Prof G Markets - What to Buy When the Tech Sector is On Sale — ft. Mark Mahaney

Episode Date: May 1, 2025

Scott and Ed discuss Huawei’s new challenge to Nvidia, Apple shifting U.S. iPhone production from China to India, and Spotify’s Q1 earnings report. Then Mark Mahaney, senior managing director and head of internet research at Evercore, returns to the show to share his top internet stock picks. He explains why he believes Google is the cheapest of big tech, highlights the strategic value of Waymo, and offers his insights on Uber. He also breaks down what’s driving market enthusiasm around Netflix and Spotify. Subscribe to the Prof G Markets newsletter  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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If you or someone you care about plans to retire soon, that's on the next Explain It To Me. New episodes every Sunday morning. Today's number, 50%. That's how much more often British people apologize than Americans do. So I'd like to apologize to all our listeners that I have not yet offended.

It's coming, it's coming. ["Tru Story"] Ed, true story, when I started at Morgan Stanley I was consistently late and I thought of an interesting apology in the All Hands meeting and said, I was consistently late. And I thought of an interesting apology in the all hands meeting said, I want to apologize for being late. I was at home not being miserable.

Yeah, it's not very good, is it? I gotta come up with something better. All right, you talk, I'll find something better. What do you want me to talk about? I apologize for slapping you twice, but I needed to slap both faces. Get it, two-face? Yeah, this is going nowhere, Ed.

This is going nowhere. Keep throwing, see if anything sticks. I promise to do a better job at hiding how much you annoy me, Ed. Finally some truth. I'm like Don Rickles minus the talent right now. I do love that statistic. I think it's very true.

We apologize way too much. Do you think? In fact, just before we recorded, yeah. But I went to the bathroom and then I came back into the recording session. I was like, sorry. And everyone laughed at me. I shouldn't be apologizing for going to the bathroom.

No, they were laughing because as soon as you said, I wanna go to the bathroom, I'm like, I said to our technical director, can you make the mic more sensitive? I'd like to hear his stream because I bet it's like a fucking Niagara after a big rain. I'm telling you, Ed, you should literally like, like hold it and then go into the bathroom

and let the good, like literally let that flow run wild, my brother. Make it like the Amazon river. Cause I'll tell you, you get to my age and it's like a baby bottle dribbling. It's just so upsetting. Okay. I'll send you a recording get to my age and it's like a baby bottle dribbling. It's just so upsetting. Okay. I'll send you a recording next time.

How's that? I'd appreciate that. I'd appreciate that. But before we do that, let's get to the headlines. Finally. The hunter is over. You have permission to do what we're paid to do here. Now is the time to cry. I hope you have plenty of the well at home. Huawei is preparing to test a new AI processor designed to rival Nvidia's H100 chip.

This move comes after China's President Xi Jinping pledged to make self-reliance a top priority as China ramps up its AI development. Apple plans to source all US iPhones from India by the end of 2026. The move will double its production output in the country as Trump's tariffs drive Apple out of China. And finally, Spotify's monthly active users rose 10% to $678 million in the first quarter. However, the stock fell 7% after its user forecasts for the current quarter missed expectations. CEO Daniel Ek warned that broader economic uncertainty could bring some quote noise in the short term. So let's start here with this Huawei news. Huawei, which is the Chinese company, they

are building a new chip that will supposedly rival Nvidia's best chip, which is the Chinese company, they are building a new chip that will supposedly rival Nvidia's best chip, which is the H100. And Nvidia stock fell more than 2% after that was announced. I just want to point out, we should probably take this with a grain of salt, because Huawei has made these kinds of claims in the past, and so far none of them have really panned out. They had the 910C chip, for example, which was supposed to be as good as the H100 as well, and then people started using it

and they started saying, no, actually it isn't. So here we are again, they're making similar claims. We'll only know if it's true once the chip is actually out. But I think what is more important to focus on were those statements by Xi Jinping, where he stated publicly and officially, he said that self-sufficiency in AI is now a national priority. And this is new. You know, it might have been true before, but it was never publicly stated like this. So I think this is kind of a defining moment in the AI race where it's been sort of like a cold war between the US and China.

We kind of knew we were in a race, but never really acknowledged it. Now it's acknowledged. The US is shutting down all chip shipments into China, and now you have China, which is publicly coming out and saying we're going to be a self-sufficient and self-reliant AI nation. So the AI race is officially on now. Nvidia versus Huawei, AMD versus SMIC, you name it. It's the U S versus China.

Scott, your reactions to this new Huawei chip and what this means for America. Your analogy is the right one. And that is a Cold War analogy. First, it was a nuclear arms race. Then it was a space race. My favorite thing about the space race is they put. First, it was a nuclear arms race. Then it was a space race. My favorite thing about the space race is they put the Russians, it was such a brilliant propaganda move. They put up something the size of a basketball, but what they did is they made

the frequency of which it was communicating back to earth such that anyone, you know, radio ham operators could hear the beep, beep. It was sort of basically the most elegant and rudimentary way of saying, we're better than you, we're better than you. You should fear us. And people were just totally freaked out by the prospect that a space, a space-borne vehicle could be over their houses. Everyone was so freaked out.

The interesting thing here is that it kind of lends credence to the fact that free trade, that when you restrict trade or free flow of trade, it's not always good for you. You sometimes just create incentives for them to develop workarounds. And I think that might be true here. Also, the technology is obviously very important. And I believe Nvidia is going to have the edge from a technology standpoint for a long time. Unless that is they can get a bunch of Chinese nationals who are in business schools across the nation

to go to work at Nvidia and then start transmitting or engaging in espionage and IP theft. What people don't realize is that the majority of espionage now is not about James Bond spy versus spy, kill people. It's a lady who's a very, you know, I don't know, normal pedestrian looking person who's the assistant to somebody who just happens to get plans

for the latest Nvidia chip and somehow it gets transmitted to Beijing. And we did the same thing to British textile manufacturers in the 19th century and any economy growing faster than 6% or 8% a year has usually got very, very strong IP theft as part of its core competence. And China has always been really good at that. The thing that will, I think, make Huawei potentially an outperformer here relative

to Nvidia is one Nvidia's got an extraordinary market cap right now. But also I think the worm has turned in terms of people's receptivity or favoritism that was biased towards the U.S. And that is the deepest pocketed companies and countries in the world. Now I wouldn't say unbeknownst to us, but it was taken for granted.

We didn't realize how much goodwill we had. I think you're going to see a lot of European companies take meetings with Huawei and say, we're less freaked out or we're no less freaked out about Chinese espionage or them having access to our data, but we're much more freaked out about Americans having our data now. And we don't feel nearly the allegiance to maintain, um, U S prosperity given that they're no longer guaranteeing our military umbrella that they appear to be declaring war on us economically. So I think Huawei has the wind at their back right now, but I'd love to know the relative valuations because I would think that Huawei

is going to get a lot more meetings with Latin American, Asian, and European companies to discuss their AI and their chips. This is not a public company, so it's hard to know, but I just want to highlight some statistics and that sort of illustrate what we're up against here. China produces 3.6 million STEM graduates every year, and that is more than four times the number that we produce in America. They also have produced 13,000 granted patents in AI so far, and we have produced less than 9,000. They're also beating us in terms of public investment into AI. They allocated 142 billion dollars to semiconductor manufacturing last year. Compare that to the US where we were at $75 billion. There are a lot of places where China is actually very strong. I don't think you could make the case that right now

China is beating us. I mean, we have the best chips in the world. We also have the best models in the world. We're also leading by far in terms of private investment into AI, 12 times higher by dollar value than China last year. So I think if we're in a race, and I believe we are, I think we're ahead. But this will be really interesting to keep track of because you just look at what they're doing in terms of investing in their research institutions, in terms of the innovation that we're seeing in the patent

world. They're clearly laser focused on being the world leader in AI. And this is the thing that could easily define the next generation of technology. What I think is going to do real structural harm to America's competitiveness on an economic level are some of the things you're talking about. And that is, if you look at the number of, and Frisicari did a great segment on this, if you look at the number of universities in the top 500 in the last 10 or 20 years, China has grown the number of universities that top universities they have by 50% and in U S it's declined.

And then all of this nonsense around sequestering or cauterizing the investment in innovation through universities, which has been this, arguably the best investment in history is this private-public partnership we've had with universities where the National Institute of Health and different defense departments fund different universities to come up with just amazing technology.

The most amazing supply chain probably is probably the Apple supply chain in China, but arguably the best or the most important was the supply chain that was developed to get to splitting out. And since then, we've been doing that around everything from diabetes drugs to chips to LED panels. All of these things have flowed through incredible capital to university and our ability to attract unbelievable talent. And essentially I think, and now the Chinese are going on a charm offensive and saying to the best human capital in the world,

the best researchers in the world, the best PhD students in the world, come to China. We have great universities. They're well funded. You may not like us, but you can count on us. We're consistent. So we're experiencing, I believe you could argue that the biggest structural impact economically on the United States is a gutting of the most successful partnership, economic partnership in history. And that's the private-public partnership between universities and the government. And the weird thing is we won't even know the specific damage. It'll just be, and it is right now, China is now responsible for about 50% of the patents

that are being filed per your comments. So this is just, we are in a room of prosperity, but we've decided to open the windows and leak all of the oxygen out to our competitors. Yeah. If you believe that prosperity and economic growth is mostly a function of technological innovation, which it sounds like both of us agree on this, that it is, then the best forward looking indicator of your economy is the quality and the strength of your research institutions. I mean, that's the best way we strength of your research institutions.

I mean, that's the best way we can see into the future. How good are our PhDs? How good are our researchers? I still think we're better than China. But again, our conclusion here is that the trend is not looking amazing. The fact that this other country is actively, our enemy is actively investing into their research institutions. Meanwhile, we appear to be detracting from them. It's just not a great sign when you're trying to model this country out and the economy out 10, 20, 30 years in the future.

We should probably move on to Apple though. I mean, they've already been moving their production out of China into India. But this is a new report from the Financial Times and it clarifies that the plan is to move all of the iPhone manufacturing out of China and into India. And the plan is to get that done by the end of next year. So this is like a big deal on multiple levels. It's a big deal for China where Apple makes 90% of its iPhones. It's also a big deal for India, which is going to inherit a huge business making these products, making these iPhones. But I think most of all, it's probably the biggest deal for America where we were told that the

purpose of these tariffs was to reshore jobs out of China and back into the US. And instead, what we're seeing, at least in the case of Apple, the jobs are leaving China and they're going to India. They're staying in Asia. And this is going to create 150,000 jobs in India. It's probably going to add some significant percentage of GDP to their economy. So essentially America is getting no benefit from this. And in fact, we get punished

because the manufacturing costs in India are 10% higher than they are in China. So sure, the jobs get reshored somewhere else and prices go up. It was never realistic that we were gonna build a $3,500 iPhone, which is what it would cost to produce it in the United States. And so we've gone from kind of one, not even low cost, but an incredible

supply chain, innovative culture, which is China to India. Well done, Donald Trump. You have taken, you've gotten your pound of flesh from China and you've given it to India was, was at the point. And more generally geopolitically, I think India and the kingdom are going to thrive over the next 10 years because they're now the swing votes. If you think about team A is the US and Europe, although we seem to be alienating Europe, the US and the West and then team B, if you will, or blue jerseys is

North Korea, China and Russia and maybe Iran. The swing votes, the really powerful nations that can play each side off of each other are the Kingdom of Saudi Arabia and India. And I think they're gonna benefit, and India is already appears to be benefiting. I think the other big macro question is that this news implies is like, who is going to be America's next China?

Who's gonna be the country that adopts this $440 billion per year business that is making cheap products and sending them to America? This news would imply maybe it'll be India, but maybe it could be someone else. Maybe it could be Mexico. And we talked with Ryan Pearson last week. He was very bullish on Vietnam. Maybe it could be Vietnam. He was great.

And something I just never thought of was that the internal river network and Vietnam ends up being this cheap, natural infrastructure. And he said that India was a nightmare to do business with. He said that logistically their supply chains are a mess, which was quite interesting. The other potentially sleeping giant here or stirring giant is Indonesia and they're gaining share in EV battery materials, especially

nickel and cobalt. And India, India commands over 20% of global nickel reserves and companies ranging from Tesla and Ford have signed sourcing deals with Indonesian firms. So there might be sort of a new, the problem is they need an acronym such that they can market themselves better for investors.

You know, it's sort of like Indonesia and Vietnam, Mexico and India, like MIV or something. They need something such that people, they get on people's radar screens, but I think you're gonna see a dissemination of market cap when we've talked about this away from the US. And I wonder if some of the tail of the whip and some of the bigger upsides might be in places like Vietnam and Indonesia. Let's move on to Spotify, which reported earnings, the stock dropped 7%. They

missed on profits operating income came in at 509 million euro. Wall Street expected 548 million. They also gave guidance that Wall Street considered quite soft. Um, so I think, you know, that's certainly part of why you saw this drawdown, but I think this is really just a function of these massive expectations. It's still up 20% year to date. I mean, it's one of the best performing stocks in the tech sector. Um, but I look at the company and the fundamentals are still really strong. I mean, you've got active users up 10%.

You got revenue up 15%. My takeaway here is the market was a little too excited. It's correcting, but net net. I look at Spotify to me, the company's still crushing it. Yeah. There's company performance and then there's expectations. And the stock is a function of expectations. You talked about year to day, in the last 12 months, the stock's up 103%,

even after it's declined. And it trades at a price earnings multiple of 93. So this company's crushing it. It's just that the investors, you said something that struck me a few months ago. You said, the expectation now is that every company will blow away expectations. The stock price has just gotten out too far over its skis is the bottom line. And it'll probably rationalize a bit. My guess is it'll go flat for a while and then it'll maybe down and then it'll reignite its growth again. Because this company, there's nothing here that would indicate anything other than Spotify is now benefiting from what Uber benefited from and some of the big magnifies and seven have benefited from. And that is it has made the jump to light speed.

And that is it has so much scale and so much capital to reinvest into innovation that slowly but surely, and also it benefits from focus. It's, it's pulling away from Apple and Amazon and the other music streamers. And I can't think of another company that was able to take an entire medium and distill it down to one searchable icon on your iPhone. I mean, even YouTube, as much as we talk about YouTube,

there's just certain things, a lot of things I cannot find on YouTube. I can find pretty much everything in terms of music and podcasts on Spotify. I think they've been really innovative around the commenting and the video. Uh, they're trying to create it into a social platform. I just, I love the branding. It's basically the best managed company in tech in my view. I mean, every, there have been so many forks in

the road for this company and you look back and they've made every decision has been the right one. And I think one of their biggest decisions, which we're now seeing reflected, was their decision to get into podcasting. Now we can make, you know, we can have a conversation about did they do it the right way? But what is very clear is that this is now a big leader in the podcasting space. That was a decision they decided to go with. And now we're seeing a lot of emphasis on podcasting on the earnings calls and in the earnings reports. And one thing that's so interesting, we're seeing it play out in our business.

The biggest platform for this show, ProfG Markets, in the audio at least, was Apple Podcast. This week, Spotify actually overtook Apple as our top audio platform for Proffesgy Markets. Our growth on Spotify is way outpacing our growth on Apple. And I've been trying to think about why that is. And it's two main things for me. One, I think Spotify is just attracting a younger audience. And I think a lot of that has to do with many of the things you mentioned now. I think their marketing is great. They're leaning into video.

They're trying to really focus on engagement by implementing these new comments features. They're doing a lot of stuff that resonates with young people. And you look at this program, this is a largely young audience. Out of the ProffG media portfolio, ProffG Markets is the youngest.

And 36% of our audience is under the age of 34. If you look at Raging Moderates for comparison, that number is 24%. And so that would explain why Raging Moderates, as an example, has 86% more followers on Apple podcasts versus Spotify. And then you look at this program, where Spotify is actually leading. So I think that's one explanation there. It's just, it's attracting a young base.

And the second thing is the recommendation algorithm. I think a lot of people are finding this show because Spotify is recommending it. At least that's what I've heard anecdotally from people who listen to the podcast. And this is the real differentiator between Spotify and Apple as an audio platform and the reason it's pulling ahead.

The way you find a new podcast on Apple, you kind of just have to find it on the top 10 list. It's basically an entirely editorial recommendation system. It's the same way that traditional media works. Or, you know, like you look at books. I mean, how do you sell books? You kind of just have to get onto the New York Times bestsellers list.

Spotify is really leaning into having an algorithmic recommendation system, not an editorial one, where they're investing in AI, they're learning what you like, and then they're giving you more of it. And I think that's a big reason why this podcast is doing well on that platform, is it's simply allowing people to discover it. And I think that's so important in this business and it's so important for growth. You need to figure out a way to attract new podcasts that have a real incentive to move on to your platform and that have a chance of competing with the bigger shows. So the core demo that everybody wants is people under the age of 44. Basically kind of 23 to 44 year olds

spend money on stupid products. They buy fancy cars, watches, coffee, shoes. They buy high margin stuff because people are young and in their mating years and wanna signal the worth, their potential worth as a mate to other people so they make irrational decisions. They're having babies, they're spending a lot of money. They're high value consumers.

And the reason why cable news is just struggling so heavily is the average age of an MSNBC viewer is 70. Uh, that's the average. That start always fucking blows me away. Well, think about this. You just turned 26. Is that right? That means if you turn on, get this MSNBC, that means someone else who's

114 is watching. I mean, think about that. And what do 70 year olds buy? They buy health insurance, life alert, grifter insurance products, because they just sit around worried that someone's going to take their title and own their home, some criminal game from Albania. They just sit around in fear, waiting for the ass cancer. Is that too much? Whereas young people like yourself are coming into their prime income earning years,

starting to figure out they love alcohol, they love all these great high margin products. So the core demo, call the core demo is under the age of 44. For markets, that for us is about 72%. Three quarters of our demo is under the age of 44 is a core demo. Whereas raging moderates, it's about 54%. We're just going to get higher CPMs because everyone is, everyone is chasing the younger person who's irrational, which translates to higher margin and also sets

the tone culturally. If you want anyone wearing your product or using your product, you want it to be a 25 year old, not a 70 year old. And the kind of the great white rhino of media is the young American male because the young American male, especially has become totally numb to advertising and is playing video games, watching Netflix and listening to Spotify. So they have basically extricated themselves from

the entire advertising ecosystem. So if you can find those people anywhere, they're gold. And the reason why podcasting is garnering more and more revenue, even relative to its listenership is that it is finding the people that you can't find on cable news any longer. And it's kind of heartening when you think about it.

I like the fact that younger people seem more drawn to financial and markets content than political content. I think that's a good forward-looking indicator, actually. It's very exciting. You sound excited. You sound enthralled. It's so exciting. It's so exciting. It's intoxicating.

We'll be right back after the break for our conversation with Mark Mahaney. If you're enjoying the show so far, be sure to give the Proffesgy Markets feed a follow wherever you get your podcasts. Support for the show comes about Public.com. That's where you can invest in everything, stocks, options, bonds, and more. They even offer some of the highest yields in the industry, including the bond account's 6% or higher yield that remains locked in even if the Fed cuts rates. With Public, you can get the tools you need to make informed investment decisions.

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Welcome back. Here is our conversation with Mark Mahaney, Senior Managing Director and Head of Internet Research at Evercore. Mark, thank you for joining us again on ProfGMarkets. Thanks for having me back. Mark, thank you for joining us again on ProfG Markets. Thanks for having me back. So you have, just for those who don't know, you've covered internet stocks for almost 25 years, widely known as one of the top internet stock analysts in the world. So we wanted to have you on to discuss internet stocks, especially with these tech earnings coming out. And you and I were emailing last night and I asked you what your top picks

are in terms of internet stocks right now. And you said Amazon and you said Meta. Now we've got Amazon earnings coming out this week. Also Meta earnings. Unfortunately, those earnings will come out just before this episode airs. But I would like to start with Amazon. Uh, why is Amazon your top pick right now? And what do you think we can expect in this upcoming earnings report? Well, both of them fall into what I call DHQ camp.

So dislocated high quality camp or whatever. They're great DHQ opportunities. So I look for the highest quality assets in the space, and that would have to include Amazon, probably Google I'll throw a little further out on the on the on the risk limb I'd probably include Dash, Uber, booking, Shopify, Spotify, Netflix you know there's there's about ten of these I think are really high quality and then the question is when do they get dislocated look we began this year with multiples

that were relatively high. I thought there was only really one DHQ at the beginning of the year, that was Uber. But given the market sell off, you've got a chance here to buy some of the highest quality assets that kind of, they're not fire sale prices, but they're on sale. And Amazon is one of those that's trading

at one of its lowest PE multiples ever, 23, 24 times earnings and I know that there's a lot of near-term issues and we'll talk through those. They face the same ones a lot of other companies face. They just have a very good execution track record so my guess is that they'll handle them better than others and my same pitch would go with Meta which is the stock with the trade-off is trading at one of the it's not as bad as it was in 2022 but it's one of the more attractive multiple shots you've had in, I'd say the last two years. And I think the fundamental story is

very much intact. So that's why Amazon and Meta would be two of my top picks. You mentioned the things that are kind of in the way for Amazon. I assume we're talking about tariffs. We also just had this kind of insane turnaround that happened recently where Amazon said, or at least it was reported that Amazon was going to report the tariff cost on each of their products. The Trump administration then said that it was a hostile and political act. And then next thing you know, they announced, no, we're not going to put the tariff cost on the website. So just give us your reactions to what happened there and also what these tariffs mean for Amazon.

I assume that's what you're talking about when you say Amazon has some struggles ahead, possibly. I think last week, the CEOs of Home Depot, Walmart, and Target went into the White House to express their concerns over what the tariffs would mean for their businesses. I'm actually a little surprised that Amazon wasn't in that list. They're actually bigger than all three of them in terms of retail volume or they're similar in size to Walmart. I think they may be modestly bigger. But whatever, if you're a major retailer, yeah, you know, you walk around the Walmart store, turn over anything in there,

it's all made in China pretty much. And so it's an issue for all of these major retailers. So yeah, that's kind of an issue across the board. And these companies are gonna have to make a decision. Are they gonna eat price? Are they gonna eat market share? You know, you gotta do something because your input prices are going up.

So how are you gonna handle that? Are you gonna defend market margins or are you gonna defend market share and so there's an economic issue here for for Amazon and then there's the follow on impact which is that if you have you know pretty material price increases coming through the system that is going to dent consumer demand and and so there's kind of a long term economic issue or maybe even a medium or near term economic issue for Amazon and then other things you know there's kind of a long-term economic issue or maybe even a medium or near-term economic issue for Amazon.

And then other things, you know, there's very intense competition in the cloud business for Amazon and maybe some regulatory challenges too. So I throw it all together. I don't think Amazon was gonna, there was no act. I don't think Amazon was gonna show tariff prices next to their regular prices. That's what they said.

But I also just think Amazon's management team has been pretty darn apolitical, I would argue, over the last 10, 20 years. And this is a place that's extremely hard working environment and the executives that I've tracked over the many years, I mean, they've been almost entirely profit focused. So I've seen very little political activity really coming out of that.

Them for good or for bad, it's just, that's what I've sensed. So I doubt that there was really going to be some broad based, uh, showing of what the tariff impact on prices were going to be, but it is real. It is a material impact. Your other top pick there was Metta. Just tell us a bit about Metta and what you think we can expect from these earnings this week. So if there's a drawdown in advertising spend, Meta will be impacted.

I just think it's going to be one of the last least impacted of the major ad platforms. I may be wrong on this, but look, it's largely performance marketing. It's also got highly fungible inventory. So the obvious comparison is with Google. If you're, you know, people are searching for Hawaiian golf package vacations, that's a very specific search item. And there's a very specific type of ad you can put against that.

If you're in your Facebook newsfeed, Instagram newsfeed, real stories, whatever, that inventory that they could add inventory they can put against you is very fungible, depending on what your personal interests are, but it's very fungible. And so I just think that they're more resilient in an ad slowdown. None of them are recession proof, but they're more resilient. And I think Meta would be one of the last places to get cut. And frankly, of our channel checks so far have shown that advertiser demand has kind of held up for Meta.

I'd be surprised if it hadn't given what Google just reported last week. So I just think Meta sort of holds up a little bit better in this environment. Valuation's pretty reasonable. And it looks like they're starting to finally kind of cut down the investment spend at the reality labs based on reports. If that's true, that's great. I don't think any of these companies are going to slow down their AI capex spend. But I think if they start cutting off some of

these extraneous areas where they've been spending a lot, and Reality Labs is one that hasn't really shown much return yet. But I think the market would respond positively to that. Marco, it's good to see you. It feels like picking which company will outperform the other amongst these is sort of trying to pick, you know, who's going to score more points, LeBron or Kobe here. It just these companies continue to all just be such well managed outstanding companies.

It strikes me the meta may be kind of the unsung hero of AI. Hero is the wrong word that has the most unrealized potential around AI and that is that the second largest purchaser of GPUs from Nvidia. And at the same time, they collect more data than any company, four out of five users outside of China are on, or people are on meta. So they've got the GPUs, they've got the data. It feels like this is the AI company

that people aren't talking about. Your thoughts? I think they've used AI to dramatically improve the user experience. Your news feed has got a lot more, has become more personalized, more interesting. I think that's true and it shows up in more and more time spent on Facebook, Instagram over the last two to three

years. I think they also used AI to rebuild almost completely their ad tech stack, post the Apple privacy changes two or three years ago. So I think they also used AI to rebuild almost completely their ad tech stack post the Apple privacy changes two or three years ago. So I think they've already been deploying it. And you're right, they have one huge advantage was they've got first party data, which nobody else, Google will have to, but those two companies,

Facebook is one of the very few that has that kind of level of data. So yeah, I think they're, because they don't have a separate cloud business, that people have wondered whether they're a real AI play. I absolutely agree with you, Scott. I think they are an AI play. They're a play at the AI application layer,

which we don't really have many examples of, but they're sitting right in front of us. I think they're a wonderful example of AI. When I look at the price earnings ratio, the least expensive is Alphabet. And my sense is that I'm beginning, you know, I pinged back and forth, but now just looking at the Alphabet earnings, I now think that Alphabet is the most undervalued of the bunch because 353 times the number of queries is OpenAI, which is a lot of people think is an existential threat. And I wonder if that's suppressing or unnatural or unfairly suppressing the

stock price. Uh, YouTube continues to grow like crazy and the average, I think the S and P 500 trades at a P of 25 or 26. And here's Alphabet at 16, which to me is just so far superior than the average S and P company and has five different businesses of $30 billion plus. that at 16, which to me is just so far superior than the average S&P company and has five different businesses of $30 billion plus. It feels to me like the most robust of the four and the cheapest.

And I'll layer on a second thing. I think the most overvalued is Apple at a P of 34 and isn't growing. Your thoughts. Google is the cheapest stock. I've thought about two or three overhangs on a stock which explain why it's the cheapest stock. It's got a DOJ overhang.

It's going to be DOJ Roadkill. It's got an AI overhang. Are they going to be Gen. AI Roadkill? Are we all moving towards chat cheat or or significant enough of us moving a significant enough of our queries over to chat GPT, perplexity and maybe some other entrance. So those are the two overhangs. And then when Google prints up a quarter

like they did last week, but then they disclose that their paid click growth grew 2% year over year, it kind of feeds into this thesis that, this company is gonna go negative in terms of unit growth soon. They talk about how AI overviews, AIO is really boosting their search queries. But if that's true, why is your paid click growth only growing 2% year over year? Could you explain what exactly paid click growth is?

Because you know, we look at the Google's business and when I look at the earnings report, I see search up 10%. So what is that paid click growth and why does it matter? So in their quarterly filings, they disclosed two metrics behind search, paid click growth and then price per search, CPM. And so this last quarter they did nine to ten percent search revenue growth and what they disclosed in the queue was that they got there through two percent query growth and you know seven percentage pricing growth and generally what investors want growth investors want is they want

more growth to come from units than from pricing and I know there's a lot of things that go into those metrics and there there's a lot of noise behind there, but still that unit growth has been slowing for a couple of years and they're concerned that, you know, it could go negative. Why would it go negative? Because it's a very mature business. It's not saturated, but it's clearly mature. But the second thing is they may well be losing query share to, you know, to perplexity, but particularly to chat GPT. That's the overhang concern. I still like Google as a stock because I think this risk is more than priced in. And I think they're doing a lot of great innovations to make the search product better. But that explains why the stock is so cheap.

Yeah, it's a really interesting point and important. You can't grow just by raising prices. It's not enough. You need to actually grow the unit economics. One thing they do have going really well for them, Google, this is, is Waymo, which they are a majority shareholder in. Waymo's doing a quarter of a million rides a week, up 5X from a year ago. I've talked about how bullish I am on Waymo

because they have 100% market share in the robotaxi business. I mean, people talk about Tesla and they talk about Amazon is getting into it with this thing called Zooks, but I sort of look at, you know, the revenue, who's making money? It seems to be only Waymo. Do you think that Waymo could be a significant growth vehicle for Google? Is that an important thing to consider when you're evaluating the stock? Absolutely. It is.

It's part of the option value in the name. I'm here in Waymo central. I can look out my window here in San Francisco and see Waymo circling around the financial district. By the way, I can see Uber circling around too. It's just, they're not marked. So, so it's not as obvious, but yeah, you know, I've watched Waymo and written reports on Waymo.

I mean, I've just, I'm a huge fan boy, fan person of Waymo, but it's still so early stage. This is going to take years before it's truly mass market, but they're seeing great adoption in some of their newer cities. And I think that there's a chance here for Google to own the AVOS, the Autonomous Vehicle Operating System. There was a company 30 years ago that made minted a fortune, creating the operating system for computers.

Now the open question, I think there's going to be a company that's going to mint a fortune creating the autonomous vehicle operating system for all vehicles. I think that's where Google is going to go with Waymo, whether they win that or not. My guess is that they probably will. They'll probably beat Tesla just because Tesla is just going to be focused on one vehicle.

Whereas I think what Waymo is going to do is develop this technology and then be willing to sell it to all OEMs. And so every car that gets bought and sold, my guess is starting 10 years from now, there's going to be somebody who's going to make money off the AV functionality and that. And right now, the leading player to do that is Waymo.

So it's absolutely interesting for an investor who's thinking the next year or two, however, you got a first deal with DOJ. You got a first deal with this AI, potential disruption before you can get paid on Waymo. That's the challenge you have. But I love Waymo as part of the option value. I don't know of another tech company,

I'm sure there are some that have a Waymo. Meta doesn't have a Waymo, but the most interesting option value I see in Techland that I look at is Waymo with Google. You mentioned that you thought, or at least Uber was your top pick at the beginning of the year, high quality company that was also dislocated. Now there's been some more dislocation post tariffs. But I think you've been highlighting Uber for a long time now.

I think you've said that it's underrated for at least several months. said that it's underrated for at least several months. Yeah. Um, give us your thoughts on Uber and also the potential for Uber to get involved in Robo Taxi Land. Well, the biggest overhang on Uber stock, it's not really a tariff issue. I mean, it's, uh, it's got, uh, economic whatever, uh, it's a cyclical stock, but it's also got interesting counter cyclical hedges too, and an economic economic slowdown there's just going to be more people needing a side hustle there'll be more couriers more drivers so there's actually a little bit of a counter cyclical hedge to uber's business

model that i don't see in any of the other models i look at but the real issue here is robo taxis and you know there's a lot of debate on this and some of it i think is a little bit noisy and unnecessary here's your simple action question. I mean, do you think that Uber is going to have RoboTaxis as part of its network in the future, five and 10 years down the road? I think they will, in part because consumers are going to want them, but in part because I think they're going to be multiple AV vendors. That's a risky assumption because we only really have one now,

but that one that's really commercially been tested. But I think think you give me five years I think we're going to have multiple AV vendors and then uh an uber sits there as the perfect partner there's this wonderful blog that put out by one of the entries and Horowitz partners uh two weeks ago on uh they're an investor in Waymo and they and they showed this chart about how well Waymo has launched in Austin. Now they've launched solely exclusively on Uber's network and the expression that the investor used was that Uber helped Waymo turbocharge into that market because Uber can go to an AV vendor, an autonomous vehicle vendor and say, we'll reduce your financial risk, we'll reduce your operational risk, you'll get the profitability faster because these things are expensive work with us and I think that pitch is going to become stronger and stronger so I think Uber is going to be a long

term winner that's my that's my thesis if I'm if I'm right on that I think there's a ton of upside in an uber stock here so I'm going to stay very patient and be a bull on the stock it's up 30% or whatever your today it's actually the be a bull on the stock. It's up 30% or whatever year to date. It's actually the best performing large cap internet stock, but that's because it began this year, dislocated over these robo taxi concerns. But I think the data points are coming in that shows that there will be robo taxis on Uber's network in the future. And if that's true, you want to buy Uber. We'll be right back. If you're enjoying the show so far, hit follow and leave us a review on the ProfG Markets feed.

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I think she does a great job. -♪ We're back with Profit View Markets. I saw a talk you gave at Money Show in February and you made this point which I thought was spot on, which was that because the valuations are so rich in tech and in the internet sector at large, the only way you're going to get real growth is not going to be from multiple expansion. I mean, maybe we'll see a little bit now that we've seen this dislocation as a result

of the tariffs, but that if you want to get 20% growth, you're not going to get a 20% increase in the multiple. You need 20% earnings growth. You need top and bottom lines to rise. And I look at the internet companies we've talked about thus far, it seems as if Uber has the highest probability of a 20 plus percent earnings growth expansion over the next, let's call it five years, something along those lines. Do you see it the same way?

And if not, who has the highest earnings growth potential out of all the stocks that you cover? Ed, I like the way you set it up. I'll tell you what I'm trying to do is be greedy. I want to find a situation where I can find a stock that gives me premium earnings growth, 20% to 20 to 30% earnings growth. That's hard to find. I want to find that and a multiple that can go higher, that can rerate. I call that kind of a double-barreled approach to making money. You make the most money when the multiple goes up and the earnings growth is premium. Both and, yeah.

Love it. And actually, I think Uber is there now. My comment was referring to most of the other companies. Netflix at 35 times earnings, I just don't think it rerates much higher than that. I mean, maybe it goes to 37 or something like that not a there's not a huge swing up in the multiple. Same thing with Spotify thirty five forty times earnings I like the businesses but they're going to the stocks will go twenty percent higher because their earnings growth is twenty percent higher but I give you over where I think you'd the go up, you know, multiple turns from here. Like it's trading at 15 times cashflow. This thing could go to 20, 25 times cashflow.

You compound those and that's a lot of stock upsides. That's what I really love to see. And that's why when, that's why I love these dislocated high quality companies, high quality companies give you premium earnings growth, but they all sell off at some point or another, just be patient. And when they sell off,

then you can get the earnings growth, plus you can get a little bit of multiple rerating and boom, that's your big upside. Hey, I made plenty of stock mistakes, but that's what I look for. That's my approach to picking stocks. You mentioned Netflix there. It's pretty remarkable what's happened to the stock so far this year. One of the best performing in tech, if we call it tech. I always think that's a little bit debatable, but I think most people would consider it

tech. Up 25% year to date. And then we saw these Netflix earnings a couple of weeks ago. They had this huge beat, revenue up 13%, ripped even more. Tell us about Netflix and specifically what is going so right at Netflix? What is the market so excited about that, to your point, they don't seem to be that excited about when we look at all these other internet companies?

Well, Spotify and Netflix both share something this year, which is in an environment where there are rising recessionary risks. There there's nothing recessionary proof, but what's recession resilient? What's recessionary resilient? Arguably, Spotify and Netflix are. Spotify, 7.99 for a month's worth of access to the biggest content entertainment collection out there on the planet.

That sounds like a great deal to me, and I think it sounds like a great deal to most everybody. And the business has been pressured. It's been tested through economic cycles. So I just think that they're recessionary resistant. And then there's something else that's happening. Industry's gone through consolidation. 2018 and 19, where everybody was entering

into the streaming wars. And then we peaked when Disney's fired at CEO for running up streaming losses too high and ever since then we've had nothing but consolidation and everybody wants to sell it well I'm exaggerating but everybody wants to sell their content to Netflix now and Netflix at the end of the day is sort of taking share in this market and then there's something else they're proving that they have pricing power like if you have a media company with pricing power, you know, you don't get too many of those.

Spotify has it. They're going to come up with a super fan plan. They got 269 million paid subscribers around the world who pay them. I forget it's like $13 a month or something like that. You and I both know we all three know that we can probably name 10 of our friends who are really passionate about music and would spend 25 bucks a month for some really nicely curated early release version of Spotify. They're just passionate.

They have all their playlists and their party lists, et cetera. So I just think that there's, and that's the side. Yeah, I think Spotify is the price and power. Netflix does too. And Netflix is going to, I think Scott will appreciate this Netflix is gonna recreate the bundle That's their strategy. You remember how much you paid for your cable bundle? I forget 40 50 70 80 bucks a month and Netflix has got all of that, you know high-end production content But they're gonna bring in more and more live events more fights more sports and eventually you're gonna get real big

You know league sports on there because they're gonna have the ability to outbid almost anybody for them so I just think they're gonna recreate the bundle so the top price on Netflix today. Is any twenty four ninety nine I bet you know a dollar big bet for me that within ten years that top price on Netflix for that big bundle that they got with all the slide entertainment that's gonna go to 30 It's gonna go to 35 bucks and people will pay for it because they're gonna recreate the bundle for you So I think that's why Netflix and Spotify today, you know I've been I've been outperforming not just here to date but the last you know, 18 months the stocks have done Well recessionary or system. That's the most recent thing expanding market share Industry consolidation and then their profit ramps. They both have shown this really nice improvement in margins. I found it so interesting how unanimous the market's reaction has been to this Netflix is

recession resistant point. To me, I think of it as more of a question. A recession is coming. Will people cancel their Netflix subscriptions? To me, that's an open-ended question. The market believes wholeheartedly, no, they will not cancel their subscriptions. Or if they do, they'll downgrade to the ad-supported tier. The market is not concerned about people cancelling. And I'm just wondering, is that a new phenomenon?

Do you think that maybe three, four, five years ago, had a recession been on the table, do you think that Netflix stock would have reacted in this way? Or are we in a new environment where Netflix is so systemic, the content is so important to people, that it's just recession resistant now? Well, what's implied in your question is a really useful and helpful warning, which is that these are deep consensus longs, Netflix is, and everybody's cyclical at some point or another. So I'm sure if we had a severe recession, I'm sure that Netflix would be impacted. It does seem like entertainment spending holds up relatively well.

I think it's true that, you know, filmed entertainment spend actually rose nicely during the Great Depression. I've always heard that. Maybe I saw that on the Internet somewhere. So it must be true. But anyway, Netflix has been tested. I mean, it's gone through economic cycles. This one, unlike Spotify, has been public for 25 years. So we've seen what's happened to it. Now it's much more mature now, much bigger than it was in the past. And so the one scenario that you mentioned, which is what I would watch out for, which is, uh, are you going to see people stick with Netflix, but trade down? Uh,

I think that's a real, I think that's a very plausible outcome. Uh, I, I do, I do think it's deep consensus thinking. So that could be dangerous that it's recessionary, uh, resistant. I'm curious, Mark, do you cover or do you have any, generally any thoughts about Reddit? My sense is Reddit might be, uh, I'm always trying to think who's the next, who joins the Magnificent Seven? And I've always thought,

just given its sheer scale of traffic, that Reddit is a candidate. Your thoughts? My biggest concern on Reddit is, I think they've got this great growth, but at the end of the day, the revenue comes, maybe they haven't rolled out

any sort of subscription revenue yet. I think, I mean, I would want to watch that but It's it's a mid-tier ad platform and I've never really seen a mid-tier ad platform break through whether a snap Pinterest Twitter None of them have ever done it because at the end of the day you got to go to marketers and you got to say Yeah, spend some of your money shift some bucks away from and you gotta say, yeah, spend some of your money, shift some bucks away from linear

or break it away from meta or Google and spend it on my platform. And the marketer is gonna say, because your targeting is better or your reach is better, your frequency is better, why? Other than just simple diversification. And I don't think that a mid-tier ad platform has ever really been able to

effectively answer that question. And that's why, unless you're something really out of the blue like TikTok, I just haven't seen anybody really break through and generate $10 billion of ad revenue. I hope I'm surprised one day, but that would be my biggest concern with Reddit. But everything I've seen so far is very intriguing. My thesis is that Medi could put Pinterest or Snap out of business in about 12 months and decides not to so they can claim with the FTC and the DOJ they have actual competition. And these guys have just, it feels like they've just gone sideways for the last five years

and they're always kind of the little engine that could but doesn't. Do you think that the same is true? I'm curious, you have so much expertise and insight around Uber. Like what happens to Lyft? What, it strikes me that it's overvalued because people believe someone's going to come in and acquire it and it doesn't happen. Where, where does, where does Lyft go from here? I don't know.

I'm pretty cautious on Lyft just because it's the, uh, distant number two in the U S market. Now they're trying to expand internationally. They just acquired an asset in London, I think, like a taxi service. I forgot the name of it. And so geographic expansion is a good thing, but you know the problem with being a distant number two is that your economics aren't in your own hands. And so in the December quarter, Lyft stock traded off aggressively on their print because they had a surprise price action that occurred late in the quarter.

Uber came in and lowered prices aggressively and it caused Lyft to miss its numbers. And well, to me, that's why want to be careful about buying second tier assets and so I sort of I'm on the sidelines on the stock I sort of you as a. As maybe more of a trading asset than an investing asset for really nimble you know traders you know they want to move in and out of the stock when the valuation gap widens particularly wide and jump in and sell it when it narrows. Okay, I understand that. And that's a very valid way to make a living. It's not what I would suggest for retail investors. A few months ago, you said that there were three big wild cards for tech and for internet stocks in 2025 and they were regulation, tariffs, and M&A.

A lot has happened since then. Uh, today, what would be your three wild cards? Or perhaps they're the same. Well, there'd be a fourth one, which is recession. That wasn't in my forecast three months ago, not that I make recession forecasts, but tariffs. I mean, the tariff wild card became a lot wilder than I would have thought and the market as a whole would have thought. Regulation.

I don't know if we still haven't had any anything that's meaningful yet to tech. I haven't seen any material deregulation yet. Maybe I missed it. But I'm still I'm still watching for that. We've had a terrible wild card get played. It's going to get played for a while. And then what's the third one? Oh, M&A. Yeah, it does seem like there's more M&A that's being allowed now.

Google buying whiz security software company. There's smaller acquisitions out there. So I just think that that's kind of more allowed now. But of those three wild cards, the beginning of the year, the one that's the one that came through in spades, if I'm not ruining the analogy, is is tariffs. And actually, it turns out the market does have a good hand is tariffs. And, well, actually it turns out the market does have a good hand because the thing that's really changed administration policy has been a market that said, you know, no moss, we disagree, we're going to tank the markets. The bond market seems to be the king

or queen. Mark Mahaney is a senior managing director and head of Evercore's internet research team. Mark has covered internet stocks for over 25 years and has been consistently recognized by institutional investor for his research, including 17 years as a top three ranked analyst and five years as a number one ranked analyst. I want to have that stat. I'm jealous. Thank you, Mark, for coming on.

It's always good to hear your perspective. Thanks, Ed. Thanks, Scott. Thank you, Mark. It coming on. It's always good to hear your perspective. Thanks, Ed. Thanks, Scott. Thank you, Mark. It was good to see you. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Allison Weiss, Mia Silverio is our research lead, Isabella Kinsel is our research associate, Dan Shalon is our intern, Drew Burrows is our technical director and Catherine Dillon is our executive producer.

Thank you for listening to Prof2Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on Markets on Monday. Help me in kind reunion As the world turns and the dark lies