Chit Chat Stocks - Investing Power Hour #73: Nvidia Ascent Continues; 2021 Bubble Best Moments; moats and margins

Episode Date: August 27, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday. On the show, Ryan, Brett, and a rotating list of guests have an unscripted discussion on a variety of investing topics. You can watch the show on our YouTube channel here: https://www.youtube.com/c/ChitChatMoney Follow the show on Twitter: https://twitter.com/chitchatmoney Subscribe to our newsletter: https://chitchatmoney.substack.com/ ****************************** Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. This is the Investing Power Hour. It's the 73rd one, as we keep chugging along here on Chit Chat Money. We do these shows live on YouTube on Thursdays. You can watch the replays there.

Most people just catch the replay, or you can catch the podcast recording, which goes out on Spotify, Apple, wherever, Sunday mornings. On these shows, we talk about whatever we want in the investing world. It might not be in the investing world for the whole time, but we try to mainly stick with the investing topic. And today we've got a lot of stuff, Microsoft restructuring, the ARM IPO, NVIDIA earnings maybe, although we're probably one of the worst people to talk about NVIDIA's earnings. And then we have a little ranking, a little mount rushmore of the biggest signals of the 2021 bubble i think that's a good call because i actually just wrote an article on rivian today so funny timing there but ryan how are you doing

today uh we just recorded a show on sprouts so we've been talking a while here but i guess yeah another hour here i'm doing well there it was it was kind of a newsy week there's some fun stuff um yeah i like these mount rushmore's and i put out a question on twitter about it and i got some funny responses and it brings back just memories of excess uh i miss i miss the bull market man well i miss the bubble i was just reading this morning in the paper that we're getting a lot of the same stuff right now because i just there's a company called gym pass that just raised a bunch of vc funding and it apparently gives corporations i think maybe it's just corporations uh allows their employees to get a really discounted membership at gym pass and they

get personal trainers they get access to all these different gyms all this different stuff for the health focus things and i was thinking wow the vc subsidized economy might just be back here could be exciting. Yeah, I do miss extremely cheap Ubers and Lyfts and ridiculous discounts on DoorDash. Yeah. If the VCs are willing to front my spending or subsidize my spending, I'm happy. Thank you, SoftBank. Let's get that vision. Even if it means people are making money when they shouldn't, it's okay. That's okay. If they make money, it's fine.

It's fine. If people make money on some bubbles, there's nothing wrong with that. It's just very, very difficult. The timing is the timing stuff. Yeah. A hundred percent. I used to, yeah. And you know, kind of before I really ever experienced a bubble to some extent, I used

to think like, you know, maybe it'd be possible to time bubbles, but the difficulty isn't only when you're like getting out. So it's, okay, let's take Bitcoin, for example, because I think, whatever, people can call it a crypto winter, but when you maybe could have got out of the top, but all along the way on the way down, you would have thought, oh, now it's cheap relative to, like we could rebubble. You know, like there's always, it's not just two decisions. It's you have to get, get in, get out, and then you're probably going to feel inclined to get back in. Yeah. My, I have a friend that always, uh, is we just kind of joke around with it, but I'm

like, when he's selling your Bitcoin, he goes, nah, when it hits a hundred thousand and I go, not 99, not 101, nah, a hundred thousand. Exactly. It's just all arbitrary price target, man. Got to have a price target, I guess. I guess that's better than not having one. or if not honestly but whatever we got we got some good topics today yeah you made some notes here i think maybe the first well did you with the arm ipo did you see that they kind of did a little

self-dealing thing to try to pump up the price before the ipo did you yeah oh yeah that was a classic that's a signature that's that's the signature move when has that ever gone wrong for softbank yes softbank yeah really the radar goes off so you're on high alert we're looking at a softbank deal but yeah why don't we talk about that first i think it's a good relation to the semiconductor boom the ai boom we don't know much about arm but it could be a very fun company to cover uh but yeah and i saw my video was a little wacky there but i think it's good now right yeah looks good to me um okay arm they so i guess the uk-based chip maker they were bought out by softbank in 2016 and there's kind of this interesting quote which is that or i think

this from the s1 maybe it was from a report i can't remember so softbank recently bought basically they there was a portion that they didn't own of arm they said they bought the 24 percent 25 stake in arm that it didn't own outright from its vision fund unit reportedly at a valuation of more than 64 billion um keep in mind two years ago arm agreed to sell itself in 2020 three years ago i guess for 40 billion dollars in cash and stock to nvidia so i would be surprised if it's worth 50 percent more than what it was worth in 2020 but um especially because it was a strategic acquisition for nvidia that got shut down by regulators because of anti-competitive concerns i think it was i think that was the reason but it did

get shut down there was a lot of industry concerns around that yeah so softbank i hope i'm getting all the numbers right but they acquired arm for like 30 billion or something in 2016 2015, 2020 comes around, which they paid a lot for that in 2016. They arm agreed to sell itself for $40 billion. Then three years later, which it got shut down by regulators, three years later, SoftBank wants to IPO this thing. So it invests, it buys the remaining quarter of the business for $64 billion valuation. this reminds me unsurprisingly of we work when it ray we work raise money at a 44 or 47 billion dollar valuation prior to coming public and then they tried to ipo at like 60 billion obviously

this is a better business than we work but soft bank tries to say like here's what it should be worth and now there's it's not clear what valuation soft bank is seeking but reports are that it could be valued between $60 and $70 billion. Now, maybe they get away with this just because of the chip buzz and the fact that the IPO market just still seems to be broken mechanically. You can just sell such a small percentage and then just prop the stock up. But anyway, in 2023, they did $2.7 billion in revenue. and half a billion dollars in net income. And revenue is not growing. It was down year over

year in 2023. Today's episode is presented by the Science of Hitting Investment Research Service. The Science of Hitting was founded by Alex Morris, who spent a decade working as a buy-side equities analyst before launching his own service in early 2021. You've heard him here on the show a number of times, but Alex produces really, really high quality equity research. And in addition, he provides 100% transparency into all his portfolio decision-making. We were early subscribers to the Science of Hitting Research Service, and we genuinely believe that Alex produces research that is on par with top Wall Street analysts at a fraction of the cost. I mean, the fact that you also get complete portfolio transparency and 100% accountability is just

icing on the cake. Effectively, you're outsourcing a full-time equities analyst role for just $349 per year. Brett and I both pay for the service on our own, and we can tell you that it's honestly worth the money. Some of the companies that Alex covers includes Microsoft, Netflix, Meta, Roku, Costco, Match Group, Berkshire, tons of others. So if you're interested, check out the TSOH Investment Research Service today at thescienceofhitting.com. Assuming $70 billion, that means it's IPO-ing at 136 times earnings. And it's not like this is like super depressed earnings or something where it like hasn't become profitable yet maybe it could it could have that's not what i mean yeah i mean it's not like this is like marginally

profitable where all of a sudden like it's some floof earnings multiple it's a legit earnings multiple yeah for a reference right now i mean arm isn't that crazy i guess if you put it on a relative comp to nvidia it is at 44 time sales trailing which it's going to come down quickly uh whereas arm would be at 26 time sales but arm doesn't seem to be growing nearly as quick as nvidia so well nvidia's 50 operating margins are totally sustainable uh no i actually have no idea if they are but this leads to a comment we got thank you for the few people joining uh sorry i can't fake alias okay that's definitely a pseudonym uh says thoughts on slightly overpaying for a great business which people describe arm as a great business kind of

a monopoly maybe i don't know uh i honestly haven't looked at it closely uh way in the dark here but it's definitely something that people describe as a great business and here you might be slightly overpaying. So any thoughts on that? I definitely have thoughts on that, but maybe you can go first, Ryan. Well, I don't know enough about ARM to call it a great business. So irrespective of ARM, I don't know. It depends how you define overpay because if you're overpaying, then you're not going to get a return. But if you're just buying like an optically expensive of multiple on something that you think can grow well above market rate for a long time, then you're not overpaying. You know what I mean? But I know that's taking it kind of literally,

but the- From an earnings multiple perspective, I think you just don't want to get too wide on each spectrum. There's people, and there's still people that do this, and I think it's a giant mistake. And they basically close their eyes and say, oh, valuation, I don't worry about that. The business takes care of itself. I think that's a giant mistake. Generally, you sometimes want to be lenient on an earnings multiple, but if you're saying, I'll buy stuff regardless of the price, you're going to get into Shopify 50 times sales in 2020. I mean, that was never going to make any money. But on the other hand, if you say, I can't buy that, it's got an earnings multiple of 18. Or Amazon, you're like,

Amazon trades at a hundred times earnings. I mean, I don't know. When are they ever going to be profitable? So I think you got to meet in the middle a little bit and take a little bit of both sides there. Yeah. I mean, I used to think like, Oh, I'll pay up, you know, if it's a great business, cause it can grow at kind of an exceptional rate, but the, I've become less, maybe, maybe it's,

this is just like the bear market over the last two years talking, But I don't like saying that as much anymore because it's really hard to do that for most businesses, especially do that profitably. Unless you're at a weird Amazon thing where the earnings multiple is 100 right now, but it's actually not. Yeah. I mean, yeah. Just model it out, I guess. What do you think they can earn in three to five years? Are you paying a ridiculous price for that?

No? Then, okay, yeah. then i have no problem yeah yeah trailing training trailing earnings multiples i mean don't don't matter they have zero relevance because it's all about what the cash the business is going to generate in the future um but we don't need to go through a hey uh i had a lecture here uh we got a comment from andrew marshall which again we just had an interview with him andrew check them out at uh mindset uh oh i always get confused what was capital mindset. There's a mindset capital and a capital mindset. They have a capital mindset

YouTube channel. We just had an interview released today with him on Paylocity, which is a fast growing business. Here's a question. Thoughts on trying to focus on other players like Nvidia who make money building the infrastructure for AI? I think that's where the money is currently at for AI. That's not my circle of competence. I have no clue. I don't know at all. I like the semiconductor equipment side of things because I think that those businesses have been, they have some competitive advantages that I can slightly understand, applied materials, ASML, land research, forgetting a couple others. But besides that in semiconductor land, I'm not. comfortable with a lot of the other stuff but curious your thoughts ryan

yeah i don't like uh i'm in the same boat as you maybe we're just old economy people where we're we like boring businesses that aren't that sexy but uh i don't know my underlying assumption with all this ai talk is that like american tower benefits and i don't even know if that's really true but i would just have to believe it is american tower wait wait what yeah right um maybe in some way i guess yeah yeah maybe maybe the yeah yeah a little aws benefits how about that aws is a little clear yeah i like when i ever we have a software company follows autodesk they just reported earnings pretty strong earnings and i'm like yeah it's pretty good you know i guess aws is to keep growing because there's planning money it's a cloud demand uh but yeah yeah i don't know

i just ai kind of makes me wince right now you know with chips like i know nvidia and arm these businesses seem so good right now but i can't help but think like if someone told you what the overall whole spend is going to be on the chip industry in for 2023 and they told it to you in 2005 let's say they said you know they're going to be spending the world is going to be spending this much money on chips what would you have paid for intel or what would you have paid for a lot of the big chip businesses at the time like these like the world changes especially in innovative industries like this like it can change yeah here's here's what i think um this has really nothing to do with the investment thesis or anything it's more of a gripe that i saw someone

pointed out is that no okay nvidia guided next quarter i think it was next quarter for 16 billion dollars in revenue plus or minus two percent right they have no idea what the revenue is going to be And they're sending a plus or minus 2% revenue guide. Are you kidding me? It should be plus or minus 50% because of how crazy that market is. Maybe one of the most uncertain revenues out there, quarter-by-quarter basis, just because of the crazy supply chain in that market right now. Yeah. Well, they're probably already a third of the way into their quarter.

So they have some sense. but yeah but uh still like last quarter uh let me okay i'll pull i want to pull it up i'm responding to a comment here we got a question are you guys covering discover financial in the upcoming podcast yes we are next week we already recorded it comes out tuesday the would that be like the 28th something like that tuesday the 28th we're gonna have discover financial let's talk about that for a second what did you think we can't spoil the show but what did you discover a little debrief i think it's a got a little hair on the bone but it looks yeah you know that meme of the medieval person where they're like blinded and there's like the lady sticking out her butt

that's basically discover where it's like ah it's tempting it's tempting so cheap let's just own it and pretend yeah own it and close our eyes in the loan book um exactly exactly i like to though i think i mean it's got a good earnings per share um track record now let me look at their okay i'm gonna look at nvidia i just keep thinking like with the regulatory stuff or go ahead go ahead i'm doing yeah yeah just i guess heads up for anyone that's about to listen to discover there's some regulatory problems but it's like just ridiculously cheap it's kind of basically the like entire debate does it affect the customers in any way i don't think so yeah um anyway it's definitely there that was a big holdup of stuff we would want to research further yeah um let me

let me get the note wait let me get the note on nvidia so that last quarter they guided for 11 billion for this quarter plus or minus two percent right plus or minus two percent and their revenue was 13.5 billion so again their cfo is crazy just don't don't give up guidance when you have no idea what your revenue is going to be but continue well if you have a feeling that's going to be ridiculously over it yeah then definitely do it i guess that's true if the ducks yeah the ducks are quacking uh you got to feed them right zoom is going back into the office you see this i did see that yeah pretty hilarious huh announced over a zoom call announced over a zoom call yeah he said that you can't be as innovative or build as much trust working via zoom

which definitely true it's 100 true and simultaneously ironic because that's like their whole product okay i we got this i got another note here it all kind of relates together to what you just said raised to zoom and nvidia i think this is a great tweet from upslope capital says this will probably get mocked but this the generalist passerby and me uh sees a lot of this nvidia commentary and it smells a lot like zoom 2020 kind of stuff there's a i paraphrased a little bit of that it was a tweet sometimes you know they're hard to read what do you think there Because I'm seeing a lot of stuff where people are saying, I'm buying NVIDIA. It looks cheap here.

Like the earnings are so well. I think it's highly unlikely they're over-earning. They got to be. They have to be. It's a supply shortage. Just worry about talking about NVIDIA at all because I just don't know anything about it. Semis is such a black box for me. Oh, yeah.

I mean, I could be totally wrong, but it feels, it smells the similar situation, right? Where they're doing such an optimal operating environment that Zoom's business still grew and the stock expectations were just too high. Like the expectations on NVIDIA right now are just insane. Yeah. I mean, Zoom, it is, yeah, it is interesting because remember Burry's tweet, which is like, how are we not at peak Zoom? i mean it was prescient it was perfectly timed and the revenue yeah but the revenue still went up

yeah yeah like the top line got better but the usage from average people obviously declined and he i mean he nailed it even though enterprises are using it or paying more and more or whatever but yeah they got people to actually pay now the or more and more customers to pay i think with with Nvidia, so margins are exploding higher, right? I don't know what the number was. Maybe it was like 50%. I think it was actually higher. Margins are exploding higher. The key with a high margin business is that, I think this is kind of a philosophy I typically have, the higher margin of businesses, the stronger the competitive advantage must be, and the lower margin business it is, the more the margin is in, or excuse me, the more the competitive advantage is

in the margin. Because if they're earning 50% operating margins selling chips to Microsoft, Google, and Amazon, that gives them, those three companies, that much more of an incentive to try to break away and make their own products. So NVIDIA's competitive advantage better be damn strong if they're going to maintain this extremely high pricing power. Yeah, that is the other thing. it's like if you're earning that much money and you are obviously probably feel the liberty just

raise prices at will you are going to attract a ton of competition now if maybe like i bet semiconductor experts probably don't even listen to the show if you know semis we're just sorry If you're an expert here, we're, we're, we're generals through and through. But unless NVIDIA is literally impossible to catch, like technology wise, people will be coming for their lunch. Yeah, exactly. Amazon already is. A company like Home Depot or Costco, it's too like, I don't know. They're not,

it's kind of the opposite. They're the low cost provider. like yeah you have to it's it's harder to compete with that i guess it's hard to catch up although we do have a comment we do have a comment from matt h here jensen the goat so true yeah you know that is true i mean yeah he's executed so well okay here's one plus he wears that leather jacket i mean yeah he looks good i'm not a i'm not a leather fan but the uh he does look good that and he holds up the chips like it's a boo box it's funny all right here's we have two questions i'll try to both the first one relates to semi so i'll hit that one first why shouldn't asml and tsmc capture the improving economics given that they are the bottlenecks in the

semiconductor industry i think that's an interesting part of the semiconductor industry is that you look at a lot of the stuff all parts of the supply chain you have um you start with that well maybe they're not a monopoly but apple has a moat then you look at nvidia apparently they're a monopoly right now and these high-end stuff Then if you go back to TSMC, they're an emerging monopoly in a lot of this stuff. But then if you go to ASML and Applied Materials, they're kind of a monopoly in their equipment niches. Who has the true pricing power here?

And I think generally, all these stocks have done well over the long term. Generally, the unit economics flows through pretty evenly to all these companies. I'm sure ASML probably has more pricing power, given that they're extremely hard to reproduce. But I think as a generalist, I would say probably flows through fairly evenly. Like TSMC is not going to say if NVIDIA is earning this much margin, TSMC is going to raise their prices, especially as their costs are rising, as they're trying to put more factories in Europe and the United States. Yeah.

Can we stop talking about semis now? I feel super unqualified. Yeah. we have some comments saying people underestimate how hard it is to develop chips um even apple has struggled to replace qualcomm's chips um and yeah there's some comments here about serious doubts about amazon and google being able to execute and make products to replace nvidia for a long time that's from andrew marshall again we had the interview with him today so yeah i mean that could be true it's just they're gonna the incentives are there but yeah we have another

question. Let's talk Lowe's. Yeah. Tom said, enjoyed your recent deep dive on Lowe's. Could you give some thoughts on your opinion of Lowe's versus Home Depot? Thank you for the question. And thank you for listening. Yeah. You want to go first there? Well, I think they both benefit from a lot of the same tailwinds, which is that the home stock grows, the average age of homes grow, and more and more people need what Lowe's provides, Lowe's and Home Depot provide. The difficulty for shareholders, and maybe Home Depot has probably done a better job providing it, just all else equal, to professionals, to consumers, the in-store experience, they've done a slightly better job. I bet that's visible in the comp sales would be my

guess. The difficulty from a shareholder's perspective is that Home Depot is more expensive and has been more expensive, which it's not that I'm not worried about the multiple compression, but they're not able to return as much cash to shareholders with their buyback program as Lowe's is, which has been so helpful in Lowe's juicing its earnings per share. So Lowe's has really been able... If Home Depot were able to trade at the same multiple as Lowe's, it would be in such a better spot in terms of ability to grow per share value versus lows. The difficulty is for shareholders, that's just not the reality. Yeah. And do you think- It's kind of a weird, like they've done so good that it's a disadvantage in terms of returning

capital. Yeah. Do you think there's a giant difference in business quality between the two? Because I don't think it's that big. No, but on a slightly bigger store base, they generate three times the revenue from professionals so obviously they're doing something much better on the pro side that we're not seeing yeah so i mean yeah for like the average dad that's just like fixing up their house or buying you know a couple two by fours like yeah i probably not that big of a difference yeah i guess yeah you're right home people i don't know if it's that significant but home people definitely higher quality business what do you think did you hear autodesk rule of 40 hear this news he said in the conference call

throw up you do you do hate that yeah well that is a bit of a conundrum because it's a business that can just grow revenue 10 in perpetuity but they uh have some things that yeah are interesting from a capital allocation framework let's put it that way let's just say they're one of ryan's pet peeves uh executive teams but they beat they apparently beat so they're making puns on the conference call so oh god i want to vomit look at this we continue to manage our business using a rule of 40 framework with the goal of reaching 45 percent more or more over time Well, I mean, that's better. Listen, rule of 45, I guess, is better than rule of 40. But like I said, they could just have 40% free cash flow margins if they wanted to. Yeah. And it's an on-gap operating margin. So yeah. All right. Here's one that was an interesting topic. It's obviously not a big deal to the actual company that made the investment, but Berkshire, probably one of the-

lieutenants made an investment in the home developers curious your thoughts on that because we are very skeptical on that and i continue to remain skeptical on the industry large or maybe uncertain i guess i think it's very strange i don't know what to think what do you think they they see here because clearly they know the industry much better than us i mean they literally own clayton homes well i gotta tell you shame on us honestly because we looked at... NVR was buying. We did a whole home builder theme at the perfect time and every single one of them, we were like, yeah, it looks pretty attractive. But if home prices collapse, then what happens? Well, even if home prices collapse, I think they're going to be fine because they can

still sell their homes. It seems like maybe that's what Berkshire is saying is that even in a weak housing market all these home builders are doing a decent job continuing to sell homes and it's maybe it's just that under supply that everyone seems to talk about which means people like home builders

like this are going to have no trouble selling at the same average price so I don't know maybe it's just that they obviously are better in terms of analyzing the home builder industry yeah I think the wild card is immigration rates.

I'm still a home price hater. Oh, yeah. But I guess that doesn't mean the home builders are going to do it. It doesn't mean the home builders are going to do bad, but obviously the affordability issue is not sustainable. Relative to rental prices, though, it's not that. Home ownership here is still not the wrong option. Well, I hate to break your anecdotal evidence, Ryan, but I saw a stat that in Seattle, at least, it's twice as expensive on average for the equivalent. Monthly cost.

The monthly cost for, yeah, for this is like early this year. So, I think you might, it's like equivalent quality, you know. So, it's definitely, right. So, it's more, maybe you're looking at more of an anecdote on a starter home, which, you know, might be cheaper. Yeah. Yeah. I don't know. I hope home prices go down because I'm a bitter hater as a non-homeowner.

Here's an interesting question. I think about this one. I don't know what the question is, or the answer is if we did, we'd make a lot of money. I don't think anyone knows the answer to this question, but it's fun to speculate on. What do you guys think happens to home prices if mortgage rates fall from 7% to 4% to 5%? Do you think sellers flood the market and outweigh the buyers or vice versa. Okay. I think a lot of people that have put off moving because mortgage rates went so high, sell their home and move. So like movement would accelerate because I mean, anecdotally, I know so many people that were like thinking about moving rates, shut up. They're not going to get out of their 3% mortgage to go hop into a 7% with prices,

not down that much. So if things shot back down, I think a lot of those people would finally choose to sell their homes. And yeah, I think that's exactly right from what Tyler said. I think that floods the market with supply. Yeah. What's interesting is people talk about, or I think it's maybe real estate investors, stuff like that. You see it online. They talk about, oh, when interest rates come back down, then prices will start going up again. But I think at least in the near term, since the market is in a weird limbo period where everyone's frozen, if mortgage rates came down, I think prices, I would be on the side of saying prices would come down a good amount just because of the flood of supply that would hit the market.

I don't, like it wouldn't be, I don't know how big, but I would say I would lean to them falling just because now it opens it up for people to buy homes. And since the affordability levels to get back to pre-pandemic levels, I think, or maybe it's during when it was mortgage rates were like sub 3%, would require like a 30% to 40% price drop. I think if a bunch of people are transacting, they're not going to be buying at these affordability rates that are 50% higher, 60% higher, 70% higher mortgage payments. Now, if the interest rates go down to 4% to 5% on your mortgage, maybe that's 30, 40% higher than the low mortgage rate pre-pandemic period. But I still think you need an adjustment there. If that makes sense. A lot of numbers. I feel like

I'm talking in circles. I remember when I made, so I made a prediction at the beginning of the year that home prices were going to fall by 10%. I don't think it's happened, but- Close. It could still happen. I mean- I said there was basically three things that could happen at the real estate market. Home prices could come down to bring affordability down. mortgage rates could come down or everything could stay flat for like 10 years and we could have insane gdp growth and it just slowly like uh reaches kind of affordability i'm starting to think that third option is a possibility

yeah inflate ourselves away no i'm interesting yeah it's interesting just if we can just get like five percent nominal gdp growth for five years we're back you know we're back to we're probably close to affordability yeah it would be the roaring 20s all right uh let's do uh mount rushmore because we got a good amount of time but i want to yeah make sure we have time for this one okay What is the criteria? Just make it up as you go along. I do not care.

No one's or not. No winning here. It's just for fun. Mount Rushmore, biggest signs of the 2021 bubble, biggest signals of the top, if you will. Okay. Do you want to go first? Yes, I can go first.

And I'm not going to look up your tweet until after. So we can look at some of those replies after. It's a bit of fun. Number one, and I teased this at the beginning, is the Rivian IPO. $100 billion pre-revenue, raised $12 billion, and yeah, the business has improved significantly, but this thing is still negative gross margins. And it's kind of crazy how good they've done from an operational standpoint, because again, I will say $100 billion pre-revenue, I think that was right near the top. That's the one that they're going to be talking about 10, 15, 50 years from

now as the key IPO, along with Tesla, or not Tesla's IPO, but related to the EV space, the EV bubble. Ripping IPO is, I think, the number one indicator for that electric vehicle bubble. No, no, no. What was the other one? Lucid? QuantumScape? No, the one that rolled down the hill.

Nikola? Yeah, but that's not the top. That might be worse. But that was summer 2020. Wasn't that like a $44 billion market cap at some point? Yeah, it was a pump and dump. type deal uh but that was that was summer 2020 so i think it's a little early a little early yeah um i've got this one which was a response so i'm taking this from someone else

uh an nft of a rock sold for 1.7 million dollars that's did you see this i mean this was maybe be like there was plenty of these there's plenty of biggest sign of excess out there i know all these nfts were just that's part of the problem with this mount rushmore is there were so many like just ridiculous things um yeah let me share my screen uh can i i'll let you all right should be able to now this was the rock this sold for 1.7 million dollars and the screenshot is free i'm looking at right now the could have been a could have been money to be fair to these people could have been money money laundering i think you know give them a little respect could be money laundering

but if they just spent 1.8 million dollars on a picture it actually doesn't matter what the picture was like it could be a picture of the monolith that doesn't matter the still is a it was a waste of money it is funny if this was just like pure money laundering and everyone's like you know what that's not that crazy that's honestly more respect there was a lot of there was a lot of people that were like 1.7 million okay that makes sense i could see that you know this nft stuff you know i kind of get it uh god it was it was a straight bubble and you know what i remember there was like i think people are just trying to be open-minded i get it but a lot of people fell for this nft crap there was even on value after hours uh bill was like no i kind of

get it you know it kind of makes sense it's cool you can get like this like cool art and then toby just ripped into him and was like no dude it's the same as all the other bubbles it's it's bullshit and i mean you nailed it yeah the yeah nfts in general i mean that it's just pure ridiculousness i can i my second one be axiom infinity or is that too related to the nft because i think crypto is the one where you could like or it's just like a bunch of south korean like no no philip uh okay let me explain how axiom infinity worked it was a crypto nft type thing but it was supposed to be web 3 gaming where if you played the game you earn these tokens. And if the tokens went up a bunch of value that was related to it, you can make a

decent amount of money. In the United States, it wasn't really relevant, but for people in the Philippines where it caught on, they can make a lot of money. So they played this video game that was pretty bad, like a not a fun video game. And that was their job for a little while. And it was one of the most insane things ever. It kind of spurred the whole Web3 gaming thing. And that was just pure nonsense we're like yeah we're gonna this is the future we're gonna make games and then just have these tokens and then if people in the philip low-income countries play them we're just gonna give them money it makes a lot of sense and i don't um yeah it was the whole play to earn strategy so that that's my second one for sure i think that kind of relates

to the web three wait remember another term that no one uses at all today defy growth of defy remember that no all right well wait what was defy again that was the decentralized finance web three remember defy defy this is the future of finance okay i've got another one wait is that that was my second Axie Infinity yeah okay they also I think

lost 600 million dollars in a hack to I believe it was North Korea so they really helped

North Korea fund its weapons program so congrats to them well alright okay this one for me was maybe

one of the better businesses but was the most ridiculous in my personal opinion in in

What was this? Late 2021? AMC. No. Shopify hit $210 billion market cap. It was doing a little over $3 billion in sales. And it's not super high margin sales either. A lot of it was just going to MasterCard and Visa. Yeah. Not Visa and MasterCard, 60% operating margins, which still a 50 times sales is ridiculous. Yeah. To me, this was the most like on every one of them, even maybe Rivian,

Rivian hitting a hundred billion, it's probably more ridiculous, but there's like a path to whatever like let's take uh what's it called that horrible uh fake ev company the lordstown motors nicola well any one of them you could like make a path to say like oh if production ramps up yada yada yada you know there's some world where it generates enough cash with shopify at this time it would have taken such absurd growth for like 15 years for this to ever make sense Oh, yeah. It didn't make sense. I remember doing a poll at the time, hey, what do you like better, Shopify or Dropbox from these levels over the next five years? And almost everyone said Shopify. I mean, the sentiment on that was crazy. It was like,

it could do no wrong. And I think there's a lesson there. You got to look back at history. And yeah, I got a comment here. Remember QuantumScape. Also people said SoftBank and WeWork's private valuations. I think that was a little too early, but yes for the pre-pandemic one i got we work on here too yeah that was that's a little early i think for the 2021 one some of those like what do they call it the the coins or whatever okay well don't come on come on these are options no spoilers i could i could use that oh sorry but yeah i mean those were just ridiculous like okay so they were coming out and getting like i don't know if you just came up with a funny enough name like you would have

like a five billion dollar crypto market cap or whatever oh yeah well okay so what are your choices uh nft of a rock selling for 1.7 million dollars in shopify at six times sales okay so i went first so i did rivian ipo and axi infinity my third one is going to be spack silly season january 2021 specifically with um try to be as nice as possible but scam off yeah like he's no he's on the worst person the worst the worst person in all finance which i love that everyone turned against him it's great no one please don't give him money he's just a scam artist i i don't really frustrates me because he gets people to lose money it's just not he's in the arena brett you're not you're on the sidelines we're recording on the sidelines

we're recording a zoom right now but yes back silly season what was it like 300 in that month of january 2021 something like that uh he had the picture of the his the whatever the shirtless pic i don't know what context was but that was hilarious and then the one where he goes this was the the he called the top when he he got very the ego was high and he just had that tweet where he said i'm gonna f uh stuff up but you know the f word and we'll try to be uh clean here for people in the car with their kids but yeah remember that one that was the sign of the top uh for that for at least that type of stuff for the hyper growth stuff which was absolutely um i don't know yeah it was good timing i guess by by him and it's always got a little bit of a

story but getting there and that kind of reminds me of the i don't think i'm going to choose this one because i have a better one or maybe i think i have a better one but the arc tesla model that was a big one too when they were saying the insurance company is going to be worth like twice as much as as progressive yeah okay that was good okay what's your third what's your third um in i guess this is 22 so maybe this is cheating but fortune magazine had on the cover sam bankman freed saying the next warren buffett question mark yeah i don't know if that's too late but i think that counts that counts yeah that's gotta be up there yeah the defy king living in the bahamas we all know

how that went okay my fourth one is going to be the the one you mentioned you kind of gave me this one the fall 2021 actually let me confirm when it was because i want to confirm this timeline with the shit coins, I guess, is the only way to describe them. These crazy crypto things, which I don't honestly call, I don't know the difference between a Shiba Inu coin and a Bitcoin. I think they're the exact same. Call me crazy. But these prices went absolutely berserk.

Yeah, we're going to look at Shiba Inu. Yep, this timeline works out for me because the peak was, it looks like here, October 27th, 2021 and i remember distinctly at a halloween party uh so that at that time the price of it was point zero zero zero oh god zero seven did they do a coin split yeah i know the whole point of this one which is whoever created this smart give it to them they made it the lowest like price because people just price anchor to penny stock type psychology it's a dollar no yeah i remember distinctly this guy at a halloween party all drunk he's like dude if it hits one

cent i'm rich i was like oh my god this is crazy because that guy was not in finance at all and there was so i mean that was for me personally and i think a lot of people just in general seeing those charts go that was such a signal that it was silly season yeah there were a lot of personal experiences i had where retail investors got in or just people that really weren't that interested in investing got into stuff with no idea and then if you like i remember trying to caution them like okay whatever just you're just a hater yeah you're just a hater okay here's a trivia you're one of those short sellers aren't you yeah yeah yeah evil short sellers you probably know john hempton which yeah well the one person i miss is kabuki that twitter account the funniest

twitter account ever r.i.p i don't know what happened compliance probably hit him but the funniest stuff some of the jokes were just so good okay here's here's a quiz question what do you think the shiba inu market capitalization is at this moment shiba inu coin five billion dollars damn very good 4.8 billion hey right on there is 4.8 billion dollars in wealth right now it's still out there okay i'll take another one here all right last one yep just think about how like i don't know it's got to be so frustrating like if you're trying to like i don't know better a society to just be putting money into such a waste like yeah that could be allocated to useful things like it's five and a half billion or five billion that could be useful anyway um

it's deflationary though so you know hey put the money there it's uh gonna help fight it's helping fight inflation but okay what's your last one um okay this one there was a game stop frenzy i'll take gamestop it was 2021 um everyone i knew that had no idea about finance was interested after this dude they were calling dude yeah calling like that's the only times people were literally calling me multiple like should i be in on this i mean i had friends that were like yeah i bought a couple shares i had to be in on it like i said i've never like probably set up brokerage accounts for the first time just to buy those shares i saw a preview at for at oppenheimer for i don't know what the movie's called i saw it yeah yeah the dumbest movie that's going like

the dumbest movie like who who plays ken griffin i know it's gonna make it's gonna feed into this is narrative that's just not true i know i would all respect to roaring kitty legend legend but like yeah roaring kitty seems like solid but there's no reason to it's going to make ken griffin look like a terrible person which he's just run a successful investment firm yeah and who knows maybe at the maybe i don't know maybe the movie is going to say something like actually these people were totally wrong and that's not how the world works but i doubt it it's gonna yeah it's gonna make everyone sympathize with like the person that had no idea what they were doing with their money where it's like and they're gonna see it's it's

gonna make wall street look bad when in reality like people were just making dumb decisions with their money i mean people that listen to the show know that yeah like no that was the reality but people that watch that movie i mean most people i would i would venture to guess here most people that watch that movie are going to sympathize with the people that had no idea what they were doing. Yeah. They're going to be like, oh my God, people lost money. They got screwed by the suits. People lost money in the stock market. This is crazy. God, we need to do something about this. Yeah. This is an interesting question that's raised from Investors X. It says probably 1% of those shit coins are in circulating circulation. What percent of the country's

wealth do you think is wasted in crypto well what was i mean shit coins for me is the entire crypto universe sorry for the crypto people out there but that's just how i see it so at one point it was three trillion dollars so significant amount the entire money i didn't know it was that much all right yes i mean it was a bubble of epic proportions ryan and it was global okay close things up all right so what were yours chanos all right here this is what 2020 well you don't get a fifth you don't get no no i'm just gonna say chanos was right he was right about everything china golden age of fraud all that stuff he was right listen to chanos my four were rivian axi infinity spac silly season shiba inu halloween party specific the last one's

specific to me the uh okay mine were what uh i guess i gotta go through my notes here uh okay shop fight six-time sales nft of iraq sells 1.7 million gamestop and no gamestop was last there's one other one i can't remember what it was the uh anyway this all this stuff makes me happy makes me so like it makes me happy that jay powell decided to raise rates because he put he put it all to an end i mean there's still waste but he cut out 90 of it yeah i agree all right well anyone will post maybe this type of stuff on twitter anyone else have any comments put them in there it's fun to talk about this type of stuff and kind of look back as we're getting a couple of quarters. Well, by six quarters or so away

from the top. Here's a question we have to round things out. Thoughts on the Autodesk earnings. We have a question there from x marks thoughts on the Autodesk earnings. No surprises really same as it was frustrations around capital allocation. But this is a business that showed again this quarter that can grow revenue at 10% I think, for the foreseeable future. Yeah. It's such a good business. I already talked about it kind of earlier in the show

in case you maybe weren't there for that, but oh yeah, it was SBF being on the cover of Fortune magazine. For your third. Yeah. Yeah. They talk a lot about the rule of 40 on the conference calls. It's frustrating for me, but the business is really solid earnings wise. I thought it looked good. They are buying back a lot of stock, which is nice. I mean, Billings is going to look weird because they're moving to the annual cycle. Yeah, just look at revenue to blend it.

All the categories, all the product categories did well. APAC is still a lagger for them right now. APAC revenue is flat year over year. It was the only geography that wasn't growing. I mean, growth for them is so easy. Remember when that company wrote Autodesk a letter? It was like, please stop raising prices. We can't unsubscribe.

yeah well they're going to keep raising but yeah the we've talked about this a lot uh we talked about this we covered them i believe it was december 2022 i think a lot of this stuff there we still have probably the same thoughts today so if you want a comprehensive overview on autodesk go listen to that or watch it i believe it's on youtube um look the value they're providing for their software versus what these corporations are paying is much lower and they have a ton of room to add value and also raise prices. So I think basically what they guide is 10% plus revenue growth

and they can do that by raising prices. And then an interesting, unique thing for them is they have a ton of non-compliant users pirating their software. And they can basically thread the needle on that, kind of push some levers and say, okay, well, if we want revenue to continue growing, we can steadily shut down

more of these non-compliant users and force them to pay. And that's something that they can pull for a long, long time here. And there's also just a general tailwind of software utilization across the construction, manufacturing, and architecture space. That sounds like a great thesis, but it would be so comfortable owning shares if the executive team weren't nonsensical on capital allocation. And that could cause us to sell. But the underlying business looks consistently strong. I did see, what was it?

Oh, Activision is having to spin off their cloud gaming components in order to appease UK regulators. Yeah, it's distributed through Ubisoft. So strange. They're just, yeah, they're selling it. They're going to sell the rights to the cloud gaming to Ubisoft. Maybe it's the distribution rights, whatever. But then Microsoft's going to get it on the Game Pass.

They'll just get it from Ubisoft. It's weird. It's very weird. The other part that's funny is, I bet UK regulators are like, wow, we did it, guys. We stopped them. We forced them to spin out the cloud gaming. I bet Activision and Microsoft are looking at each other like, okay, yeah, 1% of our usage is on cloud. So, sure, you can have it.

Yeah, do whatever you want for the time being. All we're doing is trying to perfect. the only thing they care about is perfecting the technology at this point i bet it's lower than one percent i bet like half a percent of the call of duty usage is on cloud yeah i mean honestly they should just come out and talk about how unprofitable the xbox division is i bet it's unprofitable so i know you feel like we're making these moves because we're not profitable ps5 or playstation and nintendo are the ones that get all the profits in the industry i hope uk regulators are like patting themselves on the back for this one thinking it's a win because yeah it's so

letting this get through with like the most pointless contingency but okay it's just like a 15-year agreement like they could if if the technology's ever there they can just take it back in the house eventually it's so weird yeah comma for andrew marshall here uk regulators are so weird it's like how they made meta so giphy yeah i mean that's the classic example other question here from tyler i think it's a pretty easy one back to the zoom topic what do you guys think the future of work looks like a hundred percent work from home or office and mix i mean i think it's pretty clear now it's going to be a mix and it doesn't really matter that much but the only thing that's going to matter is how much for the office landlords that's the only i think

thing that's crazy uncertain here but it's definitely going to be a mix i think more and more companies we're seeing it now pretty much every big company's coming out and saying we're moving more back into in-person we yeah or at least we didn't notice it for a long time but we're lacking productivity we're moving back in person and yeah i think they might be blaming that as kind of a scapegoat for just over hiring maybe but i i mean i know a lot of people that work remote and don't get they take their sweet time doing everything like if they were in the office they would be forced to be more productive yeah it's true so maybe it's a way to do that it's also a way to force people to quit uh we've seen amazon do that around here

but what's interesting is that interesting yeah just get strategy a little bit devious interesting though almost all companies are reducing their square footage so like even if we see a reduction of work from home that does not mean things are all clear for the landlords but it's 10 30 so gotta run here uh thank you everyone for listening next week we're gonna have a guest on for me so that should be a fun one uh it's jason hall over the smattering one of our partner podcasts he works a lot like fool he's been on before and people seem to love him or tentatively it's gonna be jason hall uh i think like he said he wanted to but he said yes but you know obviously his schedule could come up we talked about that last week i can just be

really fun monologue for like an hour god that'd be hard being like uh doing speeches stand-up comedian stuff that'd be so like it's amazing that they can they can talk for that long but yeah so i'm gonna be off next week uh but it should be a fun one sprouts farmers markets coming out in two weeks discover financial next week and we got some fun interviews in the queue thank you everyone for listening remember we are not financial advisors anything we say on the show is not formal advice or recommendation your general partners at arch capital and clients may hold securities discussed in this podcast. Thank you, everyone, again, for the commenters.

You can do this live on YouTube on Thursdays if you want to comment and ask questions that we can answer. We'll see you next time.