The Compound and Friends - Nick and Jessica on Tech Earnings, Mary Meeker’s AI Tour de Force, ARR Models

Episode Date: June 10, 2025

On this TCAF Tuesday, Josh Brown is joined by Nick Colas and Jessica Rabe of DataTrek Research to discuss why February was probably not the top, how expensive US tech stocks are, AI, sports and more! Then, at 49:30, hear an all-new episode of What Are Your Thoughts with ⁠⁠⁠Downtown Josh Brown⁠⁠⁠ and ⁠⁠⁠Michael Batnick⁠⁠⁠! This episode is sponsored by Betterment Advisor Solutions and Rocket Money. Grow your RIA your way by visiting: ⁠http://Betterment.com/advisors⁠  Cancel your unwanted subscriptions today by visiting: ⁠https://rocketmoney.com/compound    Sign up for ⁠⁠⁠The Compound Newsletter⁠⁠⁠ and never miss out! Instagram: ⁠⁠⁠https://instagram.com/thecompoundnews⁠⁠⁠ Twitter: ⁠⁠⁠https://twitter.com/thecompoundnews⁠⁠⁠ LinkedIn: ⁠⁠⁠https://www.linkedin.com/company/the-compound-media/⁠⁠⁠ TikTok: ⁠⁠⁠https://www.tiktok.com/@thecompoundnews⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. My name is downtown Josh Brown and boy, are you in for a treat. This podcast is sponsored by our friends at Betterment Advisor Solutions. We are also sponsored by Rocket Money. Rocket Money is a personal finance app that helps find and cancel unwanted subscriptions. It monitors your spending, helps you lower your bills so you can grow your savings. They may even try to negotiate lower bills for you. If you can imagine that. They will deal with customer service for some of these things that you're just not paying for and you want to get out.

Rocket Money has over 5 million users, has saved a total of 500 million in canceled subscriptions for people. total of $500 million in canceled subscriptions for people. Cancel your unwanted subscriptions right now. Reach your financial goals faster with Rocket Money. Go to rocketmoney.com slash compound today. It's the return of Nick and Jessica. Nick Colas and Jessica Rabe, my friends at Data Trek Research, are back on the pod. We went deep on earnings and we took a look at

technology in particular and what's been happening in markets. I think it's a really interesting conversation. So great catching up with Nick and Jessica. Then it's an all new edition of What Are Your Thoughts? You could call this one the AI edition. We went nuts on AI. Mary Meeker's new 340 slide deck came out and we'll distill some of the more important insights from the research that she released. We're also going to talk about mystery chart and we'll do a make the case stock and there's so much more. What else could I tell you? We're going to send you into the show right now. Thank you guys so much for listening. Hope you love it. Duncan, John, do your thing. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael

Batnick and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. This episode is sponsored by FM Investments. Investors concerned about inflation should take a look at an ETF called RBIL. RBIL is an ETF that harnesses the inflation-protecting power of TIPS.

Those are Treasury Inflation-Protected Securities. They're issued by the U.S. Treasury, the full faith and credit of the U.S. government. And the principal and coupon of TIPS adjusts daily based on changes in the CPI. Arbil makes investing in tips as easy as buying an ETF. Check it out today for potential yield and as a hedge against inflation. You can find the link in the show notes or go to USTREASURYETF.COM slash ETF slash Arbil.

All right, welcome back everybody. My name is Downtown Josh Brown and this is an all new edition of What Did We Learn? As usual, I'm here with my friends Nick Kolis and Jessica Rabe. They are the co-founders of Datatrek Research and the authors of Datatrek's morning briefing newsletter which goes out daily to over 1,000 institutional and retail clients. They're also two of the smartest people I know. And in Jessica's case, one of the most daring people I know, which we'll talk about toward the end.

Nick and Jessica also have their own YouTube channel, which you can find a link to in the description below. It's been a few months, mostly my fault, but we're all together. The three musketeers ride again. I'm super excited to see you guys. Uh, everything's going well. Very well. Thank you.

All right. Um, I want to start where you guys want to start, which is S and P 500 valuations. It's actually been a minute, um, since I've kind of looked at this because we kind of came into the year at a somewhat elevated multiple. It felt justified because we had the deregulation president and the extend the tax cuts president. Then it became, oh, wait a minute, it's the tariff president again. The multiple got derated. There really wasn't an earnings hit, which I think is the thing that people were expecting

would happen next and maybe it will. And that derating went away and we got the old S&P multiple right back. At least that's the way I remember the last few months going. I'd love to just hear your take on what we've seen so far and how you're thinking about valuation of the stock market overall today. Sure. Let's pop up the first table because that's a good launching off point. This is a chart that we show our clients pretty frequently now and they really like it.

They don't really like the message, but they like the process. Let me describe what it shows. In the columns, it has PE multiples, forward PE multiples, anywhere from 14 to 24. 14 is the trough over the last 10 years, 22 is the peak over the last 10 years, 18 is the average. And then we've stuck a super peak confidence number on the far right-hand side because what PE multiples ultimately show, which Joshua alluded to, is confidence, confidence in future earnings. And so we run from low confidence at 14 times to peak confidence at 22, and then super peak confidence, which we've never seen outside of the 1990s.com

bubble at 24. The rows show earnings expectations over the next two years. So this year, the streets expecting the S&P to earn 264, we haircut that by 10, 20, and 30%. And then we look at 2026 earnings of $300 a share and haircut that by 10 and 20%. The reason for the haircuts is because estimates always come down over the course of a year

unless you're coming out of a recession. Numbers are always too high, they come down. So we've got to haircut those numbers a little bit. And what we do now is then code the numbers, basically the implied S&P fair values, for red meaning lower than today, black meaning roughly equal to today, and green being higher than today. And as you can see, every upside scenario requires you to have maxed out confidence in corporate earnings, even just staying where we are.

And if you expect upside, you basically have to argue for P multiples that we have not seen in a very long time. Super peak, super confident numbers. So a chart basically shows that we're priced for pretty close to perfection. And if you want to believe the S&P really has a rip from here, 10%, 20%, you've got to believe not only in very strong earnings next year, you've also got to believe the market's going to pay almost superhuman kind of multiples for that earnings power. So this is such a great chart.

We'll leave this up for one moment while I talk over it just so the people watching can understand what we're saying. So the current estimate for full year 2025 is $264 per share. The only scenario in which the market doesn't fall 10% is if we have a peak confidence multiple to end the year at 22 or higher. Is that the most salient way to think about this year based on this chart? So in other words, at a 22 multiple on $264 a share, that puts the S&P at $5,819, which is just shy of where it trades today at about $6,000. Am I saying that right?

Bingo. Perfect. Okay. For there to be upside this year, you either need huge earning surprises throughout the course of the year to the upside, or you need a super peak confidence multiple of 24. And even at 24 times that current estimate of $264, that's only 6% upside in the stock market from today's level. Right. Now, keep in mind a surprise, you know, companies- Chart off, John. Thank you. Companies surprise to the upside every quarter, but it's because analysts have cut their estimates

by 4% to 5% during the quarter. So you end up basically right where you started from. It's the game that Wall Street plays with the companies they cover. They want them to beat, so they cut during the quarter, the companies beat by the amount that was cut and we're all sort of seemingly happy. So those numbers are pretty solid numbers. At $264 for the year, we're going to be lucky to hit that number, which is probably going to be more like $260. So we can't expect big earnings beats on an absolute basis relative by quarter. Absolutely. Absolutely for the year. Absolutely not. Okay. And Jessica, you wanted to show why valuations are so high. And I think you have a chart illustrating 12-month PE, forward PE ratios.

You want to pop that up? Tell us what's going on here. Yeah. The point here is basically that the S&P 500's valuation premium versus its longer run average isn't just because of tech. So this chart from Faxset is a comparison of sector level price earnings ratios now versus their 10-year average. And you can see the increase or decrease in forward earnings multiples in green, which are the current multiples

higher than the 10-year average, and in red, which are lower than the 10-year. And then obviously, for real estate, we use the five-year average since it's a newer sector. But just three points on this chart quickly. The first is that the S&year average since it's a newer sector, but just three points on this chart quickly. The first is that the S&P 500 currently trades at a 2.9 p.e. point premium to its 10-year average at 21.3 times versus 18.4 times, which is a 16% difference. And it's also important to note that that multiple expansion isn't because of interest rates. The 10-year Treasury note currently yields 4.5% and its 10-year average yield is only 2.6%. And second, as you would expect, technology, of course, has seen the largest increase in multiples. These

stand at 27.2 times today, up 5.5 points or 25% from their 10-year average of 21.7 times. And they're even 1.6 points above their 5-year average of 25.6 times. So despite higher rates, tech has still seen the greatest multiple expansion of any S&P group relative to its longer-run average. And then third and lastly, most S&P 500 sectors are trading two to nearly six points rich to their 10-year average P-E ratio. The only exceptions are real estate down one P-E point from its five-year average, energy

down 0.5 points from its 10-year average, and healthcare down 0.3 points. Those are understandable given the ongoing trouble in real estate and healthcare and the reliance, of course course on commodity prices for energy. But most importantly, all the other sectors' abilities to overcome higher interest rates suggest that investors do believe their structural returns on capital are higher than the average of the last decade. So the upshot is that while tech has led the pack higher to higher US large cap tech stock valuations over the last decade. Seven of the other S&P sectors have also helped.

So this isn't just a tech phenomenon. Right. So when people say the market is expensive relative to its 10 year average or its long run average, the answer to that is not just, well, of course they're overpaying for mag seven because you guys are illustrating financials are 3.2 percentage points above their typical multiple. I guess here would be my first question. Doesn't it make sense for consumer discretionary, which has a lot of tech in it, information technology itself and industrials to be at a 16 to 18% premium to historic multiple

if we all agree we're in the midst of a technological revolution right now. And I know there are people that always, it's always a technology revolution. Very, very acutely, we're having this AI related build out. And maybe those elevated multiples make sense and we could just quibble about we should be 10% overvalued, not 20. We could have that debate. But I think most people would agree historically when we're going through a revolution, which is not all the time, stocks do become more overvalued and can stay that way for years.

Yeah, I mean, that's absolutely sound thinking. I think if the markets learned one thing over the last 30 years, and that is that the market itself undervalues human ingenuity, human innovation consistently, and that's been the only real arbitrage. It's been the only real place to make long term money. So if you think about the top stocks over the last 30 years, the Apples, Microsoft, Tencent of the world, technology led innovation. And then if you think about non-tech companies, you know, Walmart's on that list, Costco's on that list. And it's human ingenuity in the form of excellent management that drives those returns. So the markets learned, yes, technology is the only thing that reliably improves returns,

reliably creates long-term winners, aside from the handful of companies that can grow consistently because their managements are just awesome. So again, now that we've got Gen. AI in the mix, that's what you have to believe. What you outlined is the bull case, and you have to embrace it 110% if you want to be long here. Because as that first table showed us, if you don't believe it 100%, if you don't believe multiples go to 24 or 25 or 26, it is super hard to create a strong upside case for the S&P here. So you put your finger on it, but the reverse side of that coin is you have to believe it 110% or the markets are revalued.

Okay. So we're 21 times forward earnings now market wide. What did we get to on April 9th at the bottom? April 9th at the bottom was like roughly 5,000, right? So looking at that table, just giving a quick scan, you're talking about it being between, call it 20 and 22 times a haircut to S&P numbers for the year or between 18 and 20 times if you believe the current estimate of 264.

So call it 19 times. Okay. So we had a night. So this is I guess my next question. We had a 19.6% peak to trough sell off for the overall S&P 500. And we still didn't become a quote unquote historically cheap stock market. No, and we didn't need to in order to bottom. And from my perspective, that's like a really telling, that's a really telling thing as well. That's true on a valuation basis. Let's not forget that the VIX got to 52 on that day. And that's a

forced standard deviation move the likes of which we had not had since the pandemic. So it's not forget that the VIX got to 52 on that day. And that's a forced energy deviation move, the likes of which we had not had since the pandemic. So it's not just, you know, the size of the move, the speed of the move was just intense. Do you guys agree with me that what saved the day was not necessarily one specific tariff announcement or tweet, but it was really like the doubling down on AI spend from the five largest companies. Every one of them reported in April and said, full speed ahead, CapEx unchanged. Because looking back on it now, those were the moments where I personally got less bearish.

And in early April, I was like, all right, I guess they want to have a recession. But when you heard companies say, no, we're still going to spend $80 billion. No, we're still going to spend $100 billion. I felt like those were the moments where the stock market second thought tariffs are going to drag us into a recession. But what do you guys think? I'll take a stab at me, Jessica has a thought as well. I think the reason we're at 6,000 on the S&P is because more the latter, more the fact that capex spend seems to be still on track.

The reason we turned in early April was because there was a massive change in policy. And that's the way it always works. That turn is so visibly connected to the 90-day truce on the trade war that I think it's undeniable that caused the turn. No, I think it was the catalyst. But like to your point, like I think the reason we're hovering here at 6,000 is not because there was a change in policy, because again, we're still in these tariff wars with everybody that matters other than the UK. We don't have a deal with Europe. We don't have a deal with China.

No, closer to it maybe, but I think though the market learned that as much as Trump can be aggressive, when he gets too aggressive, the market expects him to fold like he did earlier in April. And that's what allowed stocks to turn and start rallying. Okay. Yeah. It's a combination of just kidding about 145% tariffs. We're not really going to do that, of course. But then also, companies didn't respond by getting extremely risk off and defensive. They just, they kind of like, they call,

I feel like corporate management sort of called the bluff and didn't overreact and didn't start laying people off. And we had an upside surprise on NFP in early May for the April number. And then another one in June. And I feel like companies just kind of said, we'll get through this, we're not going to do anything crazy in response to these announcements.

That's on the track. That's true. But you know, companies don't move that fast. You know, this whole thing, you know, unwound so quickly, there wasn't time to call a board meeting and, you know, have finance gin up a 50 page presentation of different scenarios for layoffs. It just wasn't time. But at at time people started thinking about it. You know, Trump pulled back and everything was over.

Okay. Um, so, so this is a pretty notable, uh, moment like, um, in the history of markets, but I know we're going to talk about 1994, which is a year where there were some similarities to this year, just in terms of when the peak of the market took place. And it was a market shock that came, you know, kind of exogenous. So we'll talk about that. But as kind of a segue, you know, I wanted to ask you guys like, and maybe you don't have like an academic answer, but like, we're at an elevated market multiple, but I guess,

are these multiples crazy or should or they do they kind of belong where where they are just given the success that we've seen in the last earnings the last quarter? Just as an example, these companies are so good at continuing to grow profits and preserve margins and they proved it yet again. And my colleague, Cali Cox says, 2021 and 2022 supply shock and inflation shock was sort of a dress rehearsal for the tariff moment. And even in the last three years, companies have gotten better at being companies, would be the way I would phrase it.

And I wanted to show you just for the hell of it and get your reaction before you guys talk about 1994. These are the top 10 market cap companies 30 years ago and year end 2024. And the thing that should be jumping out at people is the profit margin. So 30 years ago, the top 10 companies that made up market cap was like Exxon, Coke, Walmart, Merck, Procter & Gamble, IBM, Raytheon, Microsoft, J&J, Chevron. Just eyeballing the profit margins here. 5%.

Coca-Cola was 18%, but there's an asterisk and I didn't bother reading why. Walmart 3%. Merck 10%. Procter & Gamble 12%. IBM 10%. Raytheon 8%. You get the idea. Here are the 10 largest market cap companies today.

Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway, Eli Lilly. With the exception of Amazon, every one of these companies is mid-teens to mid-thirties percent profit margin. If we were to have an elevated multiple relative to history, maybe this is the right multiple, like the right level of elevation. I'd love to get your thoughts on what I've laid out here, guys. I'll take a stab since I'm probably the only person on the screen that was sitting at a Wall Street morning call in 1994.

I was in 11th grade. Okay, yeah. I started at first Boston in 91. So 94 is a very vivid memory to me for reasons Jessica will actually outline. That table is an excellent table and it does highlight the profit margins are much better, but it misses a really important factor. And that is the capital efficiency is so much better than it was. So if you look at Apple, Apple doesn't own factories, it outsources everything. Same with Nvidia. So not only do you have very high margins,

but you have ridiculously high asset turns, meaning how many dollars of capital does it take to create a dollar of revenue? And the combination of that means, ExxonMobil might've had a 15, 18% return on equity from what I recall from hearing the oil analysts in 94. Apple's is 100%, 100% return on capital. Not only does it have high margins, but it has no assets.

It outsources everything. So the combination of those two things creates very high multiples. I don't think anybody argues the idea that Apple should have a higher multiple the next time in 1994. But the question is how much higher? And that's the hard thing. That's the hard thing that every investor around the world is struggling with right now. What do I pay for US tech stocks because there's so few cups?

I just don't know Tencent's not a comp SAP is not a comp So what do I pay and the answer right now is if the news is good I pay more if the news is bad, I pay less but still though is gonna be high We can't we don't know a number. We just know higher or lower. Yeah Well, I think it just speaks to how How much our companies are scarce assets. So we visit clients, money managers, business leaders

in Europe often. And the universal feedback is that global equity investors have increasingly recognized the superior ability of US large caps to create shareholder value over time. And so they want to own them as a result. They just don't have the kind of tech or high quality growth companies we have to invest in in their home countries. And again, that makes that makes our scarce assets. So one of the things that I've been talking with people about this spring is that that's the part of the equation that could be

changing. And just like corporations, institutional investors, global portfolio managers, they tend not to do things quickly either. But there's a growing sense, especially if you talk with people from the hedge fund world, that where the puck is going is just global investors wanting less US than they did even a year ago, just given some of the policy uncertainty and some of the let's call it spontaneity in the way the president announces things. I mean, it'll be years before we could look back and say that there was any truth to that. I'm just curious if you guys are getting that sense when you talk to some of your clients

from elsewhere outside the United States. Not even close. No, I understand that's the- You think that's overstated at risk. I understand that's the New York hedge fund vibe. I get it. We all live in it. But when you actually talk to these investors and talk to the people who are managing their

money, they are still full bore believers in the US story. Jessica, you asked a question and it seems rhetorical. What year is it? So I think it's 2025. But what's on your mind right now? Yeah, I have two historical comparisons for the S&P 500 and NASDAQ that we think provide useful roadmaps for the rest of this year. So I thought we'd start on somewhat of a cautious note for the S&P because since 1980,

there's only been two years when it peaked in February, and that's 1994 and this year to date. And we have a table we've actually shown you before with the number of times the S&P has reached its tie for the year in each month back to 1980, along with the average annual returns for each scenario. And as you can see in the chart, it's very rare for the S&P to peak early in the year. But when it does, calendar year returns are disappointing. And that's because stocks usually rally through the entire

year during bull markets, and we've had five of those since 1980. In 1994, the S&P posted a 1.3% total return, which while not terrible, is still well below the usual average of 10 to 11%. Aside from 1994's February high, that year was also similar to now because there was a large negative macro surprise back then that's pretty comparable to now. So in February 1994, the Fed started an aggressive tightening cycle that no one expected. And things were really different back then because with Fed Communications, they only came really twice a year when the chair briefed Congress. On top of that, Fed Chair Alan Greenspan was famously and purposely vague about his views. The bottom line here is that the 1994 rate cycle was a huge source of investor uncertainty all year. And this

year, of course, there's been an economic shock with markets caught off guard by Trump's aggressive trade policy, which was also a genuine surprise to markets. So we have a chart that compares index daily returns for the S&P in 1994. And you can see it in the blue line and 2025 year to date in orange. I have three quick points here. The first is that as you can see in the chart, this year's trade and tariff policy shock caused a much deeper pullback than 1994's Fed policy shock. But stocks have also rebound much quicker, and that's because the administration quickly changed policy by laying tariffs by 90 days because of all the market volatility, its initial moves caused. And second, 1994 is a cautionary tale about how ongoing policy

shocks throughout the year can kill rebounds and keep stocks under pressure. And you could see that the S&P had a lot of fits and starts as the market dealt with a whole series of rate hikes throughout 1994 and with little guidance from the Fed about when they end all in all the FOMC rates by a total of 250 basis points that year, including a rare and large 75 basis points that November. And then third, so far the US equity market is saying that this year isn't necessarily like 1994 with its long series of unpredictable policy disruptions. Fortunately, the S&P has bounced back and it's now up on the year.

Thanks almost entirely to hopes for more reasonable US trade policy. So just summing up this first comparison, the lesson from our 1994 playbook is that trade negotiations need to go smoothly in order for US equities to rally from here. So far so good on that front, but the year, of course, isn't even halfway over. The initial rate, rate hikes that Greenspan did in 1994 were such a surprise, not just because they were aggressive, but they happened off schedule, I think, or some of them did. Nick, do you remember any of that firsthand? Sure. I was there. I remember vividly. They were all at regularly scheduled meetings,

but February was the first time ever the Fed put out a press release the day of a meeting. First time ever saying, oh, we're raising rates. I remember that day vividly, and it was like, what the hell is going on? Why is the Fed telling us about this rate hike? And so it was a series of shocks, but on a regularly scheduled basis, if you will,

but still quite alarming because we just didn't know how high they were going to go. And so it was a series of shocks, but on a regularly scheduled basis, if you will, but still quite alarming because we just didn't know how high they were going to go. Why did they do that? They were worried about inflation starting to appear or had it already appeared? It had started to appear and the economy was really chugging along. And the Fed's actually done a lot of forensic analysis on what went wrong in 94. They've written whole papers about it And they recognized that they just didn't warn the market enough because of this very intermittent

Communication policy that Jessica outlined, you know twice a year basically But they did it because they're worried about inflation and where the economy was really beginning to overheat after the recession in 1990 due to Gulf War one and a very slow recovery from the 90 recession 91 recession that finally gained steam in 93 It doesn't appear that that pullback for the S&P was terribly significant at least given what we've all lived through in the last five years But at the time it was unnerving Because there probably aren't a ton of examples, post Volcker of a Fed share knocking the market around to that extent.

I think the people who had been trading in 1994 who lived through the early 80s, they probably said, you ain't seen nothing compared to what the Fed chair used to do to the stock market. But I think like it almost seems quaint at this point to look at 1994 as though it were some watershed moment for the market because it just doesn't appear to be that big of a market disruption compared to the tariff thing this spring. It was if you live through it, because rotation Cyclicals had been the winners from 91 to 94 I was an auto analyst and I was like the rock star literally the rock star analyst of first Boston I was covering all the hot stocks

I was the tech analyst of the day and then when I tried to raise rates the lights went out Cyclicals stopped working and if you want to pinpoint the beginning of the 95 tech bubble which Jessica will discuss in a second It was because of this rotation in 94 because investors started saying, oh, if the Fed's raising rates, I need to go to growth stories. And that laid the groundwork for the entire 95 to 2000 tech boom, which Jessica can discuss now. So you think that that set us up for it was absolutely, it was absolutely the setup until 94 cyclicals were the only place to be. There was an old joke about tech analysts. How do you get a tech analyst out of a tree?

Cut the rope. That was how bad the tech sector was in the early 90s. Oh my God. Jessica, can you top that? No. All right. What was the other point that we wanted to make before I attempt to make a point? But the similarity to 94 was this disruptive moment in the spring and the market pullback

that we eventually recover from. That year ended plus 1%. Where are we now, year to date, on the S&P? Is that about where we stand today? We're up 2%. Up 2%. OK. All right.

Any other lessons from that time that are worth getting into? I think it's just how important policy is. And that can trump fundamentals because when you have a policy shift, like in 1994 and this year, you get worried about recession. You worry that corporate earnings can fall as much as 25%. So that's why you have such a strong reaction in the markets when there's a positive or when there's a negative policy shift, but then also when there's a positive policy shift. So I want to throw something at you guys. One of the conversations that I think has been going on for years now, but has sort of

intensified in the wake of the market recovery is that companies are just better at being companies. They seem to be more resilient. People who manage them seem to be way better at their jobs on average than perhaps the people who manage corporations in, for example, 1994. The analogy that I try to draw for people, I guess because it's NBA finals time right now, but I think like most people would say, there were amazing basketball players in the 90s, of course. But I also think most people would say on average, the NBA player, not star, but player

today is a better player than the average NBA player back then. And that doesn't diminish the accomplishments of the NBA players. It's just like similar corporations. These companies are just better at dealing with policy shocks, inflation, supply chain problems. So one of the things I took a look at, even the way that NBA players were paid back then, even if you inflation adjust their salaries from, let's say, the early 90s, they still make way more today. The mid-range player is making two and a half times more than the mid-range player did in the early 90s.

And then when you look at the superstars, it's almost laughable. So I have a table. It's not particularly gorgeous, but for argument's sake, Patrick Ewing in the 1990 to 1991 season made $4.25 million. If you put that in 2024 dollars, that's still $10 million a year. I think he would probably be significantly more highly paid. Hot Rod Williams made $3 million and change. That would be about nine million today.

Isaiah Thomas would have been making $6 million in 2024 dollars. Michael Jordan is a really great example. He was $2.5 million in the 1990-91 season. That would be about $6 million today. So, it's the same sport. The sport has gotten bigger, more profitable. They make more money on luxury boxes, merchandising, streaming, a lot of things that didn't really exist to the extent they do today.

I look at the stock market the same way. All of these S&P 500 companies are significantly more global than they were 30 years ago. So I think that similarity is important that you point out. Like, hey, what if we were to top in February? And it was because this exogenous shock that screwed up the market. But my counterpoint would just be like, I bet you the companies of 2025 are going to weather that better than the companies of 2024. And so far, that seems to be what's playing out, at least when you look at the results

they reported in Q2 and the guidance they laid out. You guys have a take on that? What do you think? I'll take a shot. I'm sure Jessica does as well. I mean, remember, corporate earnings aren't guaranteed the way salaries in sports are. So earnings are going to be variable. And the thing I'd also say is that investor sentiment's

always going to be the same. People will always fear a recession the minute they see a reason to do so. So the effect on the market is going to be a lot more similar to 94 to today, simply because the investors say, oh, crap, this could be a recession coming really fast. The Fed's going too fast. The president's going too fast with tariffs.

And that net psychological effect is always going to be about the same. Whenever we see fear of recession, we see the VIX go up, we see stocks go down. And that's rational because in a recession, corporate earnings go down. They might be down less than the average recession, but they're still going to be down and markets don't know where the bottom is. So from a psychological impact, these shocks I think will always have about the same impact. And also as Jessica I think alluded to,

you have to fix the reason for the shock in order to get stocks to reverse. Right. So we sort of fixed it, not all the way, but it was enough. And I guess that's a testament to people just believing, hey, this will get all the way fixed eventually. Let's place our bets today.

Yeah, as much as Trump gets aggressive, he's shown that when the VIX hits a 52 or 4 standard deviation level, he will soften his policy stance. And that was enough to, like you said, create an inflection point where stocks could start rallying again. Okay. I want to move on to technology stocks because obviously the most important area of the market and we talk about it a lot, but you guys have an interesting way of thinking about breaking down the current valuation of technology stocks as an example, but how people are currently valuing these companies

and what goes into that calculation. Who wants to take this one? Yeah, that one's mine. So there's a table we've got which shows a calculation which I'll walk through right now. And it's something that any investor can do at home. It's very simple to do and I think very telling and a very nice way to understand how much of a stock's value is based on their current earnings power versus the future. So the way you do it is you go find the 2025 earnings estimate for a company. So for example, for Nvidia, it's $4.28 cents. That's the current estimate Then you assume that that's the company can earn forever. And so you discount it by 10%

That's the way you calculate a perpetuity value or how much this thing is worth if you get paid that number forever And that works out to be forty two dollars and eighty cents. It's just four twenty eight divided by point one That is the value of what Nvidia is worth today If Nvidia does nothing more than make its current number today forever, it's worth $42.80 a share. However, the stock is trading for 141, 142. So the vast majority, close to $100 of its value is coming from the market expecting more earnings growth

in the future, and in this case quite a bit, because what you get when you do that math is that 70%, 70% of Nvidia's value is based on earnings growth that it doesn't have yet. Earnings it doesn't have yet. And what counting on from the from the future? Yes. So if you do the same math for every other big tech company, Microsoft, Apple and so forth, What you find is the average of all of them is 68%. 68% of the value of that company is based on the future. That's very different from the S&P

because the S&P trades for 56% future value. And if you X out big tech, it's only 35%. So the market is saying, hey, if you're an S&P 493 company, we'll give you a 30% premium to your current earnings as far as imputing future value. That seems fair. Very good companies, Josh, as you alluded to. Very strong companies, good management. It's probably the best they've ever been. But 35% is the most we're going to pay. However, if you're one of the big seven, we're going to pay you an average of 68% premium. And if you look at Tesla, which is really the standout, 94% of its value is driven by earnings it hasn't made yet. And earnings power has not shown that it can make yet.

So basically the entire thing. Palantir, by the way, is the same way. Palantir trades for 95% future value. Not to say if it's right or wrong, but really the bottom line here is the market is saying, Gen.AI, all these new technologies that we've talked about, all the things that are really exciting in the market, the companies that will enjoy those gains are the big seven because the rest of the S&P trades for a very modest multiple improvement versus what it can earn today, where these tech companies, the majority,

68% of their value is driven by things that haven't happened yet. Yet nobody who's invested in Palantir or Tesla owns those stocks as a function of what those companies core businesses are circa the last three years. It almost doesn't matter. Like the people, if you talk to shareholders of Tesla, they're not interested in monthly auto deliveries because they think they own a robotics play, arguably the most dominant. When you talk to people who are long Palantir, it's not relevant to them how much the company

earned or didn't earn last year because they're thinking about AI contracts going forward as far as the eye can see and Palantir's technological advantages in those areas where they're headed, not where they're already entrenched, which is arguably already pretty impressive. So that makes sense that when you dissect these companies and you think about how much of this valuation is based on earnings the company hasn't even proven it can earn yet. Well, that's the bet that these people are making. And they'll either win or lose that bet. But that makes a lot of sense to me intuitively versus a Microsoft.

You talk to that shareholder base, of course, they're excited about future technology. But they're also equally enamored of the company as it currently exists and its current cash flows. And that's a big psychological shift, you guys are saying, versus the rest of the S&P 500 ex-big tech, where we're not really giving these companies that much credit for earnings they haven't earned yet. Does that make sense to you guys though, just if you think about this through the lens of disruptability and the disruptors versus the potentially disrupted or are we overestimating

the future potential of the disruptors and underestimating the indisruptibility of the incumbents? What do you guys think about that paradigm? Yeah, I mean, the market's saying very strongly that only these companies are companies like them because by the way, the next seven big tech names are slightly smaller tech names have exactly the same numbers as what I'm showing you on the screen. They all look like this as well. So the next seven, the Netflix of the world, the Palantir's of the world, Salesforce, they

all have the same kind of, they look exactly like this. So the market's very clearly saying, hey look, we've learned our lesson. Over the last 30 years, the biggest winners have been technology-enabled disruptors. That's what these companies are, that's why we have to bet on them.

The only other kind of big winner has been the very handful of companies with super strong management teams that have been able to grow consistently over a long period of time. Walmart, Costco, P&G, even Exxon Mobil is on the list of big 30 year winners because they have great management. So it's really hard to find great management and it's hard to know that they're going to stay great but technology is a little bit easier because you have Moore's Law as a tailwind behind all of this.

So it's easier to bet on tech, which is why the multiples are the way they are. So I wanted to share some stuff with you guys from this past earnings season, because I think it's so illustrative of why people are willing to make that bet and pay up for future tech earnings to the extent that they are. So in the Q1 reports that we've just gotten, this is via Faxset, earnings from the Mag-7 companies exceeded estimates by 14.9%. For all S&P 500 companies, earnings exceeded but only by 8%. So in a season where the upside surprise was pretty good, among the seven largest companies, it was even better.

And this is obviously a recurring theme and why these stocks got to the size that they've gotten to. The Mag-7's actual earnings grew 27.7% year over year. Big surprise. Google, Nvidia, Amazon were among the top five contributors to earnings growth for the whole market. Sean put together for me the top two performers year to date, stock price, Meta and Microsoft. One is up 19%, one is up 12%.

The bottom two are Tesla, negative 27 and Apple down 19. So you have dispersion in share price even among the top seven. Even though as a group, they're still shocking us to the upside. And as a group, they're still far out. I know it's only seven stocks, so we're not averaging from. But just thematically for the investor class, they keep making this bet, the bet keeps paying out. Last thing, six out of seven of the Mag-7 companies had a positive earnings per share surprise. 78% of the S&P 500 components. So the whole market had a good earnings season, better than most of us thought would be possible.

And even in that climate, these seven names as a group, with one exception, were able to continue to surprise the upside. And that, I think that really explains beyond the imagination of like the robots driving us to work, et cetera, et cetera. Just like from an earnings standpoint, it explains why people keep making that bet and why that bet keeps paying out. What do you think about that concept? Yeah, it's true.

I mean, the long termterm for investors is ultimately, a bunch of quarters, right? The long-term is 10 quarters, 20 quarters, 30 quarters, but we measure them by quarters. And if you get a good quarter, your confidence in the long-term begins to go up a little bit. And let's just remember, even though these are just seven companies,

they're 32% of the S&P. They're a dominant part. They're dominant for a reason. And you know, they're gonna continue to be, or something new comes along, maybe OpenAi goes public in a couple of years and becomes, you know, a multi-trillion dollar company. So whatever technology disruptor exists in the US market

and is US listed, is gonna end up at the top of the S and P league table. It's just gonna be that way for the rest of our lives. That's going to be the driver. Oh, Jessica, please go ahead. I was just going to say markets have a over the long run, have a difficult time discounting innovative disruption. And that's why these types of companies outperform over time.

I wanted to ask you, is there an upside, potential upside catalyst for the overall S&P 500 as we see more companies in the index adopt the strategies and tactics of the big seven and attempt to look more like them in their revenue models, in their client acquisition strategies. In other words, do the Mag-7 serve as some sort of a beacon that the 493 could ultimately pattern their businesses after and ultimately drag up the earnings growth of the overalls? Or is that asking too much of companies that are just not in the tech sector themselves. I'll take a stab at it.

I did this math that I just showed you, but for Ford and GM. So Ford's supposed to, GM's supposed to earn $9 a share this year. So it's present value is $90 stock trades 45. So it trades at 50% discount to what it currently earns. And the reason these companies are as strong as they are is primarily because their business models are very asset light. They don't own a lot of assets.

They own intellectual capital, and they have somebody else produce the assets. And it's very hard for a company, particularly in the current environment now, to shape its capital structure or its capital intensity dramatically to lighten it up. You just can't be an outsourcer the way these companies ended up being massive outsourcers. Nvidia doesn't make anything, right?

Apple doesn't make anything. It's very hard to get to that business model. It's probably harder now than it was 10 years ago. So it's going to be difficult. It's hard to do it in the reverse order. Yes. Where you say, we make all this stuff and we're going to give it to someone else to make.

It can be done, but it's really hard to do. Hey Apple did it like there's a great book now I'm reading called Apple in China that gives the whole history of how Apple ended up being a Chinese made set of products And it started with Apple actually owning all its own facilities and Steve Jobs loved to manufacture And it took him a long time to appreciate that outsourcing was a better approach But he eventually got there and that's how the company got here to where it is today that outsourcing was a better approach, but he eventually got there and that's how the company got here to where it is today. Right. Nobody wants to be, nobody wants to publicly announce that their strategy in the Trump era is to outsource more. It's not gonna be particularly popular. Alright guys, I want

to thank you so much for your time today and I want to make sure that the viewers know they can check the link below to find your YouTube channel. Nick and Jessica are publishing their insights on YouTube twice a week. How often are you guys going live? At least once a week. We got one coming out this week. All right.

Very cool. Make sure you follow the Datatrek channel. If you love hearing from Nick and Jessica as much as I do, it's a really easy way. Also go to datatrekresearch.com and find out how you can become a client. Thanks so much for watching. Thank you guys for listening. We'll talk to you soon.

Thank you. Thank you. All right. Wait what happened in Wayne's World 2 though? I'm sorry I just I gotta close the loop on that. That was the weird one with Jim Morrison and Christopher Walken. Oh that's Wayne Stock. Not good. I don't have no memory. Yeah, they tried to put on a they tried to put on a concert.

Wayne Stock was that with ACDC. Yeah, terrible. I don't remember ACDC. So Wayne's World one was Alice Cooper and then Tia Roblowe was trying to steal his girlfriend who was in the band. What was her name? Tia Carrere. No, I know.

She's babe. We're going to play. We're going to play the show. All right. Hello, everybody. Welcome to an all new edition of What Are Your Thoughts? It's Tuesday night at five o'clock. So this is what we're doing.

Her name was Cassandra. Cassandra. Well done. Um, welcome to the show. Uh, we are pre taping this about an hour or a couple of hours before it's going live, but believe me, we're up to date. We know what's happening. Uh, my name is downtown Josh Brown for first time viewers and listeners. I'm here with my cohost, Michael Batnick. Michael, say hi. Hi.

All right. We're gonna tackle all the biggest market topics, everything that's going on right now, and there's a ton. And we have some amazing charts in this episode as well. Before we go there, we do have a sponsor. Michael, read script verbatim. That's right, Josh. Today's show is brought to you by our sponsors

at Betterment Advisor Solutions. Imagining a better future, that's the first step. Investing by our sponsors at Betterment Advisor Solutions. Imagine a better future. That's the first step. Investing in that future with Betterment Advisor Solutions is the next. Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment Advisor Solutions is here to help. They automate to make tax optimization simpler. They provide support to make administrative tasks easier.

At Betterment Advisor Solutions, they are building innovative technology for anyone who's ever said, I think I can do better. So grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com slash advisors, investing evolves risk, performance not guaranteed. All right. Thank you, Betterment. So is this a market story? Trump and Elon, I don't think they hate each other, but they're definitely not hanging out anymore. Um, Elon resigned. It only took like a week, not resigned, like a planned exit from Doge to go back to real life.

And I don't even fully understand what the trigger was for the blow up on Twitter. Maybe, maybe you could like clear this up for me. Nope. But they traded some of the most insane tweets I've ever seen to public figures trade and now it appears to sort of be cooling off. Trump said something like, I'm not worried about Elon, blah, blah, blah. And then Elon hearted it like, all right, I'll chill. This is like rapper stuff. This is, I follow all the rappers.

Like this is like, this is how they kind of like tiptoe around each other to avoid like a full scale blow up. But this one got pretty aggressive. So I have not been paying close attention to the story, but you can't avoid it. So I did see that Elon said something like Trump doesn't want the Epstein files released because, you know, he might be in them. Yeah, but we all know he's there's a thousand pictures and video clips of them hanging out together.

Like nobody would be surprised that he's all over the Epstein files. I don't even think that's a reveal. Yeah, the tweets got wild. Tesla was down what 17% on the day. And I'll let you know three days later took all the losses back It's back to exactly where it was when the losses declined, but it is a wild story If you're a share if you're a shareholder in Tesla That's like that's like a Tuesday

Like right like if you let's say you've been in Tesla since sold that 2015 right who's the person that's like, There's no person. There's no person. It's Algo's. No way. No way. It's the biggest market cap loss for any stock in one day ever, I think. I don't think a stock has ever lost $300 billion in a day. All right. Well, I say it's only Algo's.

I mean, I'm exaggerating, but there's there's been so many headlines and crazy Elon stories over the years. If you stuck with him through all of it, you're selling because of that. Give me a break. And in fact- That's my point. Who is like, oh, wait a minute, this is too far. He's calling the president of the United States a pedophile.

That's where I get off. Right. Come on. It is- How long did it take for the stock to recover? Three days. Three days. So I don't think any real shareholders are selling. I mean, to your point though, is it a market story?

It depends. Yes. It depends. It's a big stock. So there was an article in Bloomberg. Morgan Stanley hunts for ex-AI debt buyers after Musk-Trump feud. So they're trying to raise a couple billion dollars. They're having a harder time.

They're looking for smaller checks. All right. So Morgan Stanley owns the debt of formerly Twitter, now XAI as part of their banking relationship with Tesla and SpaceX. That was a no brainer for them to take that down. Great. So they're looking for people to offload it to? That's the story? They're still raising money. So, uh, they should sell, they should sell it to their wealth management clients like, like usual. Why is this so, uh, all right, put this chart up. This is Tesla versus the, uh, triple Q's. Um, to your point, like, this is way wilder than riding the Nasdaq, but, you know, it's sort of like, always comes back to whatever the large cap tech world is doing.

Why anybody thought that this would be like, the end, is, and I'm not even, I'm not a long, I'm not a bull. I just, I have no involvement whatsoever for my own sanity. But, it just strikes me that this company has been through way worse controversies. It is wild that the fundamentals for Tesla as far as the stock price is concerned is Elon's behavior. It doesn't really, the quarterly reports don't really matter. You know what's interesting about what you just said?

The fundamentals actually are terrible. What's really exciting about Tesla is what they're working on in terms of AI and robotics. It's not even clear that the AI stuff is part of Tesla. They're probably going to have to acquire XAI, which will happen the next time the stock rallies, they'll do it. But no, the taxis are not, there are no earnings estimates for the taxis for this year. No, no, I'm saying it's definitely part of the story for sure. The growth engine. Oh, big time. Right. So he thinks the, he thinks the Robo taxi business is a trillion dollar business and Kathy Wood thinks it's a five trillion dollar business. 20

trillion. 20, my bad. Um, the robots, so if you own Tesla right now, you don't own it because whatever their car delivery is going to be next month. Spoiler alert, it'll be worse than you think. You own it because you think this guy's going to invent the de facto physical AI thing that becomes the best thing. Like that's the, that's the ball case. And you know, he's done it already with electric vehicles. So it's not, it wouldn't be that shocking if he did it with robotics. No, it's kind of wild.

So the shorts have been mostly cleared out. It was up to 25% of all shares outstanding were, were sold short, but it's still, it's still 2.7%, which is kind of high. Nvidia is only 1%, for example. Like who the hell is still- There's a 2X short Tesla ETF. Does it do volume? Is there AUM in that thing?

Why would you be short Tesla? It's just like- Well, Mike, the stock got cut in half this year. I know, but- I know it's rebounded, but it dude, there's no extra points for difficulty. Oh, I don't want to. Like there's way easier ways to lose money. I spoke to one of the more well-known shorts of Tesla and I'm still there.

No, but it's, most of these guys converted their short positions to options and they're talking publicly less, but they're still hanging, they're still hanging around because nothing has changed in terms of how they feel about the way the company is, is run. So the two X, the two X, this is a T-Rex product, the 2X inverse ETF only has $100 million in it. That can't account for that many short. And the long, the long has $375 million in it. The 2X long Tesla. Yeah.

Right. Did Scott Besson punch Elon Musk in the face? It appears that way. I mean, they don't have the tea leaves. Those are basically the reports, no? It said that Elon. I mean, I read the tea leaves. Those are basically the reports. No, it said that that Elon Ramton quoted Elon Ramton with his shoulder. Okay. They got into a tiff about I think Elon likes the idea of tariffs, but he doesn't like them in practice because they heard his relationship with China and China is an arguably Europe and these are really important markets for Tesla. So I think he kind of saw the rubber hitting the road

and didn't love that. He's also done things like pushed a IRS commissioner appointment where that was supposed to be Besson's purview. Like he's the Treasury Secretary. Like why is Elon Musk pushing an IRS candidate? So there's a lot of stuff like that happening really since day one. And then I think if you believe Steve Bannon, which is the source of this information, if you believe Steve Bannon, there was some sort of an exchange toward the very end in the oval where Besant said to Elon, you're a fraud, you're a gigantic fraud or something. And Elon walked out of the room and shouldered him and Besant swung on him in the face.

Unbelievable. I don't know if it's true. I'm just saying that's what. We didn't say like the Genesis. I don't think Genesis. One of the things that the straw that broke the camel's back with this relationship was the big, beautiful bill. Elion was not a fan of what was inside it, I'm guessing, particularly on the EV side. Well, so Tesla lost money last quarter, just so you understand, absent the selling of tax

credits to other industrials and automobile manufacturers. So basically, because of the way the tax code is, as you sell these environmentally friendly cars, you rack up these credits and if you don't have profits to apply the credits to, you can sell them and it's a good business. A big part of the short story that nobody cared about. Nobody cared. This is how they make all their money and it's enshrined in tax law and God bless. Good for them. Um, but part of, part of the big, beautiful bill is removing that tax credit. Now we talked about this when the idea was first floated early in the Trump

administration or maybe right around the election. And the analysts on wall street were like, Oh no, you don't understand. Actually, this is great for Tesla because a lot of the other auto manufacturers are counting on these tax credits and Tesla doesn't really need them. Tesla is the most popular EV in the world. The tax credits, whatever, throw them out. This is really going to hurt Ford and GM and Nissan and everybody else who's trying to do hybrids and EVs. That was part of the bull case for Tesla is like, oh, if Elon is saying he's for eliminating

this tax credits, he knows what he's doing. But it turned out, again, when the rubber met the road, he actually didn't want to lose those tax credits in the bill. And so supposedly that was like the proximate cause of the dust-up. Well, he deleted the tweet. So is it all good now? Scott Besson, so I was Googling pictures of Scott Besson,

and he sort of looks like he can handle himself in a fight. Like he's not frail. He's not that old, like in human years. He's still fighting age human. Mike Tyson just got in the ring. So it's not inconceivable that that's true, I guess, is what I'm trying to say. I don't know how you trade that, I guess, would be my takeaway. If you're a Tesla shareholder, do you now have to watch whether or not Elon Musk continues

to put hearts on Donald's tweets? So you're like, all right, fine, fine, fine. It's cooling off. They're good. I don't know, man. I don't think I've ever owned Tesla. I might have in like 2012. I can't remember, but.

Okay. Okay. Still first topic, but pivoting drastically circle. So I wanted to just, uh, I wanted to bring this back because we talked about it right before the IPO. This thing kicked the door down and absolutely set the markets on fire. And I think the success of circle combined set the markets on fire. And I think the success of Circle, combined with the earlier success of CoreWeave

over the winter, I think it's like breathing life into this whole IPO thing. I'm hearing FOMO now for the first time in maybe years. People like, how do I get in on the next Circle? When's the last time you heard people talking that way? 2020, how do I get on the next circle? When's the last time you heard people talking that way? 2020, 2021, I guess. I mean, Chime, they say Chime is 10 times oversubscribed.

Yeah. And Chime is like not great. Um, like it's not like a top tier, uh, FinTech app. So circle hit circle internet group is the creator and, um, I guess lead sponsor of the stable coin, the Circle stable coin. Very important in the ecosystem. USDC, Circle hit $88 a share at the end of its first day of trading, which was up 180%

from the initial public offering price. So if you were lucky enough to have been in on the deal, you had effectively a triple on the first day. It's the seventh largest IPO to come public since 1980. Wow. They sold, yeah, I didn't know that. They sold 39 million shares. They raised 1.145 billion.

Sounds like they left some money on the table. Wall Street made 67 million in underwriting fees. And at a $22 billion market cap, Circle is now selling at 140 times earnings, which is- Not to minimize it, but their business is net interest income. It's kind of incredible. I mean, that's their business. Isn't this a 4% business? So somebody emailed us and it was a good point that we didn't hit on the first time.

Demand for dollars, digital dollars outside the United States for people that don't want to own their whole their local currencies is massive. So it's like an AML work around. I think so. I think so. The bulk case is you can have stable in dollar terms, The bulk case is you can have stable in dollar terms, FX reserves and or currency if you use this and you don't have to come into the traditional financial. Yeah. And fees are basically zero. I mean, yeah, you're not earning yield, but who gives a shit

if you're worried about your home currency? I put the chart up. I don't know why I asked for this chart. That like last gasp, I guess on day two where it hit 137, who bought it there? That was me. That was me. Whoops. Chart off besides you. Like that is that an ETF front running itself because this thing is about to be added to an index.

I don't know that works. Or like somebody front running an ETF I meant or what is the thought process happening there? No idea. Okay. One more. Apple worldwide developers conference. It's I mean not bad but not great. Seems like it landed with a thud.

They have not made material commercial progress on AI and that seems to have been the big takeaway from all the stuff that I read. What'd you think? I actually, I didn't read anything about it. Oh wait, we're going to play a video. This is the one thing they showed off. That seemed cool. What are we looking at? It's, it's, I don't know if we can be heard over this. What was that? That is liquid glass. All of the icons on the screen and menus and buttons are going to look like they're

clear and that they're part of the surface of the screen. Also, that is the music they play in the men's room of the W hotel when it's like 1 a.m. and half your friends are crowded into a stall together. That's that cocaine music. That's what you thought was cool? I'm saying it was the one cool thing to have come out of. I know. I'm not saying it was not a great WWDC, but look, the only thing anyone wants to know and hear about is where are you on AI? And like they talked about it, but there's nothing, there's like nobody home. Two charts, go.

Let me do the comment real quick. UBS analyst David Vogt wrote in a note on Monday, many of the AI features were announced were more incremental in our view and already available through competitor applications. Incremental is a very polite word. Incremental is like boring. One other thing though that I thought was interesting.

Incremental is analyst talk for you. Are you kidding me? Yeah. Apple also expanded its integration with OpenAI's chat GPT, integrating its image generation capabilities into an app that previously only used Apple's technology. So they're going to use the Dolly image generator and I think that's what that means. When a user takes a screenshot of an iPhone, a new button will send the image to ChatGPT

which can summarize blocks of text in the image or even decipher what's happening. All right, that's not terrible. Language translation is sort of cool. Uh, a phone call with two people speaking a different language. The, um, the AI generated, uh, voice will tell you what they're saying and vice versa. All right. I mean, fine. Great.

It's some stuff in there. Oh, this was, this was the most notable thing. You know how they're on iOS 18 right now, inexplicably, because like they just, they release a new iOS and a new phone roughly every year to 18 months. So what they're going to do now instead is like cars. Every, every new release is going to be based on the year. So the new upgrade this September is going to be iOS 26. And then when we do it next year, it'll be iOS 27. So they're going by the year, like three months ahead of time,

like the auto companies. What's worse than incremental? Because that's whatever you just said. All right, two charts at once. Incremental is damning it with face fame praise. John, chart on, please. This is Apple compared to the Mag 7 since the inception of the Mag 7 ETF in early 2023. Wow.

It's being outperformed by a country mile, 121% for the Mag 7, 27% for Apple. Next chart, please. This is Apple divided by the Qs. And this looks tenuous. So this stock is breaking down as a ratio with the Q's, meaning like the world is passing this stock by. Is that the way you would phrase it? That's exactly right, Josh.

Can you put back the Mag 7 outperformance? So they launched the Mag 7 ETF in February of 23. Apple is up 27% since then. The Mag 7 itself is up 121. Do I see that right? 121%. Yeah, that's right. Which makes sense. How does that, is that ETF equal weighted between the seven?

I believe so. It's not market cap weighted? It believe so. It's not market cap weighted? It's bad. It's not great. Liquid glass is the first big overhaul to the visual design of iOS since a really long time. Like your iPhone has kind of looked the same for 10 or 12 years.

So this is, I guess, it'll be more notable once you have the upgrade than it sounds with me just describing it. All right, one more quick one for, we're still on topic one. One more quick one. Esri. So, Tata shared this internally.

We kind of knew this would happen. Starwood Property Fund, So, Todd has shared this internally. We kind of knew this would happen. Starwood Property Fund, they have this thing called, the Starwood Capital Group has a fund that's colloquially known as S-REIT. It's the Starwood Real Estate Income Trust. This is similar to Blackstone's product, B-REIT. Hey, let me read this from the journal. I want to hear what you think.

One of Starwood's largest real estate funds was overwhelmed with redemption requests last spring. We talked about this at the time. Everybody's trying to pull their money out. Rather than sell some of the funds' commercial property into a poor market to meet those requests, they decided to impose limits on the amount of money investors can withdraw. And again, B-REIT did the same thing a couple of years earlier.

There's a line of investors trying to pull $850 million out of Esri according to an investment banking firm that follows this situation. The net asset value of sREIT is $8.8 billion. It's down 40% from its peak in 2022. Here's the chart from the journal. This is redemption. Hold on.

When you say it's down 40%, this is important. Investors are not down 40%. The net asset value. No, the net asset value. It's a big difference. All right. This is fundraising. So obviously money coming in is completely dried up, which makes sense.

You can understand why that would be the case. People don't even if it's in art, here's what I want to ask you. I believe that this issuer and many of the issuers in this space, trying to package your liquid assets in something that sort of has liquidity, I think they probably went as far as they could conceivably go in giving people all the disclaimers. Like we might gate you. We might tell you the timing is not opportune and you can't, like blah, blah, blah, blah, blah.

I'm sure they had an army of lawyers write a Bible verse about all the risks, each risk individually. That being said, people really don't like this. Who do you, who do you think is the most frustrated by this situation? Cause my guess would be the financial advisors who put their clients in something like this. What do you think? The minimum investment size is 2,500 bucks. My guess would be the financial advisors who put their clients in something like this. What do you think?

The minimum investment size is $2,500. Yeah. What does that tell you? You could have just a mismatch with capital versus liabilities in terms of their time horizon. Now, I understand why this is a story. It is a story. It's a big story.

It's a story. It's a lot of money trying to get at something that they can't. It's a story. It is a story. It's a big story. But I want to- It's a story. It's a lot of money trying to get out of something that they can't. It's a lot of money. It's 10% of the fund. And this is exactly what you want them to do. If you are a shareholder who's not trying to get out. It's like, wait, don't fire sale my hotel

because somebody wants their 2,500 bucks back, whatever it is. And so they were able to sell what I feel with a report, $160 million or whatever it is. And so they were able to sell what I figured what they reported $160 million or whatever it was. So they are able to sell the most recent one that they cited in the article. The headline says they sold 1.6 billion worth of property from December to May.

So there's buyers out there. And listen, I get that there's frustrated people that want to get it. I just want to make the point that it's not like, and listen, commercial real estate, it's been hit hard, right? Interest rates really clobbered the commercial real estate market. We know that. Obviously everybody knows that. And so you just have to know that these things are semi-liquid. I think the stated redemption was 5% of NAV and Barry Starnick said, listen, we can't do it. We're going to F over everybody else.

Why would you want checks for $2,500? Listen, we can't do it. We're going to F over everybody else. Why would you want checks for $2,500 if you're running a real estate portfolio? How much is enough? What is that meeting like? Oh, here's how we'll raise the next billion dollars. No, it's not even. Come on.

The smallest investors. $2,500 at a time. What are you getting? An incremental $74 million? I don't understand it. And if you're a whale, if you're somebody that regularly writes eight, nine figure checks to real estate funds, why would you want to be invested alongside pikers? It makes no sense to me.

If you're a real real estate investor, you tell Starwood, hey Barry, do me a favor. Give me a different vehicle. I don't want to be in the kiddie pool with people who are going to force you to panic sell assets. That's absurd. That's not a good situation. So this is why it's a story, Michael. Let me just share this with you.

The plight of, this is the journal, the plight of Starwood investors has taken on a bigger relevance as momentum builds in Washington to ease restrictions on small investors putting money in private equity, venture capital, and hedge funds. The answer to this is not always, oh, just more disclosure. That's not always the right answer. Yes, disclosure is great, but also, hey, maybe this isn't the best idea ever. Is another conversation. Last thing.

Starwood all but closing the withdrawal window is also rippling through the industry and causing investors and similar funds to hesitate about putting up new money. It's a question that everybody gets. Are you going to gate like Starwood? To your earlier point, in this environment, real estate, commercial real estate, the right answer is probably to gate. If it's gate, if it's gate or blow the whole portfolio out

to Saudi Arabia at generational lows, gate. But then maybe come up with like a credit facility where you can give the smaller people their money back and just take on the debt yourself. They tapped it. Oh, they tried that already? Oh yeah. They had a $1.5 billion credit line. And all right, listen, I'm not opposed to smaller household investors having access to real estate.

I just don't know that it should be a mainstream thing. I think it's a niche market of people who should really want to do this, and it should be an even smaller list of firms that actually want to package and sell this this way. I think, look, and I know we're talking about this at the worst possible time, not the best possible time when people have huge gains. I understand that too. But it's not going great. I thought it was worth mentioning. Yeah. Yeah. I brought, I pulled seven or eight of what I thought were the highest impact charts from Mary Meeker, legendary investor in Silicon Valley.

She had a 340 slide deck on trends in artificial intelligence. And boy is it something. So let's start here. Yeah. You looked at all 340 slides? I did. It took me quite a long time. I definitely did not. In 2019, AI was a research feature.

By 2023, it was a capital expenditure line item. Microsoft Vice Chair and President Brad Smith put it well in a 425 blog post. Like electricity and other general purpose technologies in the past, AI and cloud data centers represent the next stage of industrialization. And this was her line that really made me stop and think like, oh, okay. She says, the broader dynamic is clear.

Lower per unit costs are fueling higher overall spend. As inference becomes cheaper, AI gets used more. And as AI gets used more, total infrastructure and compute demand rises, dragging costs up again. The result is a flywheel of growth that puts pressure on cloud providers, chip makers and enterprise IT budgets alike. So this is, I spoke about this with Ben today. To me, like, it's easy to get distracted by the news of the day, the tariffs, the labor

market, not to say, not to discount any of that, but really the biggest trend by a country mile in the market is and has been and will be for the foreseeable future AI spend. That's it. So let's go through some charts and jump in where you want. So chat GBT user growth from, they show it from 1022 when it launched to 425 and it's up 8X in, I don't know. This is outrageous. So this is user growth. They have 800 million users after 17 months. I'm sorry. We have never seen adoption of anything technological. Anything, name whatever you want. We've never seen a billion people start using something

inside of a year and a half. That is just... Great segue to the next chart. If you really stop and just think, that is breathtaking. They have a chart showing years to reach 100 million users. And we've got of course Netflix and Uber and Twitter and Spotify. And number one, again, nothing, there's not even a close like, I guess TikTok is fairly close. ChatGBT took 0.2 years to reach 100 million users.

So just for scale, TikTok is, that looks like five months. Fortnite, six months. Disney Plus got there in about a year, one year. Instagram took a little over two years. WhatsApp took closer to three or closer to four years. Even YouTube took four years to get to 100 million people might be surprised by that. Netflix took 10 years. Yeah, I mean, go down the list. Twitter, Uber, Pinterest, LinkedIn. This is not even in the same league. This rate of adoption, it's like everybody just woke up and had the same thought pop into their head.

Let me get on this thing. It really is extraordinary. And I think that adoption rate goes a long way toward explaining the commitments of capital that we've seen the largest that we've seen the largest technology companies of our era just endlessly shoveling money at this. When you think about it from a user adoption standpoint, what else is there? Why wouldn't they be doing that? She shows CapEx spend at the big six tech companies. So this is the Mag 7 minus Tesla. And in 2022, like, holy shit, they're spending how much we're going to

hammer metaphor this now that it was different story back then, but nevertheless, they were spending $125 billion. And this year it's going to be up to almost, oh, this is just capex. All right. So capex and RD, it's half a billion, just capex. It's over $200 billion. And it's not slowing down. It's accelerating next chart. This shows's not slowing down. It's accelerating.

Next chart. This shows CapEx spend and Big Six tech company. So it's 15% of revenue, which is the red line. The big six is like Alphabet, Microsoft, blah, blah, blah. Like I said, it's Mag seven minus Tesla. Okay. All right. It's 15% of their revenue.

They're spending 15% of their revenue on CapEx. 15% of the revenue. And that's, it was 10 years ago was 8%. So these companies have always been big spenders on CapEx of course, as they built out the cloud and you know, all of the services, but they're accelerating as they spend to build this particular service out. The next chart breaks it down by company. And there's one company in here that really caught my attention. So it's AWS, Microsoft Intelligent Cloud, Google Cloud, Oracle Cloud, IBM Cloud, and I'll stop there.

There's also Alibaba Intensive, but IBM. Look at IBM and then look at the next chart. This is definitely on nobody's radar. IBM had been a dog. Nobody cares, yeah. A dog for a decade plus, and it is at an all time high in terms of market cap and its shares, forget about it, screaming higher. This is a massive breakout.

Like massive, massive, massive. Wow. You know what's interesting? Market cap is just back to where it was in 2012. Well, they've been buying back a lot of stock. Because they have shrunk the float, which boosts earnings. And so the stock price is at an all time high, but its valuation is just about to make an all-time high. But that's really interesting. This has definitely been a big buyback name over the

last 25 years as the share price has been asleep for a lot of that time. All right. This should get your attention in terms of how expensive it is to build this stuff out and how all in these companies are. So she's showing the CapEx as a percentage of revenue at AWS looking at the initial cloud infrastructure build out versus the AI ML infrastructure build out in terms of a percentage of revenue. And it started at 27% in 2013 and got all the way down to 4% towards the tail end of this build out in 2018. And look at that ramp. They're now spending 49% of AWS revenue on CapEx.

Holy moly. So the physical part of CapEx, like the data centers, the optical connections, the energy, that's one part of the expense, chart off. But then there's another part of the expense that's actually falling. And I think this is part of this. By the way, Mary Meeker was a technology analyst at Morgan Stanley, just for people who don't understand why everyone's paying attention to her 340 slide deck. In 1995, Morgan Stanley was the lead underwriter of Netscape.

I wasn't yet in the business, but that was like one of the most important financial events of the 20th century. It kicked arguably. It was the starting gun for everything we've lived through over the last 30 years. Mary Meeker was an analyst at Morgan Stanley, who they assigned to write up the first ever internet report ever published on Wall Street. And she was covering personal computers. So it kind of forced her to like really dive into the internet before there was a such thing

as the internet. That's why her talking about AI is so important. Just her perspective is probably one of the most important perspectives on this stuff from anybody, anywhere. So that's why we tell them at Mary Meeker and everyone else told them at Mary Meeker. But I wanted to talk about the, I want to talk about the cost. So people

use the term inference. Inference is like this. So there's training. We're training the model in order to be able to answer questions and perform all these tasks. Inference is the ongoing usage of the model. Like every day you wake up, you ask Chachi PT, how do I make chicken marsala? That's inferencing. The inferencing costs, according to Mary Meeker's work, have dropped by 99.7%. It was $10 per million tokens. Tokens are the building blocks of an AI workload.

It's now a dollar per million tokens. So that's a cost decline that I think is part of what you just said about as the costs fall, the usage explodes. That phenomenon is exactly what we saw happen with the original internet. Originally, it was like too expensive for companies to have servers and all this shit. Same thing with web video. The original cost of laying all that fiber to lay the groundwork for ultimately YouTube and everything we do on social media, it fell and fell and fell and fell and the usage exploded

along with it. So that's a big takeaway from her stuff for me. So what's helping propel this is that it's not being funded by consumers. It's being funded by the hyperscalers who have essentially an infinite pocketbook and are getting the benefit of the doubt, at least today, from investors. So she has a chart that shows the free cash flow margins of Microsoft, Amazon, Alphabet, and Meta, and they're down substantially year over year from 23 to 24. Microsoft's free cash margin is down 10%, Amazon down 8%, Google down 8%.

Their revenue is up, of course, but the point is normally, absent a huge huge investment cycle, this was just free cash flow margin going down because business was slowing, these stocks would be down 70%. Obviously, they're not investors are still behind them and still supporting the spend. And the question is, of course, how long does it last? Nobody knows. But for now, investors are given these companies a benefit of the debt. And this is good time. And we got a story today. So in the in the deck, goes through all of these examples of companies that many people haven't heard of that have gone from zero to a billion to two billion to five billion in revenue overnight.

One of them that she mentioned was a company called Scale AI, a company that I had never heard of. Data labeling and evaluation. This company did $335 million in revenue in 2023. It more than doubled that in 2024 at $870 million. And then today we got a headline from the information, Metta to pay nearly $15 billion for Scale AI stake. So Metta has agreed to take a 49% stake in data labeling from Scale AI for $14.8 billion. Unbelievable.

This is like a three-year-old company built by a 28-year-old kid. He's 28 now. So he started this thing, I don't know, when he was in college being sold for $15 billion. No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no,

no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, dollars in annually recurring revenue, which we're going to talk about later, ARRR in two years. She compared it to software as a service companies, which is a generation ago. And those companies took 37 months. So there's like real revenue here in the startup environment. It's not just like people saying, look at me, I have a product.

Like you can't hit 5 million in ARRR if there's nothing there. The other thing, the closed source versus the open source models. So the most prominent open source LLM that everybody knows of is what Meta did with its llama model. Open source meaning like, here's the code, build whatever you want on top of it. That was kind of their, seemed to be initially their strategy. The closed models are the ones that you're actually paying for that are proprietary. That's Google's Gemini, that's Claude from Amazon and Anthropic, and that's obviously ChatGPT. So Mary Meeker said closed

models are 17 months ahead of open source models in compute intensity, which I guess is measuring the amount of usage. And she says they're growing over 5X a year. Open source models usage is only growing 3.6X per year, meaning there's a huge head start. So you ask like, why are they spending all this money in CapEx? Well, it's working. The closed models that they actually own and control are doing way better than the free stuff that's also being built. She says that AI adjacent job postings have increased by 448% since 2018. Versus regular IT?

Flat. Flat. All right, last one. Data center energy usage. I thought that chart was crazy. Data center energy. So data centers pre-existed before AI. But their energy usage has tripled since 2005, which is why you see hyperscalers throwing

money at nuclear and mini reactors and renewable energy. This stuff is really an insatiable user of energy and I know everyone knows that, but I thought that point should be underscored. All right, two more and then we'll move on to the next topic. So she spoke about physical world AI. This is a crazy chart. AI ride share versus autonomous taxi provider. Now this is San Francisco.

Autonomous taxis were 0% of the market in August of 2023. It's now 27%. Ride share has to climb from 34% down to 19%. And she breaks it down in a separate chart showing Waymo, which has gone from, again, that's it. That's zero to 25% mostly at the expense of Lyft, but also Uber. And interestingly, next chart,

and I know Josh and I both own Uber, it's hanging in there. Well, physical AI is the most exciting thing from my perspective. Like I'm bullish on all the, I use chat GPT, I think AI is great, exciting thing from my perspective. Like I'm bullish on all the, I use chat GPT, I think AI is great, blah, blah, blah, blah. I say all the things that you're supposed to say. But the physical thing is way more exciting to me. And robot delivery, I think everything should be a vending machine.

Honestly, I'm good with like just not interacting with anyone for any reason ever again, because I am 48 years old. So I've already had every conversation I ever want to have. So that's, to me, is where the puck is going from the investor standpoint in public markets. I'm surprised that we're not seeing more sex in the robotics, stocks, and ETFs. I know the robotics ETFs have a couple of billion dollars in them. I think like those stocks are going to be way more exciting in the second half of this year than the LLM providers that the Mag-7 names. I'm looking at these companies all the time.

So to that point, now you might say dumb ass, we're there already. We are getting a bubble. I'm convinced. About robotics bubble? Just no, just an AI bubble. One of the things that I think is important that I want to say so that years from now I can look back and point to this and say that I was sober. I don't think the money's going to be made in selling the

robots. We talked about Cerv, which is a publicly traded company. I traded the stock. Thank God I got out of it with my skin intact. But Cerv's robots are being made by an auto manufacturer, a company called Magnet International in Canada. It's a metal bender. Like they make wheelbarrows. It's like, it's not, I don't think that, so this whole idea like, oh, Elon with the Teslas, he's gonna own the robot car, the robot taxi. I honestly don't think that's where the money gets made, making robot taxis.

I just don't. I think the money will be made in the software layer because it always is, the services layer because it always is. So investing in robotics, I don't think it's as simple as what are the 20 public companies that make robots? I'll just buy those. I think the approach to making money in physical AI is going to require a little bit more nuance. And I am not the authority on this. So I don't want people to think that I know what to do, but I think that's the right question. Like who's really going to benefit from this? And it's probably not going to be the companies that a generation ago were making SUVs.

I just don't see it that way. So all right, we can, are we done with the AI? Whoa, whoa, whoa. Last thing, last thing, last thing. One more? Check out this chart that Kelly and Sharkin made. Percentage of total licenses is 16 to 18 years old. This is, I don't see a bottom here, do you?

It's weird. It's weird. I mean, it's not weird, I guess, because, I don't know, my children's children are probably not going to drive anything. Doubt it. So, I guess it's not that weird. My kid got his learner's permit yesterday. He turned 16, he can't wait. He can't wait to drive anything. Doubt it. So I guess it's not that weird. My kid got his learner's permit yesterday.

He turned 16. He can't wait. He can't wait to drive. He has an iPhone. He has chat GPT. He still wants to drive. Believe it or not. It's amazing.

All his friends want to drive. Some of them are getting workers permits so they can drive six months before their 17th birthday. I don't know. That's hardcore Gen Z. These are 16 year olds. They didn't get the memo that ride apps are cooler than picking up a girl in your car and taking her on a date. They didn't get that memo. So, and thank God for that. All right. We could

do this quickly. 500,000 new millionaires created over the last year according to Capgemini. It's pretty gangster. Yeah. Love it. The US led the world in the growth of its millionaire population, adding 562,000. There are now 7.9 million millionaire households in the United States. How many? So 7.9 million millionaires.

Wow. The ultra high net worth individual population also rose by 6.2% globally. This is all a function of the stock market, by the way. What does ultra high net worth mean? Their classification of it. I'm sure I'm about to come across it. Give me a second. It's either 25 million or 50 million.

They say high net worth individuals now allocate 15% of their portfolios to alternatives, including cryptocurrencies. It might have the cause and effect backwards. To people that became high net worth, many of them probably because Bitcoin just went from 30,000 to 110,000. But I digress. What else I want to tell you about this? Put this global wealth chart up.

So this is a visual of the growth. The CAGR is 4. Millionaire households are growing by 4.5% a year from 2016 through the visual of the growth. The CAGR is four, millionaire households are growing by four and a half percent a year from 2016 through the end of last year. So we grew 4.2% globally. Is that global? I'm not sure if that's global. Yeah, global. So there are, it looks like we added, well, we're at 90 million millionaires in the world.

Does that sound right to you? No, no, no. That's total wealth. It's 90. Oh, this is that 90 trillion in total wealth. That's a lot of money. Totally different chart. Okay.

Totally different chart. Put up United States. We're rich. And then Europe, way slower. You notice? Not as much stock market in Europe. Wake up. Here's the asset allocation, the markets is in that dark teal.

It feels fairly constant. Although it's down. What the hell is with the cash? Are you kidding me? Well, you never know when you're going to have a family member get kidnapped, right? Well, how much cash and cash equivalence is 26%? Dude, if you have $50 million, I mean, do you need 12 million bucks in cash? 12 million bucks in cash? I think the cash is opportunistic.

It's not, oh my God, I'm afraid to invest. I guess what's the difference? I think it's cash like I might do something with this. I don't think at $50 million, it's like a rainy day fund. So I could be wrong, but I mean, we talk to people in this category all the time. They're not afraid. So I don't think that's what it is. High net worth investor expectation by generation. I don't know. I guess the millennials stand out because they're into attractive product portfolios

or niche offerings. Dude, some of these questions are so weird. Who wouldn't? So one of the things for those who are listening, it says, and what they expect, percentage of high net worth by age band and what they expect from wealth management firms. And one of them is attractive product portfolios or niche offerings. Like what type of question is that? Who would not want attractive products?

Nah, fuck off there. The takeaway is that the middle band, the middle blue color is millennials and they're more demanding in all four categories. I guess that is the takeaway. Other than geography, for some reason, Gen Z's really into, what the fuck is this about? You know what?

Enhanced offshore investments? Millennials are just more bitchy. They have higher expectations than the rest of the… Yeah, literal worst. No offense. That's okay. All right. Dissatisfaction, put this up.

No, next one. Here we go. Percentage of… What is that? What is this millionaires? Low? All right. I don't know. Get the shit off. Anyway, 560,000 new American millionaires last year. Thank you. And almost, almost all stock market, unless there's some other like life changing thing going on that I'm not aware of in real estate or it's Bitcoin in stock market. And it's a lot. It's a big number.

It's a big number. All right. You're up. All right. I love this, Josh. I think you're going to like it too. You know how people like to quote Warren Buffett saying, my favorite holding period is forever? Yeah.

Horrible. Horrible, forever. Yeah. Horrible. Horrible, horrible. Horrible investing strategy. Horrible investing strategy. Unless you're talking about the SPY, I agree. Yeah. Right, because I'm talking about single stock risk. Most stocks, this is a topic well-trotted on this show

and other shows that we do, most stocks are garbage. Most stocks are not worth marrying. Most stocks are worth dating marrying. Most stocks worth dating casually. And even then, I emphasize casual. So somebody tweeted this chart. This is from Tax Alpha Insider and I love it. So what they are showing. What's that? Wait, I'm just trying to picture it. Single right, well listen. Single stock risk grows with holding... Okay, go ahead and explain this. I will open your ears.

Listen to me. It's showing a distribution of returns over a one month period in which you get a relatively normal bell curve distribution. And then the longer out in time you go, you will see very clearly it shifts, it skews to the negative side in which most stocks suck. Of course you have the outliers of the world, the Nvidia's and the Netflix's, but most stocks are not that. And so the takeaway for me is be very careful buying and holding individual stocks forever.

I want to. All right. So obviously the data is the data and I'm not going to refute it because I don't have my own data. But I think if there were one qualifier in this data, it would make a really big difference. Stocks that start with the letter D. No. What?

I would say companies that have been around for 50 years, they of course don't all survive. Those go away too. But in my opinion, that's like a proven ground that a company has survived. Like many different things, wars, inflation, feast, famine, bubbles. And then this Kodak. What do you mean no dude? Kodak and Nike and Target and Disney and IBM and all these companies that go through long periods of time where they just suck ass, especially relative to

the index, the data is the data. Oh, I'm not saying they don't have ups and downs. Sure, sure. I'm saying they don't turn into mush. All else equal, probably I'd rather, I mean, I don't know if I'd rather buy a 40-year-old company or a 10-year-old company. I have no idea. You're making that up.

The point is, irrefutably, most stocks, there's data on this, stink. No, I'm not refuting it. I'm saying if I could add a qualifier, I think that it would look different. If you just showed me that chart, but showed me companies starting in year 51, it would be a very small list of companies. And JP Morgan Chase and Berkshire and a lot of companies that it made.

Now it's hindsight bias. But it's worse than that because if you do that, then you're cutting off the right tail. If you buy and hold the stock that's been around 51 years, you're not getting a big return. You're getting a market return. So I just look at my portfolio and I'm in these stocks forever. Yeah, but you're in the good ones. But that's my point. The ones that

weren't good, I lost them along the way because and like what I'm left with is the distillation of like, oh, these are the best companies in the world. They won't always be, but right at this moment. So long as you get the big ones right. Yeah. If you add Nvidia and Uber, you can buy and hold a bunch of shit that doesn't pan out, but it's hard. Yeah. Um, our favorite holding period is forever, but Berkshire's stock portfolio has tons of turnover. And also, you're not Warren Buffett. Tons. Just relax.

Who, me? No. No, no, no. Nobody should be aspiring to... You could adopt a lot of his ways of thinking about investing without attempting to actually become him. All right, next him. All right. Next topic. All right.

I have come to the conclusion that there is no reason to invest in any business that is not currently or in the process of becoming an annualized, annual recurring revenue business. ARR or I'm not interested. I think if you, one of the things, and no one's really done this yet, maybe Malbasan has scratched the surface trying to make other points, but I think if you actually wanted to understand the elevated multiple of the stock market over the last 20 years and that upward drift, I've explained it using fund flows and ETF and the business model of Wall Street going from asset-based fees from commissions.

I've explained it talking about 401k money pouring in month after month and accumulating. I have used a lot of different ways to explain why we shouldn't expect the market to bottom at a 10 times earnings multiple ever again. But this is something that I'm really thinking more and more about in recent months. Every great business in the stock market that's gaining in market cap relative to the rest of the market is an ARR business or in the process of becoming one. So I want to read something that this is behind the paywall at CNBC Pro, they consume me, but Sean and I wrote about deer. If I say ARR, this is probably the last stock you would ever think of. Yes, I would.

Because you'd say green and yellow tractors, what's wrong with you? Okay, this is what I wrote. green and yellow tractors. What's wrong with you? Okay. This is what I wrote. There will always be an agriculture cycle. Companies in the agriculture space will always be beholden to it. Companies in most sectors of the economy must contend with one cycle or another. Commodities, interest rates, housing, capex. But in the digital age, companies have found ways to annuitize their business and transcend the cycle. Even tractors? Yes. So converting traditional transaction-based business models into subscriptions or ARR

revenue models has been one of the keys to why the stock market has risen so relentlessly in the last 10 years. It just makes companies better at weathering everything, predicting their own cash flows, and not falling victim to cycles. So when companies begin to generate earnings reliably, the multiple that you and I are willing to pay for those businesses, re-rates higher. No doubt. So this is now my leading theory as to the upward drift in market multiple. Not the only reason, but a very big reason.

We pay more for stocks when we know the earnings growth is going to be predictable and the cash flow is going to be reliable. So Sean and I do this best stocks in the market column. And we've been talking about the best stocks, Spotify, Netflix. These are great examples. You used to buy a CD from a store. Spotify makes it so you just pay them $15 a month. You never go to a store again.

It's less economically sensitive. People don't cancel as easily as they don't as they stop going to the store Netflix same thing used to be a DVD business transactional now. It's just monthly look at deer put the chart up Dear is a hundred and eighty eight year old company They have set a goal for themselves of converting ten percent of their revenue to ARR It's not enough to buy the tractor. Now you have to pay them every month a subscription to maintain the vehicle, to give you data about usage, et cetera, et cetera.

So by the year 2030, they're telling the street they want to be a 10% ARR revenue. So they did $51 billion in sales in 2024. If they can hit their own target, that's 5 billion of ARR, consistent top line revenue. Michael, don't you agree with me? The street will be willing to pay an increasing multiple on that revenue that the company has coming in relative to when it was just, what's the ag cycle?

How many tractors are they going to sell? Sure. This is the key to the market right now. Finding companies that are converting from transactional businesses that require the consumer to spend money now to a business that just reliably gets paid all the time, no matter what those are going to be, I think, continue to be the big winners in the market. And that's where people should be focused when they're looking for investment opportunities. Even Disney figured this out with Disney Plus.

It's not as good a business as the theme parks in terms of margins, but Wall Street likes it better than anything else they do because of that reliability. So that's all I want to say on that. Anything that you want to throw into the mix or- I would agree with you. The however is that there are plenty of monster businesses like Uber, for example, it's not really an AOR story. I'm so glad that you said that they have 30 million users paying them monthly.

My household included for Uber one. They read the writing on the wall. If we get people paying us a subscription for Uber one, a we're going to be the default app that they open for groceries, convenience store deliveries, Uber eats for rides, for everything under the sun. And B it don't cost us much. What is Uber giving me for my Uber one membership? They're, they're throwing back a dollar at me every time I order a burrito. Who cares?

What about Google? Well, this is one of the mothers of all ARR businesses. The Google Cloud is an ARR business. It's tiny compared to Search. You're right. I'm just saying it's not the only thing. It's a very important thing. It's a very important part of the story.

I think it's the part of the story that leads a company like CrowdStrike to be able to triple as corporations don't last on their cybersecurity ongoing payments. CrowdStrike doesn't need to sell them a new license every year the way cybersecurity companies like Check Point did in the 1990s. How about this, if you were to look at the best performing, the 100 best performing stocks over the last three years, to your point, I would bet that a healthy portion of them,

maybe half, I have no idea, are ARR stories. Yes, and not only that. The ones that aren't are biotech and healthcare. And so I consider utilities to be ARR companies at this point, okay? Sure. Eli Lilly is converting itself to a platform for a drug maker.

The people who are getting on their anti-obesity drugs are creating Lilly accounts and they're interacting with Lilly Direct if their insurance company is not the supplier. Lilly is using that opportunity, I think, to create the first ARR business within medicine, like a pharma company. Every great company has an ARR business within medicine, like a pharma company. So every great company has an ARR strategy. They've all figured out the promised land is subscriptions that people don't cancel. Just put that in your pipe and chew on it. Okay.

Chewing. All right. So I'm going to make the case for a stock that I've owned for a little bit. It's been a serial disappointment forever, not just in recent memory, but for 25 years or so. The stock is Disney. It is on the verge of an outbreak. Chart on, please.

I would say for people that are looking at this, this is not investment advice, but I would be careful here. It is banging up against resistance. I would much rather buy it at, I don't know, 125. I'd rather pay up for it to make sure that the dust has settled. I would expect some back- confirmation. Let it punch through on good volume. So the stock is getting another pop higher, although off the highs today, but whatever,

on the news that it is now acquiring the rest of Hulu. It's swallowing the rest of Hulu for whatever the number, it doesn't make, doesn't matter. There it is, $439 million. Comcast wanted $5 billion. They brought in a third party to settle it. I think Disney paid, it doesn't matter. They swallowed it. It's theirs.

They own it better integration into the apps. Comcast is now off to focus on Peacock and the stock has been performing significantly better than it had been previously. So yeah, this was always, this was always going to end this way. The original Hulu concept was like Fox and NBC and all of these companies taking control of their IP rights and having a centralized platform that they could generate streaming revenue. But like, you know what it reminds me of?

In the financial crisis, Smith Barney and Morgan Stanley formed the joint venture. Citigroup and Morgan Stanley, they threw Smith Barney into this JV and then Morgan Stanley had to buy it in pieces until finally they swallowed the rest of it up. This was always going to go this way. The only question was pricing and timing. Alright, Mr. Trot, what do you got? I like it for Disney. I like to make the case. I think you could buy it here. I think it's going to go. I think it's going to go to like 150. Yep, 150.

Yeah. And I think that look where the risk is. Put the chart back up. Look how well defined this is. You know exactly where to sell the stock. Where would you sell it? Well, you use the line chart, not candlesticks. I'm guessing that's 80 or 85. Well, it depends. It all depends on your risk tolerance. That's a fair bit. But I think if it breaks below there, something has changed. And if it stays above there, I think the buyers are supporting you. So, all right.

Mystery chart. Dow component is hint number one. Hint number two, Simbly Disney, iconic American brand. I think I know it. Would you like to solve the puzzle? I'll take one more clue. I don't want to be arrogant. Okay.

Is it in the... Based in Illinois. Oh. Oh. Okay. Is it McDonald's? Very good. Look at you. Look at you. Is it McDonald's? Very good.

Look at you. Look at you. Round of applause. Well done, sir. How did you know? Did Illinois tip it or? No, no, no. I was going to guess.

I've been looking at the stock. Okay. Don't buy it. I'm not. Actually, there was some negative headlines today that I saw Carl continuing to talk about. That's why it's today's mystery chart. McDonald's was hit with a double downgrade. That's when they go from buy to sell and don't stop at neutral in the middle.

Redburn Atlantic cited softening traffic trends tied to weight loss drugs, which may become a stiffer headwind over time. This is a stock that's I don't know if it's in a full blown correction from its recent high, but it does not look like a lot of other big stocks right now. So there's a great chart that I'm looking at from, yeah, you mentioned Redbird Atlantic. It shows the burger category, US same store sales growth, and it shows McDonald's, Jack in the Box, Burger King, and Wendy's, and they're all negative. So they said McDonald's has benefited during periods of heightened value sensitivity,

but this time may be different. Core value perception appears to be increasingly challenged. Its historical defensive status may no longer hold. It's not defensive. It's very expensive to eat at a McDonald's. And they're battling for these snack hours with Starbucks and they're battling over breakfast and it's, I don't know that it's as defensive as it used to be. I have a longer term chart though, I'll just show you.

Do we have that second? So like, you know, relax. This has just been an extraordinary stock for the last 10 years. So I wanted to put this sell off in context. Or don't relax because yeah, it has performed historically well and could very easily go a lot lower. If you throw a 50 week moving average on that chart, which I didn't do, I think you're staying long. I think you're going to stay long if you're a longer term investor. Credit to this, to Redburn.

I love upgrades. I love downgrades when the stock is near an all time high and you just think the story is fundamentally changed. Like don't give me a downgrade when it's down 60%. Well, same store sales were not great. Loop Capital downgraded it on Friday. Morgan Stanley downgraded it last week also to equal weight. Morgan Stanley said eroding pricing power suggests it's not a great defensive play.

Low income consumers face a financial squeeze. So they're all sort of saying the same thing. And it's got that headline risk. You know, I don't know what percentage of the population is going to be on Ozempic next month. I assume it'll be higher than the percent of the population this month. That story is not dying. All right.

That's it from us. I want to thank everybody for tuning in. Thank you guys so much in Podcast Land for listening. Let me just remind you guys, go check out Betterment Advisor Solutions if you work in the business. Tomorrow is Wednesday. You guys have a new Animal Spirits coming out? Heck yes, we do.

Heck yes. Make sure you check that out and we'll be back at the end of the week with an all new Compound and Friends with a very special guest. Thanks again guys. Have a great night, great day. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan.

To speak with a certified financial planner today, visit ritholzwealth.com. Don't forget to check us out at youtube.com slash the compound rwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on animal spirits. Thanks for listening.