Prof G Markets - AI May Not Be Worth The Cost — Here’s Why

Episode Date: May 29, 2026

Live from San Francisco, Scott Galloway and Ed Elson kick off the Prof G Markets tour by discussing the latest in the IPO race, why valuations will have to come down, and whether humans might actually be cheaper than AI. Plus, Scott takes his chance to roast the VC community face to face. There’s still time to get tickets to our Miami and Chicago shows. NYC is sold out! Hope to see you there.  Subscribe to the Prof G Markets Youtube Channel  Subscribe to the Prof G Markets newsletter  Order "Notes on Being a Man," out now Note: We may earn revenue from some of the links we provide. Follow the podcast across socials @profgmarkets Follow Scott on Instagram Follow Ed on Instagram, X and Substack Send us your questions or comments by emailing [e-mail] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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abilities are welcome and both regular bikes and e-bikes can participate. Bring your friends, family, or corporate team, and make an impact. Register today at bikeforbrainhealth.ca. Today's number 49. That's the percentage of billboards in the Bay Area that are advertising AI. Ed, true story. I went into my doctor's office with a shoulder problem and he said, well, I need you to pee in a cup and then we have our AI look at it. And the AI looked at it and said, your labor is damaged. You need to take this medicine.

And then when you come back, you're going to pee in another cup and the AI is going to tell you how you're doing. So I came back and he said, you're not taking your meds. the AI is pissed off of you, take your meds. I started to get pissed off, so I went home, and I had my wife pee in a cup, and also, and I'm not proud of this, I jerked off into the cup. And I came back, and they gave it to the AI,

and the doctor came back and said, your wife is pregnant, and the father is your friend, Brett, and if you don't stop masturbating, your arm's never going to get better. Welcome to DropGee Markets Live. It never ever gets old. It is so good to be here in the global capital of technology,

the capital of venture capital as well. And I'm really excited to get into this show. But before we start the show here, Scott, I just want to read you a couple of quotes that I've collected over the years that you have said about the venture capital community because I know there are probably a lot of venture capitalists in the room right now.

So I just want to make sure that we're all on the same page, and I just want to, like, hear what you have to say about this. So I found this from a podcast we did a couple of years ago. You said, quote, I've worked with a ton of venture capitalists. They're not the sort of loving, caring people that are depicted on the website. You later said that there are, quote, very few cohorts, less pleasant, more self-absorbed, and more convinced they're changing the world than venture capitalists. and then a few months later you said that venture capitalists are quote generally speaking awful people and then you later clarified in the same episode that actually they are quote the absolute worst fucking people in the world so scott just before we saw i just want to ask you what do you mean by

these statements what do you mean venture capitalists are the worst people in the world Yeah, but you left brightest people you've ever met than do apps of fucking looting nothing about your company would sleep with their sister for a nickel. If you meet a guy in a blazer and he brightens up a room by leaving it, chances are he's a venture capitalist. They're already leaving out the doors. I see them now. Yeah.

This is 70% VCs. So just another thing about the Bay Area, and I love so many things, but there's a few things I don't love about the Bay Area I want venture capitalists, but too, I'm, and this isn't in the script, I am so done with this optimization bullshit of men my age, trying to optimize for their health. This is how you optimize, bitches. What? And I'm being very serious here. So the fast is zero to a billion dollar companies in history. I think everything in life reverse engineers to essentially biology and astrology, which is manifested

in business. So I think there's a lot of life lessons in business. Fast is zero to a billion retailer in history was Old Navy. And it's got a very powerful axiom. It's 80% of the gap, but for 50% of the price. The fastest zero to billion dollar revenue airlines, Southwest, 80% of the market leaders for 50% of the price. And I think, and I'm being serious now, that these guys who are trying, it's mostly guys, trying to optimize the 97% with all these cold plunges and red light bullshit and measuring their sleep, which would just stress me out so I couldn't sleep. This is trust me on this. I'm looking for all the people. people who do that in this audience.

I think it's most of them. This is the axiom. Optimized to 80%. And I'm serious. And that is, all right, we all know, you're supposed to be healthy. You're supposed to eat well. Manage your sleep.

Be fit. But manage to 80. And the other 20% fucking enjoy your life. Have desserts. Drink a little bit. Approach strangers and make an ass of yourself. hang up the condom you never used.

Just like have the right, go to 80. Anything above that? Trust me on this. It's not about lifespan. It's not about health span. It's about fun span. 80%. Old Navy your life.

I'm sorry, back to the original program. Fun span. Great way to saw the show. I totally agree. So we're going to get into the show. Now we're going to get into our stories. But before we do that, we have this QR code that was supposed to be, Oh, there it is.

So if you want to ask a question at the end of the show, you can scan that QR code, write out your question, then we will try to get to as many as possible at the end of the show. But without further ado, let's start with our first story. So it has been a sleepy few years for the IPO market, but it is about to come roaring back. SpaceX, OpenAI, and Anthropic are all set to go public this year at a combined valuation of roughly four, trillion dollars. It's for contact that is more than every dot-com IPO put together, inflation-adjusted, and also equal to half of the combined value of every IPO in the 50 years before it. So the last time that we saw an IPO frenzy, this dramatic was in 1999, which made a

lot of Silicon Valley investors a lot richer, right before it made them actually a lot poorer. IPO mania was in many ways the beginning of the end. The NASDAQ began its collapse in March of 2000, and it eventually lost 78% of its value in two years. So we sit here tonight in San Francisco on the eve of the next IPO mania. And the question that I will pose to you, Scott, is will it look like 1999? There's some similarities, but there's also some pretty stark differences, right? So there was a confusion around how this is all going to manifest or play out. So there's a digression to investing in the technology and infrastructure layer. We did it with the Global Crossing and Cisco, which lost 90% of its value.

There was momentum, euphoria, a certain techno-narcissism. Back then, it was the Internet's going to change everything. Now it's AI is going to replace everyone. But there was a certain belief that this region and these companies were going to be the operating system for the world moving forward. there's some pretty stark differences though and that is while you had about 60% of GDP growth was from infrastructure spending back then or growth or investment in internet companies it's now up about 90% of GDP growth is from the infrastructure buildout so it's even scarier and typically whenever you get over 3% of GDPs being invested in any infrastructure railroads electricity electrification

the highways, again, telco in the 90s, but then 24 months there's a crash. But where it's different is I don't think there'll be a crash this time. I think there'll be a pretty vicious recorrection or price recalibration, but where things are different is the following. The companies now are cash juggernauts. They're incredibly profitable. Whereas in 99, it was just, I don't know if any of you remember this, the globe that went up eightfold on its IPO.

Pets.com, I mean, Lycos. There was just all of these ridiculous companies. Red envelope. I had to. Dude, you were an intern here like 24 months ago. You should find me today. Anyways. You got the clips.

But these are really profitable. These are incredibly profitable companies. They're financed with their own cash flows, not with the debt. But if you look back and walk down memory line, Google was still sort of this Ph.D. project. It was run by two guys that looked like Chechen Molly dealers. Amazon was a book company that was losing a lot of money. And a ton of smart Internet analysts were convinced it was going to go bankrupt because it had too much debt. eBay was considered a really powerful company.

It was making money selling shit to people in Ohio. and probably the most important tech media company, maybe even the most important media company in the world at that time, was a company called Yahoo, which bought a company called Broadcast.com for Mark Cuban for $5.4 billion. So I love Mark. I think he's very smart. He's also one of the luckiest people ever.

And then you had just a ton of companies that got swept off the planet. So it feels as if this time it's similar but different. But what is the same is a group of young men who are socially awkward, who are self-absorbed, and think they're going to change the world and have a totally inflated sense of self. So I think that there's a certain kind of narcissism that infects this type of movement. Whereas back then it was going to change everything. Now the kind of narrative is that AI is so impressive and powerful that it's going to replace all of us. And in 99, to their credit, they got it right around the internet.

They just got the arc or the time span wrong. And I think the same thing is true here. I think AI will, in fact, replace a lot of costs and increase productivity. But again, I think we got the time or the arc. I don't think it's going to happen as quickly as everybody thinks. But more importantly, back to me. In 99, this guy named Frank Quattron from Credit Suisse First Boston was going to take the company I'd start at public.

red envelope. And I remember a bunch of internet CEOs, we were flown to an airfield to look at Bombardier jets because they said they would take stock in a private company exchange for a jet. And it was a bunch of 30-something-year-old speaking of self-absorbed people who weren't, you know, couldn't get dates to the prom. We were all out looking at these jets and picking out our jets. And even then, I had enough mindfulness to know, this is not right. This doesn't feel right. And within three or four months, we were no longer looking at jets. And I remember, I remember, I was in a board meeting, my company, Red Envelope, and I accused the chairman of our company, and it's been a long time, so I don't hold any grudges, Mike Moritz. And, and I said to Mike,

you're using, you're using Red Envelope as a dumping ground for the failed products of your portfolio company companies. And on the way to the airport, they called me and said, we're kicking you off the board. And so I got kicked out of the band I'd started. And I remember being at SFO and I had this flashback tonight and getting out of the car. We used to rent cars back then. And I remember just being frozen. Like I had never in my life, I was 34 at the time, I'd never in my life had that kind

of professional punch in the face. and I remember getting out of the car and just being paralyzed for a good five or seven minutes. Like I literally, I just didn't know what to do. I just didn't, do I call a lawyer? Like, what do I do? I remember just sitting outside of my car

and finally the lady who gives you checks in the cars came out and said, sir, are you all right? And then just to be serious for a second, for those of you who, I don't know how many of you are here living in the 90s, but it wasn't the internet that was the most dramatic thing. at least for me it wasn't, in terms of what I think as being the thing I remember most about San Francisco in the 90s, that really is like stuck with me.

Is anyone want to guess what it is? It's not, this is not light at all. AIDS. It was, if you're under the age of 45, you probably think of COVID as being, hopefully what will be the most dramatic health scare. you were literally walking around this neighborhood and there were these beautiful young men everywhere dying I mean it was

just like it was catastrophic so and you know fortunately the warm the warm hand of science like pulled us out of that but if you lived here in the 90s I mean, it really was a plague. And it was like the best and the worst of American science

in terms of how we responded to it. But that's how I think of Samerson. That's like what I remember most. Get me out of this, Ed. I have all of these numbers and all of these notes, and now I'm not sure what to talk about. I still ain't Mike Moritz. Well, I am going to talk about numbers.

Yeah, go ahead. Go for it. Because that's what we're here to talk about. So when we think about what are some of the differences to today, I think that you make a lot of good points. One thing that we should point out, though, is that we have these three companies that are literally combined. They're going to be worth $4 trillion.

I mentioned some of those stats. It's going to be 6% of the global public equity markets is these three companies. Yeah. And you talk about profitability, which for the longest time, I wasn't so worried about myself either because I looked at these companies like Google, like meta, like Amazon, which are these cash juggernauts? They're spending unbelievable amounts of money, building these data centers, setting up AI. And everyone was saying the AI bubble is going to happen because they're spending so much money. We haven't seen the ROI,

and we'll get to that in a moment. But I think something that you and I was saying was, well, they have the cash to do it. And they've been saving up this cash for years. And now, their moment, and here they are, they're doing it. However, let's look at these three companies that are going public. Let's look at SpaceX, which is going to go public at it supposedly at a $2 trillion valuation, which is going to be a more than 100 times price to sales multiple. The most expensive stock in the S&P today is Palantir, which is way out over its skis, and it's trading at 64-time sales. This is trading at 107 times sales if it goes public at $2 trillion. Its losses grew 700% last quarter.

It's on track to lose $20 billion this year. So I look at that. I say, okay, well, that's not really a great business. By the way, its revenue grew 15% last quarter. And someone we say, okay, that's fine. Actually, if you're an AI company, which they claim they are, that's not fine. That's six times lower than Nvidia's growth rate. And also, it's half the growth rate of this podcast.

So we're growing faster than Space Ice. Just ready to get out there. So the idea that you're going to have this company, and then you're going to have Open AI, which is expected to burn $25 billion this year. These are all, again, we don't know these financials because they say this to reporters, and then we hear people who are familiar with the matter

who tell us, this is what the financials look like. All I can tell you is whatever's going on at OpenAI, it probably ain't that good. And we also know that because we saw this article from Ronan Farrow, who came on the podcast and told us that Sam Altman is, quote, unconstrained by the truth.

That was according to a board member. So I'm a little worried about that too. And then you got Anthropic, which supposedly is about to hit operating profits this quarter, so maybe that's a little bit safer, but still it's losing a lot of money and supposedly paying billions of dollars to SpaceX. Okay, those companies are now going to be a part of the market,

And not only that, the NASDAQ is changing its rules. It used to be that you had to wait 12 months after you go public to join the NASDAQ to one of the most popular passive index funds in the world. They've changed the rules. They said, you only have to be public for 15 days if you are a mega cap company, if you are, i.e. SpaceX, Open AI, or Anthropic. They have literally changed what it means to be part of the market for these three companies, none of which are profitable.

That part makes me a little bit more worried. And I wonder if that feels more similar to 99. When you saw a lot of these companies that were losing billions of dollars, these ones are going to be worth 6% of the global stock market. Yeah, well, oftentimes the technology survives evaluations. And I would say, I mean, if you look at, for example, SpaceX, three companies, a rocket company, a satellite company, and an AI company that's playing catch-up,

If you price each of those three companies at a similar ratio at the high end of the market leaders in those respective categories, you get to about a $7,800 billion market valuation. There's an Elon effect, absolutely. So we even double it to $1.6 trillion. Why not, right? Well, it's true. He does bring a certain vision that shareholders absolutely love. But the way I would describe right now, SpaceX, is Snow White and the Seven Dwarps. and that a snow white is ridiculously hot.

The SpaceX is an incredible company. It's got incredible moats, 16 billion in revenues, 8 billion in operating profits, an incredibly robust company, probably the biggest moats, I think, of any business in the world, 90% launch capacity, 2 thirds below its satellites. But what he's done is he said, okay, if you want to marry Snow White,

you've got to take these seven dwarves that are just dysfunctional and awful people and expensive and add no value. because he's trying, he's basically attached. He said, if you want to hang out with Snow White, SpaceX, you have to also invest in this money furnace called X-A-I. And if you look at, and what's really interesting is he clearly doesn't believe as much. He's made it, and granted, he's a visionary, there's snow going around it,

but he looks at AI as the future and that he needs to catch up fast, so he's going to take his hot property and use it as a means of trying to raise an incredible cheap capital to try and play catch-up. The other two, I believe, are incredible companies, but my prediction is that similar to, you know, if you look at these cycles, typically what you have, when you have this type of spend, you have a dramatic repricing at some point because the public and the capital markets are impatient. And I think the way this is going to play out in the next 24 months is that we're already saying, and this is our next story, that a lot of companies are starting to question the kind of return they're getting on these increasingly

exorbitant bills they're getting from their different site licenses around AI. And then I think geopolitics is going to come into this in the next 24 months, and that is, if I was she, I would engage in AI dumping, and I would start flooding the U.S. market and going to CFOs of companies sick of spending $5, $7, $10 million on AI and tokens, they're not really understanding why and dumping the market with incredibly cheap LLMs out of China. And I think you're going to see a dramatic repricing of the AI trade. As a matter of fact, I would, or my prediction is in the next 24 months, AI is going to be dramatically repriced down because I haven't seen, nor does anyone see a lot of like AI

moisturizer or you could argue autonomous is maybe a use of AI. But there's not a lot of new products that you would say are creating incremental revenue other than the LLMs themselves from AI. There is does appear to be a lot of smart people saying we're going to get dramatic efficiencies and we've all probably seen hints of that right. We're not sending stuff to our lawyers often, customer service, et cetera. But if you think in America there's 155 million people who actually work, assume half of them are AI vulnerable. That's 75 million, say $100,000 per employee, $5 trillion. That means you would need somewhere around five to seven million layoffs across the 85 million that are, in fact, AI vulnerable.

So you would have in certain, in those industries, about a 10% labor destruction in the next two to three years. That would be chaos in labor markets. So one or two things is going to happen. Either the valuations of AI are going to come down by 50 or 70 percent, or we're going to have labor chaos in these industries. And I think it's going to be the former. I think that you're not going to see nearly the job apocalypse.

You know, this way I would describe as apocalypse no. And that is, just as you were trying to raise money back in the 90s on changing the world, now they're basically catastrophizing and fear is the product and capital is the outcome. And unfortunately for them, I don't think the job apocalypse is going to come as quickly as they're predicting. And so if it's either going to be labor chaos or valuations coming down by 50, 60, 70 percent, I absolutely think it's the latter. In addition, if you just look at the biggest companies now that we're all so intoxicated with, whether it's meta or alphabet, just in the last five or seven years,

all of them have gone peak to trough down 40, 50. Meta was down 72 percent in 2022. So it just wouldn't be unusual for these companies. to have that kind of drawdown. In addition, I think this is effectively the end of the IPO markets as we know it. Because the way I look at it is the IPO market is now the last stop on the chump train. And that is what they're saying is there's no reason to go public because if the VCs still thought there was juice to squeeze,

used to have to go public to raise the $10 or $15 billion you needed. Now these private VCs, if they still see upside, they can find the capital. So effectively, when these companies go public, it's effectively the smartest people in the room who know the company the best are saying, we've squeezed as much juice out of this as we can. We've got to find people stupider than us to invest at this valuation. I think retail investors are going to figure this out in a painful way over the next two years, tokenization of private companies. I think this effectively might be the end of the traditional IPO market as we know it. This is going to be the question is, are these companies or all these investors, all the employees of these, these companies, are they all just going to sell? And what we have seen is that SpaceX is looking at

shifting to lockup periods so that they can sell earlier. And I think you have to ask yourself, if you were an investor in Anthropic, if you're an investor in OPNI, if you're an investor in SpaceX, these companies go out at a trillion dollars, one and a half trillion dollars, two trillion dollars. The question is, would you sell? If I'm an investor in SpaceX, for me, the answer is immediate sell right now today. Easy, no questions whatsoever. And I think that will be the question for investors in this round two. Just before we move on to the second story here, would you sell? In any of these companies? Yes. Yeah. Oh my God. Sell it. If any of you hold shares in any of these companies, just trust me on this. As a guy who was looking at Jets when he was 34,

everything. And there's always going to be pressure from the VCs and your managers. Aren't you in it to win it? Yeah, fuck you. I need a house bitch. Sell everything. So, and

I hope I'm wrong. Come back to me and tell me you only made $11 million on your shares as a junior product manager and now they're worth 15. But there's going to be some really interesting second order effects. 11,000 people of these three companies go public at their valuations, it's going to mint 11,000 new millionaires

just in the Bay Area, 60% of whom are under the age of 40. Last month, you saw rents on a one bedroom in San Francisco increased 24%. Pending sales of luxury homes in the U.S. were up 4% last quarter. They're up 48% in the Bay Area. It's not all bad. You're also going to see philanthropy absolutely surge in the next three to six months with these people, especially the bigger shareholders who will start their own foundations and things like that. You're also going to see, I think, a baby boomlet in the Bay Area because what people generally do is they move houses and they think, okay, let's start having kids. But there's going to be, I mean, the second order effects of this type of wealth are going to be dramatic. We'll be right back. Support for the show comes

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This week on the show, clinical psychologist and founder, Dr. Becky Kennedy and I unpack what it really means to raise kids today. I think parenting is the most important job in the world and the one that has the most impact on your world and the world. It is non-stop. Check out Pretty Tough, new episodes on Wednesdays. You can watch it on YouTube or listen in your favorite podcast app. In the span of a decade, Ben Shapiro built the Daily Wire into a conservative media empire. He produced hit podcasts that bit at liberal excesses and documentaries and lectures about the founders, the genders, the Gospels. He peddled polos, hats, candles, provided a home for de-platformed conservative stars like Matt Walsh, and minted stars like Candice Owens.

Let's put a pin in that. The Daily Wire even has kids programming, a judgmental puppet named Zouk. Zoodles, who shares Shapiro's load-bearing eyebrows. This year, though, the Empire showed signs of collapse. The Daily Wire's YouTube videos are down from millions of views to the low-five figures. Web traffic is plummeting, and recently Shapiro laid off 13% of his employees. Asked by the Washington Post, what had happened? Shapiro accused other conservatives of click-horring by embracing radical Islam,

theorizing about the evils of Winston Churchill and mocking the widow of Charlie Kirk. The kids still got it. And today explained the fall of Ben Shapiro. Hero. Today, Explain drops every weekday afternoon. We're back with Profi Markets. Nearly 50,000 workers have been laid off this year, supposedly because of AI. And that's almost as many as in all of 2025.

For companies adopting AI, the thesis is simple. AI is going to do, is supposed to do much of the work that humans do. In recent weeks, however, that thesis has hit a roadblock. More and more companies are reporting that despite the enormous power of AI, the technology is actually more expensive than the humans that it is supposed to replace. Uber, for example, just blew through its entire 2026 AI budget in just four months. According to the COO, it is now getting harder to justify AI costs within the company. Microsoft is canceling its Claude Code licenses across multiple divisions

because it's simply gotten too expensive, and over it in video, one executive said that the cost of compute is now, quote, far beyond the cost of employees, which all raises a crucial question for the AI industry, which we just hinted at earlier, and that is, at what point does AI actually stop being worth it? So this has blown up basically in the last 48 hours, where many companies are now coming out and saying we're actually not as confident about this whole AI thing as we used to be. Service Now is another company which just blew through their entire anthropic budget. technical staff at Stripe are reportedly spending nearly $100,000 on AI tokens every day,

and Salesforce is on track to spend $300 million on Anthropic tokens this year. Shopify said that their earnings were, quote, partially offset by increased LLM costs. We heard similar things from Meta and Spotify and Pinterest. One anthropic employee said that his Claude Code bill came out to $150,000 in a single month, In some, it's getting very, very expensive. And we have seen in the past that there has been an incentive, especially among tech companies, to use AI as much as possible. And there was this idea that employees will engage in what we call token maxing,

where you use as many tokens as possible to use from your AI API. And they'll create even leaderboards at these companies, like meta, like Amazon, where they will track how many AI tokens you're using and the people who are using the most tokens are the ones who are the most AI deployed, the most AI forward. Those are the ones who are going to get recognized. Maybe they'll get a promotion.

And this has resulted in unbelievable and extraordinary costs on the AI front. And now we're starting to see, Scott, the next phase of this, which is companies and their executives, starting to realize this is a little expensive. And now the question becomes, at what point will AI actually pay off?

So I will pose that question to you, at what point is it too much? It comes down to incentives. You were talking about how you're trying to incentivize people. Kind of an interesting part of the ecosystem right now and the different layers is the adoption layer, trying to get people to use it. And companies have put in place the incentives

to try and get people to use AI more. But there was a recent survey by a professor at MIT that he found that about 5% of the projects that people are using tokens for, they can actually connect. The CFOs can connect to some sort of return. So while I think that they're really intoxicated, it was like using AI as much as you can and talking about in your earnings call,

it's like adding.com back in the 90s. But I think you're already starting to see some fatigue, and I think the AI companies are trying to get public as quickly as possible to raise that cheap capital before things start to, I don't want to say unwind. But you can see how the string that gets pulled here is a large company and a kind of a CEO who has a lot of credibility in the industry just comes out and says, we're dramatically scaling back our AI investment. Let's be honest, folks, we're just not seeing the return we'd initially hoped. And Nvidia just reports its first company, you know, for the first time.

Invita's first miss, I think Nvidia has beat its estimates 15 quarters in a row. So, Nvidia's first miss probably takes, I would think, the entire market down five or 10%. But the first, the string that gets pulled is a CEO comes out and says, yeah, this is great, we're still going to do it. You know, we've found some efficiencies, some productivity. You are seeing some productivity gains in the economy from this. And quite frankly, they look as dramatic, if not more dramatic than the Internet. But look what happened in 2000. this definitely does feel like 99,

and I'm waiting for the first CEO to come out and say, we have to get procurement involved, and we have to dramatically scale back our expenses here. I don't think it's that romantic. I think it's just going to be a traditional Fortune 500 company that starts the narrative of, okay, this has been fun, but we have to dramatically decrease our AI investment because we're not seeing the type of ROI we'd anticipate.

Yeah, I mean, once we heard a quote this week from, I mean, not a huge company, the CEO of Match Group, but he said that AI is costing the company $5 to $10 million a year, and he said, quote, I think we're benefiting from it, but it's hard to feel it, is what he said. So that's not great if we're supposed to be writing on this, you know, multi-trillion dollar technology that's going to transform our economy. think there are a few possibilities that could play out here. One is that companies will decide, you know what, we are just going to pull back our AI usage because this is, you know, we wanted to experiment it and it's good that we did, but ultimately we can't afford this and we're starting

to see signs of that. Two, it's possible they just say we're going to not use AI and actually we've decided that humans are cheaper and they're more versatile and so we're going to use humans. I really doubt that that's going to happen personally. But third, I think most likely is that these companies are going to resort to the cheapest models possible. And this goes back to what you said in the previous segment, which is this relates to China. And that is Chinese models today are around 10, and in some cases, 20, in some cases, 30 times cheaper than American models. You have models like Deep Seat, which obviously went very, got very popular. Kimi K2, Jipu, GLM, all of these new Chinese models that you've never really heard of,

but every developer in the world has heard of because 80% of American AI startups are now using Chinese models. And the reason that they're doing this is because they are dramatically cheaper. Why are they cheaper? One, because they're getting unbelievable subsidies from the Chinese government. So the CCP's paying for it. And two, because they're engaging in this thing called distillation. which is essentially where a Chinese AI company will go and industrially harvest the outputs from the American frontier models and then use it for their own models. It's this very sophisticated kind of technological term for theft. They're basically stealing people's stuff.

And that turns out to be a great business model because it means you don't have to pay for things. And China's been very good at this for a long time. They've been doing it with intellectual property for many years. But I think that this is ultimately where it's all headed where we don't have the money to pay for it. We're not going to use Claude. We're not going to use chat GPT. We're going to use this cheap Chinese thing that can kind of deliver us very similar results. And you made an interesting point about geopolitics because that there is going to be a problem for Trump, for the United States, for the administration. If China overtakes the US in AI, essentially because they were disqualification.

stealing our models, i.e. stealing them. How do you think that might play out? The only thing that's sort of propping up and giving any license to the 34% approval rating right now of Trump is the S&P and the NASDAQ, which I would argue the most damaging metrics ever invented because they give this illusion of prosperity. And the reality is they're just wealth indices for the top 1%. And spoiler alert, the top 1% are doing incredibly well. But we don't... That's right. but I do think so if you have 93% of GDP growth is from this giant bet on AI and you start to see a threat from abroad from AI which would really really damage the Trump administration I think you're going to see essentially they're going to BID the whole thing and that is they're going to decide that just as they've decided that Chinese EVs can't come into the U.S. market I think they're going to ban Chinese LLMs because I think they're going to ban Chinese LLMs because I think they're going to it's only a short, I think in the next 90 days, supposedly already 80% of startup, smaller companies

are starting to use Chinese LLMs for the same reason you were talking about because of cost savings. I think you're going to see the Trump administration ban these models because right now, AI is the only thing quite, it feels like it's propping up the economy right now, the incredible cap-ex, the shareholder gains. So I think the Trump administration just has too much to lose if that Magnificent 10, which is about to go to the Magnificent 13, collapses. And when we start to see evidence that there is, in fact, AI dumping. And to be fair, I think there's some legitimacy to that. Germany used to be the powerhouse of Europe.

And China is very strategic and creates economic capture. And what they've done is, I mean, not only do they, they'll steal the IP of Siemens and then sell them back a cell tower into Germany for 40 cents on the dollar. but they will invite Volkswagen and Daimler and Siemens into China, prop them up, have their R&D facilities there, their production facilities there, and make it incredibly profitable for them to do their production and their R&D in China, such that when Germany tries to implement some sort of national economic policy that stops China from dumping the IP theft and then dumping products back into China,

the largest companies in Germany say, no, don't do this. that because we are now dependent on the economic arbitrage between China and Germany. And so what China has done to Europe economically, we're failing to do militarily in the Gulf. And that is, they've said, rather than try and enforce our will or impose our will on the world militarily, we're just going to create economic capture where other nations become so dependent upon us that we can have huge political influence internally and stop. them from, you know, creating some sort of prohibition of our products. I think it's going to happen here. I think Trump's going to decide once he sees evidence that the AI trade is under real threat

because of these Chinese LLMs, he'll ban Chinese LLMs. And to be clear, I think there'll be some legitimacy around that. I think the Chinese are going to try to do to the AI market, what they try to do to the steel market here in the 80s and 90s. Stay with us. Staples Preferred Business Membership, built for busy business owners, because you've got bigger things to think about. With Staples Preferred, get free delivery, no minimums. Staples Preferred unlocks up to 3% back, plus 10% savings on print and exclusive wireless offers. One less thing on your plate.

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we need to talk about it. 60% of Coachella goers put their tickets on Buy Now Pay Later this year. You can even pay off your DoorDash order and installments now, like your sushi. So this week on Net Worth and Chill, I'm breaking down exactly how these companies are making money off of you, why missing one payment can flip your interest rate from zero to nearly 36% overnight, and the uncomfortable truth about what it really means when you need to split a $200 purchase into four payments. Plus, I'm answering your questions, including what to do.

if you're already in over your head. Listen wherever you get your podcasts or watch on YouTube.com slash your rich BFF. We're back with Profti Markets. How are we feeling? I asked that because I'm looking at the clock

and we need to make sure that we have time for questions. The first question is from George Gilbert in seat F105. I wanted to know if maybe besides the three stocks that have excess valuation. Besides them, there are a lot of large

technology stocks that are, whose fundamentals are doing very well. Much better than the rest of the market. And if we see that continue, you know, that drives up, it seems to drive a concentration of wealth. And I'm wondering

what you see the political implications of that might be ultimately. And one last comment, I was working for Frank Quattron in 99 when you were I was an equity research analyst on software, but I didn't remember red velvet. I was telling folks to sell the ERP country, red velvet or red envelope. Red envelope.

Once you hear it a thousand times, you remember it. Yeah, thanks for that. Red velvet. That's a cake, boss. Not the premier internet-based gift company. Yeah, look, I think that... So every year I do a big tech stock pick, and in 25, my pick was Alphabet.

Because of the existential threat that supposedly open AI presented a search, it was trading at 17 times earnings. The S&P trades at 23. Alphabet was just a much better company than a DuPon or a P&G or a caterpillar with Waymo, And by the way, search, I think, is up 17% this year.

My big tech stock pick for 26 is Amazon. Because I think one place, I think there's two places where AI is actually going to show three places, the incremental shareholder value, live up to the hype. The first is just simply put in medical research. If I were to go along a sector, it would be pharmaceuticals and anything related to GLP1. I think the advances, we're finally going to see the great age of discovery in pharma that we've been waiting for 30 or 40 years. autonomous. I think it's just incredible. I think it's going to change everything. I hate myself because the people I most root to in the service industry are drivers. Like, why the fuck are you going this way? Just follow, I mean, just follow the, look at the phone. It's not that hard.

It drives me crazy. And then, but, and also, and my big tech, getting my big tech stock pick for 26 is Amazon. There's a million industrialized robots at Amazon. And then, and also, and my big tech, facilities right now. The rest of the nation has, I believe, 400,000. So I think you're going to see a suppression. I think the stock prices might come down a little bit because I think so much institutional capital is going to be sucked out of the market into these new IPOs. So I do think the markets might come down for, or the prices might come down for some of these other companies. But if you look at these companies and evaluations, I would argue that they're pretty good buys right now. So I think that if you see a ton of capital go into these IPOs that they're

so thirsty for and you see a drawdown in the S&P in some of these companies, I think there'll be really good, really good valuations. I don't, you know, if you look at, and I just think they're more resilient and in some ways less vulnerable because their businesses are much more diversified. So in some, and it sounds like you're in this business, I would personally, I would, personally, I I would stay the hell away from AI right now because I think it's really vulnerable. But I think the traditional guys have built such incredibly robust, diversified companies that you're just on a risk-adjusted basis going to do really well than them. And I'm talking my own book here.

I own Apple and Amazon. Those are companies I'll just own probably for the rest of my life. But I think there'll be, I personally, when you, I think you look at valuation, I think actually like one of the best internet analysts in the world is here, Mark Mahaney. if he's around, he might tell me where he agrees or disagrees. It's a long-winded way of saying I agree with you. I think some of those companies will be good buys. The concentration is incredible, though, when you look at what's happening.

The fact that the top 10 stocks now make up 40% of the entire market, 30 years ago, they made up 20%. The fact that AI is expected to drive 40% of S&P earnings, growth this year. That's the expectation. So it is just unbelievable. We all just have to kind of hope and pray, like, let's just hope that this keeps going. Let's just hope that this all works out. Because the level of dependency that we are seeing in this very small handful of companies, it is unprecedented. And if you were to see, call it like a 20% drawdown in just those stocks, I'm not saying that's going to happen, but it's happened before and it could happen.

that's an immediate impact on the entire S&P of 8%. And the question becomes, what kind of fear would that inspire as you go down the chain? What would that do to the CAPEX guidance going forward? What would that do to earnings expectations? What would that do to multiples? The more you do this, the more you play it out, if those companies so much as falter or stumble,

the amount of destruction that you would see is going to be quite staggering. I wasn't very much conscious, I would say, when this last happened in 99. But what I do know is that it took the S&P seven years to recover from when you saw that crash. And so that's what we all just kind of have to pray. It just doesn't happen, is that none of these companies, even so much as slightly miss on their earnings. Because if they do, then it's all we get it. But you also ask just about geopolitical ramifications.

I think it's going to be enormous. When, if you look at the genie coefficient, zero is everybody has the same thing. That's communism, right, or the dream of communism. One is one person owns everything. When the French started separating people from their heads, it was at 0.83. It's a 0.85 now in America. And income inequality always gets solved, but it gets solved through either war, famine, or revolution. I think we are in the midst of the second or third inning of revolution.

But I think it's a series of time. 90 revolutions. Jeff Bezos or Sam Malman, anything rich white guy says right now, he's wrong before he opens his mouth because people are just fed up. And if you look at the protests around data centers, everyone's looking for a vessel to express their dissatisfaction. So they show up at a data center and they just go crazy because it represents sort of income inequality. My fear is that politically we go as crazy as we went to the far right, I'm pretty. personally concerned we go crazy to the far left. And I believe that fascism can come from the far left as easily as it can come from the far right. And I find that the stupidest, most

dangerous ideas, generally speaking, when the far left and the far right agree on something, whether it's anti-Semitism or anti-vaccines, you know it's fucking crazy. And I worry that, I worry that because of the economic incentive of pushing people to the polls, extremism, distillation or reductive thinking to go to A or B, and the inability for America to have the nuance to really think about something in the middle that we risk going way too far. And this is a weird thing to stand in San Francisco.

I worry we're going to swing way too far to the left politically. You have a question from Robert Tang in CL113. I'm being told to read the question from here. Robert asks, how should ambitious professionals navigate the tension between using AI tools and the fear of being replaced over the next five years? And he did add go New York Knicks. I love it. What do you think, Scott? Well, you know, we have this past a statement that AI is not going to take your job.

Someone who understands AI is going to take your job. I'm now even beginning to think that's a bit overblown. You know, I would argue that the only competence that's really, important is storytelling and relationships, and that is your ability to articulate your ideas. And also, I mean, I would argue the best thing you can do for your career if you're under the age of 40 is to be as social as possible. And because so much of it now is based on relationships where if you think about, and there's some really good things about AI, where social media took us to the polls and made the world more divisive, One of the potentially positive things about AI is the LLMs try to guess the seventh word

by taking the average of all the six words in a similar string. And so it's actually a little bit AI is moderating. It's pushing everyone or thoughts to the medium, to the median, which is good in the sense that it's not creating more extremists. It's bad in the sense that AI is all chip no salsa. And the worst thing I can say to Ed or any of my analysts who come back, with something is I say, this sounds like it was written by AI. That is literally the worst insult I can give in the company. And so your ability to form relationships, your ability to

create, to be creative, your ability to understand people, your ability to be super social, because if it's just AI recruiters and people punching out job applications and emails via AI, then the only thing that's going to differentiate us in terms of our own ability to get promoted or even get in the door is going to be relationships. And so I'm thinking about that with my kids. I want to get them super into storytelling. I'm trying to ensure they know how to write well, stand up in front of people, communicate well. And more than anything, I tell them they need to be out of the house. I'm like, you have my credit card when you're out of the house.

And I'm like, I seriously tell them, I'm like, go steal, go shoplift, whatever it is you need. But I need you to join a gang. And what I mean by gang is, and this is the brilliant Jimmy Carr, gangs get a bad rap because occasionally they sell drugs and kill people. But for the most part, men hold each other accountable and your ability to figure out the pecking order and establish strong relationships. if everyone's driven to the median in terms of their jobs and their capabilities, it's going to be like that study done at Google, when they put out a job opening, they get 200 resumes within 60 minutes, they shut it down, and then 70% of the time,

and then they bring in the top 10 people, and 70% of the time, the person that ultimately gets hired, had an advocate within the company, had a friend. So if you're thinking about how to advance your career, especially if you're under the age of 40, you just want to get out and meet as many people as possible, and if you're a manager really trying to invest in young people's relationships such that when one of them gets promoted, they think of you as being a good person. But I think relationships,

creativity, kind of that salsa is going to be the point of differentiation because the other stuff I think is going to be driven to the median. Our next question is from Jeff Surface. Oh, and by the way, when I tell my kids, I love this, I tell my kids whenever they go out at night, I'm like, don't add to the population, don't subtract from and if you get arrested and incarcerated, establish dominance early. Where's Jeff Suffice? So my question was, Scott, you talk about your troubles with the affirmation of others frequently on various podcasts.

So I wanted to get kind of Ed your take and how you're early on in your career and you have the spotlight now of how you deal with the noise and the stress that comes with this. That's what the money is for. It's all worth it. That's a very kind question. I mean, you know, I'm obviously new to this, but doing this with this whole group here and getting to see everyone in person,

I mean, I saw everyone at South by Southwest when we did the live show. I feel very supported and very excited to be in this kind of community of kind of slightly nerdy, slightly obsessive people who want to be doing something with their careers, who feel ambitious. I feel like we're all kind of a similar type of person. So in a lot of ways, I feel really supported. Honestly, a big piece of it is the team. I mean, we have just incredible support, and I just would

shout them out right now. Claire Miller, Mia Silverio, Dan Shalon, Isabella Kinsell, Kristen O'Donohue. like, I kind of want to just shout them out right now. And there are plenty of other names. But, you know, we were a bunch of kids who Scott hired, and Scott said to us one day, I want to make a podcast about markets. And we said, okay, and we didn't really know what we were doing. But then we eventually did know what we were doing,

and now here we are at the Castro. So, look, it's been, it's been wild, but ultimately this is so much fun doing this and meeting all of you guys and doing this with Scott and Scott's been such a support for me the whole way through. So that's a really nice question.

I feel good. I'm handling it okay. Okay. He's seriously the son we all dream of, right? I don't think I've ever seen you stressed. I've never registered you. Never. I just don't really care.

You got to hide it. You've got to hide it really well. Never show your boss. I've never seen you stress. Avery Sarkar. I hope I'm pronouncing that right. Avery has a question. He says,

What's your best advice for a 17-year-old in today's day and age? Avery 17, I assume. Well, there's a lot there. Are you 17? Yes, sir? That's awesome. Yay, 17. Be good to your parents or your allies.

You're at a point in your life where you're under the impression, you have this natural hormone coming over you that makes it easier for you to leave the pack. So you become an asshole to your parents. Try and skip that stage and go right on to realizing your parents or your allies. Start investing in relationships. You're going to hear a lot of TikToks about how

if you save 10 bucks a day and pass up a latte, that by the time you're 50, it's a million bucks. Approach relationships that way. Try and have the confidence I didn't have as a young man to express affection, express, tell other people you're impressed by them. Start quick text. You were great today. Or I'm so impressed by you. So many young men, as they're developing sort of their sense of masculinity, they feel like it's a zero-sum game.

and if they acknowledge that someone else is impressive, that somehow takes from how impressive they are. Also, really the key attribute you need to develop at the age of 17 is no. And what do I mean by that? You need to put yourself in as many uncomfortable positions as possible and get as many knows as possible. And what I worry about with young men and the temptation, if I'd had the ability to be entertained on TikTok all day,

I'm not sure I would have ever gone into Westwood and seen movies. If I'd had life-like synthetic porn on my computer 24 by 7, I'm not sure I would have ever taken the risk to approach strange women on the campus or UCLA. You know, I don't think I would have, if I thought I could trade crypto or stocks on Robin Hood or Coinbase, I'm not sure I would have ever, and I did this, show up in the office of Morgan Stanley in the lobby with donuts, which was a cheesy thing and say, I want to meet with somebody. So if you're not getting a lot of nose in your life, if you're not applying to jobs you don't deserve to get,

if you're not applying to schools you shouldn't get into, if you're not approaching and expressing romantic interests on making someone feel safe with people that most people would perceive as higher character and hotter than you, if you're not getting to know a lot, you're not going to ever punch above your weight class economically or romantically. So be good to your parents.

start investing in relationships and try to get to know as quickly as possible and develop a sense of resilience around rejection. And my fear of kids your age, especially men, is they believe they can have a reasonable facsimile of life with a screen and an algorithm. And they don't develop the resilience and don't ever get to engage in the really hard things that's the most rewarding thing, and that is relationships. And if they're not careful by the time they're 25, one in three men under the age of 25 is living at home. and they never developed a skill set around rejection. And if anyone in your life that you really admire, the only thing I can guarantee is they've had a lot of know in their life. So get really good at no.

And also just recognize, and I wish I'd learned this earlier, nothing's ever as good as bad as it seems. So if you're applying, you're 17, you might be applying to college. If you don't get into the college of your dreams, if you get your heartbroken, if you don't get the job you want, when you're older, you're not going to regret not getting into that grade school. You're not going to regret, you know, having your heartbroken.

You're not going to regret not getting the job you wanted. What you're going to regret is how upset you are and how much you beat yourself up. So just learn, try and just remember that and forgive yourself and recognize that young people are just so hard on themselves. Anyways, but more than anything, get out, and just get to as many nose as possible. That means you're about to get to good yeses.

By the way, where are you? So I don't know where, what's his name again? What's the kid's name? Avery. Avery, so Avery, do you know what love language is? Love language is like either, everyone has a love language. So it's like, it's either acts of service, affection, gifts. My love language is money.

So here, brother, here's a thousand bucks. your mom out to dinner. I think he's upstairs. That's not Avery, that's Eric, but he's taking it to Avery. I hope. Hey, Scott. Yes. It's Mark Mahaney.

Mark, thank you. So, Mark, I'm going to, I'm going to ask, I want to ask you a question. Where did I get a right and wrong on valuations? I'll tell you, not on valuations, but thank you for coming out, both of you. Thank you for coming out to San Francisco. I've read all of your books. I've given copies of your books to all of my sons. The notes on being a man was phenomenal.

So thank you. I think you're a true gift in what you do. Thank you. Thank you for saying that. Thank you. Just so everyone knows, Mark Mahaney is one of the best analysts on Wall Street, the tech analyst ever cool. Like, it's awesome.

He's here right now. Right. So I'm sure you're right about your comments about these IPOs. but I think you're wrong. And so not on the valuations. And look at all the hugely hyped IPOs that you've watched over the years. Google, meta, Amazon, Netflix, Uber, Spotify. I mean, you didn't usually make a lot of money if you bought them right at the IPO price.

But they did become great assets over time, so you had to be really careful. But I just push you to think about the fundamentals. And I'll just throw one or two things by you. When you think about OpenAI and Anthropic, you've never seen companies scale revenue. This is not a recommendation of these things, but you've never seen companies scale revenue as quickly as they have, faster than anybody. And you've seen with Anthropic, what's been reported recently is that they're just about to turn operating profit, profitable on an operating income basis.

It's not funny EBITDA, but like real profits. So there's a there, and the fact that Google and Amazon and Microsoft, and META are spending so much money going after this. You've got some of the sharpest minds in the world spending that much money. There's a there there. Now, whether it gets valued right or not, I just push you just to think about what's the, just follow the fundamentals first and then figure out your price later. But these are unprecedented fundamentals.

Appreciate that from Montgomery Haney. It's awesome. That's all the time we have. Thank you, San Francisco. This episode was produced by Prof.D. Media. Thank you for joining us live in San Francisco. If you're likely heard, make sure you're following us on YouTube, Spotify. You know the drill.

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