Prof G Markets - The AI Boom Is Headed For A Reckoning — ft. Aswath Damodaran

Episode Date: May 15, 2026

Aswath Damodaran joined Scott Galloway and Ed Elson for a Prof G+ Substack livestream earlier this week to discuss AI valuations, why markets were so resilient in the first quarter despite macro risks, and the upcoming IPOs from Anthropic, OpenAI, and SpaceX. Subscribe to Prof G+ to join our next livestream here.  Aswath Damodaran is the Kerschner Family Chair in Finance Education and Professor of Finance at NYU’s Stern School of Business. You can read his research on his blog, “Musings on the Markets.” Get your tickets to the Prof G Markets tour  Subscribe to the Prof G Markets Youtube Channel  Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [e-mail] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Do you ever wonder what's in your lotion? If you look at the back of the bottle, it could contain more than a dozen ingredients. And they may not all be regulated. The threshold is so high that only 11 cosmetic ingredients have been restricted by the FDA since 1938. This week on Explain It to Me, the chemicals lurking in your cosmetics. New episodes Sundays wherever you get your podcasts. This week on Unexplainable, the Black Plague didn't happen exactly how you'd think. Like, among other things, it wasn't just about rats. We can look at other kinds of mammals.

Camels, it turns out, are pretty good plague transmitters. Camels! Sheep, potentially, as well. Follow unexplainable wherever you get your podcasts. Today's number one million. That's how many dollars worth of Yu-Gi-O cards were found in a Texas dumpster last week. Ed Schu's story, I am literally swimming in Pokemon cards because my son, listen to me, and Aswaz's podcast, and his spending all of his money on Uber, Deliveroo, and Pokemon cards. Listen to me.

Markets are bigger than I. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it. Not a joke. Just an observation.

and just a little insight in my life. Ed, how are you? I'm doing well. Deliveroo. That's the name I forgot about. That's the English Door Dash. Actually, the Australian Door Dash. Yeah, Deliveroo.

What's he ordering? Wagamama, Nando's. What are the hits? Oh, my gosh. You're very in touch. If we're up to my son, he'd eat five guys three times a day. And unfortunately,

he's actually pretty good at this Pokemon thing. He's trading. He goes to these, it's, it'd be honest, I'm very impressed and proud. He'll take a train out to where, like, Heathrow Airport, and there's some conference going on near there. He goes strapped with a ton of cards and a few hundred pounds in cash, and he trades cards, and then he comes home and he sells them, and he uploads it to his green light so he can take Ubers everywhere and order all manner of food from different restaurants. And we'll get a bang at the door and open it, and it's like code. And I'm like, oh, it's for him.

He orders his own food now, and then I say, that's it. We are not paying for this. He's like, you're not paying for it. I sold a Gawak card this morning. So anyways, his economic independence is getting in the way of my ability to discipline him. That's awesome. Good for him. Running the hedge fund.

That sounds great. Guess where I'm going tomorrow? Where are you going? I'm going to Pazen, Poland for a conference. It's a big deal. There's a huge conference there. What are you going to do there? Speaking for money.

But here's a crazy stat. If Poland continues its growth for the next four years, it'll be a bigger economy than the UK. They've been one of the real winners from the war Australia. Their stock market has been a real winner after the war, if I'm remembering that correctly. I mean, I think their stock market has ripped those couple of years. Poland has just sort of done everything right. You're right. They have been a big winner.

It's been a fantastic. It's been a fantastic economy and success story. Well, we have a big episode, an exciting episode to get into today. We are talking with Aswath to Modarin in our very first live stream. But before we get into that, I just want to point out that it is 12 days until the Profi Markets Tour kicks off. We have a sold-out show in San Francisco on May 27th, but you can still get tickets in L.A., Miami, Chicago, and New York City, where we will be finishing the tour off with the one and only. Anthony Scaramucci, the mooch, who will be joining us on stage on June 2nd.

I cannot wait. I mean, the mooch just always, he's always a banger, always brings the energy, and it's going to be a lot of fun. So if you want to go see those shows, you can visit profgimarketsTor.com to get your tickets now. That is profjimarkets tour.com. Twelve days, link is in the description. And with that, let's get into our episode. Welcome to our first ever Prof G Markets live stream. We have an incredible episode for you today.

We are joined today by the man, the myth, the legend, the one and only, the dean of valuation, our friend Aswath Demoderan. We're doing another quarterly review. And the great thing about this live stream is that we will be taking your questions, or at least Professor Demoder and we'll be taking your questions. So if you want to drop a question, ask a question, drop it in the chat. and then we will save some time at the end of this interview, about 10 minutes, and we will answer a few of those questions. But with that, let's get into the show. It is that time of the quarter when we like to check in with one of the market voices we trust most. Late last year, he warned us that there was no place to hide in stocks. We also met again in February, and we pointed out,

and he told us some of the catastrophic risks that the market seemed to be at least slightly ignoring. And now with the ongoing conflict with Iran and with three major IPOs approaching and with AI continuing to push stocks to now record highs, it seemed like the perfect time to bring back Professor Aswath-Dermoder and the Kirchner family chair in finance education and Professor of Finance at New York University Stern School of Business. Professor Demoderan, thank you so much for joining us again. We're so excited to get your update. Let's just start very broad here. I look at the S&P today.

When we last spoke on a multiple basis, on a forward PE basis, it is lower than when we last spoke. However, it is also up almost 8% year to date, which is quite striking, really. When you just look back at the first quarter that we've seen here, what has struck you about the markets that we're seeing in 2026? The resilience. I mean, I think that if nothing else, markets seem to be showing that they can withstand shocks, that they would not have been able to withstand a decade or two decades ago. You know, one of the things about markets is the first time you disagree with markets, you can say markets are wrong, I'm right, and be okay with it.

The second time around, you keep saying it better. The third or the fourth time, you've got to stop and ask, what is it that's changed that I'm missing in markets? And I've been thinking a lot about that, because, Starting in March, when we entered this new crisis with the conflict in Iran, I actually started estimating what's called an equity risk, the price of risk in the market, like it's a temperature gauge for the market. And what astonished me in March, at the height of the market, even the markets going down that month, was how measured markets were in response to the crisis. So I think the key word here is, market seems to take whatever's thrown at them and come out on the other side in tech.

And in one side, people might say, well, this is because markets don't see what's coming. And the other, you've got to stop and ask, maybe there's something that's changed that's allowing markets to do this. When you look at the conflicts in Iran, I mean, just when I look at it, my sense is this isn't coming to an end any time soon,

or at least they keep on saying it will. It's going to be next week. It's going to be the week after that. We're going to get a deal. We're not going to get a deal, et cetera. It keeps on going on. and continually gas prices are rising up 30% since we launched this thing. And it seems that this, I don't see how this is really going to change.

And I guess I'm sort of waiting for that moment where it does have an impact, where it does impact consumer spending, where it does end up impacting stocks. But I guess that moment just isn't arriving. Do you think that moment will arrive? Are the markets pricing in that it won't? I think at the moment, if all of that has, happens is gas prices stay at $450 or $5, the market, I think, is okay with that. I think the catastrophic risk here is not that gas prices stay higher than they were before the conflict, is whether they'll

go even further up, because there is that chance of that happening. I think if, in many ways, what the market seems to be building in is the economy can survive with gas prices being $450 or depending on what part of the country you're in, and that it might not be as robust as you thought it was three months ago, but it's okay. But I think the worry still remains that this crisis, while it's in a slow boil, at any point in time, could become a fast boil, at which point you they could say, what happens to earnings now? And I think that's the part of the story that I find most interesting. The earnings forecast, at the start of the start of, March before the conflict started for the S&P 500, I've been tracking them on a weekly basis.

You know what? Those earnings forecasts now are higher for next year and the year after. They lower by a little bit for this year. But in some strange way, it's almost like analysts are projecting their earnings will get moved to next year and the year after because of this crisis and that they will actually go up as a result of the crisis. Now, you can accuse analysts of being over-optimistic and perhaps skewed in their thinking. But the market seems to be able to deliver on earnings, even in the midst of crises for the last 10 or 15 years. And I think that's what the market is building.

And it's ultimately, markets are not affected by political crisis or economic crisis directly. They're affected by what they do to earnings. And at the moment, that's what I'm keeping my eyes on, is a real damage being created to earnings. And up until now, we're not seeing the damage show up and forecasts. Asweth, good to see you. I've never seen, and maybe there's a historical precedent that I'm not aware of, but I've never seen a number two become the number one as quickly as Anthropic has become the number one, right?

December, clear number one, Open AI, April, clear number one, Anthropic. And in the private market, Anthropic, it's now being valued at $1 trillion. Would you buy at that price? What are your thoughts on the respect of valuations of Open AI and Anthropic? I'm impressed by what Anthropic has done. I mean, ultimately with LLMs, I said the test is how quickly you pivot to having business applications that actually make money. And Anthropic has been the quickest, I think, to pivot to actually creating something

that people can use right away, whether you're a banker or a lawyer. I think I've been very impressed with what they've done. I think a trillion is still asking for a lot. it depends on how much these applications pay off for Anthropic over time. But I think they're, you know, off the different LLMs, they're on the fastest growth trajectory in terms of being able to get applications going and money coming into the companies. I mean, these companies are still money-burning machines.

I think the question is, when will that cash burn start to decrease? And Anthropics seems to have the best trajectory to start to bring the cash burn down, if not make it positive. So you recently, you published a two trillions of dollars and beyond and put SpaceX as intrinsic value at 1.2 trillion. So SpaceX, I think it's about $16 billion in revenues growing, $8 billion in EBITA growing, I think, 24% a year. And then I look at Anthropic.

And I understand it probably doesn't have the same motes as the SpaceX, but I look at Anthropic, which has jumped to 30, and I think it's headed towards 40 billion in ARR, and it looks as if it might 10x again. It's been 10xing every year. Why would SpaceX be worth $1.2 trillion in your mind and Anthropic be only worth $1 trillion? Discern how you value each of those sectors. I think it goes back to what he said at first, which is it's all about modes. I mean, these companies are all about future growth, future revenues, future margins.

And SpaceX has, at least on two of its three business lines, clear modes. I'm not as impressed with the XAI part of SpaceX as some people are. For some people, that's the excitement factor because you can throw the trillions of dollars around much more easily. But if you look at the space launch business and the satellite internet business, SpaceX has as much stronger modes than any of the other tech companies, because I can't think of very many companies that can compete with them head to head in those spaces. So if you believe there's going to be growth in those spaces, I think SpaceX is going to have a dominant market share of those spaces.

And that's what gives them the pathway to the $1.2 trillion. But the $1.2 trillion requires a lot of things to go right. I mean, I think if those things go right, then the $1.2 trillion plays out. I think Anthropic has higher revenue growth in your term than SpaceX does. I mean, I think that's almost a given. The question is how the margins in this LLM-based business will play out over time. And I'm just, you know, I think that Anthropic might be in the best shape of all of the LLM companies, but I think it's going to have to find a way to generate profit margins that are high and steady state.

I mean, right now they have the advantage, but with that advantage, sustain itself is the question. Taking the aperture back, I heard a very interesting comment that you might see if AI becomes the, if you will, atmosphere where almost any company in the technology or information sector, which have traditionally traded at the highest multiples, has an existential risk of obsolescence at the hands of AI. Is it possible that we might see just a reduction in the value of terminal value? In other words, is there just greater risk to all future cash flows amongst the companies that have traditionally traded at the highest multiples? I think it puts every corporate life cycle at risk of shrinking. I mean, to me, terminal values about capturing what happens when you get to the end of your, what I say, your forecasting period. I mean, the 28th century company stopped in your 5 or 10 and said forever and then used that perpetual growth model. And I've always been a little cautious about that with tech companies.

And I think what AI does is it takes every tech company and makes that forever into an even more difficult assumption to sustain, which effectively reduces terminal value because it means that instead of using forever, using an extra five years or an extra 10 years after you get to the end of your forecasting period. I think how it plays out in valuation will depend on what it was, we don't know what the market is already building in before AI came along. we kind of tried to reverse engineer it. But I think that with AI, those assumptions about how long companies will last will have to come, will have to be addressed much more directly. And I think that's what you're seeing play out in the software space, right? For, you know, where the existential threat is on the horizon. You have to start building into the pricing.

Just going back to the general market at large and the performance we've seen, And you've pointed out correctly that the earnings growth that we're seeing is just phenomenal. And so, you know, when we look back at what's happened here, if we're looking at the backward-looking indicators, it's sort of like, yeah, everything's going great. But it also seems that it's basically all AI at this point, that you have a market that is increasingly dependent on the revenues of a handful of companies that are building data centers. and the revenue is being kind of shared and arguably moving in a circle, some of the similar dynamics that we were worried about last year, it seems that those dynamics are still the same.

It's just that the numbers are way bigger. And so I guess maybe that's fine, but I just wonder how resilient that earnings growth really is in your view, and do you worry that maybe it's too AI-focused, it's two chips-focused, to the point that it's actually not as durable as perhaps we might think. I think that for the companies building the architecture of AI,

you're absolutely right. The Nvidia companies, the Nvidia and the chip companies clearly benefit from the building. But for most of the other tech companies, AI has been an expense rather than an income stream. So, you know, you take the rest of the Mac 7. It's true. On the cloud business, you're benefiting a little bit from AI, but you look at the at how much they're spending on AI, you know, even if you just count the depreciation part of their CAP-X, that by itself is putting downward pressure on earnings rather than upward pressure.

So I think AI is a big part of the growth story. It's still not a big part of the collective earnings story. It might be a big part of the earning story for some companies, but if you look across the S&P-500 and look at the earnings to the S&P-500, AI is not a net plus yet, I think, to the S&P 500 earnings. But the fact that earnings are holding up in the face of this much expenditure on the part of these other tech companies is, I think, impressing the market.

We'll be right back after the break. And by the way, we are heading out on tour at the end of the month. So for more info and to get tickets to a show near you, head to Prof.gmarketstor.com. Support for the show comes from Zbiotics. Zbiotics, pre-alcohol probiotic drink is the world's first genetically engineered probiotic.

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That's this week on America Actually. Let's begin. We're back with Profti markets. Just going to, I saw a pretty incredible chart showing the spending commitments across Microsoft, Oracle, Google, Amazon. I'm looking at it on my phone right now. But when you look at Open AI spending commitments and anthropic spending commitments, and you put them together, for Microsoft, it makes up roughly half of their revenue backlog. For Oracle, it makes up more than half. For Google, it makes up

43% Amazon, 51%, which brings back these, again, to go back to these concerns that we're kind of dependent, at least the AI story is dependent on two few companies. You've got all of this revenue growth, these incredible numbers, but ultimately it's two companies that are driving half of it. A lot of people are quite concerned about this and feel that maybe, again, that this is an indication that the revenue in the AI story isn't necessarily. real or that we're kind of recycling the revenue that the VCs and the NVIDIAs gave to open-air I'mthropic and then it's coming back to them. Are you concerned about this? I know we've discussed this before, but we're kind of still in the same place. No, I think, you know, concern is

always, I mean, when you're investing this much on a big bet, I mean, let's face, you know, without the AI spending, we'd probably be looking at GDP growth. I don't know, in the negative, we would very quickly start to push towards recession level growth. So I think that, you know, we need to be concerned collectively. I think we're probably overspending because that's a history of this kind of boom. Now, the question is when will the bill come due and how will it come to you? Because, you know, when you overspend at some point in time, you have to start riding off things. So at least on a large subset of these companies, there'll be write-offs.

Now, when I wrote about Tim Cook's stepping down, one of the points I made is the other, the rest of the MAG 7 are making this insanely big bet on AI paying off. And if it does, they're going to look like heroes. And if it doesn't, it's a lot of cleaning up to do, a lot of corporate governance issues that are going to come to the surface. So there is pain down the road. But for the moment, for these companies, being out of this game is not a choice that they think they have.

They have. So some of this is almost like they're an almost like they're an ongoing. autopilot. They have to spend because everybody else is spending. And if it doesn't pay off, then they're going to be held accountable and markets are going to have to deal with the consequences. I think when we talk about earnings, you know, you look at the concentration of market cap and companies. There's also concentration in earnings coming from a relatively few companies. This is a top heavy market, not just in terms of market cap, but in terms of earnings as well. So that's always a concern when a few companies account for a big chunk of earnings,

all you need is a couple of them to have serious downturns and you're going to see collective earnings go down. So I think that concern increases because of the concentration effect. When people talk about the dot-com bubble, that was kind of a similar dynamic. Like there was so much momentum, so much excitement, the valuations of a handful of companies just exploded, their share if the entire stock market and the index exploded, and then suddenly the music stopped, and you had this incredible drawdown. It was extremely painful for investors.

I kind of thought that we had moved on from that, that we didn't think that that was going to happen anymore. Like investors last year were very worried about this. I kept on seeing the charts where it's like, look, it's the same as 2000, and then there was nothing. But it seems that in the last couple of weeks, that started to come back. And I personally, I'm starting to feel a little worried about that myself again.

I wonder if you feel the same way. I mean, I think every market crisis is different. That's part of the problem with trying to replay history. As you look at 2000, I learned from that. Let me bring the market learning is very transitory. You learn and then it turns out that what you learned is not that useful in the next go-around. My view is there is going to be a correction. It's going to look nothing like the 2001 correction.

There will be a correction. It will be painful. Those will be the two common features, but what triggers it, how it happens, will be different. And part of the reason for that is the dot-com boom was not built on the CAPEX spending that AI was built on. It was built on expectations and hopes and web pages and websites and, you know, online activity. So this time around, I think the macroeconomic costs are going to be greater from, correction because this is carrying the macroeconomy a lot more than the dot-com boomed it.

You didn't get the kind of investment into the economy that you got a lot of employment, a lot of people in Silicon Valley getting jobs and high income. But this is more than that. You're getting it across the country in the building of data centers, people being employed,

you know, the power companies, the water being demanded. There's collectively a lot more accounting for here if there's a correction than there wasn't the dot-com boom. So that pain may be more widespread because in 2001, if we weren't in tech companies, you could sit back and not feel as much pain as they did because you felt you weren't affected. I don't think you'll have that luxury this time around. In other words, it will be worse?

It'll be more widespread. It'll be more market-wide. It won't be just a tech company correction. It'll be a correction across more sectors than you did that. and more of a macroeconomic hangover that it takes a little longer to get through. When we last spoke, we were discussing some of the more systemic risks to the markets.

We were discussing, I think we were talking about the war, we were talking about potentially the AI story, losing its momentum. I think we're also maybe talking about national debt, which also we could get into, which just surpassed 100% in the U.S. for the first time since the end of the Second World War, where do they rank for you?

Like when you think about how this market, if it were to unravel in a certain way, like which one to you at this point is front of mind most likely the most relevant? The war is the most immediate one, because one of the problems with the AI expectation boom being the disappointments is, I'm not even sure what form that takes right now.

There is no number if you don't beat. You say, oh, it's not working. So one of the problems when you don't have a good feedback loop on whether something is working, it takes a long time for people to wake up and say, oh, my God, we invested too much in AI. I'm not even sure what form that correction will take. It will show up. The war, though, is going to be more immediate. So in terms of sequencing, the war is the immediate issue.

and I think that's what the market is going to be watching on a day-to-day basis. AI is more of a longer-term issue where if there are disappointments, they're going to come in, it's going to pile up as a bunch of companies not being able to deliver what they thought they could. The debt has been with us for 40 years. And to be honest, of the three problems, it goes to the bottom of my list because, you know, Japan has 180% of GDP. and it's had it for a long time. Debt by itself is not the issue if you have the economy to back it up. What gets debt-ridden companies in trouble

is if you have GDP shrinkage and the debt continues to grow, which it's a real possibility in the U.S., but it's going to be triggered by one of the other two things happening. Either the war or the AI breakdown creates an economic, you know, shrinkage, which then makes that,

that into an even bigger problem. Speaking of a top-heavy market, I don't think there's ever been a sector that has accelerated as quickly in terms of valuations as a sector as chips in the last, call it 60 days. 10 years ago, 3% of the S&P, as we sit here today, at 17%. My understanding is the entire sector as a whole is up 60% in just the last couple months. Give us your sense. I was looking at Micron, and I looked at, you know,

It's got 160% or something since the beginning of the year. But I looked at a chart, and it looked as if the argument the bulls were making is that this might be the next Nvidia, just around, I guess, memory as opposed to processing power. Thoughts on the chip sector and valuations within the sector? I think it goes back to the AI investment. The demand for chips is so high that at some point investors say there's no way Nvidia can even supply this much, even if it's, you know, even if the, so I think part of the expand, because early on for the first two or three years, Inviti did well, and the rest of the chip stocks basically stagnated or actually declined, right? It's only in the last year that you've seen the rest of the chip business take off,

and part of it comes from this insane demand for chips out there. I think that, you know, to me, the bulk of the run is done. So right now it's a question of consolidation in this market and a cleaning up. I mean, I was lucky enough to buy Intel. I never anticipated the kind of buildup that happened. But I think much of the reason I've succeeded is nothing to do with picking the right company. It's being in the right place and the right time in the entire sector took off. But I think at this point, the question is whether the market can consolidate those gains or will be.

I think partly there is going to be a correction in some of those companies because we've run up too much too quickly. But I think this is just a reflection. The chip demand is so intense that everybody can share in the spoils now, not just the one or two winners that the market was identifying. Well, so just to double click on that,

one, I'd love to get your views on Intel after year-to-date, it's up, it's tripled, and over the past year, it's up 6x. what you think of Intel right now. And also, I was looking at Chinese chip stocks. So our chip stocks, you know, Intel's trading at 120 times earnings or something, but a lot of the chip stocks, including Nvidia, are trading in kind of the low to mid-20s, whereas Chinese chip stocks are usually traded to high single digits. Thoughts on Intel and have you looked at the equivalent of the chip sector in China? I haven't looked at the chip sector in China. I mean, I think, no,

But one of the things I would check are the margins. I think the chip companies in the U.S. have seen their margins surge as well. The invidia effect has started to ripple through the other chip companies. And I'd be interested to see what the margins look like for Chinese chip companies. Maybe the business economics are different because they're selling to a different set of companies and maybe the margins are lower. But I think Intel's done things right in many ways since that shakeout three years ago. I think at that point when I wrote about them, I said Intel's need to bring, it has to bring its

ambitions down. It's no longer going to be king of the hill. That's done. Now, because it got into trouble because it wanted to out invidia, invidia and the chip design business, and I wanted to out TSMC in the foundry business, and it wasn't in position to do either. It overspent. It crashed, and I think it's found itself with more of a niche portion of the market, and I think it's played the game really well. Does it deserve to triple over the? I don't think so. I mean, I'm glad it did because I'm a shareholder. But I think that when you look at the run-up, clearly there's some, you know, there's some helium in this run-up. It's just being pushed up because, as I said, the sector is going up. You have only so many places you can put your money.

Intel does have the advantage because of its U.S. base. And I think that given how not nationalistic policies have become around this, this, this AI space, I think Intel is benefiting from that perception of it being a U.S. company and you need U.S. chips to maintain that protection. So SpaceX, Anthropic, and Open AI all expected to IPO, we think, at the end of this year sometime, at least it's, it's coming. The IPO are coming. And when they do, the command combined market cap of those IPOs will exceed the combined market cap of every single IPO from the dot-com era. And also, it'll reach half of the IPO value from every single IPO put together from the 50 years before that. So, I mean, to me, it's like this is the big moment for the market, these three IPOs.

I'd just like to get your views on how that will change the complexion of this market. how important they are, and also what you make of those IPOs themselves, these gigantic valuations for these companies that we don't really even know that much about. Open AI being a great example. I guess what do you make of all three of them? Not only will they exceed the IPOs that have ever been done, they exceed the market caps of entire regions of the world. I mean, those three companies alone will be large in the market gap

from 95% of the markets out there. Now, it's part of it, I think, a trend that's been building up over the last 20 years of companies staying private for longer, getting essentially the equivalent of public market investment. Fidelity is an investor in SpaceX, right? So you get the benefits of public market investment. You scale up while you're still a private business without any of the corporate governance constraints you might have as a public company. So my concern is these companies get so big. as private businesses without any real pushback or oversight. It's only when they go public that you start to recognize what their weaknesses are. So the IPO part, I think, will go fine. I mean, basically excitement. If the mood of the market stays the way it is, well, these companies are going to go out. They get trillion dollar market caps. And the aftermath then will be once they become public companies, how will they deal with the earnings calls and the corporate governance challenges that will come with being public companies? And at that stage, my concern with

Open AI, and we've talked about this before, is it's a corporate governance nightmare in terms of how the company is structured. I'm not even sure what the company will look like when it goes public. And I don't know whether the case that's wending its way through the courts will be resolved by then. That's going to be an issue, I think, in how the IPO gets priced. But I think that all three companies will have, in my view, and their offering will go fine. But in the aftermath, I think there will be challenges that these companies will have to face. And then we'll figure out whether these companies are positioned to stay trillion-dollar companies or whether they'll see a fall back to more earthly levels in terms of market gap.

We'll be right back. And for even more markets content, sign up for our newsletter at profjeemarkets.com. Complex and unprecedented, the Spanish authorities are calling it. Before the disembarko, asymptomatikas. Passengers who'd been stuck aboard the Hanta or maybe Hanta virus-stricken Dutch cruise ship disembarked in the Canary Islands this weekend, prompting the highest stakes game of where are they now since maybe COVID.

Some of the evacuees, American and French, have since tested positive. for the virus, and yet public health officials seem remarkably calm. We do have one individual who was taken to the biocontainment unit early, early this morning, and we assessed that individual. They are doing well. Possibly because this is not the one to freak out over. Today, Explain drops every weekday afternoon.

This week on criminal, a man leaves his girlfriend at the top of a mountain. He's charged with her death. And then at the trial, his ex-girlfriend testifies that the same thing had happened to her too. She screamed, she felt dizzy, and at that moment she realized she was completely alone, Thomas apparently left her. On our other show, this is Love, a story of another couple on a mountain. There's no ledges, there's... You're trapped.

Had confidence that there's no way this many things can go wrong in a row. You can listen to both episodes right now on Criminal and This Is Love, wherever you get your podcasts. This week on Net Worth and Chill, we're diving into another edition of Am I the Asshole, Finance Edition? And trust me, these money dilemmas will have you questioning everything. I'm breaking down real stories from real people who are navigating financial situations that range from mildly awkward to absolutely unhinged, and I'm giving you my unfiltered take on who's in the right and who needs a serious reality check. Because let's be real, when it comes to mixing relationships and finances, someone's always asking if they're the asshole. Learn how to set boundaries, protect your wealth, and avoid becoming the villain in your own financial story.

Listen wherever you get your podcasts or watch on YouTube.com slash you are rich BFF. We're back with Profi Markets. What do you make of Open AIs financials or what little we know about opening eyes financials? Specifically, I mean, we know they $2 billion in revenue in a month. And so I guess $24 to $25 billion ARO currently, that number is often changing. They shot for $13 billion in revenue last year, projecting to burn $25 billion in 2026. Like, we know a little bit, but not that much. Have you looked into like open-ey-eyes financials?

Do you have thoughts on it from evaluation perspective? All of these companies, the financials are opaque. You get basically leaked numbers, and the problem with leak numbers is these often paint the best possible picture. So if you're worried about the leak numbers looking bad, they're leak numbers. They should be the best of the numbers that are being leaked out there. I think that's the other thing that's going to come.

Before the offering, the prospectuses are going to be out. I would encourage people to go through the prospectors, not just in terms of income statements and balance sheets, but look through the footnotes, because these are companies where you're going to see the start of trouble in the footnotes on, you know, the kind of employees, stock that's been granted over time, who owns options in the company, what will happen to these

options on the offering. So I'm waiting for the SpaceX prospectus, which might be the first to hit the market, because I am really interested in the details that we know nothing about for the moment. I think Open AI's numbers, you know, at the moment, all we know are these numbers that essentially leak out here and there. And those leak numbers don't look great. And those leak numbers don't look great. I mean, you're already seeing the comparisons to anthropics numbers and saying those don't look as good. So maybe there are other things we will find out in the prospectors that will affect how they get priced? From a pure business fundamentals perspective, it seems to be a real question and a concern of, do these businesses even work? I mean, so far, I mean, Open AI has a lot of usage. It's like

a pretty ubiquitous product. Yes, it can grow some more, but they're still, burning huge amounts of cash here. They're not expecting to hit a profit until 2030, and to your point, that's probably pretty optimistic. That's what they're saying internally. I just wonder if you have any thoughts on like AI as a business, because thus far, it's exciting. It's getting a lot of usage, but I'm not sure we can make the claim that it's been proven yet as an actual business. I agree. I mean, I think that the place it's closest to showing some proof of working is encoding, where you actually do see jobs being lost. Unfortunately, the way you know AI is working is the rest of the economy starts to feel the pain of layoffs. If you see Goldman Sachs operating with half of the manpower that they have today, we know AI is working, but we have another problem that we've got to deal with.

So I think that right now you're right. It's more, I mean, it's driven almost by anecdotal evidence right now, user evidence, which is, hey, I mean, I, you know, I'm on the mailing list for a lot of faculty emails that go back and forth. And everybody's talking about how they got a paper written by AI and how it worked out. And when the problem with anecdotal evidence is it's not the kind of evidence that can drive a business. That requires actual proof that it delivers those lower costs that thought it would. And that's what we don't know yet in much of the market. Much of the economy, it's more promised than actual delivery for the moment.

I think the promise is based on substance. I'm not going to, you know, I've seen some of the clawed, you know, business-specific application. It's impressive what AI can do. So I'm not dismissing it, but I'm waiting to see how it actually plays out. in the phase of probably regulatory pushback and legal pushback, because much of this work requires courts and governments except AI-generated work as the equivalent of person-generated work.

And my feeling is that the tech people don't quite understand the resistance they're going to run into. Because I've been in that space, it's incredibly inertia-bound, and it's not easy to replace traditional routes with new routes. Sometimes I wonder,

because I have these concerns. Generally, I mean, I think Scott and I are both very bullish on Anthropic. I'm bullish on AI as a concept, but I do have these underlying concerns about, does the business even make sense? And I sometimes wonder if I'm being like the guy in 1999-2000 who says Amazon's burning money. It doesn't work. It doesn't make sense. Because that was a real thing for a long time. And something that people were very worried about when it came to Amazon.

I guess when you look at the comparison between, I guess, Amazon back then and e-commerce and people saying the business model does make sense compared to today, are there equivalencies that you can draw? Is that not really the right thing to be focusing on? Does do the fundamentals make sense right now? I think with online, I mean, I can go back to the 90s and remember the value. The question was, will customers overcome their traditional patterns? Will customers actually move from going into stores? and buying clothes and buying them online. So, no.

And clearly, we underestimated how quickly customers would adapt to an online space. Older people took a little longer than younger people, but even they came around. Same thing with ride share. I remember the initial question with ride sharing is somebody over the age of 50, will they actually call a car on their phone and be okay with it? They adapted very quickly. The question is, with businesses, which are the target tier, will the inertia be less or more. And I think it's going to vary depending on the business you're looking at.

I mean, academia, I can tell you, the inertia is going to be much greater simply because of the way in which academia is always responded. But if you look at different business, you know, my rule of thumb is the older the business, usually with older employees, it'll take longer for them to adapt. And the reason coding has been so quick to kind of move with AI is younger people, younger businesses. So it'll be interesting to see if that hypothesis comes into play, if the resistance is greater in sectors that have been around a long time with more status quo, more established practices. Three sort of headlines. I'd just love to get your quick responses to it in things in the news. The Open AI must case. It's a soap opera already. I mean,

it's in many ways it's revealing sides to characters that I don't think they wanted revealed in public so but I think we're discovering that I mean as we should always have known that these are human beings with their frailties and you give a human being with frailty a billion dollars to play with a two billion a five billion and fifty billion those frailties are going to get good I think that I have no I mean this is one of those cases where I hope both sides lose I don't want to see a winner because I don't think either side has the has the high ground because I think the each has I mean, I think Musk has a case that this started as a nonprofit and that Sam Altman kind of hijacked it. And Sam Altman as a case that Musk probably would have converted the nonprofit into a for-profit at some point in time and that he just preempted the move.

But I think it'll be a soap opera that continues. We're going to learn some more unsavory details about the people involved. The current narrative, especially from the people who seem to understand these technologies the most, is that AI is going to bring about a job apocalypse, a labor destruction? Your thoughts? That's a tough one. I think that, I mean, I've been reading a whole range of opinions on this. I know that there are people who point to the China disruption and what happened to labor and how the market adapted. I think that we don't give, you know, the economies and people as much credit as we should for being adaptable. I think they are more adaptable. I think there will be jobs lost. I think some sectors are going to be much

worse affected. But the overall job effect might be smaller than we think simply because new job, I do believe that there will be new jobs created by AI. But I do think in the short term, we have to start thinking about the sectors where the job losses are going to be greater than asking what next. No. Maybe the kinds of people will be losing jobs will not be the kinds of people who will get a lot of sympathy because they've been well, you know, they've been in a well-paying jobs. And given the history of job loss

in the last go-around, people might say, well, it was coming. And, you know, in a sense, it was deserved for some sectors to kind of feel the pain that other sectors have felt. And last one before we got audience questions, the first apocalypse predicted

was higher education at the hands of AI. You don't need higher education anymore that there's AI. And yet applications are up and we continue to have margin power and have increased tuition, fast, and inflation yet again this year. Your thoughts on AI disrupting higher education? I'm starting to think the apocalypse might come to the research side of education, more than the teaching side, and maybe that will be the straw that breaks the back, because we're discovering that so many of the papers that get

published are so mechanical and rule-driven that AI can do it. And if the research side gets broken, it kind of breaks the entire structure of higher education, at least in the U.S. We have people teaching only two or three classes, and then giving the excuse, I write all these deeply impactful papers, so that's why I need the rest of the year off. So I'm looking at both at the research side potentially as the breaking point for academia, because if the research side breaks, what excuse do you have for teach only two, three classes and get the seventh year off as a sabbatical? So I think maybe the page, the, the page, you know, here will come in a very different pathway than the one that we've been told Scott and I've been

talking about this for a long time. The teaching side, the inertia I think is so great that it's very difficult to move. But the research side, I think the shock effect of churning out 50 AI-driven papers that match up to academic, every academic research paper is going to break the research side very quickly. Got it. And thought of it and they can't come soon enough. Ed. Ed. Audience questions. Yes, let's get into it. Claire Miller, our producer, has the questions. Claire, what do you have for us? What does Professor Demoderan think about banks offloading data center risk, as reported by the FT on the 3rd of May? Is there a realistic way for these investments to pay off for the hypers? For context, the FT reported that groups including J.P. Morgan Chase, Morgan Stanley, and SMBC,

are trying to find ways to distribute portions of data center-related deals to a broad a range of investors. Lenders are exploring private deals to sell stakes in the debt, as well as so-called risk transfers, to reduce exposure to big borrowers and free up capacity for more lending. So, Aswath, what do you think? By itself, it makes sense, right? Because if you have a lot of debt to a particular segment of the economy, as a bank, you want to try to create some sharing of that risk. So by itself, that doesn't bother me, but I think that it also means that if everybody, is trying to do it at the same time, then the concern is, what if there are people who don't want to share that risk? What if you just took on too much debt? That's a potential problem

for banks. I don't think it's going to break J.P. Morgan or it's going to, I think that if you have a small bank that's overexposed to this kind of debt, then I'd worry. So maybe the regulators need to keep tabs on how much of the debt is going towards these data centers and figure out a way to look at banks that are overexposed. That would still be my concern, because the shuffling off is, I think, natural. Next question. I am in the military, and we constantly discuss China's preparation for invading Taiwan. The expectation is they will be prepared to take over Taiwan by 27.

It will more likely be 2029 or later. What do you expect a major event like that to do to the global economy? How about the effects on the AI industry? and how could we hedge against that event? You can't. I mean, that's the definition of a truly catastrophic event because I think that might be the expectation in segments of the military,

but it's clearly not the expectation of the market because if that were the expectation, you'd see a very different market playing out now, not just in the U.S., but across the globe. But that would be an event where there's no hiding from. I mean, I don't see, you know, anywhere, around that. That seems to me to be a great example that you talk about where markets aren't pricing in the catastrophic risk. And this is what we talked about last time. I've also had a

conversation with Daniel Juergen, who's one of the foremost historians on oil. And his view is that there is a disconnect between what the physical oil traders feel about what's happening in the Strait of Hormuz versus what the futures traders over on Wall Street feel about this issue. This to me seems like a great example. The military is very worried about this. The traders aren't. Why should we trust the traders? Because the military, at least the expectations, people in the military, don't have any money behind their expectations, right? So in a sense, I always trust expectations that are money behind them over expectations that don't. I mean, it's part of the reason I think markets get trusted more than experts. I'm going to combine these

two from the audience. Could Professor Demotrin reflect on his comment a few months back about looking at collectibles and art as investments? Is he still exploring those via? as viable investments. And then second question, what percent cash would the professor recommend investors should hold right now? The collectibles are not, I mean, I hope people didn't mind. I think that there are clearly investments to think about. But I also think I said, do it only if you enjoy the art and the collectible you have.

So if you don't like looking at paintings, don't buy paintings because you think they're a good part of your portfolio and hang them up around your house and cover them up because you don't like to look at them. buy a painting because you enjoy it. Same thing with collectibles is, you know, whether it's baseball cards or, you know, if you truly enjoy collecting baseball cards and that's where you want to spend your time,

go out and do it and add it to your portfolio and make it part of your investments. But if you're not informed in those spaces, just send your money out because there's a collectible investment. I mean, these are investments with huge transactions costs, a lot of leakages, and you're often trading with people who are more informed than you are.

And that's always a recipe for danger. So I would be careful about that. On the question of how much cash is too much cash? I mean, Ed and I talked about how much, you know, the cash holdings I have in my portfolio last time. I was very clear, I think, about what I was doing. I was saying if I sell something now, I'm holding that cash as cash,

is they're putting it back into the market right away. I'm not selling things to get cash. So to me, the minute you do that, you're entering into the market timing space, and the last couple of months, if nothing else, should have given us a warning, why timing the market is so incredibly difficult to do. So I think that if you have a lot of cash coming in from something you've sold, then this might be the time. You put it into treasuries and earn four or four and a half percent, a pretty decent return. And also then think in order in terms of when will you get back into the market. leave it as cash, the danger is it stays as cash for a really long time. I took what you said very seriously about when we asked you a few months ago,

what sector was undervalued or where would you put some money? You responded, for the first time I heard you pause and I could tell you we're searching for a sector because everything feels so expensive. And you brought up the notion of collectibles. And based on that, I've invested in this hedge fund called Nolan, which is my youngest, who now takes the train out to conferences and he's been buying a crazy amount of Pokemon cards. This is entirely true.

And he's super into it, uses AI, uploads it, looks for ARB, goes to events, trades. Anyways, this is your fault. We are swimming in Pokemon cards here at the house, Heswath. I'm curious, have you had any exposure to the Pokemon craze? Absolutely. My kids all collected Pokemon cards. Unfortunately, we threw them all away when we moved. And I wonder how much money we ended up throwing into the trash can that day.

But I think that's exactly the kind of example of collectibles is you truly enjoy a collectible class and you want to make it part of your portfolio. Do so. But don't go looking for collectibles like you invest in stocks, right? This is not a passive place to be. All right. This is a perfect place to end. Would you characterize the markets as maturing in that they seem less volatile and

reactive to daily insults or drama in the news. Is this a glimmer of hope for humanity? If this is the glimmer of hope we're looking for, then we're in big trouble, I think. I mean, markets, I think, are like, you know, essentially they've been punched. They're like a box where it's been punched so many times that they're not quite sure what's happening anymore. So I think in many ways, these markets are being driven by a very small subset of investors are willing to put their money behind their bets because, I mean, they're just, at this point,

they're just, the shocks have been so many. They just can't, they've stopped categorizing something that would have been a shock 10 years ago as a shock. So we've kind of refrained expectations as to what comprises really good news or really bad news. And that might be a problem in the future. I just want to follow up on that and propose a thesis and that is the market values subscription revenues, two to three X would it values transactional revenues. So if you own a company that makes this money getting people into a movie theater

or retail or transactional, what have you done from you lately, whereas if you have a company like Netflix, it's subscription revenue, it trades in a much higher multiple. Do you think that maybe the markets have moved from transactional to subscription revenue? What do I mean by that?

Now, every year, the amount of passive funds or the amount of capital in investments from stocks coming from passive ETFs and indices goes up. And effectively, people invests passively through 401Ks and automatically no one tries to time the market. It's not based on vibes. They just buy the whole market. Has effectively the market become a more durable means of capturing inflows because it's just passive and just money just flows in every month regardless of how people are feeling? I think that is part of it. The other part, I think, is because market flows based on market gap, many of the indices are market cap, it also feeds into momentum effects, which is if you're winning, you keep winning. But these things also turn the other way. If you're losing, you can also lose more. So for at least for much of the last 15 years, momentum has been in our favor. So worry about when momentum changes the same form.

forces can push in the opposite direction. But the fact that money comes into these index funds does create more predictability for the market. You don't have the institutional investors basically in Boston and New York deciding the market is overpriced. Let's pull all our money out. Institutional investors have basically lost control of the process. It's basically collections of not just individual investors, but non-traditional institutional investors is pushing the market. And the rest of the institution of rest is just going along for the right. Aswath Demodran is the Kirshner family chair in finance education and professor of finance at

NYU Stern School of Business, where he teaches corporate finance and valuation. You can read his research on his blog musings on the markets, Aswath. Thank you for joining us today. This was a lot of fun and to our audience. Thank you for tuning in for the very first live stream. That was great. I would love to do it again. We will see you next time. Appreciate your time, Asworth. Thanks, Aswath. Thank you. 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 Dan Chillon, Isabella Kinsel, Chris and Donahue, and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Profty Markets from

Proffty Media. If you'd like to join our next live stream and sign up for our Substack at Profgimedia.com.