The Compound and Friends - Sam Altman and OpenAI, SpaceX and Starlink, Nvidia Earnings

Episode Date: November 22, 2023

On this episode of TCAF Tuesday, Josh Brown talks SpaceX, Starlink, and OpenAI with Aaron Dillon. Then, Josh and Michael Batnick are joined by tech expert Alex Kantrowitz on an all-new episode of What Are Your Thoughts where they discuss Sam Altman, Nvidia earnings, Michael Burry, Jim Chanos, and much more! Thanks to Public for sponsoring this episode. To learn more about Public treasury accounts, visit: https://public.com/compound Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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. Wealthcast Media, 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. It's Tuesday night. We have a huge show for you in video reported earnings. All hell has broken loose at open AI. What are the implications for Microsoft, Amazon, Apple, the NASDAQ? Our lives, quite frankly, could hang in the balance. I don't know. I don't know if it's that severe. Look, we have a jam-packed show for you tonight, starting off talking to Aaron Dillon. Aaron is an expert on pre-IPO startup investing. We get into Starlink, SpaceX. Aaron's numbers for SpaceX are just off the charts. He's talking about this coming public immediately being one of the largest companies in the world and some huge revenue expectations here. And SpaceX owns Starlink.

So this is a deal that you're probably not going to see until late 2024 or early 2025. It's going to be a very big deal. And there's a lot happening behind the scenes at SpaceX that have ramifications for other publicly traded companies that are in the markets right now. So you're going to love that. You're going to learn a lot from Aaron. And then it's, what are your thoughts? It's Michael.

It's me. We're going to talk about Sam Altman. We're going to talk about the Jim Chanos retirement announcement or the, I shouldn't say retirement, the closing of his hedge fund. We're going to talk about Michael Burry. It's a whole, there's a lot going on. All right. Thanks so much for listening. Stick around and hope you enjoy the show tonight. 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. I love it. I love it. This weekend, man. This weekend was like the biggest weekend. You had the Sam Altman thing, okay, with OpenAI. You had Starship launch, right? Did you see that the CEO of Cruise resigned too? Yep. He tweeted it. And then this guy, Javier, right? And down in Argentina becomes the president. It was like, this was like a jam-packed three days of news.

You know what I mean? Just wild. And even if none of those other things happened, the OpenAI thing is crazy. I can't remember. We're going to ask you about that in a minute. All right, let me introduce you. So, hey, everyone, you are joining us in progress. I'm talking to my friend Aaron Dillon. Just for a quick background, Aaron is managing director of AG Dillon & Co., a venture capital asset manager for financial advisors and individual investors. for financial advisors and individual investors.

Aaron co-founded CraneShares ETFs, has had stints at SoFi, FTSE Russell, TD Ameritrade, Morgan Stanley. Aaron is the man. These days, he is mostly talking about venture capital-backed companies that are on the runway for an IPO. Was this as crazy a weekend just across the board for everything that you follow?

Or like, what do you think is, people seem to be excited again, I guess is what I want to say, about privately held companies like OpenAI. There's excitement out there. Tons of excitement, but OpenAI and SpaceX, huge, huge events for both companies this weekend. And those are the two darlings in the space, right? So I want to talk about SpaceX specifically today. And by extension, we'll talk about Starlink. You have been talking about SpaceX for a while. And a lot of people underappreciate what that business's potential might be. They understand that it's Elon Musk. They understand that it's rockets. Sometimes they catch the launch on TV. But for the most part, there's not a lot of public investor awareness in what SpaceX is all about. Why don't you start with a little bit of an overview,

just so we can catch everybody up? Okay. So SpaceX is a space payload delivery and satellite internet company right now. These folks, and people may have seen the videos, but they have developed technology that will send a rocket to space, deliver a payload, and then they land the rocket back down on earth, right? Because they land the rockets, the cost for them to send a rocket into space, payload into space is dropped dramatically. It's very inexpensive for them to do that. What would be in the payload? This is like restocking the space station or bringing a satellite up or something to that effect.

That's exactly it, yeah. Or, yeah, so, you know, materials or kind of goods or resources up to the spaceship, but also people, right? So they've been sending astronauts up. Yeah, you got it. They got to get that stuff up. 100%, 100%. What percentage of SpaceX's revenue comes from government contracts, stuff that NASA is paying them to do or the military versus any other commercial endeavors

out there? It's a healthy majority, right? So I don't have the specific numbers, but they won like a $5 billion deal with NASA to send astronauts to the moon, for example, right? They just did a star shield, which is a big, you know, kind of military grade satellite internet solution for a space force, right? Which is a division of the military. So yeah, a lot of revenue coming from, from the government. This is going to be a $30 billion annual revenue business. Some new financials just came out from SpaceX. I actually think it's going to be a $30 billion annual revenue business. Some new financials just came out from SpaceX. I actually think it's going to be a $41 billion business in five years time, Josh. So this would automatically be a $250 billion IPO in a good market. Do you see it that way? Or maybe it would be way lower because maybe

profitability is years off. How do you think they're going to treat this thing when it comes out? Yeah, so these new numbers that came out were dramatic, right? So maybe I could just run through that and then talk to you about what the IPO could look like. So just in the last two weeks, they hit on a couple of things. So one, they're forecasting $9 billion in revenue

this year for 2023, which is a billion dollars higher than they had previously announced. Next year, they're looking at $15 billion of total revenue. But the real kicker here is $10 billion of that $15 billion is going to come from Starlink, which is the satellite internet business. So Starlink, for those that don't know, because SpaceX can send rockets up and land them back on Earth and do that in such an inexpensive way, They are sending like a hundred deliveries, payload deliveries in space.

More than half of those are Starlink satellites, their own satellites. Their own stuff. Their own stuff. So they have 5,000 satellites in space right now. Okay. That's internet coverage for the whole world. And they're now starting to commercialize that, right? So they have 2 million subscribers,

but they're starting to ramp that up. It's starting to go up very high. So 10 billion in revenue next year. And that number is going to continue to grow. So Josh, what's my point? Like I forecast this out. I have it at $41 billion of revenue in five years time. I think it's a 23X revenue multiple. That's about $980 billion

company. That's incredible. So if you're right, that would be an 800% revenue increase from whatever they did in 2022, which is $4.5 billion. So if they got to 41, that would be one of the fastest growing large companies of all time. Yeah. So if they got to 41, that would be one of the fastest growing large companies of all time. Yeah. So the 23 revenue multiple might even be small when you see companies growing this fast. I mean, Starlink didn't exist a year and a half ago, right? Now it's going to be a $30 billion annual recurring revenue business in five years time. That might even be like a 30 times revenue. 23 might be conservative um just incredible most people have heard of starlink predominantly because of its use during the russia ukraine war um but that is not the only thing that it's for is is linking up the internet

to users in places that don't have great uh internet options That's like an obvious use case. And it's the one that you've heard most about. Why would a business or a government or a household choose to become a Starlink customer? Yeah. So I think most people that I talk to, they frankly just live in a place that the internet service is horrible, right? So all of a sudden you get Starlink, they ship it to your house. They set it, it takes like a couple of minutes to set up and it's like perfect 5G internet service. It's great. So like as an example,

I have an advisor that I know in California lives up in the mountains, can never get good internet, right? All of a sudden he gets Starlink, he's got perfect internet. He couldn't use the telephone. So they're going to compete with, they're going to compete with Charter and Fios

and like head to head, they're going to be up against some of the biggest telecom players. Josh, they did it. And the network is proprietary. It's theirs. 100%. And they did a deal. Because the satellites orbit in a low orbit, they just did a deal with T-Mobile. So if you get to a spot where your T-Mobile phone doesn't work, it's going to connect

directly to a Starlink satellite. So you can talk on your telephone. How long will SpaceX be the owner of Starlink? This sounds like an obvious spinoff. Yeah. Yeah. So that's definitely the buzz out in the market that they're going to spin off Starlink. Just recently, just in the past week, there was some buzz that it might go at late 2024, maybe early 2025. So Musk sent out a tweet, said that's not happening. But I think you're right. I mean, it is profitable. They announced that this past week as well.

So Starlink, the business itself, is now profitable. And it's starting to grow very fast. So all this revenue is going to start dropping to the bottom line. It's prime for an IPO. You know what's so funny? People that despise Elon Musk or they think he's an anti-Semite or whatever, like the latest reason people hate him, they take like glee in the fact that Twitter is such a piece of shit and it's falling apart. But they don't understand how little that really matters when you're such a large shareholder in something like Starlink and SpaceX and like the optionality of these businesses. They're not even public yet. And they're doing billions of dollars in revenue.

I think like people don't understand Twitter could disappear tomorrow and Elon Musk financially will be fine. Yeah. I think Twitter is a passion project for him. And that's also getting into AI now as well, Twitter. So I could talk to you all afternoon about how that business has changed so he's he's he's now playing with the idea of uh twitter becoming a part of the larger xai effort which of course would instantly give it a market cap of 700 billion dollars and bail out his equity in fact josh he uh he just announced I think it was on Friday, that X Corp, Twitter, will own 25% of XAI. Problem solved. Yeah. I mean, so that's turning into an AI business.

Twitter's turning into an AI business. I mean, the value of Twitter, according to people since it was public, even before it was public, the value theoretically was always in the data and what you could do with the data, blah, blah, blah. And maybe nobody really had a great use for it. And AI might have a really great use for it. A really great use for it. There's whole companies, Josh, there's a company called Hugging Face and Scale AI. They literally specialize in this type of data, providing data to developers so they can develop these large language models. And that's what this is. And those are multi-billion dollar companies already, and they're just getting started, right? So yeah, much different thing. But I got to tell you,

though, the important thing about Starlink, this is the thing. So your points on how this is a big business and it's throwing off a lot of cash is really important. The other thing that I think a lot of people don't think about with Starlink, if someone wanted to compete with them, how do you get the satellites to space? You got to pay Elon to send them up. You got to pay SpaceX. Yeah. So one, would you do that? I guess Bezos could theoretically be in a competing business and launch satellites. There's not like five other options, right?

Is that what you're saying? No. Okay. I mean, the only game in town right now is SpaceX and the Chinese government. And the Chinese government hasn't figured out how to land rockets back on Earth successfully yet. So the cost to send those rockets up is really high. So they're like lapping.

SpaceX is lapping people on launches. They're going to do 100 this year and more. Yeah. I don't know how much you're allowed to say about this, but I was reading that you have successfully placed a certain amount of SpaceX stock in your fund with your investors and your investors are qualified purchasers or high net worth people who meet the level at which they can consider this and they're being introduced through financial advisors. That's your business. Yeah. I work with financial and accredited investors. Yeah, that's right.

You got it. Of course. So what are you hearing about the IPO timing? And I know things are subject to change and the market condition is going to be part of the conversation. But like, what's the latest on when we might see documents for a SpaceX IPO? Yeah, I think 2024, 2025 is probably is when it was going to go. I feel, I feel, I think more confident based on the conversation I'm having that that will

happen in 2025. Okay. So it's not in a rush, but it's also not never. It's, it's like within, it's within a year and a half. We think it's likely. Definitely. And I think that, look, I think there's a component of unlocking value. And I think that's why they'll do it.

I don't think they're going to need the capital. They're not going to need any of that. I think they're literally just going to, if they bring that thing public, it will be able to unlock value and people will bid up the price. And that will help with the mission to Mars is really, I think, where it will come back to. This is one of the really interesting things about SpaceX. Obviously, it's been successful. It's got government contracts. It's got unique, one-of-a-kind technology. It's got a huge lead in things like landable rockets. But the entirety of this thing was funded privately. And in no prior generation has there ever been something of this magnitude that did

not require funding from the public equity markets. It's never happened before. So theoretically, if they're going to wait until 2025, they could be a $15 billion revenue company coming to market on the way to 20 or 25. We've never seen anything like that. This will instantly be one of the biggest deals ever if that's what the fundamentals look like at that time. That is an incredible situation. And- It's pretty awesome. Like profitability, maybe who cares,

but like three years later, something to that. Tesla took its time. Nobody really seemed to mind very much. So a lot of things about the world have permanently changed. The point I'm making is that for financial advisors to get exposure to high-tech, cutting-edge stuff like this, historically, they've been able to do it by taking plain old public market equity risk. They could pick the stock.

They could deal with the volatility. So that's not even an option anymore. This is going to come public way late in the game, like a lot of other giant companies like Snowflake, et cetera, have. We don't know what the valuation will be when it comes public. But this is now an environment where people want to own this thing way before the IPO. And vehicles like yours have come along to enable it. Look, Josh, there's this idea of asset allocation, right? I think to your point, these companies would IPO when they had like a billion dollar valuation. You get them in the Russell 2000.

You live through it all the way through the S&P 500. And then they're in the top 25 S&P. That's not happening anymore. So, you know, this is a little cheeky to say out loud, but I could see a potential where there's, you know, U.S. equity and you have a public market allocation and a private market allocation. Because these companies are not like two kids in a garage, to your point. These are massive, privately held, venture-backed, like growth technology companies that, you know that has just a very different risk profile. So I call it venture capital, but that might be a little of a stretch.

I think one of the things that's materially changed is that you used to have these arbitrary limits on how many shareholders you could have and stay a privately held company. But now you've got this new layer of exchanges and funds that are pulling the assets of many investors and giving them away on a pooled basis to be on the cap table. Their name is not on the cap table, but they're invested in a fund that is. That's what's changed. And some of that is a technology story. Some of that is a regulatory story. Some of that is just about the fact that there are eye-popping opportunities for growth that are occurring way before IPO status for a lot of these situations. So I think you've got this really interesting thing where maybe in 2021, you would have

said, all right, but this is just part of this moment. And then they'll raise rates and you'll see all the private capital to these companies will get cut off. All right, well, they did that. And that is not what has happened. There is still a healthy demand for pre-IPO startups. The valuations may be lower. There's maybe a return of sanity to this market.

But who among the investing public would say that that's a bad thing? No, I think this is great. I think it's great for investors. It's great for these companies, too. So, yeah, I mean, and these companies, while the valuations have come down, they continue to deliver results. Right. And I think that's they're still high growth companies. They're, you know, high double digits, triple digit growth, year over year growth.

And they have, they're massive businesses and they're technology businesses so they can scale. I don't want to do a huge deep dive into this, but before I let you go, I want to hear, I want to hear from you on this weekend's events in OpenAI. And let's just tell people full disclosure, you have shares in open AI in one of your funds. Correct. Yeah. So you have some investors who are in open AI and the only reason they were able to get in is because they got in through you. Correct. That's right.

And that stock's valuation over the last year has just been a rock, like, like, like launched by a launched by a rocket. I mean, we also have not seen anything quite like that in a long time. It's a special, yeah, special thing. The last round, it was worth $85 billion or $90 billion. Is that accurate? That's correct. Yep, that's right. Okay.

So when you see this news breaking, and you're not an owner of Microsoft, you're invested directly into OpenAI, what are your initial thoughts? Like, uh-oh, they better not lose Sam. I could imagine. It was a surprise, right? I mean, I think folks can agree with that. It was a surprise. And it's still evolving now.

I mean, even as we speak, I mean, Satya Nadella sent out a tweet this morning at 2.30 a.m., right? So I mean, this is moving fast into developing situation. I think what's important, at least the way that I view it, is that I talked to a few of my software developer buddies over the weekend, right? And there's a couple of things that fell out. So, one, you can't build these large language models in like a weekend. So, Josh, like you and I got together and said, hey, let's go start a large language model AI company. These guys were telling me it takes five years to build something like OpenAI.

So the lab that Microsoft is going to make available to Sam and the other people who de facto, they're not going to have a product in six months. Nobody should think that they will. Yeah, it's going to take years. So that was the one thing. Capital was the other. It takes like at least like, you know, a couple, two to two to $5 billion of capital just to even build one of these things. Microsoft, Google, they don't have problems with capital, but a startup company would have a, would have problems, you know,

raising that much capital. And then three, they're like, look, chat GPT-4 is the best large language model in the marketplace. That doesn't go anywhere. That doesn't go anywhere. Okay. And that's GAS. Yes. And then in this developer day that OpenAI had, so these new solutions that they just brought out for developers in the last week and a half, they said those are like game changers. Right?

So the tech community, I think, really has a strong affinity for what's been built there at OpenAI and what kind of, you know, what they have right now today. So, you know, my hope is that the board situation will get sorted. The executive team situation will get sorted and they'll, you know, continue on, I think, and take advantage of the opportunity that's in front of them. It's impossible to know, but if you had to guess, do they double down on the effective altruism thing and try to maintain their foundation status? And I know they just brought in the guy from Twitch who has very much publicly sounded the alarm on moving too fast with generative AI. So I understand all that, but like, do they definitely go that way? Or do they say, you know what, actually the modern landscape requires us to spend a ton of money. And in

order to do that, we need to move fast and be a profit focused, not altruism focused. And we have to shed this foundation status and go full-blown competitor. Like there is that potential too that could happen here. Yeah. I would say, so look, probably the best example is Anthropic. So Anthropic was a bunch of open AI folks, right? So Anthropic is an AI company, large language AI company. It competes with open AI.

Yeah. And Amazon has a big stake in it. You got it. So that's what I'm saying. Anthropic is a company that leads with AI safety first and they're still doing this stuff and they're still kicking butt and they have a big valuation and they got amazon investing in the whole thing so you know like i i think this is um you know i i think the folks that want to have safety first you know obviously that's now something that that's in with this current board at open ai right i don't think that that's in with this current board at open AI.

Right. I don't think that that really changes the trajectory of the business in a, in a super material way. And my proof point to that is looking at anthropic, right? That company is still growing super fast. It's got a lot of investor attention and they kind of lead with an AI, you know,

kind of AI safety first type model as well. So I just think, I think in a couple, maybe like one week's time, I think some of this stuff will get sorted out, Josh, and we'll have a much more clarity on what the opportunity looks like. Well, we're definitely going to keep asking you about it. So you'll keep us, I know the story's moving very quickly and probably in the time that

we've been talking, there have probably been developments. So we'll keep in touch on that. I want to tell people about your podcast and your YouTube show, because there are people that really want to be kept abreast of all of the details of all of the companies that are on their way to coming public. And you are becoming an authority in the eyes of a lot of financial advisors like myself. So I want to make sure that people know where they can follow you and learn more from you. Tell people what the YouTube channel is called.

Yeah, so it's This Week in Pre-IPO Stocks. It's on Spotify and on all the channels too. We post a lot of it on LinkedIn and X too. But big shout out to the two fellows I do the podcast with, Clint Sorenson, who's an outsourced CIO and runs a firm called WellShield. He's a great fellow, works with a ton of RIAs and knows the business, really a great investor. And then Nick Fusco is the CEO of 8View, which is a secondary market pre-IPO stock pricing company. So he's like the Bloomberg of pre-IPO. I was going to tell you, I watch your stuff. You guys have a lot of horsepower

and I'm learning from you. So thank you for doing that. And we'll make sure our listeners check you out as well. And let's have you back on. The world is moving a mile a minute and we want to keep abreast of all this stuff as public market investors. We want to know what's happening behind the scenes in the private markets and you're our guy. So thank you, Aaron. We appreciate it. Thanks, Josh. Appreciate it. It's very nice of you. Thank you. You're our guy. So thank you, Aaron. We appreciate it. Thanks, Josh. Appreciate this. Very nice of you. Thank you. You're the best.

Welcome to another all-new edition of What Are Your Thoughts? Here with my co-host as usual, Michael Batnick. Say hello to the folks, Michael. Hello. My name is Downtown Josh Brown. We are here to talk about the most important stories of the week. And the week is still young so far, but a lot is going on. And as investors, we have to process this stuff in real time and try to make sure that we have enough of an understanding to proceed. That is the purpose of the show.

We have a huge live audience that joins us here each week at 5 p.m. Eastern on Tuesday nights. I want to shout out all my gangsters who are in the crowd tonight. Mike Waller is here. Jay Luther. Rachel is back. Good to see you, tonight. Mike Waller is here. Jay Luther. Rachel is back. Good to see you, Rachel. Jerry Gould, Bits of Interest. Jeff Osala.

Roger's here. Cliff's here. John Carlo's here. What else could you ask for on a rainy night here in New York? Before we get into the biggest stories right now, let's make sure we shout out our sponsor. Michael, who's the sponsor of tonight's show? It's public.com. Okay, tell me more.

What I'm doing with public.com, I'm buying good old-fashioned American tea bills backed by the US government. Same. The whole government. You know what's cool? So I'm on the site right now, and I like this. Some interest-bearing accounts, you just see the number, right? Like, oh, you've earned this much in interest. On public, you could see every single day.

It's up and to the right. Like, literally, it accrues interest every day. I like interest. I love it. What happens when the T-bills that we buy are maturing because these are pretty short-term? It rolls over. It rolls over. We buy new ones at whatever the prevailing rates are.

You know what's nice about this versus like the two-year? So we're not going to get this deal on cash forever, right? At some point, rates will be lower than they are today. Probably almost over. But I feel like these rates will move pretty much in sync with the Fed funds rate, as opposed to like the two year, which will decrease. Yeah. The rate will decrease a lot quicker before the Fed lowers rates. So you got the price appreciated, but I'm in for the income. So easy peasy, lemon squeezy. You know what else I like about this? The government is paying this

yield out of money that it confiscates from bad people. Right. And so we found out today that Binance, which essentially is an international money laundering operation masquerading as a casino, they're going to pay $4.3 billion in fines. That's going to go directly into our pockets as effectively bondholders of the United States. And I kind of like it. Pay me more. Was this not a great outcome for crypto? So SEC was not involved in this.

This is a Department of Justice thing. Yeah. CZ steps down. The exchange will still operate. They pay a $4 billion fine. Like for crypto, this is good. I mean, if you're a crypto person, you're probably mad about it anyway

because it's i mean if you're a crypto person you're probably mad about it anyway because it's accountability and it brings an exchange like this under the yoke of a regulatory body that you didn't think crypto needed to be fine but you're getting rid of the bad actors that's the past the present is you got to be part of the system so that's the i agree with you if you're if you're really like bullish on crypto itself all you have to do is look at the price action today. This is what they want to see. They want an end to the chases and the perp walks, and they want some structure. And that's what you're getting. So sorry to CZ.

He'll be fine, I'm sure. And congratulations if you had money stuck at Binance and weren't sure if you'd ever get it back. All right. Let's talk about – ooh, who could that be? Maybe we better see. Oh, my God. It's Alex Kantrowitz. Alex, what's up, man?

Hey, guys. How's it going? Great. Alex Kantrowitz is a friend of the show. We've had him on The Compound and Friends a bunch. He is the voice and the author behind Big Tech, the Big Tech podcast. We are so fortunate to have you tonight because all hell is breaking loose in AI, and you are among the elite tech voices, journalists, however you refer to yourself. That's all over the story.

So let me ask you the first question I have on this. So let me ask you the first question I have on this. Basically, isn't this going to end where either Sam Altman goes back to OpenAI or OpenAI collapses and Microsoft ends up with ChatGPT? Like, aren't those the only two ways this could really go at this point? Yes. I mean, Microsoft ending up with ChatGPT is still an open question because we'll have to see what happens to everything that OpenAI has produced. But yes, this either ends with Sam going to Microsoft or Sam coming back to OpenAI. And I think the prediction markets have it at 74% that Sam will be the next CEO of OpenAI. You could bet on this?

And then right after that is that the thing will dissolve. So I think that really is the case. Stop calling me son, Michael. Hey, there is no OpenAI. Sam was out raising money because OpenAI is a money incinerator. And there is just no possible way you can have a not-for-profit building out AGI

and not continue to spend at the pace they've been spending. They'll never make any money. All they do is spend money. That's probably the source of the philosophical differences. Sam recognized that we're going to have to play as though we want to make money at some point or we'll run out of people we can raise money from. And if he doesn't continue to raise money, it's not like these four people on the board who are probably communists are going to be able to do it.

So there is no open AI. There's chat GPT, which has value. The structure around it is a 501c3. Like, what are we talking about here? I feel like Microsoft wins in either situation. Absolutely. Well, they needed to raise that money to do the research and to run the products. And by running the products and doing the research, they needed to raise even more money. Right. Right. So that is the problem. But the thing is, I think, Josh, one thing that we should say here is that it's not just chat GPT, right?

There's this GPT-4 AI model that thousands of companies are building on top of, including 18,000 customers within Microsoft building on top of the OpenAI service in Azure. So you have companies that are actually using this stuff in production and paying a lot of money. They're building their whole strategies on top of OpenAI as it exists today being functional. So it is not as easy for Satya Nadella as a lot of people are making it out to be. Because yes, he might end up with Sam Altman and Greg Brockman at Microsoft, but he also needs those 18,000 or maybe 20,000 customers that are using open AI today to have a stable infrastructure. Let me ask you a follow-up.

Let me ask you a follow-up. I agree with you. But what is the interoperability? What if Zuckerberg calls a Fortune 500 company that's been building on top of GPT architecture and says, look, we're open sourcing Lama. Whatever you were about to do there, you can do here. And I'm not resigning. Like we're going to support,

like you don't have to worry. You don't have to go to sleep at night after spending $8 billion that, um, that, that this thing is like a house of cards built based on a charitable foundation. We are literally here for the duration switch over. Isn't that like a feasible off ramp? If people are now looking at this whole GPT thing and chat GPT thing and saying, we can't bet on this anymore? Absolutely. And that's why this is troubling for Microsoft, even if Sam goes back to OpenAI and continues to run the company as he was last week. Because what this past weekend has done is it's made every startup founder that's building on top of this technology say or accelerate the path to go to being model agnostic. So they all start on OpenAI because it's been

around the longest and it's easiest to build on. But then they move to a place where they can substitute Anthropic and maybe Google Gemini and potentially off the shelf Lama 2 before then next moving to open source because it's more customizable and proprietary. So OpenAI was cornering the market of people building on this stuff. And that is no longer going to be the case because every CEO has had to think, not will I replace them today, but how do I build my product? So if something like this happens again, or if this persists, I'll be able to switch to another company, Anthropic, Google,

Meta, without blowing up the whole operation. And so again, this goes back to normal, quote unquote, for opening AI and Microsoft tonight, tomorrow. It's still a problem because every single one of those clients are now thinking, how do they insulate themselves from the risk that they saw this past weekend? Yeah, it's a chink in the armor now where there were none. Now there's like, oh, wait a minute. This is a vulnerable situation. Michael, what do you have for Alex? Well, so it seems like Sam is going back to OpenAI, but what would be the implications if he didn't? If Sam and Greg went to Microsoft, what would that mean for Microsoft and for OpenAI? So there've been 700 OpenAI employees or basically 95% that have raised their hand and

said they'll go to Microsoft if Sam isn't put back as the CEO. And Microsoft has said, we'll take everyone. I just don't think that they can do that because they have to keep OpenAI's current technology running and they're going to have to leave some people behind on the island. Like there's not an escape hatch for everybody. So what I think ends up happening is if they end up going to Microsoft, Satya Nadella goes to Sam and he says, listen, rebuild carefully. Take the 10%, 20, 30% best employees and like, let's start again. You have to begin by starting to build some of the models that OpenAI had.

And that takes time. You can't just snap your fingers and have GPT-4 working within Microsoft within a day or two. They're going to have to retrain these models, rebuild some of the services, and they could end up having a stronger company within Microsoft because they'll have unlimited access to its computing capacity. And they'll have, you know, no nonprofit board and no other company sitting between them and putting this stuff into Teams and Excel and Word and Copilot, which they've been talking about. So if Microsoft had to- It's not seamless.

If Microsoft had to rebuild or really up what they're currently doing, would that be bullish for something like NVIDIA? Well, NVIDIA, so NVIDIA will benefit because this will open up much more competition from everyone to build their own ai models and as opposed to have open a having open ai run away with it we might see more innovation like everybody who's been building a model like this is now on x saying oh it's a shame about what happened to open ai by the way our model is now coming out you've seen releases from anthropic we're open for business exactly so it, it's a shame about what happened to open AI. By the way, our model is now coming out. You've seen releases from Anthropic and Inflection. We're open for business. Exactly. So it's open season for AI right now. Okay. You're not a lawyer. I am.

Legal liability. I talked to a shareholder in open AI. And I was thinking, off the record, I would f***ing sue these people into the Stone Age. This is a board of directors answerable to no one. There are no shareholders in OpenAI, the nonprofit. There are shareholders in the for-profit division, which, by the way, I don't even know if any of this is legally sound. I've never heard of anything like this before. I think it's a unit. It's a unit, sure. But fine. So in a normal situation, the board does something like this, effectively self-sabotages. They're answerable to shareholders. That's what the board of directors is there serving at the pleasure

of shareholders who vote them in and out. That's not this structure. Still, there's got to be some liability for having a company be worth $85 billion on a Friday and potentially $0 on a Monday because they can never raise money again and they've lost the charismatic founder and co-founder of the thing. So like what, like it would, it would strikes me like Microsoft owns 50% of the for-profit part of open AI. They do on paper, at least have something to lose, even if they get Sam, unless the consolation prize is open AI collapses and hands them GPT. So there's like huge legal liability here for a lot of different parties. Yeah, so Josh, I'm kind of curious

for your legal perspective on this. So OpenAI says to investors, they have this important like little box if you're going to consider investing in OpenAI. Investing in OpenAI Global is a high-risk investment. Investors could lose their capital contribution and not see any return.

And now here's the best part. It would be wise to view any investment in OpenAI Global LLC in the spirit of the donation with the understanding that it may be difficult to know what role money will play in a post-AGI world.

What do you do with that? Is that what it says? Yeah. Here's what you do with that. You read it, you take a deep breath, and then you say, Microsoft owns half of this. Exactly. But doesn't- Honestly, that's what everyone did. That's the due diligence. Yeah. But doesn't Microsoft have some culpability and the investors have some culpability in putting all this money into a company with such terrible governance? Well, so maybe, but wait, hold that thought. Okay. If Microsoft successfully hires Sam Altman, their co-shareholders in OpenAI

might look at that and say, okay, that's actionable. You just poached, you just poached the thing that gave this OpenAI thing value. So yeah, you owned half of open AI, but now you own all of Sam Altman and you're in pole position to take all the customers. So like, there's no way that there's not billions of dollars worth of lawsuits. None, no way. Can you imagine though the judge in the case being like,

all right, explain to me what happened. And those investors are like, well, you see, we're trying to build this human level artificial intelligence. And the board, which, all right, explain to me what happened. And those investors are like, well, you see, we're trying to build this human level artificial intelligence and the board, which, you know, we said we would give them all this money as a donation said, well, Sam was doing things that we just didn't really think aligned with that mission. So we fired him. And then Satya and Dell was like, yeah, we hired him. You know, we had to give him a place. No, it's worse. Then the schmuck went on Twitter and said, oh, I wish I didn't fire him. I can't believe he tweeted that. Does he not have a lawyer?

By the way, we haven't even discussed, like, why do you actually think they removed him? Because of the money raising and hiring a ton of engineers and getting very business aggressive under the guise of the, the, the mission of this thing was like, we don't want a giant like Microsoft owning the future and obviously letting them under the tent with an investment, open the door to this. But Sam, all of a sudden is acting like, is acting like a tech executive should. And he's not acting like a not for profit because if not, they run out of money. You can't keep testing these, these systems and running these workloads without more firepower. So there was actually no way to ever have this

be a not-for-profit over the long term, but maybe it transitioned too fast. Alex, do you have any sense of, I mean, I would assume that these engineers are very well-paid people. You have any sense of that? Oh yeah, they make a lot of money. So they would make even more money at Microsoft. I'm sure.

Alex, where could people, uh, we're going to go buy you, but I want to make sure people know where they can hear more of your thoughts on this and other tech topics. What's the name of the show? Yeah. The best way to find it is, uh, type in big technology podcast to your podcast app of choice. We've done like three emergency podcasts on this stuff and probably have another one coming once the next bit of news breaks. Dude, you're the man. Thank you for joining us on What Are Your Thoughts?

We appreciate it. Great to see you. I know we'll see you again soon. Great seeing you guys. Thanks for having me. All right, thank you. All right, moving on. Alex, is Alex not the man?

Can we pause for a second? All right. What else do we want to do today? I think it's you. We're moving on. So this is from Bank of America. Corporate clients' buybacks as a percentage of market cap is above seasonal trend for the first time since May. And this week's inflows is the largest in our data history since 2010.

Kind of wild. Do you think this is like all of these treasurers at corporations were so uncertain all year that they just kind of like hung back and said to themselves, let's see if I actually might need the money just in case. And then all of a sudden we got this really benign Fed situation and they said, you know what? Start buying back. Like they, cause they have an authorization.

The authorization is not binding. So when Apple's board approves a $90 billion buyback, that doesn't mean they have to do it in any specific period of time. It gives them the ability to opportunistically do it. That's how buybacks work. So what do you think happened here? But this looks like actual buybacks.

And I think you're right that there is maybe a little bit less uncertainty on the macro scene than there was over the last year. Or at least it feels that way. Right, right. And you also have to remember, we spent a lot of time talking about the stock market, the S&P 500. And you also have to remember, we spent a lot of time talking about the stock market, the S&P 500.

A lot of companies are still well below, well, well below, right? Like the NASDAQ is whatever, 4% or 5% from its all-time high. A lot of companies are still in a 40% drawdown. Yeah, right. There's still an opportunity to shrink their float, retire shares at lower valuations, at least away from tech. But I think from what I saw, and maybe you have this data, the two leading sectors of buybacks over the last two weeks were communication services, which you can read as Alphabet, Facebook, Netflix, and technology, which is obviously Apple, Microsoft. These are the companies with the largest authorized

buybacks on record. And none of these stocks are at 52. We close. I mean, most of these stocks are very close to highs. So I don't know how to square that other than to say, maybe it's just they waited all year and the year is ending. Well, so there's that on the one hand and then on the other hand you have the catch-up trade the fuck we have to trace trade whatever you want to call it the queues had their largest weekly inflow on record it's not past last week chart on please on record ever so you've got the queues i don't know i know xlk is at an all-time high the queues aren't super far behind i I think four to 5%. Just, I mean, just an unbelievable scene.

Fam, this should be the, leave this chart up. This should be- Sorry, sorry. You're over 40. Can't say fam. Sorry. Yellow card. I was saying it since I was 36. Sorry. Well- This should be the entry when you go on investopedia and type in performance chase it should be this this chart of the queues is that a weekly is that a weekly buying spike that is weekly that's weekly yeah no shit yeah no shit this is like oh my god we've been trailing or i chart off oh my god we've been trailing all year the year year is ending this four weeks left.

Just get me in. Now charts like this need to be adjusted for assets and all of that sort of good stuff. But nevertheless, it's a hell of a lot of buying systematically CTAs. And this is, this is like mostly trend followers. So they're not just like, oh shit, I'm bullish. They're actually, they do have a process. They just bought a ton as well. Next chart, please. This is the rolling 10 day change in US CTA positioning for equities. So listen, that's what's what it is when stocks go up. No, but that's not what's funny. Remember two weeks ago, three weeks ago, we did this and it was the extreme negative positioning. Yeah.

Well, a lot of this is what moves markets. Chart off. Look at me. Positioning. I've been saying it. Wait. I mean. Positioning.

What are you looking for? I mean, no, I'm just, I'm saying like, that's, that's what's going on. All right. Can we talk about Nvidia? Let's do it. I want to start with a public service announcement. I was debating this woman on television, like not recently. So don't look it up. And she's like, you know, I'm a value investor, television, like not recently, so don't look it up.

And she's like, you know, I'm a value investor, blah, blah, blah. And she's saying no video. And it's like, all right, maybe sit this one out. Like if seriously, I don't have a problem with people mispronouncing something. I do too. But like, don't, don't be an expert in the mispronouncing something i do too but like don't don't be an expert in the thing that you can't pronounce like if you're a tourist be a tourist if you're if you're out there saying no video you maybe should not even have an opinion about it so that's that's

all i wanted to say okay it's it's nvidia the n is pronounced like the letter N. NVIDIA. All right, go ahead. It's me. Go ahead. This is your topic. So fine. Record revenue. Crushed it, dude. 18.1 billion versus 16 expected. 34% quarter over quarter. Quarter over quarter at that size is hilarious. 200% year over year. Dude, profits 9.2 billion. This quarter last year, it was 680 million. So you asked, how could a stock go up 400% a year or whatever? Well, what if I tell you quarterly profit is going to go from 680 million to 9.2 billion? What should the stock do?

What do you think the stock should do? Right. Should it be flat? They also gave great guidance 20 billion in sales expected uh expectations were 18 billion and i think like one of the the things that people are like quote unquote worried about is china i think they answered that it seems like they answered that well or people don't seem as worried about it right this second. There's no hole in the story. When you talk to people about it, the only two things that they seem to be able to say –

It's expensive. It's gone up too much. Fine. I concede that is one. It's another way of saying I missed it. Therefore, it shouldn't have gone up. The second thing they'll say is one. It's another way of saying I missed it, therefore it shouldn't have gone up. The second thing they'll say is competition. I mean, hopefully competition. They can't even make enough to satisfy the demand. Competition might be nice, quite frankly.

So after support, what is it trading at? 35 times forward earnings? I don't know, making it up, something like that. 30 times sales, 35 times sales. What should the stock be trading at? And it's even more than that. The history of this thing, this is not like a surprise. They do this every time. The July quarter, put this data up. The July quarter, they beat by 22% on revenue, 30% on earnings. The April quarter before that, 18% on earnings, 10% on revenue. The January quarter, they beat by nine. All right. So the beats are like accelerating. And then next chart.

Like look at the year over year numbers. Just from like last quarter, up 100% on revenue year over year, up 843% on earnings. This is ridiculous. It's ridiculous. So what should the stock have done? So if you're in the camp, like, oh, it's gone up. Yeah, of course it's gone up. What should stocks do that are delivering this way? Chart off. We have some stuff from some updated stuff here, I think. Yeah, more charts. Keep going. Let's do them. All right, so that was coming into the quarter.

Yeah, this is like the history. And then the next chart I have shows their fiscal third quarter revenue going back. I mean, so listen, so listen. So the stock is basically flat in the after hours. It hit an all-time high today.

So I would say that demolishing another quarter and trading flat after running however many percent it did in the last quarter or two is a win. Chart off. Philosophically, I think it's obvious that at some point, the story will break a little, like the company will stumble. But philosophically, as an investor, are you of the same disposition that I am, which is to say, okay, wait.

Like, wait for that to happen. It's really hard. Why anticipated every quarter? Well, I give credit to you for riding this thing for as many years as you did, because me personally, I find riding winners to be very difficult, very, very difficult because gains are not easy to come by. And so you become paranoid for lack of a better word. We're just not built the same though, me and you. That they're going to be ripped away from you. And so it's really hard to ride a winner.

So you could say, you could make the case that even after this monster quarter, the stock is flat in the after hours down a little bit. It's priced for perfection. Or you could wait because last quarter when they announced these blowout results, the stock opened up whatever, 6%, closer to the lows of the day. And then it spent the next 90 days trading beautifully, went down a little bit, consolidated. We're back to all-time highs. So if you have patience and you could look past the next 12 hours, I mean, the business is working.

So there's a couple of things with this. One is if you're truly a long-term investor and you have a massive long-term winner, it's really, really hard for it to hurt you unless it travels all the way back to its origin. Dude, it fell 70% last year. It did that. It did. A stock would honestly have to go to 10 for me to regret having been, honestly. But I sold a quarter of my position this summer, like very publicly.

I'm just saying two years ago, it went from 345 to 120. Yeah, that's what the price, that's the price of admission. This is not Nvidia specific. Look at the, every great long-term stock. Look at how many times Netflix did that to people. This is the price.

Problem is in 2022, you don't know about it. You don't know if it's over. All you know is that the crypto crash is taking NVIDIA down with it, right? Because they were such an integral part of the mining operations. You didn't know that AI was going to come around to November. You had no idea. So I didn't know that chat GPT would be launched, So I didn't know that chat GPT would be launched, but I did know that AI was inevitable and that NVIDIA had pole position on it. Cause I've been talking about it since 2015. You're right. You have no way of knowing that all of a sudden the cultural breakthrough is going to be early 2023. Stocks like NVIDIA really, really destroy people's wealth because they missed NVIDIA and then they think they're getting the next one and you almost never get the next one. Almost no stocks. Or they short it or

they, they, well, that's even worse. They start buying puts on it. Cause it's like they revenge trade against it, which is a real thing. I've seen people do that with stocks. All right, let's keep it moving. What do you got? Uh, let's talk about, uh, Okay. So we did this Michael Burry short thing where the report was that he bet $1.6 billion against the market, which of course we debunked at the time. And I'm not here to dunk on him because the stock market did have a dip between the time that he bought it. It's up 2% since that headline. But the point that I want to make is a point that we've made a million times. Forget about people's opinions, even people who you think know everything,

master the universe. It doesn't matter if it's Druckenmiller or Paul Tudor Jones or Tapper or Bari or anyone. Nobody knows the future. If you put it in those terms, forget about the stock market. Nobody can see the future. Learn that. Internalize that.

Do not ever be swayed by what people say about the future. First of all, respect to Michael Burry. Yeah. He had an opinion. He took a shot. He lost money.

It's mostly his money anyway. He wasn't writing the headlines. He wasn't doing the reporting. He was wrong. He came out in the same place that he told you he put the short on and he said, I'm taking it off. I'm wrong. That's much. That's what, if everyone just carried themselves like that, no problem. Do your thing. He never, ever cold called anyone else and said, hey, it's Michael Burry. I think you should do this insane trade with me where we're going to notionally bet, you know, 20 times our equity against the stock market.

He doesn't care if other people do that trade with him. This is, he's within his rights as an investor to do what he wants and say what he wants. Yeah, it's not about him. No one is obligated to follow him. And I'm going to tell you one thing really quickly. This is one of my proudest moments ever in doing market commentary. It's the height of the pandemic.

There's a bounce back rally in April. We get like a little bit back. And then it's like May, June. And there's like a lot of uncertainty again, like this variance and blah, blah, blah. I'm sitting in the living room of my house. I have the CNBC padcaster in front of me. I'm on the air with, I don't know, Sarah Eisen, somebody. And whoever it was, I think it was her.

She's like, yeah, but how can you like dismiss the fact that David Tepper and Stanley Druckenmiller are telling you this is the worst time to invest and get out? And Ackman saying hell is coming. So I basically said, look, those guys are brilliant, and they're in the pantheon, stipulated. They're on the Mount Rushmore, both of them. Tepper, Druck, definitely, right? If we're saying, like, the four greatest traders ever, they each get a spot. I'm not in the conversation, but here's what I can tell you. They're so great because they can change their minds. And they're not going to – I said, no offense, Druck is not going to call you when he's making a 180 degree turn in the portfolio

going from hella short to hella long. And he has done that and Tepper too. And they're, they're great at it, but you're not getting the heads up. So what are we following these guys for? It's great to know what they think they could change their mind tonight and i i remember doing that and i got a lot of feedback on that like people were like thank you for finally saying i remember that and then of course the market skyrocketed because i am that i i am him uh uh thank god it did all right let's let's uh no more war stories what's this last chart we're gonna do this uh uh that's just that's the performance of the S and P since he, since, since we had that show.

And since he put that out, it's all good. All right. Shout out my shout out Michael Berry. Not to be trade work scared because of what somebody who's really smart and rich says, just take a beat. Please don't do anything or what, or watch us. We are neither smart nor rich, but we have a good, uh, we have good horse sense. Okay.

Good hair too. We both have very good hair. Great hair. My friend Jimmy Chanos closing down the fund, and I wanted to just do a very mini encomium for Kinnikos because Jim's not going anywhere. He'll have his next act, and he'll be fine. I texted him over the weekend, and I just said congratulations.

I'm not an investor in the fund. He's had an amazing run. He uncovered one of the worst corporate malfeasance situations of all time. People who listened to him had about a year between when he was warning and when the thing went to zero. And run. warning and when the thing went to zero. And I don't think anything that's happened since should detract from him having done that. And there were a lot of other things along the way where he was telling people, hey, be careful of this, be careful of that. Some of them were related to the China frauds. Some of them were related to some of the SPAC stuff in 21. Yeah.

to some of the SPAC stuff in 21. Yeah, the great financial crisis. So I first met him like 10 years ago and he was like kind of riding high because we had just come out of the great financial crisis and he was right about a lot of things. And the thing about Jim that I think is most worthy of being pointed out for people who haven't met him or don't know him. He's the same guy, no matter how well or how poorly he's doing in his portfolio. He's friendly.

He's curious. He wants to hear what other people think. He's generous. He's just an amazing guy. So I just wanted to make sure that we gave him a shout out. And obviously, I'm sure he wishes things had ended differently. It's tough being a short seller. Dude, how many professional short sellers have been doing it since the 80s? Not a lot. The market's up 3,000% or whatever over the time frame. So all credit to him. Yeah.

And I think like the Tesla situation also is a one in a million situation. That is not the way these things normally go when you have that much smoke around a company and its financials and a founder that out of control. If you ran that simulation back a million times in almost every outcome, it doesn't go the way it went this time, which is why this game is so hard and why everyone needs to be somewhat humble. But I think on balance, Jim has done a lot for investors. He doesn't have to talk publicly by virtue of the things he shared. He taught a class at Yale about financial fraud. He's really passionate about this stuff. And I just wanted to give him a shout

out. All right. That's, we don't have to do any more on that. Do you have any other thoughts? Nope. Tip of the cap. Nope. Okay. You're up. You're up. All right. I want to end with an interesting chart that I saw from Mr. Belsky, Brian Belsky from BMO Capital. This is an interesting chart. Okay. So there's a lot of numbers. Let me just walk you through it. Okay. So we're looking at years since 1950, where January 1st through the end of July, the S&P 500 gained at least 19 and a half percent. And 2023 was one of those years. So we've got 1954, 55, 75, 87, interesting, 89, 95, 97, 2003, 2023. I'm sorry. So it looks like there's like nine years there. And then it shows what's the performance from August through the end of October. And interestingly, or I guess this sort of makes sense, when you have a blistering

first seven months of the year, there's a pullback in the next three months, right? Like normal shit. And so on average from August through the end of October, these years, you see a 3.3% correction on average. X 1987, it's a little bit less. In fact, a lot less. 2023, we had a pretty decent pullback down 8.6% from August through the end of October. And then the rest of the year, save for 1987, all positive, a 5.2% average return. I've never seen this. Have you ever seen this data laid out like this before? No, I haven't. And it stood out to me because this is not, listen, don't take this with a grain of sand. Who the hell knows what- Is this Belsky you said?

It's Belsky. I just like this idea because this is, this is like human behavior type patterns where, okay, you have an incredible first seven months. You give some back over the next three months and then you resume the previous trend. And that's perfectly reasonable seasonal shit. That's that sort of stuff. I like. Right. So 2023, you have this insane run into the end of July from the start of the year, 19.5%. And then in line with a lot of these previous situations- Yeah, give some back. this year, the calendar turns over from Halloween to November 1st in the middle of the work week. It's like the fall never happened. All of these stocks got right back up on their horse. Of course, that coincided with favorable Fed commentary and weakening inflation. When you view it through this prism, it's pretty normal what we've just been through. It's not abnormal at all.

I'm very happy that we didn't get all bared up at the end of October. Credit us. I mean, it would have been understandable because – all right. I'm going to think about it. Looks horrific. All right. So let me give the viewers and listeners a little bit of background. IBB is effectively, we replaced the

biotech index with the IBB, which is the ETF. It's the iShares biotech index ETF. What's interesting about the IBB is that the top 10 names are more than half of it. It is highly concentrated in companies like Amgen and Biogen, and you know the other names. But that's fine. That's what the index looks like. So that's what the ETF should look like. IBB has just been horrific this year. You've got amazing returns in almost every area of tech. And I guess biotech is not really considered part of tech.

It's considered part of healthcare. But it's a risk appetite type of trade that's not working this year with pretty much all of the rest of them working. So I want to just go through some of the stats that I had Sean put together. We do, I think we have a chart. Let's do the chart first. So this is IBB versus S&P 500. As you can see, it's just been in this huge drawdown while the rest of the market has recovered. It's in a 32% drawdown right now. On a monthly rolling basis, monthly rolling one-year basis going back to the inception of the ETF, which is 2001, I actually remember it, IBB has underperformed the S&P 500 54% of the time. So that's not the part that's aberrant.

About half the time, slightly more than half the time, it is underperforming the market. Going back to January 2020, the IBB has been underperforming on a monthly one-year rolling basis 62% of the time. And right now IBB has underperformed the S&P on a rolling one-year basis, six months straight. The longest streak we've ever seen was 30 in a row back in late 2017 into early 2019. So this has just been a huge laggard off the bottom last October chart off. The market bottom on October 12th, this thing has gone lower. It's just been- Can I blow your face for a sec?

A disaster. Go ahead. If you look at IBB divided by SPY, it's trading exactly where it was when this thing came out. And in fact, after this recent period, if you look at a total return basis, so from inception, which is 2001, you said, from inception through 2015, it had a return that was triple that of the S&P 500.

It was up 300% versus 100%. But now since inception, it's underperforming the S&P 500 pretty dramatically. 410% versus 267. Going back to 2001. It's in a massive funk. So there are some idiosyncrasies to the sector. One of them is whoever the FDA chief is and whatever the regime is at the FTC and whatever the political winds are about drug pricing, it actually really does matter. It's not one of those things that you can just say, oh, who cares? It's politics.

That stuff really does matter to this sector. Some of the things that drive returns are how much they could price the drugs for, whether or not there are acquisitions by large cap pharma, et cetera. But right now, if you're, so look at the S&P 500, 19 times forward earnings, two times price to sales. So the IBB is five times price to sales, but it's 15 and a half times earnings. So there are some giant, huge earning stocks that make up the top 10, which again, make up a really big part of the ETF itself. Let's do the earnings chart really quickly. So analysts are expecting 9% earnings growth in 2024 for the biotech space. That's that little blue squiggly line all the way on the right. You had negative earnings forecasted for 22 and for 23.

Jeez, look at 23. That's massive. Yeah. That probably explains a lot of why we've seen. Now, keep in mind, where does that negative come from? Like some of this has to be COVID overhang. Of course. Some of this has to be like vaccine comps, right?

So, all right. Earnings net revisions just turned positive in October. We throw this next chart up. Pay attention to these stocks is what I'm telling you. That's the pitch. I don't own the IBB. I don't own any of the components as individual holdings. What would make you buy this?

That might change between now and the end of the year. I would only buy it on technicals. If it breaks the down, if it breaks the downtrend, then I, then I get in because I don't know enough. It's a sloppy chart off. I know, but I'm, but, but I'm not looking for it to look good. I'm looking for it to stop looking bad. If it breaks the downtrend, I start paying attention. We'll, uh, we'll, we'll get, we'll get JC to weigh in on these, uh, in, in a couple of weeks. All right, let's do uh, we'll, we'll get, we'll get JC to weigh in on these, uh, in, in a couple of weeks. All right, let's do a mystery chart and then we'll get out of here. Okay. Um, certain areas, certain segments of the luxury market have come under pressure for

various reasons. I'm going to give you a chart, one company that has not felt any of the heat for reasons that, uh, you know, I don't know. And I don't really care. I just want to show you this chart. Okay. So there's a luxury brand. Expensive items. I mean, obviously.

Ferrari. Ferrari. Yep. Look at me. I told you I'm him. Look at me. Look at you. Look at me. I told you I'm him. Look at me. Look at you. Chart off Josh Brown on.

I'm him. What clue did you give me? Your fucking clues. Oh, it's an index, and then this is a stock. Dude, I'm him. I am him. Anyway, Ferrari. First sentence.

First sentence, no clue. Bang. No clue. Well, you categorized. You said it's First sentence. First sentence. No clue. Bang. No clue. Well, you categorized. You said it's a luxury brand. I said very expensive. Yeah. But you weren't like vroom, vroom.

What stock is it? Like, you didn't give me shit. I am him. Hey. Do you see this? Yeah, I saw it. Congratulations on your special effects. Thank you.

Wait, whoa, whoa, whoa, whoa. Let the audience know. We have a show on Friday. We were not going to, but now we do. Oh, it's a surprise guest, though. So you won't know. You won't know until you know. But after Thanksgiving, Friday morning,

you will wake up to an all-new Compounding Friends. And I hope you enjoy it. It's a good one. It's a good one for the people that are viewing. It's a good one. I want to thank our special guest tonight, Alex Kantrowitz of the Big Technology Podcast. Alex is such a mensch. We appreciate him joining us tonight.

Great job tonight, Michael. Great job to Daniel, new team member Daniel, helping us on the graphics and the charts tonight. Really appreciate it. John, Nicole, killing it as usual. All the gangsters in the chat, we love you guys. Hope everybody has a happy Thanksgiving. Thank you so much for joining us tonight. We can't wait to be back with you next week.

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 ritholtzwealth.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

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