Prof G Markets - OpenAI Is Spinning Out Of Sam Altman's Control

Episode Date: July 20, 2026

Scott Galloway and Ed Elson unpack OpenAI's turbulent week and assess the biggest threats facing the company. They discuss why China's latest AI models could pose a serious challenge and why Scott thinks there might be a leadership shake-up at OpenAI. Then, they examine the growing narrative that the market is becoming more diversified, arguing that AI's influence extends far beyond Big Tech, and identify the sectors they believe are least exposed to the AI trade. 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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You just have to hire one. You can hire top-rated pros, see price estimates, and read reviews all on the app. Download today. This episode is brought to you by FIFA World Cup. Launch Edition on Netflix. It's a fast, fluid game where your phone is the controller and your TV is the stadium. You just launch it on your TV, scan the QR code with your phone, and boom, you're shooting and passing in seconds.

Plus, it's included in your Netflix membership with zero. extra costs. Go to the games tab and play FIFA World Cup launch edition now, only on Netflix. Today's number 60. That's the percentage of Gen Z people who say they would find someone extremely attractive if they never used AI to make personal decisions. I'll tell you, Ed, I am just sick of Gen Z's arrogance. They walk around and act as if they rent everything. Have you heard from Michael Symbolist? I may or may not have heard from him, but I love the direction that we're heading in, and I don't want to change a thing.

That's because you're some Princeton prude with, like, wants a Pim's cup, doesn't know how to drink beer. Tell a good joke. You've had better dad jokes, I'll say. This one was okay, maybe six out of ten. You've had some bangers. Last week, I forget what it was, but it really hit the spot. So we're trending in the right direction.

So I'm not going to tell you what my correspondence with Michael Sembist has or hasn't been. All I know is that he's been a blessing to the show. I'm not going to say anything. How are you, Ed? It's not coming home. Yeah. I agree. I'm not going to lie. I'm I hear you. I'm struggling to find any silver linings or any positives out of that World Cup. Well, it's not like you flew to the U.S. with your entire family thinking you were going to go see England and the World Cup final. Now I'm going to see Yamal and Messi, which I'm great. Granted, it's great soccer, but do you think it's bad form? I'm going to wear my team England jersey.

Do you think that's bad form to wear that to the final, or do I show my loyalty? Well, take any support we can get. I mean, you might get heckled and people might call you a wanker, but that's okay. Well, that's called social media. That's called me. That's called a weekday for me yet. Have you read my comments? You're used to it.

Yeah, it is, I got to, I mean, it's hard to describe that feeling of just pure disappointment. but something I've been thinking about. That's because you're young. Trust me, you'll get used to it. Yeah, have I told you about my divorce, my companies, my general, like every time I look in the mirror now, just the horror and disappointment? Just to give you my sort of takeaways

on just being an England fan and also just being a football fan in general, something I've been thinking about is it's so annoying how much worse it feels to lose, Enjoyed as to win? Yes. Losing, the intensity of the feeling of losing is so much greater than the feeling of winning.

I mean, you know, we went to the England game and saw Norway. We had a great experience. I had an amazing time. Don't get me wrong. But we got the win. And then I'm kind of like, okay, like, on to the next one. Great. That semi-final loss, I couldn't dig myself out of the hole.

And you never feel that way when you win. And what is that about human psychology? That's alcohol. So, no, I'm serious. When I was your age and I drank, it'd be like six hours of euphoria with a 10-minute hangover, a couple of Advil of Diet Coke, and boom, I was ready to drink again. And as I've gotten older, the euphoria shrunk and the hangover is increased. So just so you know you're going to have more of that diminishment of upside with a dramatic expansion. I get excited about very little anymore, but I'm worried about fucking everything.

everything. Who are you rooting for? I don't even know who to root for. Well, I know who I'm rooting for in the final, but it feels like, it literally feels like getting a hand job for my cousin at Thanksgiving. It's just not nearly what I was hoping for. I don't know where that came from. I don't know where that came from. I like how I just kind of didn't really acknowledge, just move on because it's kind of normal at this point. Who are you rooting for in the final? Look, to be honest, I don't like either of these teams. I don't, I think. You don't like you, I used to like Yamal, but something I've been thinking about is my problem with Argentina, it's my problem with Spain now is both of these teams are filled with very, very arrogant people.

And the celebrations, I don't know if you saw the celebrations of the Argentina players after the England game, but they put up this sign saying the Falkland Islands are Oz and the way that they celebrated after the game. Like, there's just a sense of arrogance. I think Messi is an exception, but the rest of the team and the rest of the players, the way they carry themselves. they're just not very humble. The same is true of the Spanish team.

I used to love Lamin Amal because he was this kind of cute kid with braces who sort of, no one knew why he was so good, but he just happened to be this incredible phenomenon. Now he's kind of brought into his own hype, and you can sort of see him getting that sense of arrogance. I can feel someone saying the same thing about me. But regardless, I wanted quiet English, humble people to go all the way. and to do it, do it for us. I wanted the Dan Burns and the Anthony Gordons to win. And instead, it's the superstars. It's the same old, same old.

And I wanted to see, I wanted to see someone else. I wanted to see someone else rewarded for being humble. And that's not what we're going to see. So I'm not going to support either of these teams. Messy's the greatest player in history. He's the goat. If he wins this, then it'll be kind of nice that we'll have like just a conclusion to that debate, the undisputed goat.

but I really can't get excited about either of them. I didn't like the way the game ended either. I didn't, the vibes at the end of that game were distinctly different from the vibes at the end of other games. I was kind of disappointed. It's, I mean, at this stage, there's so much wrapped into it,

emotion, politics, patriotism. I mean, it's very intense. Plus, that's such a historic game with the hand of God and Maradonna in 1986. I mean, there was a lot in that. How much joy did we get from Team England, though? I'm actually at that stage or I'm really am appreciative of the players, the coaches, and the fans, because I got so much joy. 100%.

The game I went to with you, the games I watched with my boys. I just thought that team was just, and in typical British fashion, they're just going to be second-guessing everybody and ship-posting the coach. They had an amazing, I think they had an amazing tournament. I agree. And everyone's saying that he made the wrong decision by putting on the defenders. It's the same decision he made against Mexico. Take it to your fantasy football league. Let's give the guy a break, is my view.

We'll get shitposts in the comments. That's okay. We'll get over it. We have a lot to get into here, so I'm going to launch us into our first story. Now is the time to buy. I hope you have plenty of the world of all. It was another brutal week for Open AI.

We've discussed the company's hell weeks before. this one might have been one of the worst yet. The headlines kept piling up. Apple first sued Open AI, alleging that it stole intellectual property. The startup announced it is shutting down its Atlas browser less than a year after its launch. Its president of applications, Fiji Simo said she is stepping down. Its first AI device leaked and a movable speaker

wasn't exactly the reveal that many people were hoping for. The company was also reportedly caught selling advanced AI models to Chinese firms blacklisted by the penitably. And then there were the financial and the competitive pressures. According to e-marketer, OpenAI's ad business is on track to miss its own forecast by 90%. S&P also recently downgraded Oracle's debt to triple B minus, just one notch above junk status, citing OpenAI as a key credit risk, end quote. At the same time, Anthropic is reportedly gearing up for investor meetings ahead of a potential IPO as soon as October. So it appears Anthropic will win the IPO race.

Plus, Deepseek, the Chinese competitor, is preparing for its own IPO, and it could file as early as this year. A successful public debut could make it even harder for Open AI to attract capital. So, Scott, so much went wrong for Open AI at this point last week. And you can feel the Schadenfreude on all sides of the spectrum here, because in a lot of ways, they've alienated the left from a political perspective, because of cozying up with Trump after there was the falling out with Anthropic. At the same time, they're also kind of alienating the right. We've seen that Elon Musk has been shipposting.

Sam Altman, they're alienating everyone. Then we get this Apple lawsuit where Apple accuses Open AI of being, quote, rotten to its core. They said that their behavior of stealing hardware secrets was, quote, normalized and exemplified by leadership and was, quote, the tip of the iceberg. So that wasn't very good. We have the Atlas browser shutting down. We have Fiji-Simo stepping down. We have the Oracle downgrade.

We have Open AI selling its models to these blacklisted Chinese companies, which doesn't put it in good books for the government. And that was, of course, kind of one of the only edges that it had overanthropic. A lot to get into. A lot went wrong. Your reactions. More than just the headlines, what I'm thinking about is a pattern here and that every bubble seems to kind of pop in the same order.

First, the applications disappoint, then the infrastructure gets overbuilt. And finally, capital markets catch up and close. At the turn of the millennium, you know, pets.com failed before WorldCom. And today, the cracks are showing at OpenAI, and the next is the infrastructure. Open AI is reportedly worth over a half a trillion dollars, yet almost every major narrative has flipped just in the last 60 days. consumer products are struggling, management turnover is accelerating, monetization is proving harder than people expected, and competitors aren't dying. They're lining up to go public. So it's becoming sort of, we used to think, they were spending as if this market's going to be

huge and it's going to be win or take all with justifying this drunken, intoxicated spending. But it's become capital intensive, brutally competitive, and increasingly commoditized. And the real risk isn't that open AI loses, is that nobody wins enough to justify these valuations. And we see an unfurling of the collapse from B2C to B to B to B infrastructure similar to 99. And, you know, again, history doesn't repeat itself, but venture capital sure as hell does. And that is, it is massively overspent here. And these valuations are going to come down. dramatically. But I've, you know, I've always said, oh, it feels like, you know, you want to say it's

99, it's probably more like 97. This does feel like Q4, 99, and then March of 2000 is, is now in, you know, in plain sight. You were saying when we were talking about this offline that you think that we're going to have to see a management shake up here, just based on everything that Sam Altman's gotten wrong. And I think, I mean, there is the AI bubble question, which is, like, Does the AI business model actually makes sense if you are in the front-end AI business? And that's something that has been kind of an open debate. I mean, if we look at the financials of Open AI and Anthropic, these companies that are losing a lot of money, you would think it doesn't really work right now.

Maybe it'll be kind of the Uber or the Amazon where they spend all of this money and then eventually they figure out how to make more money than they spend and eventually it turns into a viable business, but that's kind of an open debate. And I don't blame Sam Altman or his execution on that reality. I mean, the reality is that compute is very expensive, building the data center is very expensive, and so far it's been very hard to market a viable product,

which is commensurate with the costs. But there are some executional mistakes that we've seen from Sam Altman. One would be he's trying to look at. launch this hardware business, and apparently he's been stealing from a company that he had previously formed a partnership with. Like, that's something you kind of have to remember about Open AI is they used to be partners with Apple. The plan was that Open Air was going to power Siri, and then Apple turns around and announces, actually, no, we have a new partner, it's Google, and now we learn why that is. It's because Apple thinks that Open AI is, quote, rotten to its

cool, and that they have been stealing trade secrets and poaching their employees. So just from, like, a relationship management perspective, like, clearly that is a huge mistake. There was the issue with we're launching all of these side projects, and now we're saying that none of these side projects are actually panning out, like the Atlas browser and like SORA, the image generator, which they shut down as well. I mean, just in a remarkable way, Sam Altman is getting the entire world to hate him. and it's almost like nothing he says or does can go right. And I've never really seen that from a CEO,

a CEO who has become so unlikable not to one faction of the country or one faction of the market, but literally to everyone, I can't find really anyone who is supportive of this company who doesn't have a financial interest in this company. And that's wild. from a CEO perspective. I mean, there's just so many things here.

AI has been the most poorly managed brand over the last 12 months, and I feel like the coup de grove of head up your ass brand management was deciding that Kevin O'Leary should be the spokesperson for data centers. I think he made himself the spokesperson, but I agree.

They should have shut him down quick. He should have said, boss, if you want this thing built to shut the fuck up. But look, I think the thing that really hurts here in terms of credibility and provides legitimacy to what is often perceived

is just competitive wrangling is the lawsuit from Apple. And they're claiming that OpenAI stole trade secrets by poaching over 400 Apple employees. And Open AI had recruits bring Apple prototypes, which, by the way, isn't illegal on its own recruiting employees. There's been laws passing. You can't have Steve Jobs. And I forget who it was. Bill Gates had a kind of a gentleman's agreement that later service an emails that they wouldn't poach each other on employees. And that's non-competitive.

All that is is a transfer of power. from employees who want multiple vitters on their labor, and that's illegal. You're allowed to recruit other employees unless that employee is an executive and assigned a garden leave or a non-compete, which you have to compensate them for. But anyways, the strange thing or the irony of the suit is that Apple has a reputation in the industry for stealing other companies' ideas, and they're one of the most frequently sued tech companies for patent infringement. And the reality, this goes to a larger, and I'm not saying they are, they aren't guilty. But the reality is the majority of companies that have outside shareholder gains,

and this is true of an economy that's growing faster than 5% a year, they're essentially thieves, or probably more accurately, a strip miner. In that is, in the 19th century, the U.S. stole manufacturing technology for textiles and littered the eastern seaboard with manufacturing technology and capabilities and even actually kidnapped artisans from Europe, China has built an entire economic model on IP theft. And so most of these guys are suing each other. But when Apple comes for you, in this case, their communications are very good. It's not an individual. They're not getting into a pissing match with this ego versus this ego. They're just saying, look, they're laying out in a legal,

kind of a droid adult format. This company is guilty of, you know, kind of mass theft, if you will. but it is really incredible how the momentum is flipped on OpenAI. And now we know that Anthropic is scheduling its IPO talk. Supposedly, that lesson's going to come in October, which is very soon. That's only three months away. And, you know, there was a debate of, like, who's going to win that race between Anthropic and Open AI,

who's going to sort of capture all of the energy and the capital in the room. it's clear that Anthropic is going to win that race. In fact, if we look on CalCherty, the odds that they will announce an IPO before 2027 are up to 74%. So this Anthropic IPO is happening. Open AI is tabling theirs. But then the fact that in the same week,

we also learn that DeepSeek is planning its IPO. To be clear, we don't really know anything about it. It's very confidential. We don't really know anything about their financials. but they're out there and they're planning this. And it seems like the debate used to be, you know, who's going to get out first? Is it going to be anthropic or open AI?

That's not a question. Now the question is, will Deepseek get out before open AI? And that poses a whole other slew of questions and risks for the company. I mean, what do you make of that? Well, I think the biggest story that has, that it's got almost no, no coverage is that is what I think is what I would refer to affectionately is is AI dumping from China. And that is free Chinese models went from less than a third of all traffic in late 2025 to about two thirds recently. And it's much less expensive. I mean, essentially what's happening

in the air market has condensed what's happened to industrial economies in Europe. But instead of it taking two decades, it's taken two months. And that is they steal the IP on a cell phone tower from Siemens, and then they manufacture it with cheaper labor, and they sell it back to telcos for 40 cents on the dollar. And there are a lot of regional LLMs in China, and they have access to cheaper power, cheaper chips, less power consumptive, and they're also subsidized by their own local governments. And I believe, and I said this before, that she has a vested interest at the ultimate Ohio-class submarine to be flipped against us is to engage in AI dumping, and I think it's happening. And you hear stories of VC's encouraging the portfolio companies to use these open-weight

Chinese models. But you're seeing the best business model in history is IP theft. A close second in terms of a pricing mechanism is 80% of the market leader for half the price. And deep-seek in these Chinese open-weight models claim they're 90% of the market leader for a third of the price. I think this is going to be the next geopolitical pawn once Trump actually, if Trump actually figures out, what's going on here quickly enough. But the entire economy right now is a giant bet on AI, and China has come in with a product that is near, near frontier for a lot less money. And that is going to start to – and Mia, our head of research, put together this graph

that just blew my mind, one of those mountain graphs. And you see the frontier models that like 80, 90 percent share in China, you know, five or 10 percent, these Chinese models. and the mountain of consumption of Chinese open-way tokens has exploded. And yet it's not getting that much coverage.

It's as if, I mean, the U.S. auto industry was hollowed out over, call it, 20, 30 years, and it started with the Honda Civic, and then they had an accord, and then, oh, wait, but that's just one company. No, it's Toyota, which became the largest auto company

in the world in terms of production volume. What the Chinese automobile industry did to Detroit in about three decades. It feels like Beijing is doing to USA AI frontier models in about three months. We'll be right back after the break, and by the way, we will be going live on Substack

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Visit getvcx.com for more info. That's getvcx.com. Carefully consider the investment material before investing, including objectives, risk, charges, and expenses. This and other information can be found in the fund's prospectus at getvcx.com. This is a paid sponsorship. We're back with Profi Markets. I mean, when we just sort of map out, like, what are the threats to Open AI right now? I think you've got this sort of lack of goodwill in the marketplace. And we saw there was this viral clip of Alex Karp on CNBC,

basically saying that he's done with Open AI and Anthropic because their tokens are so expensive and the value's not there. And it so feels sort of like corporate America is doing. turning on this company, which I think could be a problem in terms of these B-to-B contracts, which are pretty important, both for Open Air and Anthropic. You've got this Apple lawsuit, and all of the other lawsuits, by the way, that Open Air is going to have to fend off, but the Apple being probably the most well-capitalized, which could legitimately shut down their hardware business. You've got just competition in general. As you pointed out,

the market share statistics, a year ago, Chad Shoebt was at 76%. Today, it's at 50, and that's because there are two major insurgents. One is Claude, which has gone from 1.6% market share to 10%. Gemini has gone from 9 to 28. So Gemini is exploding as well. And then I think the most significant and the most important is the price war that appears to be breaking out right now. And that is the pricing of these AI models

is clearly becoming front of mind for enterprises, and it is very quickly becoming a race to the, bottom because you have meta that is coming out with their model, which is dramatically cheaper, and they have literally stated that it is their mission to initiate a price war because they know that they can play that game. They have the cash. Open AI and Anthropic can only play that game for so long because where are they getting their money from?

They're not getting it from profits. They're getting it from venture capital. And so at some point, if the investor spigot turns off, they can no longer play that game. Gemini is also pricing their models lower, but the elephant in the room, and I'm 100% in agreement with you on this, is clearly the Chinese models. It is clearly Deepseek, Kimmy,

all of these Chinese models, which are so dramatically cheaper than the US models that it's hard to actually fathom just to go through the data here, the price per million output tokens for OpenAI's model, GBT 5.6, is 44,000,

For Claude Fable 5, it's $50. The equivalent price for Deep Seeks model is 87 cents. So it is 99% lower than the American alternatives. And obviously now, we're seeing that China is stealing market share. I don't know. I mean, we see all these benchmarks and like which model is the best and there's all these debates. Like, you know, people kind of generally assume that Open AI and. Anthropic have the best, best in class, world class models. I'm not going to chime in on that.

But what I do know is that people are using the Chinese models because the Chinese models can get the job done, fast enough, well enough, and they are so much cheaper that it would be ridiculous not to turn to them, which is why you're seeing the increase in market share. It's also why you're seeing a lot of these blue-chip American companies that are making that switch. I mean, we've gone through some of them before. Coinbase, Shopify, Airbusy, Airbusy, B and B, Uber, they're all starting to switch over to use these Chinese models. And it seems to me that this is clearly the elephant in the room for not just opening eye, but for all of American AI at this point.

And how could Xi Jinping, how could the CCP, how could China not be trying to target this? Because if we are as dependent on AI as we are, it is clear that this is the fastest way to bring the industry to its needs. Initiate the price war, get everyone back on the side of China, take up that market share, and then the question for us becomes, what happens if this keeps happening? What happens if they continue to eat into that market share?

And I wonder if, I mean, this is a question I'll post you, I wonder if that is going to be the tipping point for an open AI or an anthropic. The fact that they cannot compete with China. What do you think? I think they can't compete. I do think that there, so there's a market for Emirates and Delta. There's a market for the LVMH and the high-end.

The frontier models with better IP will be great businesses. The problem here, Ed, is that when I raised money for red envelope at 120 million, thinking that I was a genius getting that kind of valuation, the problem was it was really difficult and stressful to try and raise money for the next two years, after the market collapsed because the people who came in at 120 were pissed off and didn't want to raise money at a lower evaluation. And you end up with all sorts of expectations and repricing options. And to a certain extent, one of the real anchors around the necks of Open AI and Anthropic right now is eight or 900. And that is $8 or $900 billion, which is what all their last round investors are anchoring off of. Because I believe Open AI and Anthropic will still be amazing companies. If they decline by 80% of value, that means they're worth as much as Starbucks. They're worth as much as Disney. They're amazing companies.

But the expectations and the valuations have just gotten so far out over their skis that the narrative will naturally be really negative. But I do think there's a market for the premium frontier model. People want U.S. companies. In addition, and this was, I thought, the most puncturing statement from Alex Carp. And it was brilliant. He's talking his own book, but it doesn't mean it's true. he said people turn to Palantir because what they want is a thick layer of innovation and protection on top of LLMs. Because if you're, and he didn't say this, but I'll project, if you're Apple, you don't want to upload your board decks and project plans and product roadmaps into any LLM and have them incorporate it, again, strip mine it, and incorporate it into future answers for Samsung and Microsoft who were posing the same queries.

especially after you've literally found evidence of them stealing your hardware products. I mean, if you're already anxious and then you see the lawsuit, I mean, no way you're starting that enterprise contract. I mean, this is the narrative that's emerging that is really powerful. These are companies that have ingested all intellectual property without consent or compensation. They strip mine it and then sell it back to the people who are losing their jobs because they've stripped mine their initial. IP. Like, that's not a good, that's a business model that should get people angry. And so there needs to be, I mean, this lawsuit's going to be interesting. I still go back to an original or an idea I've had for a long time, and that was do with the record recording artists do and have an organization that's on top of them, like the record

association, I figure what's called, player. And basically, they have means of assessing every time Private Idaho is played by the B52's awesome song on every radio station across America. And then they say, okay, radio stations, approximately 20 basis points of, or half a percent of total playtime was B52 songs. We license, we do a blanket license for X dollars. We charge you, you know, we charge KROQ 106.7 Rock of the 80s in Los Angeles, the greatest radio station ever. we charge you two or two and a half million dollars a year for a site license and omnibus license to have access to all of our music to play and then you run ads against it. And then we take two percent of that and we send it to Warner Brothers or whoever represents the B-52s. None of that

goes on. Again, bringing this back to me, if I type in in the voice of Scott Galloway, I will see literal sentences from chapter 7 of one of my books, but I'm not getting any compensation. So the strip mining, I think an adult will come in and say, Adobe did this and it didn't seem to pay off, but Adobe's visual LLM, Firefly, whatever it was called, they actually only had licensed imagery because they wanted to say, look, we are holding up to our standards of IP. but that is yet a privacy, IP theft, actual theft of intellectual property, not only IP theft from individual consumers, but IP theft from other organizations. This is all going to lead in. I'm teasing my prediction here.

We're going to have a new CEO at OpenAI within the next six months. Could you expand on that prediction while we're here? I'll do what Rachel Maddow does. I used to love watching Rachel Maddow, and I got so sick of her saying, What if I told you that I knew the name and the identity of the person who killed JFK? Stick around. And then you have to watch four minutes of commercials convincing you. You had opioid-induced constipation and restless legs.

And then you come back and she's like, there is a man. He has a name. Another man is showing up and has a solid thesis in why it was this man. Stay with us. And then we'd cut to another commercial break. I'm like, I have had it. Rachel Maddow is the biggest, biggest, I won't use a word. T's of some kind.

And I gave up. I'm like, I am not willing to endure more commercials showing me how much it sucks to get old to find out who killed JFK. Anyways, should I do it now or should I wait for predictions? I would like to hear it now because I myself am impatient. So I'm going to assume that the listener is too. We're about to see OpenAI acquire a company called Sierra. And that is the best companies don't stop at the platform. they developed their own applications.

Microsoft didn't stop at Windows. It built or bought and built Office. Apple didn't start with iOS. It built the App Store. Open AI is worth about half a trillion dollars, $500 billion, Sierra, which is essentially, Sierra has one of the best enterprise AI products,

and they're going to, I believe they would check so many boxes, acquiring Sierra and installing Brett Taylor as the CEO, because OpenAI has one of the best frontier models, and Sierra has one of the best enterprise AI products, and Brett Taylor may be the best enterprise software operator of his generation. So as foundation models get cheaper,

the intelligence will be commoditized, and it'll be the scarce asset won't be IQ, it'll be customer relationships, workflow integration, and enterprise trusts. That's Sierra, and at $5 billion, which is what it's worth in the market, say you pay 10, that's a 2% dilution, and you not only get real progress in your application layer, you get something that will increase the value of OpenAI by $100 billion, by calming the waters with someone who has seen as not only someone who understands the technology,

but has a very elegant, smooth hand around retention of employees and smoothing over. Keep in mind, this is the guy that shoplifted $44 billion from Elon Musk and forced him to close and didn't get into a pissing match with Elon Musk. Elon Musk does not shitpost, Brett Taylor. Think about it. He had to pay $44 billion for a company that's now worth $3 billion, and he's not out calling Brett Taylor a crook. So this solves the Altman problem, the insecurity and the market problem. Brett Taylor will get cloud cover to make massive reductions in CAPEX. They can pay Brett $5 or $10 billion of that incremental $100 in increase in valuation. They get the day they announce this acquisition. This is just makes so much. industrial logic. Anyways, OpenAI acquires Sierra and installs Brett Taylor as their CEO and kicks Altman up to chairman. Wow. Okay. Sam Altman out as C. What was the time frame? I would say it's six months. You know, it might be 12, but Sam Altman is on the Green Mile. He's an innovator, not an operator. They need an operator. They need an adult in the room right now. He just clearly doesn't know how to

handle employees who want to leave. He's made a fool of himself with certain statements that are just immature, quite frankly. He has not made the right moves in terms of relationships with other organizations. So they need an adult. And Brett Taylor kind of just reeks of competence. The entire, every investor at Open AI would have about a seven-day exhale if they announced that Brett Taylor was the new CEO. That's a very bold prediction, but the more you think about it, the more it actually isn't that unreasonable, given how much of a shit show it seems to be at Open right now. I think it's just helpful to play out how these kind of situations might unfold for Open AI's business. Like, you know, when we think about this Apple lawsuit, I mean, what could go wrong here,

what could go wrong is that the hardware business just shuts down. And that seems to be very much on the table for Open AI right now. The other thing that we saw were those e-marketer estimates of chatbot ad revenue. So, I mean, it's worth thinking, like, what what would chat GPT and OpenAI's advertising revenue actually look like if they were as low as e-marketer is predicting for the chatbot ad revenue market at large. The other thing to think about is these price wars. Like what would happen if Open Air had to reduce their model pricing? And, you know, pick a number. We picked a number. We said what would happen if they had to reduce their prices by 80 percent, kind of like worst case scenario? If you put all those things together,

you eliminate the hardware business, if you dramatically reduce the ad business, if you dramatically reduce the pricing power that Open AI currently has and seems to be seeding with every passing day. And then you project all of this out. They have said that they're going to be profitable by 2030. But when we put all these estimates together, what we find is that actually know they won't be cash flow positive. They will be losing about $165 billion a year. That's when you put this all together. And so, in other words, if these things go wrong, this business just flat out won't work at all, at which point you have to start asking questions as to what actually happens to open AI. Someone says it just goes bankrupt, it just implodes. I don't really

think that's going to happen. I think the more likely scenario is that there will have to be some sort of massive restructuring, some sort of M&A event. Probably it gets sold to a larger AI company. The point being, all of these very, very speculative investments and very speculative bets, they kind of all have to go right for open AI to make it, to make it out of this live, unless something massive happens, unless you shake things up in a massive way. But it is really getting to that point. And I think the question for investors is, which thing do you decide to worry about. I think if there's anything that I would be worried about, if I were an investor in Open AI, it would be the China problem. It would just be the pricing, just flat out.

Because at this point, they're losing control of the narrative, the enterprises are turning against them with every passing day. They're telling them these tokens are too expensive. There's a lot of incentive to switch over to a Chinese model. Maybe the government bails them out. Maybe they see some regulation that makes none of that even regulation-wise even possible. But that does seem to be where things are trending at this point. We'll be right back. And for even more markets content, sign up for our newsletter at profiteymarkets.com. Support for the show comes from Delete Me.

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Some of the best performing stocks in the Russell 2000 this year are AI beneficiaries. Max Linear, a semiconductor company, is up 424% year-to-date, while cloud computing company RACC space technology has gained 567%. In total, roughly 24% of the Russell 2000 now has some exposure to the AI trade. The same pattern shows up in emerging markets. The MSCI emerging markets X-China ETOF is up 34% year to date, but much of that performance is driven by its heavy exposure to Taiwan and South Korea, two markets whose largest companies are deeply tied to the semiconductor supply chain.

So, Scott, I just want to simplify this. One of our biggest concerns about this market has been over concentration. The fact that the top 10 stocks make up 40% of the whole S&P, it's up from 20% just 30 years ago, there's this over-reliance on AI that we've been worried about. But this year, we're hearing a lot from investors that that is changing, that big tech has been underperforming and that we've seen this diversification or this broadening of the markets. And let's just play a clip of what some investors have been saying.

Broadening of the market, we're seeing more participants to the upside. Look, I think the broadening of the market, we've argued for some time that it would be extraordinarily healthy if the market broadened. And that's really been going on since the end of October. It's been an incredibly broad, broadening out. I think that broadening out theme, which was one of our themes as we entered the year, I think that broadening out theme is going to be quite relevant again. The trouble is that when you actually look at all of these quote unquote broadened segments, the stocks that are doing all of the broadening are AI stocks. And you look at the S&P, big tech isn't carrying this market true, but AI still is. The best performing stocks have been Intel,

Seagate, Western Digital, Micron, Dell, Sandisk, all of the sexy AI names that we keep on hearing about. And the same is true of every other sector, and we can go through them in a moment. Before I do that, I'll just start with your reactions. The CNBC pundits who will always find a reason, like real estate agents will always find a reason why you need to buy now if you're a buyer and why you need to sell now if you're a seller. These folks own stocks, and so they're always going to come up with the reason why you should buy more. The market is not broadening. It's just finding new ways to buy Nvidia. Your analysis, these pundits are pointing to small caps, emerging markets, industrials, utilities, even real estate. And if you scratch the surface, the same story emerges.

semiconductors, power demand, like even cooling systems or fiber, data centers, AI software. That's not diversification. It's second-order concentration. In 1999, everything eventually became an Internet stock. Today, everything's becoming an AI stock. And that's not necessarily bearish. It just means investors are kidding themselves when they use words like broadening as some sort of code for diversifying away from AI.

That's just not happening. If the AI trade sneezes, we're not catching a cold. We're getting pneumonia. And buying, quote, unquote, AI adjacent stocks and calling it broadening is like ordering a Diet Coke with your double, double from in and out. Be clear, folks, you still bought a fucking cheeseburger. That's what you've done here. You've bought a cheeseburger. Just looking at some of these sectors, like you mentioned utilities, which a lot of people, you would think of that as diversification.

away from technology, away from tech, away from big tech. But if you look at what, I mean, it's up, that sector is up 7% year to date. If you look at the companies that have been driving that, it has been the companies that are, quote, unquote, AI compute providers or AI power providers. It's companies like Dominion and Bloom Energy, which is up 143% this year. The same is true. You mentioned real estate. Who are the winners in real estate right now? it's not reits that are building houses, it's reits that are building data centers, it's

digital reality trust, Iron Mountain, it's these companies that are basically going out and being AI landlords similar to what we saw in our conversation with Mike Novagrats, same as true of industrials. Caterpillar is now an AI stock, Vertive is an AI stock. They are carrying that sector. And now, you know, we can talk about the size of companies, large caps versus small caps. A lot of people would say, oh, we're broadening because the Russell 2000, which are the small cap companies that they are outperforming this year. Well, actually, if you look at the returns, more than half of them have come from AI-related stocks. The same is true by region. A lot of people say, oh, we're broadening, we're getting into international markets.

Emerging markets are outperforming. Well, no, because South Korea and Taiwan have accounted for 75% of those returns, because most of those gains are coming from three companies, TSM, Samsung, Samsung, and SK-Hinex. So we're starting to see this problem in the way that we talk about markets where there's this idea that we're diversifying, that we're kind of getting away from AI, but we should be very clear,

like, AI is literally touching everything in this market. It's even touching fixed income. And this is something that Torsten Slocke over at Apollo has talked about. AI now accounts for nearly half of all investment-grade bond issuance. So you could think like, the equity markets are being kind of over-leathered to AI, but the same is now true of the bond markets.

And I want to play you this clip. This was, again, this was Torsten Slok, who was one of the heads over at Apollo. And he's talking about like the 60-40 portfolio, which is sort of the classic balancing of your portfolio where your 60% equities, 40% bonds. He reframes it in a very interesting way. this is what he said.

This AI, I think, better work out. Better work out. Because if that doesn't work out, then your portfolio will be in trouble. That's why, ironically, the best investment recommendation today is the new 60-40 is really to do 60, maybe AI and 40 non-AI. So in other words, the best recommendation for investors is to invest in non-AI, things that are not correlated with this one factor.

Because if there's one thing we have learned in finance since the financial crisis is factor investing, you don't want to be exposed just to one factor. And at the moment, there's one factor staring all of us right in our eyes. And that is AI is literally everywhere. I think he kind of sums up exactly what's happening here. Well, of the big tech companies we talk about, who's the least concentrated or dependent upon AI? Apple.

That's exactly right. And what's Apple? What's Apple? Apple stock? One year performance? It's up 60%. Year to date? It's up 23%.

All the other guys, my pick, Amazon, still related AI, but mostly diversified is up 13% this year. And then look at the guys who are ground zero for it. You know, Microsoft, right? You know, Microsoft's down. So look out below. As a general theme, if I could go long a basket of stocks, it would be GLP1. And if I could go short a basket, it's AI.

But be clear for it. I mean, the reality is I don't, I'm not suggesting you invest in gold bars or assets or cash. I think you're always in the market. I'm always in the market because you don't know when these, you know, you don't know how fast and how irrational the markets are going to run. I'm always in the market, but you absolutely need to be diversified and you need to really understand what the term diversification is because if you're in the S&P or even in what you think are small cap stocks, I think at this point you really want to think about how do I try to mostly diversify away from AI? And that is not easy right now because everything's

seems to be somewhat correlated to AI. But I will say that I think if the market goes into a pretty serious recession, I still think people are going to find the budget for their Wagovi. I still think they're going to pay their rent. I think the builders and the reits are going to do okay here, consumer products, defensive stocks. But this feels, wow, it feels frothy right now. And it feels like there are cracks, you know,

the size of the Grand Canyon beginning to emerge. We talk a lot about diversification, and what we're learning more about this market is it is increasingly difficult to diversify because of how much AI has kind of penetrated everything, whether it's emerging markets, whether it's small caps, whether it's bonds versus equities.

Like, AI literally touches everything. What do you think the right move is for investors at this point? Like, how do you handle that problem? Brief history of diversification. In the 80s, people, people, some finance professors uncovered research or published research saying, you get risk-free return when you diversify. And Ray Dalio says that the entire objective of the most successful hedge fund ever, Bridgewater, arguably, was to find 15 uncorrelated distinct cash flows, that if you could get to that point,

you'd always beat the market with lower or higher sharp ratios or whatever it is. And investors listened in the 80s, and these enormous hedge funds started buying Australian stocks and Japanese bonds. But because people listened and diversified, everything became more correlated, which meant that the biggest hedge funds, when U.S. stocks went down, began selling their Japanese bonds when they needed money. So now it's almost impossible to be, to to be uncorrelated with AI and the S&P and American tech, you just don't want to be a ground zero. And just a personal learning here, and I've said this a lot. I've been rich three times.

Why? Because I've lost it all twice. Lost it all and more twice in 2008 because I never understood the power and the importance of diversification once you have an asset base. What am I doing? I'm selling down my big tech. And some of this also might be fomo of having missed out because I have not made a lot, I have not made, I guess, in an adjacent way, I've made money from AI,

but I was offered Anthropic at I think $20 billion, and I've got to be honest, I'm angry, I didn't do it. And I haven't been big in AI. So some of this might be just sour grapes. But what I'm doing is my big themes of the following, GLP 1, now not first and foremost, but unfortunately, I think the biggest trend in society right now that is going to run unabated is income inequality because of court decisions that let people throw as much money as they wanted an election. So we're going to continue to see a leakage of capital and power and rents from workers and consumers to shareholders, which will disproportionately affect the top 1% who own a disproportionate amount of shares. So what am I doing? I have a disproportionate. amount of my net worth in high-end real estate because I think that, I mean, this is where my biggest investment is. I think anyone worth over $50 million is going to have at least

one home in one of five places, Dubai, London, Palm Beach, New York, or Aspen. And I have invested about half my net worth in buying really high-end homes in four of those five. And the secondary benefit or the psychic income, because I'm at a point in my life where I'm not just about financial return, I'm about psychic return, is AI, I enjoy these houses, and I'm hoping it'll force my sons to visit me more, which based on my orientation weekend, that strategy isn't working. Did I tell you that he literally didn't text me for two days? I'm in fucking Charlottesville with nothing to do, wearing orange sunglasses, and he didn't text me once, Ed. He didn't text me once, literally. You told me that he physically blockaded the door with his body. I didn't hear about

the texting problem. I walked in as soon as you. As soon as I put his bag down, it's like, okay, thanks, Dad, I love you, and literally Heismaned me out of the room. I mean, it was like, God, am I that bad? Anyway, but I don't know where I was going with that. That took me off. I'm getting emotional. But look, what I'm doing, and this is I'm, to a certain extent, violating my own thing about diversification, but I think you're going to see inflation, and I think you're going to see massive increases, unfortunately, in income inequality. And the thing I love about real estate for my own mental health, talking about psychic returns, I want a lower percentage of my assets and publicly traded stocks

because I'm checking this fucking thing 10 times a day. And the thing I love about private markets and real estate is I don't get a scorecard every day. And so it taps into this really unfortunate, overwhelming trend of regulatory capture and income inequality, which is going to continue to run unfettered for a while and believing that we're going to swing to the left and bring in a Democratic Socialists or whatever they're calling, whatever, however they're trying to wallpaper over, head up your ass economic policy and anti-Semitism masquerading as some sort of youthful energy, fine, have at it. But it's not going to get in the way of the regulatory capture of the wealthiest. Those people are going to use Representative Chevalier as an example

of how fucked up this whole Democratic socialist movement is. In the middle of America, is it going to continue to put up with a regressive tax structure that results in a ridiculous amount of accretion of wealth to people in the top 0.1% who play less and less taxes, and hopefully they'll all buy my home. I don't know how we get here. I don't know how you, I'm also not even sure what about the Democratic Socialist is getting you so riled up. Because we're about to snatch defeat from the jaws of victory. Socialism doesn't work. Capitalism works as long as it rests on a bet of empathy and you keep reinvesting in the middle class with redistribution of income. I agree, but I look at what Mamdani's done so far, and it hasn't been socialism.

Everything he's done so far has been, like, surprisingly very reasonable. The rent control is the only thing I disagree with, and also what he's done with the Waymo stuff. I want to be clear. I'm not talking about Mom Donnie. I've said, I mean, I didn't mean to get political. Well, I always get political. I think you have to rally around people when they're elected and give them the benefit of the doubt. I think he is done.

There's some things that upset me about him, specifically the new litmus test for the people. He seems to elect, seem to be, in my opinion. There was that one woman who said she was a little crazy, but a little crazy? Banned the police, no borders, murderers should not be in prison, showed up to an anti-Israel rally on October the 8th. Yeah, she is about to become the poster child for the Republican Party to convince middle America that, okay, we keep making rich people too rich, but they're fucking crazy. Anyways, I worry we're about to snatch defeat from the jaws of victory by swinging way too far. way too far to the left. I think you're letting this one woman taint your views of everything.

That is entirely true and accurate. And let me also acknowledge the other side that boomers like myself don't get to pick their flavor of disruption. And what I will say about Mondani and these new candidates is they're bringing. He's been surprisingly, he himself has been surprisingly measured, thoughtful. He's good. Great politician. Yeah. He's great.

More power to him. I want to be supportive of them. I want to be supportive of youth. And people my age don't get to pick their flavor of disruption. I've been calling for disruption. Democracy needs a turnover and a shedding of skin. Yeah, I don't disagree with directionally what you're saying, which is this is only going to get worse.

I mean, what's going to happen? Believing that electing people who think we shouldn't have prisons or we should are demonize billionaires, one of the attributes that Middle America loves, the people who decide elections, is that where, Europe fucks up as the following. They would rather be worse off as a whole if they're more equal. America says, we don't mind being unequal as long as a whole we're all doing better.

Billionaires are fine as long as the average wage growth goes up and prosperity goes up. It has gotten so out of control that it's now coming at the cost of the middle class and the average person who can't afford to send their kid to school or buy groceries. But America, generally speaking, one of our core attributes is we don't demonize success, we celebrate it. And we're okay with inequality to a certain point, as long as it doesn't, as long as as as a whole, we're doing better. We've had huge inequality since 1945. That's a key component of capitalism for incentives.

It has gone way too far. And rather than swing back to something reasonable, like a progressive tax structure, alternative minimum tax, reduction in reductions in transfers of wealth from young to old, we're going to the Democrats are going to elect, I worry, a group of people that have economic policies that feel like North Korea light or East Germany like in the middle of America is going to go no fucking way. And we're going to end up with J.D. Vance and continue to demonize transgender people, continue to have corruption, continue to have stupid crypto scams, continue to overturn and roll back the rights of women. Where am I going, Ed? Get me out of this. save me here. Bring me back. We were talking about diversification. This is all part of your real estate thesis.

Diversify. I think this is part of the problem is that traditionally the index fund, the whole point of it was diversification. Like that was what they have been for. The S&P, the idea, like you just put it in, you cover your eyes, you're all good, you're set, you're diversified.

It's all of corporate America. No worries. But increasingly what we're seeing is like you can't really depend on that as much as you could in the past. The same would be true of like the NASDAQ 100, which to be clear, like I don't think that's actually like a has ever been a true diversification device. But if they're now just figuring out ways to figure out these loopholes such that SpaceX can get stuffed into the index, like you're increasingly realizing that these index funds, these passive investment vehicles, they're not what they used to be marketed as, which is just pure safety. in the market, everything's diversified. That is a problem because one of my views is like, I'm a big fan of index funds. Like I'm a big fan of passive investing, putting it in the market, being broadened and diversified and letting the market do the work. But I think we're now starting

to have to ask questions as to what true diversification is. By putting your money in the S&P, you're not really doing the job of diversification, which means that you now have to ask, to start doing some homework if you're super interested in getting yourself diversified. It means that you do need to go and explore different sectors in different markets that have less exposure to AI. That's homework that you'd ideally not have to do if you're just investing in your 401k, in your Roth IRA, in your retirement account. But now we're realizing maybe you do have to do that. And so I think the question for us and for listeners and for all investors now is, can you go out and find sectors and investments that are not levered to the hilt on AI?

Some people would say, oh, maybe like financials, maybe the banks, not really. If we look at the bank earnings that we just saw this week, they're getting all of the returns juiced from AI because of the debt issuance to build the data centers, because of the equity trading, which is because of the AI stock explosion, those aren't really covered. I think you have to work really hard, dig really deep, and find, companies and investments that are not exposed. One, I'll give you one sector that I think isn't exposed, hasn't been getting love. It was one of my picks at the beginning of the year. I'm going to stick to it. It's the healthcare sector. I think that is a, that is a sector that has not

infused AI at all yet. And perhaps maybe they will, at which point you will start to see some, some real returns. But I do think that's the question. And it's a very hard one for investors to tackle. Like when the dot-com collapse happened, I took a bullet to the chest. And then again, in 08, another bullet to the chest. And financially killed. Since then, as I've gotten fortunate enough with the benefit of a bull market wind in my sales to aggregate some wealth, Kevlar, diversification is your Kevlar. And I like to think, and I might be wrong, I don't think there's any hiding. When this collapse, which is coming, it's trying to, not a collapse, a drawdown of AI happens. There's nowhere to hide, but you can at least be in a place

with some food and water. I'm trying to set myself up for a 20 to 30 percent decline, not 120 percent decline, which is what I experienced in the dot com. No leverage, diversifying into other assets, and making sure I try to have no more than 5 or 10 percent in any one asset, and you say, well, Scott, you just said 50 percent is in real estate. But I do. I do. I do. I'm, I try to have no more than 5 or 10 percent in any one asset, and you say, well, Scott, Scott, you just said, 50% is in real estate. But I do think there are submarkets in real estate that are somewhat uncorrelated to each other. But I would just, what I asked my friends now that I know have some money. I'm like, what are you invested in? They're like, oh, I believe in index funds. Index funds is a constructor great, but start looking at like Australian index funds, you know, like diversify. Because

as John Snow said, winter is coming. All right. Let's take a look at the week. ahead. There are no major economic data releases in store, but we will see earnings from Google, Tesla, IBM, Intel, Comcast, and American Express. Scott, any predictions? Well, I made it. Open Eye is going to acquire Sierra and install Brett Taylor's CEO. I lost that prediction. It's very bold. I admittedly don't have one today because I didn't do my homework, but I'm just going to sort of re-up on a previous prediction that I made. I predicted that SpaceX would get a 25% pop on the first. day of trading, that happened, and then I said it would get cut in half. We're down to 40% down

from its highs. So I'm just going to hold to the prediction. It's going to get cut in half, and I could easily see it trading below $100 a share. We haven't seen any of the lockups expire. We're about to see a ton of supply come online, more paying for SpaceX. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Danjalon, Kristen and Donahue, and Mia Silverio. Jake McPherson is our social producer. Drew Barrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Profty Markets from Profitory Media.

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