right around $40 trillion, something like that. So that's over 10% of the currency. But again, that expanse of productivity goes crazy because of these AI agents. Yeah, U.S. nominal gross domestic product was $32 trillion. So, Carl, one thing I want to call out here is that's $4.3 trillion is the profits.

That's one-eighth of today's GDP. That's implying for the profit. But to get there, they have to generate revenue. We'll have some expense. So I would actually say that the number that you're looking for here is this one here at $17 trillion in revenue for the complex. I think their expenses will go way down. Software, Mark Anderson once wrote that article, Software is eating the world because Microsoft can bring Windows once and sell a billion times.

So as these models get better and better, they're going to have to invest less money, at least in the model generation aspect of it. Then everything goes to the inference, which is where you ask a question and how you're actually dealing with the brain of the system. But I think that gets cheaper over time. That's the whole reason. Companies like Google, Mark Zuckerberg, and SpaceX are talking about putting these data centers. in space. That's for inference processing where you get free electricity and semi-free cooling. But yeah, those are very big numbers. And the two things I would say is not all these companies are going to make it. It's clear that some are going to be left behind, probably most of them,

or they'll just revert to what they did before. Apple will continue to make hardware. SpaceX will make their money from launches, which isn't that much compared to what they're doing now for AI. But the other question I'd ask, on the flip side, if you're a consumer, how much would it be worth you to have a car that could drive itself to go pick people out from the airport, a robot that could take care of your lawn, do your laundry, maybe go pick stuff up for you, be a personal assistant. What about an AI assistant that takes care of your life, kind of like a virtual secretary? People pay a lot more for those kind of humans in their real life. So I'm not sure if it's worth $14,000 per person. I can definitely see $14,000 in a household. And I think that's what

these companies are betting on. They're looking at a future that we can't even imagine. AI and the products that come from it take over our lives. But then the corporate side of it, too, if the county companies can get rid of accountants, if drug discovery can go to AI and instead of it taking a decade to come up with a new drug that Mary may not pass muster when it comes to their phase two or phase three trial, AI comes up with it in a couple days or a couple weeks. I think the corporate side of it, the non-consumers side of it might be even more valuable. And that's where a lot of this money would come from. And again, if you get rid of jobs, that's a lot of people who aren't getting paid and that's money that's going to flow to Google or Anthropic.

These are very big ambitious goals that are probably a long time off. I saw SpaceX engineers say, no, yeah, our robots will be able to build. The Tesla bot will be able to build a house by around the year 2035. I do not believe that to be true. Although it will happen at some point. Maybe you could unclog the toilet, more sophisticated things than that. But yeah, yeah, Scott, there is a ton of money. And there's probably going to be a reckoning.

We've already seen it a little bit up. I have a friend who works for Sandisk and their stock got cut in half a couple weeks ago or close to it. And that's probably going to happen or might happen with all these. This is not financial advice. When I think about it, like, the other thing that's like hard about Google, right, is you'd be crazy, I think, to say that Google is going to go bankrupt or they're going to have, you know, their core business is going to implode overnight or begin rapidly declining or even stop growing in any meaningful sense. Like, they've got a core business. It's profitable. It works.

I'm going to keep searching. I'm going to keep using YouTube. We are literally recording a YouTube video right now. Right? We use Gmail every day. Like those are real businesses. This is a very profitable core enterprise here. And that is not going anywhere.

And so this is not like Google is going to implode or go bankrupt or whatever. It's just, will it justify its valuation? Will it grow revenue, or more specifically free cash flow, enough for its current valuation to provide a return that is reasoned? to investors. And my belief is that when you look at high-quality companies, like many of the companies in this list, and you look at low-quality companies, like value stocks, for example, and you look out, you take random samplings over 10 years, they tend to regress towards the mean, the mean growth for any industry, right? And so, you know, it's hard to predict that a company that's richly valued is actually going to grow free cash flow more than, you know,

your boring can manufacturing company out in the Midwest, right? It's like, like those things, they actually tend to regress towards the mean. And so I think that's more of the risk here is that these companies just simply grow their cash flows at seven to 10 percent a year as an aggregate from here. Something more like that seems to be what I think would be more of like the base case. If they just grow 10 percent a year for, you know, their free cash flow, if the aggregate complex just grows free cash flow 10 percent a year, they're overvalued by two-thirds, two-thirds of value in this complex is going to get wiped out. At some point, whether it's through stagnation or a crash or whatever, that's with pretty

good performance. 10% free cash flow growth sustained for a decade is not bad outcome. But the valuations are so high that it requires something much higher, like something in the 20s at least, regardless of what assumptions you begin to bake in. And then on top of that, I would also argue or worry that this AI is real. What you just described are real possibilities from this, right? We can use AI to make accounting or personal finance decisions better, faster, safe, or cheaper and happier. We can largely replace paying for many of these services right now.

But who benefits most from that? Right. Like anyone listening to this podcast can literally use Claude or GPT or GROC or Gemini as these protocol, they advance, take their data from Monarch, upload it to them, and get better and better in real. time insight into their spending or where they're having tax inefficiencies, those types of things. That's going to provide real benefit to people, but the cost is so low right now to have that. It's like $20 a month. You can get really good answers from GPT, for example, on that. Is that going to just blow up parts of this industry or reset it on the financial services side?

Or is it actually going to translate to revenue at some point to chat GPT that replaces these, you know, the big, big value it is delivering? I think it will translate to much more money. I think the $20 or $200 that people are paying will be a drop in the bucket. I think most of the AI that people will interact with in their daily lives is AI they don't even know they're interacting with. For example, how many people know like a modern airliner can fly and land itself? If your car drives around, I don't think anyone who takes away or except maybe Scott or I, maybe you, are considering that AI is actually driving around. People don't care this is going to be a level deeper than most people realize.

We started this conversation talking about an index fund and this conversation in all. all your scary numbers, especially the ones you opened this talk with, really, really, really make a strong case for not doing what we're doing and really going towards index funds. What makes this so hard and why I've been so obsessed with this problem for so long is you can make a case that people are going to win, right? Like Tesla has a real, like, you're right. Like driving people around autonomously and sustaining that advantage for a while is a real value. Something between zero and what you pay a taxi driver today.

is going to be the potential, all taxi drivers today, all Uber drivers today, for example, is somewhere where the theoretical revenue potential lies for a business like that. And that's real. It's, that's what makes this hard. But who captures it, I think, is the next question. How do the competitive dynamics play out over time? Because right now, I can access this AI that what seems to be in a way that is just as available to anthropic, just as available to Gemini, just as available to open AI or

or rock here to run any part of any business I would like to as an entrepreneur or individual. And so that's the question is who actually captures this economic benefit. And I think your can manufacturer in the Midwest captures a huge percentage of the value of a super intelligent AI compared to what Google may make selling it to them. I don't know. That's the $30 trillion question for GDP is surely GDP is going to grow. Surely people are going to benefit from this enormous wave of technology and the, the infrastructure these companies are laying, who gets paid for it? I think is the question I'm asking.

Yeah, I wonder if it eventually becomes a situation where 10% of the top customers are subsidizing the other 90% of people like you and I, Scott, who just use it to research more basic things, maybe a drug company or an autonomous car company licenses, Tesla software or WAML software, and that's very valuable. So they're paying huge money for that. And so the top people are kind of paying for it all, like covering the costs. I think that's how I would probably see it. Yeah, if anything, like you inferred, these things get better every month. And I don't know, they're not getting more expensive either. Like the leaves and bounds that AI has made, just the past two years since I've tried my first queries is, it's crazy. It's amazing. It's become my, my go-to

thing. Yeah, I think it'll be ingrained in our life soon. And yeah, the money question, though, the $30 trillion question. Another question I have here that we talked about recently was, Is there a ceiling to like the practical application of intelligence in human life? So for example, if I had a 5,000 IQ AI telling me what to do with my fitness plan, would I be better off than with 150 IQ AI telling me what to do or 125, like what, you know, equivalent? What is the actual advantage of super intelligence in helping me work out? Is it basically zero after a right answer is established in that situation? now we're in a race to the bottom for cost at that point. You certainly can find a use case for

superintelligence when it comes to folding proteins, you know, and predicting what is likely to solve that cancer cell. You know, here's this cancer cell. We're going to diagnose exactly how its genome is expressed and then begin folding proteins or creating cells to go attack it. That surely has that application. But I think that those applications for the vast majority of us are likely to be constrained to frontier research in very, very technical fields where there's will be real benefits. And the question is, is there trillions and trillions of dollars in revenue to be captured in those environments that maybe do require superintelligence? When spring hits, some people suddenly just want to declutter the garage, clean out the closets, and get everything

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you can knock out before your coffee gets cold. Get your free quote at ethos.com slash BP money. That is E-T-H-O-S dot com slash BP money. Application times may vary and rates may vary. When I was CEO of Bigger Pockets, Upwork was the number one place that we went to hire freelancers to power our business. One of the biggest growth hacks is realizing that you don't have to do it all yourself. Upwork made it easy to bring in the right freelancer when we needed them so that we could stay focused on what we do best. Upwork is a one-stop platform to find, hire, and pay expert freelancers across web and software development, data and analytics, marketing, business operations, and more.

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at the paradise that futurists have been pregnant for 100 years where we get to sit around and do whatever we want and the robots do all the work. I think that is the end game and that's what these tech people think of with all this. Back to your workout example, I think that would be a diminishing return. But what if we had a health device that analyzed our heart rate? our HRV, all these statistics, maybe you prick your blood and send that every week to the AI. And then this is better than any doctor because it knows everything about you on a weekly basis, which is kind of scary. There might be some privacy issues.

But on the other hand, you're going to learn so much and gain so much valuable health information about yourself. And I think, think of all much money goes towards health care. This has the potential to replace much of that eventually. Yep, that's the bet. I think it's a really fun analysis challenge, but it's also one of those things that gives me the pit in my stomach when I think about this. But I'm a little bit more detached from it now because I've made my move and I've separated from this and I've paid my taxes along the way to move away from the concentration in this that is implied in the S&P 500 or many total market index funds.

Do you have AI help you plan your sales or do your taxes or any of that? I certainly did. Yeah. I certainly did have to use AI. I'm an AI power user. It's like me betting against the railroads or the airline industry while flying on a plane. Right? Those industries, unquote. questionably changed society for the better and gave people freedom of movement and goods and services and, you know, enabled really wonderful things. And they were disastrous for their investors because of the competitive dynamics and the infrastructure and the cost, the war to ship those goods at lower and lower cost. This is not me making original arguments. These are plenty of people are, have made these observations that I'm making before me. It's just those are the things that I'm worried about in that environment, not questioning the clear utility

of this. Yeah, it's going to be super interesting where all this signs up. I think we should have a follow-up podcast and I don't know. 2030 seems a little bit far off, maybe two and a half years from now and then maybe 2030 to see where all this lands. And I suspect it will land in a place that neither of us could have predicted or seen and who knows if it's better, worse, or something way off the charts. But yeah, it's so difficult to know where this is going. And again, yay, index funds. Let's do that here. So at the end of 2028, where do you think we're going to be with respect to AI and the progress of these companies? Oh, what specific metric that's It's such a broad, difficult question.

You have this big vision for AI in the future and you see all these places. Do you have any directional view of how things will be at that point? Just based on your mega cap valuation, I would guess that it's going to be, well, you see, it's so hard now because Anthropic, like the two big guys have not IPOed yet. So we have no idea. And that's where all the money is, by the way, like these hyperscathers, the people we've talked about, the Nvidia, the Google is the SpaceX. SpaceX is doing Crocs, so that's a little bit of AI.

It's questionable how good it is. I think the guys at the top, the guys and girls making the models. That's where all the money is going to originate from. And we have no idea what those are going to be. So, man, a prediction. I would say it'll probably be bigger. Like these mega cap companies will have a bigger market cap, but some of them will be far diminished and some of them will be far greater.

Some of them will start to pull ahead and others will fall behind. Which ones? Wow, thanks. I have no idea. Where I think will be at the end of 2028 is I will have included Open AI in Anthropic after their IPOs in this list of AI companies. I literally have built my tool to incorporate that when they IPO and when they're eventually folded into the S&P 500.

I think that the complex as a whole will not be able to hit the free cash flow targets that it needs to. I definitely feel clear that there will be winners and losers in here. I also feel that there will be one or two more new entrants that come in from different avenues that make their way onto the scene from the private market. So maybe like a new model is built by somebody. There's the old saying that innovators get arrows in their backs, right? The first mover is get arrows in their backs.

I think somebody can come along and make that next wave of investment as the investment piles from these companies begin cooling off into that environment. I think that could be Apple. It could be somebody else that comes in. But I think there will be a new player or three by that point. And I think that everybody else will be benefiting tremendously from AI investment. I think that you're going to see small companies being able to compete with much bigger players very easily because they're going to have a basically competent CFO in place, a basically competent HR person in place via AI, basic competence in marketing.

And those basic companies are going to allow individuals or small companies that do one thing really well to shine because they're going to not have these glaring weaknesses in their organizational models. So I think that's who's going to win by 2020s. You're going to see lots of different people winning. You can see lots of profit margins exploding in other parts of the economy. But I think you're going to see this particular sector really struggle to hit their bottom line free cash flow targets. Their top line could be anything because if they keep marking up unrealized investment gains, that can continue forever.

But the actual normalized operating free cash flow from the complex as a whole, I think doesn't have a chance in 2028 of hitting $1.8 trillion. That's my specific falsifiable hypothesis that I think you can make fun of me at at the end of 2028. I'm more optimistic than you, I think. By 2028, companies will be an even bigger chunk of the overall market. I think in your analysis, they were about a third, right? Maybe 38.5% of the S&P 500. Okay.

I think that will continue to grow and maybe be over half by 2030, if not earlier. Well, let's see. That'll be a fun one to come back to and want to replay this and make fun of one of us. Probably me at that point. So that's the fun of this. And I think that's the debate in a nutshell, I think, among. people who are in different sides of this. Okay, if you have thoughts about this either for Scott or Carl, you can email Scott at biggerpocketsmoney.com. You can email Carl at biggerpocketsmoney.com.

Feel free to not email me. I didn't have a lot to add to this particular episode. So I'm not going to have anything to add to your email either. However, these guys would love to hear from you, would love to continue the conversation after we get some more comments from you, our dear listeners. So again, Carl at biggerpocketsmoney.com, Scott at biggerpocketsmoney.com. And that's Carl with a seat. Well, Carl, thank you so much for joining us today on the show here. Thanks for entertaining my wild, dramatically barecase for mega-cap tech here and for sharing the countercase, the many ways that absolutely this complex can win. All right. If you want to see any of these calculators or this article that Scott wrote, you can go to biggerpocketsmoney.com slash mega-cap for the calculator. and biggerpocketsmoney.com slash AI dash bubble for the article that Scott wrote. Now it's about a month out of date.

Thank you so much, Alphabet, for redoing your quarterly numbers and throwing all of his numbers off. But from a month ago, the numbers aren't that far off. Like I said, we have a website, biggerpocketsmoney.com. We have a ton of calculators, free resources, and templates just for you, all for free, to help you on your journey to financial independence. You can also check out the professionals network that we have at BiggerPockets. Pocketsmoney.com slash FI. Pros. These are five friendly professionals that Mindy and I are networking with and that we are partnering with at BiggerPockets Money to help you. Mostly advice only financial planners,

hourly or comprehensive. We do have a comprehensive financial planning flat fee partner as well. So go check those out at BiggerPocketsmoney.com slash five pros. I just want to call it before we go that there's also a probability that Carl and I are both wrong or both right on this at the same time by 8 of 2028, which is where they come nowhere close to producing any free cash flow across this complex, but do make up 50% of the stock valuations because of the multiple just continues to explode relative to revenue and free cash flow for the complex. So that is also very possible on this. Yeah. So set your calendars, set a date. Let's say December 15th, 2028, send an email to Scott and Carl and let them know how you feel about their commentary on this episode. Biggerbubbles.com.

Yeah, bigger bubbles. All right, that wraps up this episode of the bigger pockets money podcast. He is Scott Trench. He is Carl Jensen. I am Mindy Jensen saying, tutles, noodles. When the change in season hits, some people suddenly just want to declutter the garage, clean out the closets, and get everything all organized, and that's great. If that's you or if it's not you, either way, let Monarch do the financial spring cleaning this year for you.

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