Plain English with Derek Thompson - The Age of the Trillion-Dollar, Zero-Profit Company

Episode Date: June 26, 2026

For decades, investors valued companies based on a familiar formula: Grow revenue, earn profits, and reward shareholders. But a new era may be beginning - one where trillion-dollar companies can lose billions of dollars a year and still command enormous valuations. SpaceX recently became one of the world's most valuable public companies despite reporting multibillion-dollar losses. Meanwhile, OpenAI and Anthropic are also racing toward public markets with sky-high valuations and no expectation of near-term profitability. These companies are spending staggering sums on chips, data centers, and AI infrastructure, as they bet that today's losses will create tomorrow's economic winners. Today, Derek is joined by Michael Batnick and Ben Carlson of Ritholtz Wealth Management and the Animal Spirits podcast to explore the rise of the trillion-dollar, zero-profit company and what it says about the future of technology, investing, and the American economy. Subscribe to our YouTube channel here:https://www.youtube.com/@PlainEnglishwithDerekThompson If you have questions, observations, or ideas for future episodes, email us at [e-mail]. Host: Derek Thompson Guest: Ben Carlson and Michael Batnick Producer: Devon Baroldi Additional Production Support: Ben Glicksman Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Wayfair, every style, every home. Today, we're entering a new age for investors, the age of the trillion-dollar company without profits. On June 12th this year, SpaceX went public in the largest IPO in history, pricing initially at roughly $1.8 trillion. and quickly trading above $2 trillion. Overnight, it joined the tiny club of companies valued alongside Apple, Microsoft,

Nvidia, and Amazon. But those companies have something in common that SpaceX does not. Profits. Apple and Microsoft each generate hundreds of billions of dollars in annual revenue and enormous earnings. SpaceX, on the other hand, reported less than $19 billion in 2025 revenue

and a $5 billion net loss. And SpaceX might soon have company. OpenAI and Anthropic are both moving toward public listings, each with valuations approaching $1 trillion. Anthropic is not even trying to produce a sustained profit this year or next, and Open AI reportedly does not expect to be profitable until the end of the decade. The striking fact is not just that investors are paying up for growth. They've always done that.

The striking thing is that public markets are soon being asked to absorb several trillion dollar companies whose valuations are built less on profits than on the expectation that artificial intelligence will define the next era of capitalism. There's a couple reactions, I think, that you could plausibly have to this news. One is, holy shit, this makes absolutely no sense. Investors are insane. We're in a bubble. It's all going to pop.

Stuff your mattress. And I'm not going to tell you that that take is obviously wrong. It's not obviously wrong. But I'm also interested in what these trillion-dollar IPOs represent, which I see as a new age in American technology. The tech giants of the 2010s, Facebook and Uber, Airbnb, they were asset light. AI is asset heavy.

SpaceX's AI unit burned through $8 billion in the first three months of this year alone. Open AI reportedly lost tens of billions of dollars, last year. Overall, the so-called hyper-scalers, the big tech companies like Microsoft and Alphabet that are spending hundreds of billions of dollars a year, they are devouring chips and pouring concrete and building data centers with electricity bills that could power small towns. And this turn within technology from light tech to heavy tech, I think might be one of the most important transitions in American economics, markets, and investment. Today's return guests are Michael Battenick and Ben Carlson of Ritholt's wealth and the hosts of the podcast Animal Spirits.

We talk about the new age of asset heavy tech and the dawn of the trillion dollar zero profit company. I'm Derek Thompson. This is plain English. Ben Carlson, Michael Battenick, welcome back to the show. Happy to be here. So as I said in the open, I'm really interested in a couple trends. in tech and markets right now. And they really all revolve around this one phenomenon,

which is that SpaceX, Anthropic, and OpenAI, all IPOing in one year means that we're going to get three trillion dollar IPOs with a combined profit well below zero. And I think this is just a sign that we're in a brave new world that requires some explaining. So let's start with SpaceX.

The company IPOs at just over $2 trillion, dollar's valuation, already down about 25% from the peak. This is a firm with no profits, enormous costs, great satellite business attached to a money-burning AI business. Michael, what are investors buying when they buy SpaceX? I'm going to answer a different question and excited to be back here, Derek. Let's do it. All right.

Forget about what are they buying. I think everybody understands the Starlink system is phenomenal. It's a game changer. Forget about the $32 trillion. Tam or whatever they spoke about with like the AI opportunity. I think for the point of view of the investor base, what's really important is the $2 trillion market cap. Holy cow, I miss my opportunity to invest in SpaceX at a $300 billion market cap, right?

Wherever Facebook came public, like we miss all of that growth because companies are saying private for way longer. And now I'm being as an index investor, you are jamming $2 trillion. of a company with a very, with a lightning rod of a leader that I potentially do not care for. And I am now his exit liquidity. Okay. So the story is simple, complex, and nuanced. You, the index fund investor, are not swallowing $2 trillion worth of Elon Musk.

The NASDAQ 100 is fast tracking inclusion into the index. but what they are doing, and when I say fast track, usually there is a seasoning period where a company will have to show something like four quarters of something crazy called a profit before they can get included into the index. The NASDAQ is saying, listen, we are the innovation exchange of the world.

How can we not fast track and include SpaceX? The question becomes, how much? And there is this thing called the free float adjusted market cap where they'll not just put $2 trillion and they'll say, okay, how much stock actually exists for the public to buy?

In the case of SpaceX, Elon Musk owns 40-something percent of the company. That will never be included in the market cap. So it's not to downplay and say that the $75 billion worth of proceeds that are being raised is not a lot because it is a lot, but you are not have,

it's not like, so SpaceX can be the fifth largest company in the world by market cap. And it could be, if and when it's included in the S&P 500, whenever that may be, it could be the 180th biggest stock. And I think the part that people got upset about this is they came to market. They issued 3%.

So they raised 3% of the company was what they issued. Normally, when companies IPO, it's 30%. Right. And so the thing that is, I think, grinding people's gears, forget to like pass the $2 trillion dollar number. It's, hey, wait a minute. They know that they were such a gigantic, amount of demand for the stock, and they are artificially limiting the supply because they

want the demand to so far outstrip supply because in the lockup schedule, which how many shares can insiders sell over time, there are hurdles such that if the share prices, say, 20% above or 30% above for ex consecutive days, then they can sell more stock to the public. They can get unlocked faster. And I know I just said a lot that's probably confusing to a lot of people, but it's a big story, but the headline numbers miss a lot of the nuance underneath it. No, one way that I recapitulate that

is to say that, look, most times when companies go public, they go public by issuing 30% of the available stock. In the case of SpaceX, they didn't let out 30% of the stock. They let out 3% of the stock. And so there was a pressure

created by that scarcity to drive up the value of those shares and when the value of those shares is driven up to a certain number, I don't know what it is today, 175, 180. Well, that calculates that that cumes to a $2 trillion valuation. But by only releasing a small amount of a stock that they know has enormous demand,

because Elon Musk is one of the most famous people in the world, that was one way that they knew they could get this $2 trillion valuation. Now, over the long run, I think people, traders, hedge funds, institutional investors should probably think, what is this piece of paper worth? What is this share in SpaceX? worth? Do we think it is worth a share of a $2 trillion company? Or when we look at the fundamentals here, are we looking at something that makes more sense as a $1,800 billion company? So, Ben, you know, I want your SpaceX thoughts as well. And we already talked about the famous page 11,

or reference the famous page 11 of the S1 document, which is the one that got everybody's attention that claimed that SpaceX had a, quote, quantifiable total addressable market of 28, trillion dollars that consisted of $370 billion in space-related stuff, what most people think of with SpaceX being a rocket company, 1.6 trillion in Starlink, satellite communications, and 26.5 trillion in AI. So I do think it's important to slow down here and say, most people, when they think about SpaceX, think of SpaceX as a rocket company. But when you look at what SpaceX defines SpaceX T-TAM as, they're saying, you're 95, 99 percent of of the value is the future of AI business. Ben, is this best understood as just an Elon meme stock,

or are you bullish on some aspects of the company's earnings perspective here? I think I'm more bullish on tech leaders' ability to sell the future to people. And I think this kind of goes back to Jeff Bezos in a lot of ways. He was the first one who said, listen, don't worry about right now. worry about the future. We're going to grow into this valuation. And it took a while for investors to get used to that. You remember, in the dot-com bubble, Amazon fell 94% at the end of the dot-com bubble. And people weren't quite there yet, but for years and years, people kept going, why is Amazon's valuation so high? What is it going to grow into? And finally, the cash flow started coming and it grew into it. And I think

Elon Musk has taken that to another level with Tesla, right? Everyone who's a fundamental analyst for Tesla for years has said, this thing is a joke. He keeps issuing equity. And when a company's issue equity, the current investors get diluted. So the value of the company should go down to you. Your earnings per share is being spread among a wider set of people. And he's been able to sell the fact that, no, no, no, no, this equity will help me grow the company. And that's what he's trying to do with SpaceX as well, is say, listen, don't worry about right now. We're worrying about the future. And so if you're a fundamental analyst and you looked at the numbers, you'd go, this is absolutely insane.

Just look at the numbers. They made, what, $19 billion? And they're going to be a $2 trillion company. It makes zero sense until you start going, well, what about data centers in space? and what about trips to Mars? And that's where he's sold enough people. Because if you look at it, you talk about the IPO. 30% of the demand from the IPO came from retail investors

who obviously love what this guy does. And usually it's, I don't know, 5% to 10% for IPOs. So he has talked enough people and he's such a good showman and salesman. Obviously, you know, he's landing rockets too. It's not like there's nothing going on. But I'm more bullish on his ability to continue to get investors to buy into his vision of the future. Yeah, I mean, Michael, I am interested in your general theory of Musk valuation effects because,

you know, as, as Ben just said, it's not just SpaceX. I think Tesla's price to sales ratio that I just looked up is 14. The automotive industry average is 0.7. So that means that Tesla's valuation as a company is approximately 20 times higher than you would expect from one of its competitors just based on its sales alone. You've already indicated, I think, in your previous answer, at least two different ways that Musk achieves this valuation effect. One is this ability to tell stories, this ability to inspire enough people to buy shares

in his companies. And another, I think this is important, is especially in the case of SpaceX just a few weeks ago, understanding that he has built a certain demand for owning shares of SpaceX, issuing a pittance, a small number of shares, creates a kind of demand to supply ratio that drives up so much pressure to own some of the stock that it ends up cashing out in a company worth $2.x trillion dollars. But I am interested in your general theory of how Musk is able to do this. Again, not just with Tesla, a trillion-dollar car company worth 20 times more than its competitors on a sales basis, but also SpaceX, two trillion dollar company with zero profits.

A few things. I just want to say one thing about the lockup. I don't know that the current way that business is conducted is the best way. Typically, you have a 180-day lockup to which shares predictably in the, like on average, shares of these, these companies fall into the lockup as supply is coming on the market, which is very well telegraphed to everybody, literally it's on the calendar, and then shares find the bottom and do whatever they go on to do. So I kind of like that they're thinking outside of the box, being creative. I don't know that I love that it's only 3%, which is very, that was not an accident, okay? The question that you asked about Elon's ability, unique ability, and I would say genuinely

a one-of-one ability to do this is he's a world-class entrepreneur, operator, money-raiser, deliverer of, he's made a lot of people a lot of money, and it's not just a retail investor, because Palantir has done something similar. Alex Carp has garnered a lot of attention of perhaps the next Elon. on, guess what? Shares of Pallantier are down 50% right now. And it's not to say that Tesla hasn't experienced its fair share of crashes. It certainly has.

But he has the unique ability to continue to issue equity. There was times at 2020, 2020, 2021, where Tesla was raising money and the stock would go up 10% because it was like, see? Look how much demand there is for Elon shares. That has to be bullish. So he is a one of one. I think that there are some readthroughs into the rest of the market and the narratives that we're telling ourselves.

but I genuinely think he is a one-of-one. There's nobody else in the world that could do what he does. I want to move the conversation from SpaceX to the other two IPOs that are expected later this year, which is Open AI and Anthropic, both of them racing toward

what are expected to be trillion-dollar public offerings instead of staying private and dodging quarterly earnings, which is what most valuable private companies have been doing for the last 10, 15, 25 years. I see this personally as a pretty major inflection point.

And I don't necessarily know what the meaning of that inflection point is, and that's why I wanted to talk to you about it. So a couple of thoughts here. One thought is that tech used to be asset light. Like the companies that define what we thought of as technology in the 2010s, meta, Uber, these were asset light companies. But the companies that we think of as the frontier of tech today in AI and certainly in space, they are desperate for cash because they are CAPEX heavy businesses that have to spend a lot on chips or infrastructure or steel and rocket technology itself. And because they're desperate for liquidity,

they are going public faster than their slightly older tech brethren would have. And that's an interesting inflection point to watch tech going from being this asset light software forward business to being more of a asset heavy business. I think that's interesting. The other thought that I have is like, this is freaking insane. Like this is crazy of $4 trillion of, of collective valuation between three companies that will in 2026, in all likelihood, be probably, I don't know, negative 50 billion, negative 60 billion in terms of net earnings.

That's a crazy thing to happen in one year. So then without allowing the prosecutor to lead the witness too much, I just wonder where your head is at here, just understanding that, you know, as there are market historians, I think, that are going to look back at 2026, whether there's a crime. crash or no crash and say, wow, that was the year of the three IPOs worth $4 trillion dollars, which for the first time created trillion-dollar businesses, three of them, with zero profits. Like, what does it mean to you?

I mean, think about how fast these companies have grown up, too. This has all happened in the span of four years, essentially. These are the Anthropics is potentially the fastest growing company in history in terms of revenue. You're right. It hasn't translated into earnings yet. I think the ability for them to do a perfect baton handoff from all this capax, and you're right, going from high margin businesses very efficient to, all right, we're going from intangible to tangible.

Like we've done a full reversal. That's why all the companies in like the 70s and 80s, the valuations, they had to be so much lower because the margins were so much lower, right? So it makes sense that companies are more highly valued today. But we're seeing this tradeoff from all these companies. And there was a chart that went around this week from Nomura that was totally viral about taking the big hyper-scarals, Amazon, Oracle, Microsoft, Google, and meta in showing that their free cash flow has gone from $750 billion to essentially projected to be zero almost by the end of this year because they're spending so much money. Because we're going to get that in a second. Can you slow down and just explain to people like what that actually means that free cash flow among the hyperscalers has basically gone from hundreds of billions of dollars toward projected zero in late 26 early. 27. Well, these companies have just been cash flow producing machines. They need fewer employees.

They have really high margins, right? And they've had this cash flow to just continue to, that's how they provided such high value to their shareholders. And they've said, wait a minute, for this AI build out, we're going to use all this cash flow and we're going to build out all these data centers, right? Because there's so much demand for compute and there's so much demand for these LLMs and businesses want to use it. And so they've said, we're just going to take this cash flow and reinvest it into our business, which is honestly something that people, for years, been crying about, like, stop, tell the CEOs to stop buying back their own stock and actually invested in the economy. Well, these companies have done this to a degree we've never seen before

in history. They're actually reinvesting in their business at a scale that's unprecedented, which is very risky, but also kind of interesting when you think about them, what they're trying to do. This is such a balancing act. They're trying to thread the needle here. And what we've seen is that the ones who are benefiting from it are not the companies who are doing this. It's other companies in the memory semiconductor space, right? Like Microsoft and all these companies, their shares have been crashing. And so it's interesting to see that them spending this money hasn't been rewarded yet. They're not getting an ROI on it and their stock share price is hurting to the benefit of other stocks. It's not just that they're not being rewarded. I think they're

being actively punished. I think, Michael, if you look at the S&P 500 without the Magnificent 7, so the S&P 493, it's up 6, 7, 8% this year. But if you just look at the 7,000, 8% this year, but if you just look at the Mag 7, which had been driving the majority of earnings and stock market gains in the previous 18 months, they're down 6 or 7 percent year to date. What do you make of this inflection point with regard to the Mag 7, which clearly has something to do with what Ben just mentioned, which is that the free cash flow of these extraordinary businesses of Alphabet and Microsoft, just 40 percent profit margins, all the cash in the world, and they are spending through, through, through all the way down towards zero to build out the AI infrastructure that they hope

will be their next big business. What do we make of this? Microsoft, which is the biggest software company in the world. It's a lot of other things that is a gigantic cloud business, but it is the biggest software company in the world. Isn't a full-on crash, Derek. The stock is down 35%. But what's happening that is so interesting is it is happening while the stock market is basically at an all-time high. So if you compare it apples to apples and you say, okay, you divide the price of Microsoft by the price of S&P 500 and you look at it on a relative basis, Microsoft, the ratio of Microsoft to the S&P 500 is back where it was in 2019. Their performance has been the same since 2019 and Microsoft kicked the crap out of the S&P. So all of the gains have been ripped away because

of the transition that you're mentioning. So what we're seeing now is the 27th, the 27th, day spread. I know it's a random stat, but over the last 27 days, the S&P 493 have outperformed the Mag 7 by 18%. That's a gigantic number, an 18% spread. And again, the S&P 500 is basically at an all-time high. When you've seen similar levels of dispersion since 2018, the SEP 500 was in a full-on bare market, which makes sense because we were so reliant on the Mag 7 to carry the gains. So there's one more thing that I want to say about the IPO market. And this ties into, it's a bold market story. That's what we're talking about here.

Because Elon getting all of the attention for being the first trillionaire, there's a lot of people that are very upset. And I understand where the sentiment is coming from. I am a capitalist. And I think Elon's wealth creation, even though I'm not in Elon Stan, I think wealth creation is incredible. I am also like a social safety net person is a good thing too. So I'm not saying that people that don't have means or deserve to whatever.

But I think that capitalism works really well, okay? I think wealth creation is a good thing. In terms of the current IPO landscape, this is very, very important. You have to normalize. There has to be a denominator. So we're talking about comparing today versus the dot-com bubble. When you have all these IPOs that would go up 300% in a day, that's not what's happening today.

Yes, the scale is a lot larger. You're talking about $3 trillion-plus companies. But if you look at the aggregate IPO proceeds, so actually how much money was raised, as a percentage of the starting market cap, this looks nothing like the dot-com bubble. Now, it'll change a little bit as anthropic and open AI come out, but it's like a tenth of size.

If you just compare the aggregate IPO proceeds, so in SpaceX's K-75 billion, as a percent of the starting market cap, it looks nothing like 99. Obviously, in other ways it does, but I think you have to talk about the denominator. You referenced previous bubble crashes. We were absolutely getting the possibility

that AI is a bubble in about one and a half to two, two questions, Ben, I think there's a way in which we told the story that if someone hasn't been following the stock market in the last six to 18 months, they'd think, if you're telling me that the S&P 500 is up, but the big hyperscalers that are building out AI, a lot of them are down, like meta and Microsoft more than 20 percent, sounds to me like AI is getting its butt kicked right now in the markets. And that's not entirely true, because through 2020, the story in AI, from an investor standpoint, was really compute, compute, compute.

You had Nvidia going crazy, the hyperscalers going crazy, cloud CAPEX, all of that was flying. That's when Microsoft and the rest of the hypers were leading all the SP500 gains. But now what you're seeing is those trades are moving into other sectors within the AI ecosystem, into memory and energy and cooling. The chipmaker micron stock tripled between March

and June. And so I wonder if you can help us tell a story here, which keeps the following balls in the air. On the one hand, a lot of the hyperscalers are getting kicked in the teeth. On the other hand, there's a lot of other stocks that you could think of as AI stocks that value is flowing toward, which suggests that what we're seeing is not so clearly the demolition of the entire AI story. How do we make sense of this? I think today is a perfect example of what's going on. And so there was a story today on Bloomberg where Apple announced that they are raising the prices of everything. iPads, Mac, desktops, right, laptops.

And they said the reason is because there's a shorter of memory chips and storage, right? There's not enough compute to go around. So Apple fell 5%. Pretty big fall for one of the biggest companies in the world. Micron today, a company that does that, they produce the memory chips. They're up 16%. So you're seeing this tradeoff between these big, hyperscalers, and in the last year, Micron is up almost 1,000 percent. In one year, Sandisk,

a company that is in the same business, is up more than 4,000 percent. Let me repeat that, 4,000 percent stock price gain in one year, where, as Michael said, Microsoft is down by a third, Oracle is down by a third, meta is down by 25 percent. So you're seeing a tradeoff from the, you're seeing a divergence in the winners and losers now. And it's like these companies are sowing the seeds of their own demise. They've almost gone in and disrupted their own businesses. Now, the hope is, hey, listen, of course this CAPEX is falling now. It's going to come back. You know, this is a 2028, 2029, 2030 story. They've all said we, the bigger risk for us was not going hard enough on this. We weren't just going to sit back and let someone else take corner this market.

If one of us is going to jump off the bridge, we're going to hold hands and I'll do it at the same time. But you're seeing this, this change in leadership that we haven't seen in many, many years because people have been so worried about, hey, it's only these Mag7 companies that are powering the stock market higher. And that's just not the case now. The stock market is in a totally different place in terms of its leadership now. I understand the story that there was an era where the hyperscalers were up, and now hyperscalers are hurt. And because memory is scarce, memory stocks are ripping. But at some point, like, who's buying all those chips?

who's buying the memory? It's the hyperscalers. It's the big boys. At some point, can the memory stocks keep surging if the hyperscalers keep dropping? Ah, well, this is a great question. Another difference between the dot-com bubble

and today is that a lot of the buildout, a lot of the funding, it's not just retail speculation. It is the hypers, the absolute most profitable companies that the planet has ever seen are funding this builded. And there is no sign

despite Microsoft's 35% pullback, there is absolutely zero sign that they are pulling back anytime soon. So Ben mentioned Micron. They're up 16% today, not just because Apple is raising prices, but because they reported earnings last night. And they reported $41.5 billion in revenue.

That is up 74% quarter over quarter. It is up 346% year over year. And guess what? It is a very, very profitable business. So in April, rewind the clock back to April of, 26. I asked one of my guys, hey, show me what Micron's 12-month earnings per share has done over the last 12 months. And it went from $9 a share in March of 2025 to $85 to $85

$85 a share in April of 2026 when I asked it for it. Today, it is $132 a share. So investors like growth, okay? And we've never seen growth like this. So since the beginning of January, 2025, Micron's earnings are up 1,440%. And investors are slapping a discount on that because the stock is only, and I'm obviously teasing, the stock is up 1,380%. So in general, finance 101, a stock follows or leads, I should say, generally,

the earnings. It's a business. That's what we're investing. It's not just numbers on a screen. This is a business. And the business of Micron, the performance of the underlying fundamentals has matched the share price. Now, it's not to say that people aren't speculating their asses off they are,

but it's rational. And one of the things that Micron said was, we now expect supply demand conditions for both DRAM and NAND to remain tight beyond calendar 2027. So this is the question, Derek. You can drive a truck between these two things being true. Hey, this is an obvious bubble. Hey, wait a minute.

How much of the world is actually on the AI train right now? Is it 2%? Is it 3%? So it's very hard to square those two circles of, wait a minute, it's so early, but Mike run us up 1,400%. And that is where investors are going to twist themselves into a pretzel trying to figure out where this thing goes. Here's what I want to do now. We've thrown around the B word a few times. I want to make the best AI bubble case as I can see it.

and then I want you to evaluate it, maybe tear it down. And Michael, because you're champing at the bit, we'll let you get the first swing at the pinata, and then Ben, you can follow. These companies, the big boys, the hyperscalers, they're spending $600, $700 billion a year with no end in sight, and the valuations of Microsoft and alphabet and meta

are predicated on a certain operating margin that assumes that eventually what we'll need is one trillion dollars a year in deduplicated external AI revenue quite soon. We are not there yet. The latest bottom-up estimate from Azeem Azar's exponential view put real duplicated AI spending at about 175 billion annualized this year. So we need to roughly quintuple the AI industry to get to a point where the hypers can expect to make from their investment income,

which maintains the operating margins that currently justify their business and their valuations. So the bar is enormous. The bar is enormous for growth. As fast as Anthropic has grown, the bar is enormous still for growth. And there are at least three things that I can see pushing in the wrong direction.

Number one, free cash flow falling at the hypers means they're going to have to dip into debt. They make a lot of money. They've got a lot of income. earnings, but they're going to have to dip into debt, I think, somewhat soon. Number two, you just said it. Memory and chip costs are climbing. So it's not as if this mountain is going to suddenly get a little bit shallower.

It's going to get steeper. We might see continued increases in necessary cap-ex spending of the next few years, $700, $800, $900 billion annualized. And then finally, costs are going up. What's happening to revenue? Well, look, you've got these cheap Chinese open models that are just a few quarters, maybe a few years behind the frontier models

in terms of capabilities. And they give customers a place to go that costs a lot less than what Claude and OpenAI are offering. And so when you put all of that together, less cash, higher costs, slower revenue, why isn't this thing going to crash? When you say this thing, let's be specific. Are you talking about the entire stock market?

No, let's just talk about the AI infrastructure project. Why isn't there going to be a major correction as these companies recognize that the thing that they're building is impossible to stomach, given the operating margins that they are required to hold on to to justify their valuations? So the hypers, which is maybe the hyper-scalers, which is maybe the, the list that you're talking about or maybe not. If you collect them, they are trading at a forward P.E. So a multiple of what their forward earnings are projected to be is at a multi,

multi, multi, multi, year low. All of the risks that you are describing are very, very well known and understood, which is why if you want meta, the second best advertising platform that the history of the globe has ever seen, you can buy it for 17 times next year's earnings. You have never had the opportunity to do such a thing. Ben and I have been commenting on the market for a long time. And over the last 15 years, what I've seen consistently is people trying to scare investors because they want the glory of a Dr. Michael Burry.

And I would much rather somebody be mad at me for not, quote, getting them out than to have been the person that cost people a lifetime of earning a return of their money in the stock market. So I am not going to say that the stock market may not pull back. that is always a risk. Of course, it will be pullbacks along the way. But we've been having this bubble talk, Derek, literally for 15 years. And so quickly we forget that guess what? There was a bubble in 2020. And guess what happened? It burst. Apple fell 30%. Google fell 44%. Amazon fell 56%. InVIDIA fell 66%. Netflix and meta lost 75%. Derek. And we forget that it happened. That was a bubble.

and we just talk about it, it popped, and we just move on to what's the next bubble. Now, that is not to suggest that you can't credibly make a bubble case for where we are today. And if somebody would say, hey, Michael, you dumb bald ass, how do you not see a bubble?

Here's what I would say to you. This is the data point. If I were to look back on five years and say, oh, shit, okay, this should have been the one. Morgan Stanley projects that SpaceX's total revenue could reach $3.4 trillion dollars in 2040. 3.4 trillion in 2020. That would be the data point that I look back on and said,

who, I wish I sobered up. That's 10% of the current economy, essentially. But I see so many people with these legitimate concerns. I don't see, and it's very easy to find excess pockets of speculation, so I'm not blind. But in general, I don't see people that are just throwing caution to the wind. I see the opposite. I see people looking for reasons to say, hey, why shouldn't I sell?

Tell me why this doesn't end? tears. And I don't know what time it is on the clock, but to me, that makes me feel like it's not yet midnight. I feel like there's two issues here that I want to make sure I disentangle. One issue is like, maybe even three. One question is, should we understand AI to be an infrastructural or financial bubble? Number two is, can the typical investor stomach a typical bubble? And number three is like, are bubbles common, which is related to number two. I understand that like bubbles are common. And I understand that bubbles can be stomached

because we have a resilient economy and we can bounce back. But neither of those things, I think, goes directly to the question of, is this a bubble? And so, Ben, why don't you take a crack at it? I am interested in just what you think. That's not going to ask your question.

No, no, no, I have to ask you a bubble. I will. When putting together, just even the well-understood ingredients, you know, as Michael said, the less cash, higher costs, possibility of slowing revenue growth as more people switch from the really expensive frontier models to the cheaper models. I think one way that Brian Armstrong at Coinbase put it is that he said, the lower 80% of AI use is going to rely on models that are 99% cheaper, right? That was one way I think that he predicted the near future.

Why should putting all of this together not make us a little bit bearish about the future of AI? So I have cognitive dissonance is this idea that when you have two competing theories in your brain at one time, your mind seeks to reduce that discomfort by picking one of the theories and kicking the other one out, right? I'm just going to latch onto this one. And I have extreme cognitive dissonance going on because you've talked about the railroad bubble in the past. Derek, right? I've written about that. This, the dot-com bubble, the telecom build out, every innovation in history that had capacity, It checks relative to the economy of this size.

This one checks all the boxes, right? All the spending. Anytime there's an innovation, there's always extrapolation. Michael talked about these insane SpaceX numbers. There's always extrapolation. There's too much excitement. We got everything we wanted and more of the dot-com bubble or the dot-com boom, but we had to go through the bubble had to burst first to get there, right?

If you'd have told someone in 1997, you're going to have YouTube someday, streaming movies, everything we have on the internet, right? this little thing in your pocket that has wireless internet, like people would go, yes, everything we want and more is going to happen. But you had to go through the bus to get there first. And so I think that if you check all those boxes, you've got to go, oh my gosh, this has to be that. But I can only get 75% of the way there because there is so much demand for this.

And it feels like we're only scratching the surface on how much people and businesses are using it. Now, the problem is Dario Perkins is this macro analyst from T.S. Lombard. He calculated that 80% of the current revenues right now is just circular. It's spending from the hyperscalers. So this thing hasn't completely jumped into the mainstream yet, right? 20% or so is from businesses actually spending. Could we actually see this magical thread of the needle, Paton Handoff, where this turns into ROI before we have a crash?

And I think there's a difference between a bare market, which is, hey, these stocks fell 30 or 40%, because this happens in volatile industries like this, versus the NASDAQ fell 80%. in the dot-com bubble, right? That's a crash. You know, I think anything 50% or 60% at over is a crash. That's what I can't, I'm having a hard time figuring out. Is this going to be just a bare market when it gives up a little bit, or is it going to be a full-fledged crash? And I'm kind of leaning towards just bare market where no one's really satisfied, right? We didn't get a huge bubble popping, but we still had some give back because the hypers pulled back for a time or whatever. That's kind of where I'm, where I'm right down the

middle of the fairway on this. Michael, I feel like Ben's hedging there just a little bit. I appreciate the explication of cognitive dissonance. And I basically, I think, agree with Ben, which is that I am incredibly divided on this issue. But, I mean, give us a hard take, man. Like, is this a bubble or ain't it? No, this is not a bubble. If you had to pick one stock that represents everything that's happening with the AI buildout, it would have to be Nvidia.

Would you gentlemen agree? Yes. Okay. Invidia is trading at 24 times its forward earnings. That is not a bubble. That is not close to a bubble. Now, perhaps the earnings are overinflated or overestimated. It turns out that actually, hey, it wasn't 24 times, buddy.

It was 50 times. All right, fine. I suppose that's possible. But I will say, I am happy to have the guy with the egg in his face who says, no, this was not a bubble. I know the signs are there. I know it's very, very, very easy to say bubble, but we haven't even specifically.

This is beyond the point of this conversation about all the supply chain bottlenecks and the natural governor. And I don't mean the governor of 24 times forward earnings for Nvidia. I mean what production can actually keep up with at Taiwan semi. And Derek, I know you talk to these experts all the time. You can't just turn it up. And so I think that this supply, this this compute constraint that everybody is probably really tired of hearing about, get used to it. Because I don't think it's going away anytime soon. When we were on your show in 2022, remember there was the Bloomberg headline like,

economists see 100% chance of recession. And we were on the show, and we kind of did the same thing where we hedged. And you said, no, guys, make a choice. And we both said, no recession. I think if you're going to do that and hold my feet to the fire, I would also say no bubble. I think corporations are so much better run today than they were in the past.

I think that they have the ability to see us through this. And the fact that these businesses do produce so much cash flow as it is, and they're so diverse and dynamic, I think we've never seen companies that are this mature and this well run try to pull off something like this. And I think if anyone can do it, these are the biggest best companies we've ever seen in history, ever.

And I think if anyone can do it and sort of make this handoff, I think they can do it. So if I'm pushed to it, I'll say no bubble. A couple comments. Number one, I like that last thought, which is that we live in a society and swim in a news environment that is overcome with negativity bias. We've talked about this a lot with psychologists, with sociologists, sometimes with investors. I mean, there have been studies, including published by Brookings, showing that financial news is more negative today relative to the underlying reality than it's ever been in recorded history. And so there's a way in which, despite the fact that I don't like negativity bias in the news, negativity bias is actually a kind of interesting medicine for bubbles. because if you have a financial news system

that is addicted to calling out potential bubbles, I would have to think that at the margin it makes those bubbles less likely. It at least creates a set of conditions that seems quite unlike the conditions of 1927, 1928, where there was such unbridled exuberance about the future of America, never having a recession again,

about the people driving the cabs or the horse-drawn carriages telling their passengers about all the stock that they were buying on margin, that's the opposite of a new system that is sort of coded with negativity bias. And so maybe there is a world in which the negativity bias that is endemic to financial news is at the margin sort of helpful

for taking, say, the price rateings ratio of Nvidia from 50, 60, which it might have been, I don't know if this company existed 1928 to 24, which it is today. That's point number one. Point number two, I will say this about the Nvidia PE ratio. I was at a party in San Francisco

just after I had this podcast interview with Paul Kedroski where he made this really full-throated case for why he thought that artificial intelligence was the most obvious bubble of all time. And for the most part, Michael, he, or Ben, he recited your case.

He said, look at every time. We've spent full percentage points of GDP on a new infrastructure project. It's a bubble again and again. It's the canals. It's the railroad. It's fiber optic cable in the dot-com bubble. It's always a bubble.

And I went to this party, and I don't want to say, this is clearly off the record. There were a lot of folks in the general, like extremely online AI commentariat that were there. And one of them comes up to me, sort of buttonholes me, and says, I heard your podcast with Paul Kodroski about how AI is definitely a bubble.

Do you, sir, know the PE ratio of NVIDIA? I said, I do. I know that it's 31. I just had a conversation with Azimazar about the case for AI not being a bubble, and that was the first case, first point that he made. So for all the listeners out there who want to sort of successfully banter with professional investors about whether or not AI is a bubble, definitely Google the PE ratio of Nvidia before you go to the party, because it will come up.

And the last thing that I want to say, and then, Michael, I want your reaction to this whole monologue that I'm giving in the middle of the podcast, which is not particularly good radio. But exponential view, which is the great substack that Azimazar overseas, they just came out with a report today on the state of artificial intelligence. And it's their conclusion, again, that total external AI spending, right? So this isn't OpenAI buying the chips from Nvidia

and then paying Microsoft for the cloud services, which is all inside of the system. This is me, Derek, you, Michael, you, Ben, giving open AI money because we say we want to pay for your service. He said that that number right now is about $175 billion annualized, which is roughly what the depreciated value of the CAPEX is for a single year. So we are at a point right now where it doesn't necessarily seem like it's headed toward the obvious bubble zone. Michael, you made a face when I was quoting some of those numbers, but in general, Or how do you feel about this general case for AI-N-NobBubble?

I made two faces. My first reaction was, oh, that's not really that much money. It hasn't even started. It hasn't even started. Every one of your listeners, I'm sure, is playing around with the tools and stuff. But the average American, the average person around the globe, we haven't even spoken about the robots, which are coming. we are so, so early.

And it doesn't mean that the stock market hasn't digested, the hedge hasn't digested all the future. It did that in 2000. I don't know what the future holds. But in terms of where we are in the AI life cycle, we are in the top of the first inning. I mean, it really hasn't begun. Yeah.

I do think one interesting, we haven't really seen what's happened with fable and mythos and that offering from Anthropic that essentially was advertised or, or maybe just honestly communicated as being a top-end cybersecurity expert, but based on, based in Silicon. I mean, we haven't even entered the possibility

of AI taking a sliver of cybersecurity spending, which itself is a $100 billion business. And so I think you're right to point out that, yes, right now we're looking at enterprise use cases for coding. We're looking at people like you and me sort of asking questions of OpenAI and Claude on a daily basis.

but there's all kinds of applications for this technology that are really hard to see if they really live like two and a half years away from where we are right now. Like two and a half years ago, it would have been entirely reckless and frankly quite stupid to say that artificial intelligence

could be used by expert coders to help build artificial intelligence. That just wasn't a part of the offering and now it exists. So I think this stuff is, It's difficult, it's difficult to think about, but I did want to get your, your, your takes and whether or not you thought it was a bubble. I want to move on to a couple other pieces of the investment landscape. In addition to the hyperscalers being down, so is Bitcoin, down 32% this year, 44% in the last 12 months.

Ben, what is going on, do you think, with Bitcoin? To a certain extent, is it like there's a sort of universal conservation of frontier tech energy? and it just like went from crypto to AI. And so a lot of people that were just like really obsessed with crypto for four and a half years were like, nope, sorry, I'm not interested in that anymore. I get out of my portfolio. I just want to be long micron. Like, why do you think without a recession and without further interest rate hikes,

Bitcoin has had just such a calamitous last 12 months? I do have this theory that investors can only pay attention to one rocket ship at the moment and one risk, right? That's all we have time for is we're going to pay attention to one risk and one risk only. And then we're going to move on to another thing. And I think that's what's happened here too, because the one thing you could hang your hat on for crypto and Bitcoin was it's at least a risk on asset. Sure, it didn't hedge inflation.

And sure, it hasn't hedged against an economic slowdown or something like that. But it's when tech stocks go up, Bitcoin also goes up. That's been at least the one thing you can hang your hat on. And then this year, it hasn't been the case. And I do think there's something to the fact that this was seen as like a startup technology, right? It's a way to invest in a startup ecosystem of this blazing new technology, and then AI comes along. And it's like, oh, there's something here that actually has use cases you can see. And with crypto, you can't see them so quickly. Crypto, but with a use case.

Yes, right? It's almost like, wow, how long have we been waiting for this crypto use case? You know, the big retail boom was in 2017. That's when people really started to talk about it over Thanksgiving dinner with their families, right? Remember that whole thing where the first Bitcoin huge boom happened. And we haven't really got that great use case like people have been predicting. And I think it is kind of fascinating that in a risk-on moment, Bitcoin is not taking off. And for a while there, people said, well, it's like a software stock, I guess. But then software stocks came back, and Bitcoin kept going down.

And it's really, and you had gold going up this year earlier in the year, or last year, and Bitcoin wasn't keeping up with gold. So I think it's led a lot of people to perhaps finally question, you know, Bitcoin really was more of this religious cult than anything. It was you had true believers. And they could shift their narratives every time something happened. Well, we said it was this, but now it's this. And we said it was that. Now it's this. And it's like you're kind of running out of narratives. And I think a lot of the investing public has moved on after we got this big boom from an ETF. It's like, okay, now what? A. AI, actually, you can see it, right? It's right there. And I do think a lot of that, like, it's just taking a lot of

the air out of the balloon. Michael, Bitcoin was basically like a mini bubble. I mean, down 44% in 12 months. That's pretty catastrophic. What do you think happened? It's software. I mean, if you, if you overlay a chart of Bitcoin versus the ETF IGV, which is software, it looks very, very similar. I think that a lot of the narratives, a lot of the disappointment, that's all valid. It turns out that Bitcoin is software. It is software, literally, and it acts like software. So at least in that case, investors understand exactly what it is. It's just, you know, part of the software ETF. But it's like leverage software. because Bitcoin is down 50%

and the software, ETF is down 30% or something. It's like software but on steroids. Yeah, so if you think Salesforce is going to come back, buy Bitcoin. All right, Ben, I think we only have time for one more question. I mean, we've talked about a lot of the biggies, SpaceX, AI, crypto, and all the various components of the AI ecosystem.

What do you see as the state of the market? I just, I think I want to take a step back and every time you've had someone on your podcast to talk about this is a bubble or this is not a bubble. Like, I find myself not. I think it's one of the things that I want to say, just being in this market environment shows how fun and exciting this stuff can be.

Because I know some people really don't like the markets and they think they're boring, but it's really interesting to think about this innovative technology and what it could be and what it could lead to. It could lead to catastrophe or it could lead to like this amazing thing and these huge returns. And I just, it's as a market observer, I think living through times like this that you've only usually read about in history is really interesting to go through in real time. and realize how it's so easy with the benefit of hindsight to know, like, of course that happened. Of course that was the top or that was the bottom.

When you're in it like this, it's nearly impossible to tell. Everyone knows when you're in a financial crisis. No one knows for a fact that you're in a bubble when it's happening. That's the hard part and that's what makes it so exciting to follow the markets right now. Michael Batnik. Ben Carlson, thank you very much. Thank you, Derek.