The Compound and Friends - The Most Bullish Thing, CrowdStrike CEO George Kurtz, the Case for Financial Stocks

Episode Date: July 9, 2024

On this TCAF Tuesday, Josh Brown is joined by George Kurtz, founder, president and CEO of CrowdStrike for a wide-ranging discussion about cyber security, delivering for shareholders, the opportunities around AI, and more. Then, at 38:55 hear an all-new episode of What Are Your Thoughts with Josh and Michael Batnick! Thanks to YCharts for sponsoring this episode! Visit: https://go.ycharts.com/compound to learn more!  The Compound x Tropical Bros: https://tropicalbros.com/products/super-stretch-the-compound-hawaiian-shirt Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ 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. Tonight's show is brought to you by YCharts for financial advisors. The daily grind includes endless client meetings, complex portfolio management, and a drive to deepen client relationships. YCharts has innovative tools that enhance your interactions and help you build stronger relationships for improved experiences. Basically, if you're sitting face to face with a client, or you're on a Zoom, or whatever the case may be, you should be armed with YCharts.

Unbelievable reporting, proposals tool, things that you can do to make your job easier, make your clients happier. That should be like the number one thing that crosses your mind every Monday through Friday when you wake up. If you've never tried YCharts Professional before, you can get 20% off your initial professional subscription when you start your free YCharts trial today. Go to go.ycharts.com slash compound to learn more. Okay, tonight's show, really big stuff. We talked to George Kurtz.

George is the CEO, president, and co-founder of the hottest software stock in America, CrowdStrike. Stock is up about 50% on the year. Buy recommendations all over the place. Just got added to the S&P 500. George has been on the show a bunch of times. I hope you've heard and seen him before. He always really does such a great job explaining what's happening at the company, what's happening

in software in general, cybersecurity. That's a really great conversation. And then immediately following, it's Michael Batnick, it's me, it's the breakout for high beta stocks versus low volatility. We also take a look at the bank sector and why Michael is super bullish on S&P financials. We take a look at earnings growth and expectations, market breadth, some of the biggest winners from the first half, and some of the biggest losers too. And all in all, just an absolute rockin' show. Can't wait for you to hear it.

Without any further ado, I send you over. Duncan, John, do your thing. ["The Compound and Friends"] 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 Red Holtz Wealth Management. Hello ladies and gentlemen, welcome to the compound and friends. I'm here with George Kurtz for a live from the compound discussion. George is the CEO and co-founder of, in my opinion, the hottest stock on Wall Street

this year that isn't called Nvidia. I just want to give you guys a little bit of a background here. CrowdStrike is a leading provider of next generation endpoint protection, threat intelligence, and services. George has more than 30 years of experience in the security space. His prior roles at McAfee, a multi-billion dollar security company, include worldwide chief technology officer, general manager, and executive vice president of enterprise. George Kurtz, this is, I think, your third appearance on the compound.

Do you think I have that right? I think that's right. It's always a fun time. So I enjoy doing it with you and it's a lot to talk about. Yeah, man. We're so excited to have the opportunity to check in with you. It's a really momentous time for CrowdStrike. I wanted to, and last time I did this to you, and you don't follow these stats as closely check in with you. It's a really momentous time for CrowdStrike.

Last time I did this to you, and you don't follow these stats as closely as I do, CrowdStrike is categorized as infrastructure software. That's like your stock market industry group. You are the sixth largest now, infrastructure software firm in the world with a market cap of about $94 billion today. So you are really only behind a small handful of names, Microsoft, Oracle, Adobe, Palo Alto, and it's a small group that you're now a part of. CrowdStrike is the seventh best performer year to date in the NASDAQ, 100, and the 14th best performer in the S&P 500, up 51%. And you are the best performing software stock year to date within both indices. So I don't have my applause button, but this has been one hell of a run for you guys.

And I know it's a really big team effort. So I wanted to start off by just saying congratulations on how 2024 is going so far. Well, thank you. I appreciate that. It's been a heck of a run and obviously lots of good things to talk about, but that's why I enjoy coming on. I get all the fresh stats from you.

So now you know everything that's happening. Well, so here's where I want to start. So CrowdStrike is at this point fairly well known, maybe very well known by the investor community, given the performance and the execution. And it's a pretty big brand that everyone knows. You guys are like the first name in cybersecurity. But I wanted to ask you what you think CrowdStrike is doing right to have separated yourself

to the degree that you have. Just to put that in perspective, you have over the last year, CrowdStrike stock is up 170%. Zsc stock is up 170%. Zscaler is up 41%. What's net? CloudFlare up 35%. Palo Alto up 32%. And Fortinet not having a great year.

But that's a pretty big disparity. And at first glance, I look at gross margins. You guys are all mid 70s, which is pretty incredible. Earnings growth, certainly you've distinguished yourself. Crowd strike is 63% and expected earnings growth for next year. Crowd strike at 22%. So certainly the fundamentals are amazing. But what else do you think you guys are doing that maybe some of the other players aren't

doing as much of or as well without getting into specific companies. But where are you guys really distinguishing yourself in the eyes of investors? Sure. So one comment on the chart, when you look at the gross margin piece, that's a blended gross margin. If you've got our subscription gross margin, it's above 80. Sure.

Understood. And I think that's a big part of what we've been able to do is, you and I have talked about this for some time, is the fact that we built the platform in such a way that it allows the scalability and allows the margin and the accretion to fall to the bottom line as we sell more modules. Part of the thesis when I started the company was data was a critical element to solve security problems So if you can collect the right data at the right time in the right amounts You can make decisions in real time

And then you can also use that data to go back and retrain all the algorithms and we were doing AI before it was Fashionable was called machine learning then but it was AI and now obviously the newer AI Technologies which we leverage as well as generativeative AI, which we can talk about. But it started with building the cloud platform from the ground up. We're not a firewall company. We don't have boxes. We don't have a lot of legacy models, like business models. So the software delivery model of a SaaS lines up with the revenue model.

And a lot of times, those are not different. A lot of times, those are different for companies. They may have term licenses, but they have things that are on-premise and it just makes things harder. So we have a very clean model. This is for your investors, which is really important. It's software delivered as a service and there's no hardware associated with it. So we don't have all those legacy kind of hardware issues. Once we collect the data one time, this is the beauty of the model and this is why the margin keeps going up and up, is the fact that Once we collect the data one time, this is the beauty of the model and this is why the

margin keeps going up and up, is the fact that once we collect the data, then we're able to monetize that with additional modules on the platform. When I started, we had one module, but the general idea was how do we expand that out into being a platform like a Salesforce or Workday or ServiceNow? That's what we've been able to do. So, George, let me jump in with a follow-up. For people that aren't terribly familiar with CrowdStrike or SaaS or software in general, when you talk about a module, so the idea is you get into a company and you sell them

something they really need right at that moment or maybe a couple of things, but you've collected data and you know what else they need or what else they might need later. And that might be a different module. And then you're basically cross-selling within the same enterprise. And that's why it's such a wildly profitable business once you get that foothold with a customer

where you guys just become so indispensable. Do I have that explanation right? That's right. Right. So the simple way, and you got to keep me honest because I live and breathe this every day, but the simple way to think about this is we have a little piece of software that runs on every computer and cloud workload and we're always collecting security data. Well that data can be used for different use cases.

So in the early days when we, it was, hey, prevent malware from running. Okay, that's an easy one. But now we've expanded it out to cloud security, to identity security, to next-gen SIM. These are all different use cases. We've expanded our TAM dramatically from where we started. It's over 100 going to 200 over the next couple of years. So that's really the key to it. Once we've collected the data, which is a cost, right? That goes into your gross margin. Once we've collected that, then we have it. And then we've actually created different workflows on that data to solve different use cases, like what I mentioned. And once we have it, then it's almost pure margin for every new module that we sell. One of the things that we've talked

about in the past, and I'd love you to bring me up to speed on it, we're now in this world where we're no longer debating whether or not people are going to return to office or remain at home or there'll be some sort of new standard that's hybrid. I think at this point, basically, we've kind of settled into a world where it's all three at the same time. Different types of companies, different types of employees, different times of year. It's just everyone's doing whatever they're doing. But what that means from a cybersecurity standpoint is that we have got to be able to authenticate our employees no matter what device they're on, no matter what Wi-Fi network,

no matter where they are. And of course there are best practices from the company's standpoint, but from your standpoint, they're on, no matter what Wi-Fi network, no matter where they are. And of course there are best practices from the company's standpoint, but from your standpoint that seems like a huge opportunity to give boards of directors and C-suite people the peace of mind that they're tightened up enough that they can let their workforce work from where they need them to work. Well, absolutely. And when you look at what's going on today and you guys are covering the headline,

you see all the hacks. I mean, just over the last three months, it's been crazy the amount of data hacks that have been out there. And those are all identity-based. So what that means is, a lot of people think a lot of these attacks take place because of malware.

That isn't necessarily the case. A lot of them are identity-based, meaning someone fished a credential, right? They were able to compromise or get access to somebody's username and password, or they were able, in many cases, to get access to the system that actually manages those credentials, right?

So what we've been able to do, and I'll make it simple for the users because you have different players that are out there. So let's use a couple of names, but we'll put it in buckets. For identity, which is a big category, you have the identity creators. That's like Microsoft, right? Azure AD and Entra and those sort of things, right? They create identities. Then you have the identity aggregators like Ping and Okta, okay? So they take all the various identities that are out there and now you've got to make it easy for people to log in. You can't have 20 identities. You want to have

it down to one. And that's the aggregators. And then what we are, are the identity protectors. So we work with the Ping and Okta. We help secure the Microsoft technologies. And we got into this probably three or four years ago. We bought a company and it's been totally integrated into our technology stack. And we were way ahead of the curve realizing that these identity attacks were going to be a huge problem. And it's a huge business for us now. We bought the company, it had 7 million ARR and the last publicly reported number, which

was in Q4, we were at 150 million of ARR just for that business. And by the way, we didn't sell it for the better part of 18 months because we integrated it. So it's a huge business for us. Yeah, and at 150 million ARR, that's a business that probably still has tons of potential as more and more organizations wake up and recognize all of the Trojan horses and all of the big gaps are human-based.

They have employees, they have access to various things that the company does, and they make human errors. Fishing attacks are not terribly high-tech. Sometimes it's as simple as catching somebody at the wrong moment where they're not thinking straight and getting them to respond. That's correct. And in our business, we say one of the biggest challenges is between the keyboard and the chair, which is the user, right?

Absolutely. And even when you think about how these attacks unfold, and we've listened because we've had to respond to many companies, not our customers necessarily, that had breaches. A good part is they become our customers. But we listen to the recordings when they call the help desk. Help desk, you have to think about it. They're gold. They're gold on how many tickets they can close

and how fast they can close a ticket. So if somebody's yelling at them, I need access, the CEO wants this or that, a lot of times they'll be tricked into giving somebody access and then it's game over. Yeah, so part of your business model is that you will respond to these incidents A lot of times they'll be tricked into giving somebody access and then it's game over. Yeah. So part of your business model is that you will respond to these incidents as like a mitigation.

Like, okay, so you were hacked. Okay, we're going to come on site now. We're going to try to figure out how it happened. First things first, we're going to stop the bleeding and shore up everything. Then we're going to try to figure out what happened. And then we're going to make some suggestions about how to make sure it doesn't happen again. And whatever else we turn up in that process. So I've described it before as kind of like a SWAT team.

But that SWAT team is almost like the front end sales team because once you're able to do that, then the corporation or the government or the municipality, they're just like, well, let's keep these guys around. Let's make sure that we're protected and you're ready to go. And by that point you've diagnosed the problem and you've already made some recommendations about the solution. Who in their right mind would dismiss you at that point?

Like at that point, we got to have CrowdStrike. So that's a really great way to introduce yourself to new potential customers, even though it's a really dark time for them. The silver lining is finally, they're going to get some professional help. Is that how you see it? That's absolutely true.

And you know, that's less than 10, the pure services work is less than 10% of our overall revenue by design. I could build that out to be even bigger, but we're always managing it. The key piece of that is for every dollar of services that a customer spends, it turns into $6 of subscription revenue. That means when we get in there and we do a response engagement and we are one of two, maybe three big players that are out there that get the call, really one of two. And I mean, our success rate in converting is like almost a hundred percent.

I could imagine that. Yeah. So, and we're operating at the board level, right? It's compressed sales cycles. Yeah, when there's an incident, when there's an incident, you're not talking to the vice president of engineering, you're talking to the people who are the most at risk

and have the most at stake of cleaning it up and fixing it. And you have their attention. It's not a cold call. I want to put a pin in cybersecurity just for a moment and just talk corporately. So obviously for those who haven't figured it out by now, I am a long-term investor in CrowdStrike have been, I think since you guys came public, 2019 was the IPO. Do I have that right? Yeah.

2019. So this is a big, it's a fifth anniversary and you celebrated it by inclusion into the S&P 500. That's pretty cool. It's very cool. And you know, we did some, we did some stats on that ourselves. I mean, I think we're, we're one of the fast to make it. And we're certainly, we're the fastest security company to make it. Okay. We'll double, we'll double check, but I believe that. That sounds right. Double check.

But if you look at since IPO, we 10x'd our ARR and revenue, we 10x'd our customer accounts, we 10x'd our market cap, we 10x'd the number of endpoints we protect in five years. We only had, gosh, a handful of modules, I think, at the time when we went public. Now we're 28. You can see the momentum in the business. That data, I call it data gravity, that data gravity allows us to continue to win more than our fair share of business in these customers. That really is the key, is to consolidate their spend and take money from other places

and put it with Crouse. This is a big theme right now when you listen to companies report earnings or you listen to software companies talk about sale cycles are now getting elongated, which I guess is something that everyone's gonna see at some point. And a lot of that is more dependent on the economy than anything else.

But one thing that seems to be repeated everywhere is that companies are looking for less vendors, not more Companies want to consolidate and have more of the services that they need coming from the same player Rather than have this and I can attest to that as a small business owner With all kinds of vendors for everything under this under the Sun. Sometimes I'll tell some of the founders Hey, you ever everything about merging with the company. So I get that impulse. Is that another reason why you guys are winning to the extent that you are?

It's just that ability to provide a lot of things to a lot of people and not just be one box that they're checking off. It is. And when you look at where we are today and you know, when we talk about security, I'm going to ask you, answer your question. Security is a big market and in general, uh, security needs to parallel the slope of the technology curve. So as technology gets more complex, you need security for all those

complexities, right? So we certainly don't cover every aspect of the security market, but the big ones that we do cover, we cover a lot, we want to be the best in. So there's a whole bunch of things we're not going to be a firewall vendor because we think that's commoditized. We want to do what we're doing. So let me just state that. When we think about customers' buying behavior, they have come to us and said, you're basically one of our most or the most strategic security technology we have. So we want to buy more from you and want to consolidate on your platform. We've done that and we've showed the consolidation play over the last number of years.

So we sat down with customers and they said, we want to buy more, but you need to make it easy. You got 28 modules, you're going to have however many, like you didn't make it easy. So we said, well, you work with us and you tell us how do you want to buy this thing? So we literally sat down with our best customers and they said, we want the flexibility to be able to use anything in your catalog. We want to like Amazon, give you a commitment. And the more we commit, the bigger discount we get.

And then we want to use everything. So we said, great, we put it all together and we launched Falcon Flex. You may have heard me talk about this. This is a game changer for us. We are doing more and bigger deals than we've ever done because of Falcon Flex. This is the bundle for Fortune 500 companies that want access to everything. Everything. And by the way, we're going down into the mid market with it. There's no reason why some of these smaller, I've said mid market, right? I mean, there's $20,000 billion companies out there. So we can do bigger deals and allow the full capabilities of our technology just based upon the commitments they're going to give to CrowdStrike. They get a better deal, we get a bigger deal, and it's been a game

changer. So this is one you got to stay close to. I'm really excited about and you know, you'll you heard more on the last earnings call. You'll continue to hear more about it. Absolutely. So what was the process of just before we leave this, what was the process of index inclusion like? Do you get a heads up from S&P Dow Jones or does one of your buddies say, hey, look at your market cap, you're probably getting in. I know it's like there's a gap accounting, four quarters of profits.

There's market cap, you have to be at least bigger than the smallest company. And maybe there's a couple of other things, but did you know, hey, this is about to happen? I mean, you know, this is a funny, funny topic because you'll laugh. It's literally a black box. We had no idea. And the only thing we knew was we were eligible and we checked all the boxes because at that point it was five quarters of profitability. We had the right market cap. It was a lot of momentum. But the thing is it's one in and

one out for the most part. So somebody had to go. You saw the players that went, three players went, three new players came in. And I mean, it's a pretty stiff list of people that are ready to be included. And some people have been on, you know, on the waiting list for a long time. So to get on really the first time we were eligible within such a short period of time after the IPO is just a testament to, to crouch, right? What we built all of our people. You guys are, you guys are first, first, first ballot hall of fame. I want to talk about Q1 earnings. So this came out in early June, but just the highlights here, revenue 932 million, which was up 33% year over year. ARR, which is, I think you've told me the most important measure,

up 33% to 3.65 billion. So that's an annual run rate of $3.65 billion in annually recurring revenue. Record cash flow at $322 million, which was 35% of revenue. So talk about margins. And subscription gross margin at 78% for the quarter, which I think you told me is blended. But I mean, these are obviously fundamentals are just absolutely incredible. It's not easy in pressing the sell side quarter after quarter because most of the analysts already had buy recommendations on you guys and they've taken their numbers up and somehow you still manage to exceed. Do you worry about that kind of treadmill or that game of continually being able to

up the ante or is it not really something you worry too much about? Well you have to step back and as a public company you're under the screw. Every day there's a game that's being played and I say game, there's a scoreboard, right? You know what things are. We don't get distracted by that on a daily basis. And I think what we've really tried to focus on is if we can get the customers protected, if we've got the best software, got the best packaging,

and we're really solving problems, and that's our mission, I think we're gonna be successful. And as you pointed out, when you look at those metrics, my CFO, Berg Podbear and myself, we really focus on two big things. There's a lot of things we look at, but it's ARR and it's cashflow. And I'm a simple sort of guy when I look at this stuff. ARR is your health. We don't deal with billings and a bunch of other things. People ask me about billings. I don't even know what it is. I don't even look at it. It's irrelevant to me. Meaning like when a sale closes this quarter, next quarter, that kind of thing? Yeah. It's like when you sold something, when you build it, right?

Yeah. Right. So when you look at- Revenue recognition. Yeah. And it's like people are trying to use billings as a proxy to ARR, but we're already giving you ARR. That's the old world. That's the old world. So for your listeners, ARR is king of the hill for a software as a service company. And then the second piece of that is cash flow. When you look at the cash flow,

it gets back to the business model that we talked about. I spent as much time thinking about our technology model as our business model. When you can rain cash like this, because we collect the data and we cross-selling these modules and we just keep doing that into our install base or our net retention numbers are best in class, this is really where you have the machine. The more it cranks, it's a big flywheel, right? And it just keeps generating cash. So those are the two big ones that we look at. And I think the results speak for themselves.

And I think that's why the stock has done what it has and why people are excited about CrowdStrike. Let's put up a growth at scale. So anything on here worth spending a moment on as the CEO of the company? When you look at these metrics and for the listener, we're looking at ending ARR, we're looking at net new ARR, subscription revenue and total revenue. And we're looking at the change, Q1 of this year versus the prior year. And of course, everything is up and to the right.

But George, is there anything on here worth getting into? Well, I think one of the big ones is the ending ARR at 33%. This is, you know, we're not a $300 million company. Yeah, at 33% at 3.6 billion. I mean, this is this is massive, massive, extraordinary. And again, you probably have the math on it. There's not many companies at our scale. I think there's three, maybe four at our scale that are growing above 30%, so that's one of the biggest ones. And then once you have that, then all the other sort of metrics tend to fall into place. And we have extremely high gross retention rates because people stay with CrowdStack once they're a customer.

These are some of the things that you said were key takeaways from the first quarter. These are your comms people, but this is what they pointed out to the street. John, do we have this key takeaways? So obviously we talked about the numbers, but maybe worth getting into driving platform adoption, more modules than ever before, the number of deals involving cloud identity or next gen SIEM, which you'll tell me what that is, more than doubled. And you are now the cloud security provider of choice for 62 of the Fortune 100 companies. Those all sound like pretty major milestones.

Why are those the key takeaways that you wanted investors to know about? Yeah, these are great stats. So let's talk a little bit about the platform adoption and the three big businesses that we have and emerging businesses within the company outside of what people know as source, just endpoint protection. So when we think about the three big ones, their identity, which we talked a little bit about, their cloud, which you just gave some of the stats, we're one of the largest cloud security providers in the world, and their next gen SIEM, S-I-E-M, and that's security

event information management. I'm going to come back to that because this is really, I think, a game changer for us as well. So, when you look at these areas, they have some of the fastest growth within our portfolio. They have massive TAM, multi-billion, some tens of billions of dollars of TAM opportunity. And it's an area that's right for consolidation. Let's take NextGen, Sim, and some of the players that are out there. You know some of the players. This belongs to the world and some of the other players that basically take information in and then allow you

to do something with it. This is really important. Day by day, people generate more security information. So every device, every computer, every cloud workload is generating security logs, right? And you want to be able to take those logs and make sense of them and then use those in your AI algorithm. So in the past, before we had this capability, people would use our technology and we generated, I would say, 80 plus percent of the data that they cared about, and they'd ship it out of our platform and they put it into a Splunk. And then you pay Splunk a lot of money or whoever, right? To do what? To interpret it?

Yeah. Well, then what they would do is then they would take other third party data. So they would take all this data and put it in one place and then try to understand it. Okay. And the reality is the bulk of the data was coming from us and the fidelity of the data was the highest because we're collecting data right on those computers. Yeah. So we acquired a company a number of years ago and then fully integrated it over the last six months that allows us, it's a next gen SIM, to basically keep all the data within our own platform. And now we just ingest the 15% of the data that we weren't getting. So the firewall logs, the email logs, the things that we don't do, we now ingest.

So rather than- It's a new module for you? It's a new module and it's a huge business for us. Yeah. And when you look at the SIM market, It's a new module and it's a huge business for us. When you look at the SIM market, this is one which I like because a lot of legacy technology and a lot of customers that were not happy with what they had. So they were looking for something better, faster, cheaper. So now I can go to the customer and say, by the way, you don't have to pay for all the data to go out. You don't have to pay another vendor to do this aggregation.

You just need to ship me the 15% I didn't have, and I'm going to give it to you better, faster, cheaper. And, by the way, we've now activated. So our 30,000 plus, that's the last public number, it's greater than that today, but our 30,000 plus direct customers are now all next-gen SIM enabled. So now the sales play is to go in and basically turn them all into SIM customers. So this is money they're spending elsewhere for not as good of a solution because the data is moving and being chopped and mixed up. Right. So now it's easier and better.

The reason I love that story, the parallels to my business are really obvious. We did a survey, I'm going to say four years ago. So we're doing tax consulting. I have CPAs working at the firm, kind of like giving consultative advice on the tax situation for households, businesses, executives, foundations, et cetera. We did a poll, we said, what if we were to file your taxes? Like, show of hands, who would be interested? It was like 72%.

So of course, we immediately started hiring more accountants because it's the same thing. People's CPAs are taking 80% of the data they need is coming from the accounts that we're managing. So we're sending that data out, maybe having a few conversations, and then the output is we have no control over it. So it's the same kind of situation where we just said, what if we can pull in the 15% or 20% of stuff we don't know, use the 80% that's already here and do that service for customers. And honestly, George, nobody says no. I can't staff that business fast enough. I can't scale it. So I love when things like that happen where you're almost

listening to the customer and then adapting accordingly. Yeah. So let me just give you, just to put it in a real world perspective, one of our biggest banks, one of the biggest banks in the world, they were like 40 terabytes a day they were ingesting huge amount of data, right? We cut their bill from their prior vendor to one third of what they were paying. Wow. And the search that would take two days, because they're talking about a lot of data, took under a minute with our technology. Wow. So now they started with just security and now they're expanding it out into non-security use cases. Right. So I want to ask you about AI and the

opportunity for cyber opportunity. Opportunity is a nice euphemism for it. The risks of AI, why it's an opportunity for CrowdStrike, you're probably looking at this from a different point of view. You're probably looking at this from, OK, what are our customers going to need in the AI era? So talk a little bit about how you guys see that shaping up. Yeah, so I mean, at the macro level, it's it's it's absolutely as you followed and you know, the companies that are help driving this. It's a game changer, right?

And many of the companies that we're dealing with, they're dabbling or they've got more robust programs and using AI internally. So they want to be able to essentially leverage AI, I would say, to make things easier and reduce costs. And in some cases, doesn't mean they're cutting people, but they wanna make their people more productive, right? So what we said is, and this is our Charlotte AI offering, is we don't want just a chat bot, right? That, hey, ask a question, get an answer. We actually want an AI agent,

something that's gonna do work on behalf of our customer. And that's really what Charlotte does. So we've taken the collective wisdom of CrowdStrike over the last, say, 10 years, we've embedded it within Charlotte to ask a question on a threat actor or a threat indicator, right? Piece of data, you can get an answer, no problem.

It's like talking to the smartest person we have and who doesn't forget anything. And then we also then wired it into the workflow. And this is a big part of the platform, is a whole workflow that allows customers to be more productive. It does work on behalf of the customer. You literally can have a conversation with Charlotte. It can find a problem or an issue, and then it can actually fix it or deal with the issue.

We can take eight hours of work and distill that down into 10 minutes. That's our view. We're in the time of the chat bot now, which is fairly reactive. I know they're about to get much better based on what we saw from Microsoft and Apple. Um, they'll become, they'll become more, uh, converse, uh, conversative. I don't know if that's a word, but right now you ask a question, it calculates, there's a second lag, and then it gives you back an answer. And then if you ask another question, it says though the first question didn second lag, and then it gives you back an answer. And then if you ask another question, it's as though the first question didn't take place.

And that's what's changing. That's getting better. But when you talk about the distinction between a chatbot versus an AI enabled agent. So this is something away from the CrowdStrike context, but this is something where I tell Siri go out and buy me tickets to the giant game opening day. I want to be in the 100 section and I need an aisle seat. And then a few seconds later, Siri says done. Your tickets are now in your wallet. That's like where this is headed from the consumer perspective when you talk about chat bot versus agent.

What does it look like from an enterprise B2B standpoint, the things that I've just described? Well, it's a good question. I think it's a good analogy and it's good to see we're both giant fans. It's been rough for a number of years. Unfortunately. Yes. But when you look at what an enterprise or a security operations center does, and again, for a lot of your listeners, they may not understand sort of the boughs of what happens, but there's an army of people that are looking at all this data and it's, you

know, something bad happens, they have to react to it. It's like the virtual security guards. So what we're doing is we're allowing someone, a SOC analyst, security analyst, to basically say, tell me all the threats that pertain to my bank. Tell me all the threats that pertain to financial services. Tell me all the threats that pertain to my bank. Tell me where we're vulnerable. Then if we're vulnerable in these areas, take a remediation.

That means it could patch a system. It could turn off a service that's running. It could change a remediation. That means it could patch a system, it could turn off a service that's running, it could change a user ID. And then when you're done, write a situational report. That would take eight hours in a day. Easy. And a lot of people. And a lot of people. So now, just the report writing. So now what we've done, we've got an incident workbench. We actually take all of these unique indicators that it would take, it's sort of one or two dimensional a person can deal with. We're dealing with billions of parameters

and we're going, hey, there's things over here that all relate to this particular issue that you may not have even considered. So we can service all that and then we can have Charlotte actually run everything to ground, fix it, and then write the report on what they did. And with a bow, they can give it to their boss.

So who on earth is going to say no to that? Considering the alternative. That's a really powerful story to tell someone who's responsible for making those decisions at a large company. Yeah. Okay. And part of what we've done is, of course, we leverage this technology. We actually leveraged it before we made it public, but that gives us the scalability when we're dealing with our own customers.

Okay. Does Charlotte have a voice? Charlotte has. We actually have, there's a gal who is Charlotte, if you've seen any of our commercials or what have you. Yeah. So Charlotte does have a voice, but we do have a person attached to it and yeah, it's, it's gone really well. All right. Very cool. George, I want to thank you so much for your time and once again, congratulate you and the entire CrowdStrike organization. It's just remarkable what you

guys have accomplished since coming public five years ago. And of course, congrats again on S&P 500 index inclusion, another incredible milestone. And thank you for being so accessible to the listeners who have learned the story over the years, who love the story and track the stock. Thank you so much. We really appreciate it. I appreciate being here and always good to see you and talk to you. Thanks, Josh. All right. Cheers. That's it from us guys. For more, go to crowdstrike.com highly recommend their investor relations section. Lots of great information every time they report or issue a release. Thanks to George Kurtz for being here. We really appreciate it.

All right. Ladies and gentlemen, welcome to an all new edition of What Are Your Thoughts here on the Compound YouTube channel, which has just surpassed 150,000 subscribers today for the first time ever. We'll do a little clapping? We'll do a little clap? Absolutely. Alright. Michael, do you have anything you want to say to the folks?

Michael Batnik is here with me as always, by the way. Do you have anything you want to say to the Michael Batniks here with me as always by the way Do you anything you want to say to the folks about? 150,000 subs what's up? It's a lot of people So yeah, I want to say thank you to everyone as somebody who consumes a shitload of content I know there's only so many hours in the day So the fact that you all choose to allocate some of those hours to us means a hell of a lot So thank you. That's a really good point and as the world's oldest YouTube influencer, I'm 47 years old. If you had told me 10 years ago, like I was going to be a channel on YouTube with 150,000 subs.

I'd be like, no, I'm not. Who would want to watch that? And yet here we are. I think that's a really good point. Like there's only so many hours in the day. So one of the things we try to do with the show is make it as, and all the shows we put up, make it as nutritious as possible. So if you spend time with us, whether it's 10 minutes or an hour,

like we're filling that time with stuff that you really need to know or might be interested to learn or whatever. Like that's the guiding principle behind everything we do. And apparently you guys are picking that up and we really we appreciate you rocking with us. So thank you. All right. We have a sponsor tonight, Michael. Why don't you tell us who the sponsor of the show is?

We have a great sponsor. It's YCharts. We're going to be leaning on them heavily for a lot of the charts. This is a chart heavy show. I think this might be one of your thoughts. Wall the record, heavy show. I think this might be a, what are your thoughts while the record? Josh, I noticed like, if the audience notice, hey, what the hell is Michael doing on his keyboard while Josh is talking? It's like a 98% chance I'm on white charts.

I'm fact checking, I'm punching it up. I'm saying- They're still mad at you, but you're right. I'm seeing what's going on. I use it for, what don't I use it for? I use it, I get nutrition tips on white charts. That's how good it is, everything. Do you know when we do halftime report? I often have five or six different white charts tabs open

And I'm not using them for streaming quotes But just like to get an instant snapshot of whatever company just reported news or we happen to be talking about Literally white charts is the best tool on earth for that. So we love it for so many reasons and thank you YCharts for sponsoring the show. We have an offer. What are we telling people to do? If you want to check out YCharts as a first time user,

tell them we sent you, get 20% off, can't go wrong. Okay, go to go.ycharts.com slash compound. Big breakout for beta. go to go.Ycharts.com slash compound. Big breakout for beta. And this is weird. So I kind of intuited this on my own, just looking at the stocks that I look at, but then two of my favorite technicians, arguably everyone's favorite technicians,

both published on the same topic. This high beta versus low beta breakout that we're seeing, which effectively is now leading the S&P 500. So Ari wrote about it and JC wrote about it, like within hours of each other, I think. So I don't think they got the idea from each other. And when you have two of the most well-known, most talented technicians on the street focusing on the same thing that's happening, I think it demands your attention. So we're going to open up the show with a couple of charts from those two gentlemen. And I want you guys to see what the technicians are seeing as we, I think we just closed in

a new closing all time high. So I had that right? Okay. All right. Ari Wald is the chief technician at Oppenheimer. And I think he just won some big award or got some sort of promotion there. I forget. I congratulated him on LinkedIn because I spent like 10% of my day these days congratulating people. But I forgot what it was. Anyway, shout to Ari. Ari says there is a structural shift in capital markets, and that's actually his favorite sector in the stock market,

which we can talk about later, but this is Ari right now, and we're gonna put up chart one while I narrate. We utilize the high beta versus low volatility ratio as a signal for offensive versus defensive leadership. Bears may point to the failure for this ratio to confirm the S&P's latest price high as a market top warning. We see a ratio testing multi-year resistance and upholding its 200-day moving average. This leads us to favor a beta breakout, a potential catalyst for the next leg of the

advance in our view. Conversely, a break below the ratio's 200-day average would pressure our outlook. So basically, the idea here, what you can see in the chart, the top pane is the S&P 500, which you can see breaking out to a new leg of the bull market. And then below, RE is showing us high beta stocks versus low volatility stocks. So basically the inverse of each other. As you can see, high beta is starting to run away with the leadership here. Of course, if you're a technician, that's kind of what you want to see leading at new highs.

You definitely don't want to see low vol like a consumer staples as your, as your leadership group, if you have a choice. So I thought this was an interesting way to think about, um, the, the, the current new high and the confirmation that the technicians are getting here. You know, what's interesting about these, uh, ETFs. So SPHB, I think is that's the high beta one that they're looking at. These are both in VESCO products. Do you remember SPLV, the Loval one? So SPLV for whatever reason, and I think I suspect I know why, but it's got 10 times the amount of assets as the high beta one, despite being a serial one.

Potential advisors. Right. Despite being a serial one performer. There's $6.9 billion in SPLV and just $8 million dollars in the high beta ETF. I never would have guessed that. Is that right? 10 for 1. And how much has a high beta outperform low value buy? I know recently it has, but just in general. Let's see.

I'm going to look at this now, but that's really interesting. No, guess what? Y charts. Just give me two seconds. I got it right here. All right. So over the last let's go three years, the returns aren't the gap's not even that wide. All right, so over the last three, let's go three years, you know, the returns aren't the gaps, not even that wide. All right, five years, it starts to get crazy. For five years, it's 115% for the high beta and 28% for low vol. So for people who are somewhat newer to the investment markets, when we say high beta, we're talking about a quantitative metric that basically can be calculated.

These are the stocks that have the biggest moves on a daily basis. They end up in that bucket, the stocks that move. So you could picture there were certain industry groups that are going to lend themselves more to that sector. And again, it's not people's judgment. It's just quantitative. No. So like semiconductor might have a beta of 1.2 to the market.

And the beta is just the market's beta. So that's just the index. And utilities and consumer staples might have a beta of 0.7. So lower things that move less than the market. So if the S&P is up 1% in a given day, you would expect consumer staples and defensive names and utilities to be up, I don't know, 80 basis points or whatever. So that's the low vol versus the high beta. Yeah.

So beta, basically the way it's expressed is if one is the S&P's beta, meaning the S&P went up 2% today, if a stock went up 3% today, it's 50% more beta than the overall market. So it would be a 1.5. Am I explaining that right? That's how that would be expressed. So when you're looking at a stock and you just want to get a sense of how volatile or non-volatile it is compared to the overall market, that's what that's measuring. Let me put this next chart up from Ari.

So this is Ari Wald. Whether selectively or broadly bullish, we're most bullish toward our advocacy for the momentum factor, meaning stocks that are already going up. While the bull case is for low momentum to reverse its year-to-date divergence and keep pace with high momentum steadily paced uptrend. We believe high momentum still offers the most attractive risk reward balance based on the current stage of the equity cycle. We remind clients that the stocks you don't own often support a portfolio as much as the ones that you do.

So he's saying, yeah, it's a new high, but I think you want to stick with the high momentum names. You can see in red the low momentum names really not doing much of anything at all. Again, in the second pane below, that's a ratio chart. That's high momentum stocks versus low, and you can see the clear breakout in investor preference for high momentum names. Right now, and you could say you don't like this, or you could say it's not gonna last, or whatever you wanna say, but the reality, this market is being led by high beta,

high momentum stocks. I suppose that's what you should expect to find at all time record highs. I don't think it's terribly surprising that that's the makeup of the current rally. What do you think? Yeah, it's what you want to say. You want to see leaders leading. That's exactly what's happening.

Do you? All right, let's do this one from J.C. J.C. Peratt's AllStarCharts.com. Here is one of my favorite risk on risk off indicators, looking to complete a multi-year base and break out to new all-time highs. So he's putting this out at the same time Ari is. This is the S&P high beta versus S&P low volatility, also another ratio chart.

And JC is clearly showing consolidation above prior support, above prior resistance, which is now arguably should be looked at as support. And here's his explanation. This chart of high beta versus low volatility looks a lot like the equally weighted S&P 500 and NASDAQ 100, which has served as a better representation of the typical stock than some of the popular tech heavy market cap weighted indices. And upside resolution here would be the most bullish thing for this market that I can think of. And I believe the higher probability outcome is, in fact, an upside resolution.

Charloff, this is a bull market. Good things happen to shareholders during bull markets. A breakout here would be very rewarding for people who own stocks. It would be detrimental to those who do not. If you do not own stocks in a bull market, then what are you even doing as an investor? To Jaycee's point, here's, we made this one, here's NASDAQ 100 versus equal weighted S&P 500. Thanks to Sean and John for getting this up. So I mean, this is as clear as a bell. This is Nasdaq versus equal weight, another obvious risk on indicator. But again, this is what bull markets look like. And this is exactly what should be expected. All right, sticking with this

theme, but moving on to my topic. It is a stock picker's nightmare. This is from Sentiment Trader on Friday. The percentage of S&P 500 stocks outperforming the index over a 21-day period dropped to the lowest level in history. Just, what is that, 15%? I mean, unbelievable. Well, the good news is those are the low volatility stocks. Right. The run is bordering on historic chart kid made a chart of the top, the 50 largest stocks over the last six months. And it's not quite at historic highs. But the 50 biggest stocks, they're winning big time. Hold on. Explain this. The top one is the S&P 50. Okay, got that. And the bottom one is a six month rate of change. Okay. So yeah, I mean, like, if you were to stop the market right now and say, like,

what was the dominant theme of this year? It's everyone crowding into the highest quality stocks. Now, once again, that sounds really bad from like a market prognostication perspective. It's like, how did the bull market end? Oh, only the S&P 50 were rising. But as we talked about last week, we've been through these episodes before and they frequently end with an upside resolution where the rest of the market catches up. I'm so glad you mentioned that chart from Sevita supermanian or team bank of America. Bad breath usually mean reverts to the upside. Yeah.

There we go. That's right. So exhibit 16 on the bottom. She says in years of mega cap leadership since 1986, the market was up the subsequent year, 75% of the time. So you've got, I don't know, pick a year. So 95, for example, the top 50 were up 38%. They beat the S&P by 3.7%

and the next year the market was up 20%. So it's not always, but the average is 12%, positive 75% of the time, the median is 16%. The rest of the market usually catches up with the rest of the winners. You call this a stock picker's nightmare. I want to agree with that, except a lot of stock pickers stock picked Nvidia and Apple and they're doing just fine. I feel like this is more a nightmare for an investor, professional investor, who has a mandate that forces them to, let's say,

I'm making this up, only own every sector equal weight. So like they have to find stocks in every sector or they can only own up to 2% in an individual position. Like for people that are operating under that mandate, it's horrible. But if you don't have those sort of mandates, you don't have an investment policy statement, and you're just running your own portfolio, you're probably picking a lot of the stocks that look unbelievable right now. And why?

Because they've looked unbelievable. Yeah, as long as you own Nvidia, you're doing fine. Apple, Microsoft, meta alphabet, Amazon. It's not that hard. Like, is it that hard? I'm being serious. Oracle. Um, listen, I mean, put the previous chart, put the sentiment trader chart back on.

Yeah, it's hard. This is, this is historic. If you are not the sentiment trade chart, if you are not, thank you. If you are not in those five names, not even Josh, not even not in them. If you don't have an equal weight to them, you know what I mean? Like, no, I know it's really hard if you're underweight relative to the index, but, but, but again, I want to come back to what I just said. That's true. Except the best performing stocks are also the most popular, most widely held stocks in the market.

It's not some obscure weird shit. By the way, so I'm recording the audio chapters for my book that comes out in September. And today I recorded a chapter that looks back at 2013, which was the first time the S&P made a new all-time high since the top in 2007. And I'm describing what was going on in the market in 2013 because a lot of people had trouble with this. They thought it was a double top. They're like, uh-oh, the last time we got to these levels, it was 2007.

You know what happens next. One of the interesting features of that 2013 market was that a lot of the biggest winners were biotech and solar stocks. You remember, Celgene and people didn't know these stocks. Today is different. Everyone knows Alphabet and Amazon. What's the problem? Just buy them both and shut up. So that's ridiculous. I'm being honest with you problem? Just buy them both and shut up. So that-

I mean, come on, that's ridiculous. I'm being honest with you though. Just buy them both and shut up? I don't know, I'm kidding. But it's not like people have to go hunting for some obscure shit to stay with the indices this year. I listen, I think you would forgive active managers for not, the ones that didn't pile into Nvidia.

They're not idiots. I agree, but it's not Nvidia. Just show me a chart of the S&P 50. If you tell me it's one stock doubled this year and everything else is down, it's a different conversation. That's just not the case. So my point is, I think 2013 was probably harder than 2024 because the nature of the leadership of this market are the most well-known stocks. If I remember correctly. And by the way, everybody owns them. 2013, I remember the naysayers in 2013 were saying, well, this is a consumer staples and

its utilities and its defensive names, its healthcare. Those were the bearish talking points in 2013 that it was in the high beta names. Yeah. Oh, that's 100% the case. I think that's absolutely right. People said, oh, you don't want to be in a market that's being led by healthcare because it's defend... Listen, it's never...

All right, let me explain this this way. It's never easy. It's never easy. But I think it's got to be easier if I tell you the best performing stocks include Apple and Microsoft versus 2013 when it's first solar and Best Buy. I mean, it's just, you can't say this is harder than that. That's all I would conclude. Is that such an outrageous?

Actually, you know what? It's not outrageous, but it's very hindsight. It's like, well, why didn't you just own the biggest winners? But the biggest winners are the most well-known stocks and everyone owns them and everyone does own them. So that's my point. It's not hindsight. These were the biggest stocks last year too.

They've been the biggest stocks for five years. So it's not that hindsight. If you look at the percentage of mutual funds that are outperforming the S&P, it's not a lot. Doug, you know what was hindsighty? If I came out in December of 2022 and I was like, oh, why don't you just own oil stocks, like overweight oil? That's hindsighty.

Again, you just showed me the chart. The S&P 50 is leading the S&P 500. And by the way, everybody knows not only the stocks, but they know the companies, they know the products that like, come on. It's not that difficult. Another thing, but another thing for active managers to defend them a little bit is like, they're supposed to be differentiated. If you want to, if you want to just own those stocks, just f**king own the S&P. You don't pay me to own, to have an equal way to Apple. And that's, that's the talking point.

We 100% agree on that. Like no active manager should strive to look exactly like the S&P. Right, and looking different than the S&P has killed you. Unfortunately, that's how you get fired. All right, I want to go through the best and worst of the first half. I think this exercise is helpful.

If you're somebody who professionally is involved in markets, you should have some idea of what's happening. And I know a half a year is arbitrary. Like what does six months mean? Nothing. But what does one month mean? What does 10 months mean? Like you have to just decide, hey, every quarter, every half a year, I just want to go back and review what's happening so I don't talk out of my ass and I don't miss the opportunities that might be created. So we're going to do the top five and bottom five performers in the S&P 100. So this is where, I mean, everyone knows these companies.

The question is, do you know how they're doing so far this year? So here are the technical charts. So here's the list. Top five, Nvidia, GE Aerospace, that was a surprise to me. Lily, not a surprise. Arista Networks, Broadcom, and then bottom five, Accenture, McDonald's, Boeing, Intel, Nike.

Keeping this table up before we go to the charts. What's the first thing that jumps out at you, Mike? The market cap of Nvidia. Okay. Was that the wrong answer? What's what? We want 2 billion trillion. Okay.

Here's what jumps out at me. This is the S&P 100 and the worst name in the index is only down. I say only down 30%. That's Nike. Do you notice that one of the worst performers over the last year is actually still up 8%? I'm telling you, these are the five worst stocks in the S&P, and one of them over the last 12 months is green. It's a bull market. Intel. Now, it's down 31% year to date. But I would expect if you said to me, I'm going to show you the five worst performing stocks in the S&P 100

over pretty much any period of time, I would guess that they're probably worse than these. So Accenture is down 15% year to date. McDonald's is down 17%. Boeing down 29%. Intel down 31%. Nike down 33%. Not great, but hey, this is to your point. This is what a real bull market looks like.

Let's go through some of these charts. Here's Nvidia. The stock is only up 165% year to date. Uh, performance over the last year, 209%. And this is the best stock in the S and P 500. Next. This is GE aerospace. So they, I guess they kept the ticker GE and all the spin-offs got something else.

Would you buy this chart here? I don't love it. No, you don't like these gaps, but that one looks like a, which, which gap do you think gets filled the one above or the one below? I don't think this chart is actually right, but keep going. I think it's because of the spin-off that it looks like that. All right. Let's look at the next one. Here's Lily.

So hey, man, this thing does what the fang stocks do. I think it's an $800 billion. $886 billion market cap. It looks like it's involved in AI, but it's not. It's involved in GLP one. So about five quarters ago, this thing gapped from 450 up to 500 and now it's at 930. So not all gaps get filled, just most of them. What a monster.

This thing is incredible, right? Yeah. All right. This is Aris. The networks just got added to the S&P. I can't believe how is this an S&P 100 stock? What's the market cap on this thing? $114 billion. Must have just made the cut because that's not that big of a company, but I guess it's big enough. We, we talked about this on the show. I don't even want to remind you.

I think it was maybe $70 or $90. Really? Yeah. I didn't buy it. You didn't buy it. I didn't buy it. Uh, nope. I know.

All right. Uh, Broadcom AVGO people ask why they have that ticker symbol. It's involved in like a merger of Vago or something, but then they ended up changing the name to the thing that got bought, Broadcom. I think that's how it happened. Anyway, this thing has rivaled Nvidia at least this year. This stock has just been an absolute gangster. Let's say up 104%, 12 months, 55% year to date.

Market cap is almost a trillion dollars, $800 billion. Absolute monster. Is anything surprising about the names that happen to have made the list? I don't know about the names, but the ascent of some of these names, what was before AVGL? Oh, An-Net. Just it's fast. Like these stocks are going vertical. It's too much.

It's happening really quick. All right. Very quickly, we'll go through the losers. I want to see if you would buy any of these charts. Here's Accenture. This is consulting company, basically. We spoke about. Yeah, I don't like this. Yeah, it looks like shit. I'm just talking about the chart.

Just talking about the chart. Yeah, no, greatest company in the world. All right, here's McDonald's. This is about to make a, I think, a new 52 week low, like any second. Trading 245, challenging those lows from last October. You think this one breaks the downside? I do.

Yeah, I do. I own it. It's my, I think it's my smallest or second smallest position, but I will be adding. I hope it goes a lot lower. You're going to add once it breaks below the low? I want it to go a lot lower because I feel comfortable owning this name for years. Okay. Boeing, you couldn't pay me.

No, I just see no reason to be involved in this. I know that's a buy signal when I start saying shit like you couldn't pay. If you bought the stock, I wouldn't accept it into my account. That's where I'm at with Boeing. I've watched people fight this stock from being long this thing for the last 10 years. And you talk to them like, what's your outlook? And they're bullish because the company might win a lawsuit. Yeah, no, I don't like it. It's horrible.

All right, Intel. No. Stuck, sucks. No. Put this up. Know what happens though? We don't have it. It's just a garbage chart.

No thanks. We do have Intel. All right, and we don't have it right now. Do we have Nike? But look at, Intel filled the shit out of that gap. So. Okay, great. Nike, no. I told you, I sold it last week. This is the worst stock in the entire market right now, in my opinion. And maybe the one that most demands that you keep it on your screen because one day this one's going to set up.

Totally. Like I think it's going to have a short term bounce because of how much it's down. But then that bounce will fail and it'll roll back down. You have to buy this like when no one's talking about it anymore. I think you need like three quarters for the sentiment to just, just completely wash. I agree. Well, guess what? The fact that it had its worst day, I think ever, and it's still relentlessly lower. There's not even a chip, like not even a sniff of a balance. It's pretty bad. It's pretty gnarly. There's not even a sniff of a balance. It's pretty bad. It's pretty gnarly.

So at some point, this will be a nice setup. It'll be viable. There's no rush here. Too soon. And I feel the same way about Starbucks. Got very tempted. I got very tempted at 72, but then I've said, you know what, I don't do this shit.

I don't buy stocks at all time at multi-year lows. I gotta get, I gotta get away from doing that. Smart. Do it rarely. And it's just not my style. Yeah. So I'm going to do it too often, but I, uh, I am a Starbuckser. Okay. Uh, you're up. Okay. Where are we going next? Oh, uh, okay. Uh, the, the second to last bear was Mike Wilson, who is courageously calling for a 10% correction. Wow. Again, he's still doing this shit? He's doing it again. He was the last bear standing and now the last one really got taken out. Marco Kalanovic to exit, this is a Bloomberg headline to exit a big string of poor stock

calls. He was bullish in 2022. And then he turned bearish at the bottom. I'm sorry. He was bullish in 2022, turned bearish at the bottom. Not great. Just a couple of weeks ago, they were calling for a 20, 25% drop. John, throw this chart on. This was from May 20th. for a 20%, 25% drop. John, throw this chart on. This was from May 20th. So not great. All right. A JP Morgan biography shared with the Financial Times praised Kalanovic for his timely and accurate short-term forecast for the stock market. Noted that he was inducted into the Institutional Investor Hall of Fame in 2020 following 10 consecutive years of number one rankings. This shit is really, really, really, really hard, really hard, obviously, but you know, the last bear got taken out to the woodshed probably

like not exactly what you wanna say, that you can't really find a bear. The last bear just got fired, not great. Yeah, Marko Kalanovic, super smart guy, respected everywhere, just completely wrong for three years straight. And you can't do that. Because people are actually listening to him.

And I don't think they're buying and selling every time he talks. But I think it colors the customers of the bank. It colors their thinking and their feeling. Now one thing it's worth saying is that nobody can actually do this. So if you think that, like if you think there's somebody that literally could do this, like you believe in fairy tales and magic and it's really stupid. The purpose of the commentary that these guys put out

is just to color like your expectations and help you fill in some blanks and get a better understanding of what's happening. If like literally you're betting on price targets hitting, you know, come on. Like, well, guess what? You could be, you could be wrong in a bear market. Like if you're bullish in a bear market, you may, you might have a chance in a bull market. If you're bears for too long, you're just, you're fired a hundred percent because in the end people are trying to make money from the long side. You got, got some hedge funds that are trading both sides. You got some strategies that are

trying to capitalize on volatility. But outside of that, what people really need to be told is that a bear market is an opportunity and not, hey, you should sit in cash and wait for the bear market to be that opportunity. So I don't think there's anything wrong with forecasting bear markets and someday we'll have a new crop of people that come along and get it right. Again, the problem is they can't tell you when it's over and at the lows they always think it's about to get worse. And then after it recovers, the next thing you hear out of their mouths is, for my next

bear market call, because once they've captured that lightning in the bottle, that feeling of being right when everyone else lost money, it's they're drunk on it. And it's not the case with Kalanovic, but I'm just saying that's why even if somebody nails this bear market call, like for the rest of their career, you can't listen to them. It's similar to active managers. They don't pay you to look like the index. Like you don't do pay a strategist to tell you don't worry. Everything's going to be fine. No, you know, like, okay, cool. I don't need you to tell me that like warn me.

Yeah, I know. I agree. But the problem is there is a very highly paid people. They're very visible. And if you're wrong for too long, you kind of for too long, you're not satisfying the office that they've put you in because people tune you out. And so if the job is communication, which is what the job is, if people don't want to hear from you anymore, you fundamentally can't be in that role, can't do the job. So you've got the VIX at very low levels. You've got the last bear taken out. It's not super clever to say we're probably a corrections come.

Okay, big deal. Fine. Thank God. I need a correction. I want to buy all-time highs every month. It's okay. It's not the end of the world. No one's getting credit for it.

If you've been saying there's a correction coming for 30% now, like I'm not gonna high five you when it happens. I don't wanna be high fived. If I come out tonight and say, I predict the next correction happens starting tomorrow, and it does, I got lucky. A thousand other people could have picked a thousand other days.

Hey dude, guess what? To make that same call. A 10% correction takes us all the way back to where we were at the end of April. Right. Listen, shout out to Marco Kalanovic. You know who his replacement is? They just upped Dubravko Lekos, who I really like.

I like him personally and I like his research. Dubravko has been on CNBC with us a million times. Very thoughtful, really great at intermarket analysis, understands international, understands everything. It is an impossible job. The clock has always taken on these people. I was going to say, like, all right, Dubravko got the job, turned the hourglass over. Right. Now we'll see how long he can stay in that role. like, all right, Dubravko got the job, turn the hourglass over. Right, it's an impossible.

Now he'll see how long he can stay in that role. Okay, but I do like him, I think that's a great choice. I think this is you. Hi, oh, this is me. So I posted this on LinkedIn and people people like got really upset about it. Not that I posted it, but just about like, what is the data really saying?

So let me walk you through it's not a controversy, but let me walk you through what's going on here. Put this chart up basically This is the cumulative gain or loss in adjusted gross income. So in other words the sat the the tax revenue that came from people's salaries who left the state or went to a different state. So as you could see California, New York, Illinois, New Jersey have been bleeding gross income cumulatively between the years 2019 and 2022. And Florida, Texas, South Carolina and Tennessee have been

the beneficiaries. I'm going to read some of these numbers just for the people who are listening, the IRS last week. Public. This is Wall Street journal published its annual data on the migration of taxpayers and adjusted gross income between states, California ranked again as the biggest income loser, minus 23.8 billion in 2022 followed by New York minus 14.2 billion, Illinois, which is Chicago minus 10 billion,

New Jersey minus 5 billion, Massachusetts minus 4 billion. The top gainers, Florida took in 36 billion worth of adjusted gross income, Texas 10, South Carolina 4.8, Tennessee 4.7, North Carolina 4.6. Florida gained twice as much income in 2022 from other states as it did in 2019. Texas pulled in 150% more adjusted gross income. So this is something that predated the pandemic to some extent, accelerated at the peak of the pandemic, but now is not stopping. And people got really mad for me pointing out that it hasn't stopped yet. They're saying, why does your data only go back to 2022

and not 2023? Because it's from the IRS. Dickhead. What do you want from me? Was there anything intelligent that was said or anything interesting? Well, so that was the big one. Like, Oh, why don't you use more recent sources? Okay. I have more recent sources.

Literally everyone I talked to has a friend or a neighbor still moving to Florida. That's my source. The other thing I heard was that, oh, that's because there were still lockdowns in 2022. As if that trend is going to reverse in 2023. Wait, lockdowns? Hold on, lockdowns? Yeah, there weren't on. Believe me, I lived here. I could tell you New York was not locked down in 2022. I went to like 18 concerts that year. Okay. I was at Madison Square Garden for Knicks games.

So forget that. But then the other thing I was thinking is like, all right, maybe the data is overstating, but directionally, are you telling me it's wrong or it's going to reverse? Are you telling me people from Dallas are moving to Los Angeles? What the f*** are you talking about? Oh, relax. I actually do think it's going to reverse. I think I would fade Florida. You think people from Florida are going to move to New York State?

I think that it's going to slow down. Honest. Okay. Two different things. Yeah. I agree with you. It's going to slow down. Potentially reverse.

Potentially reverse. Okay. I think after a couple of years, people will be like, it's too f***ing hot down here. It's too much. That's very possible. And the other like, it's too hot down here. It's too much. That's very possible. And the other thing is there's very little cost differential between the areas of Florida that you want to live and the areas people are leaving in New England and New York.

So I do think, I think there's be a certain amount of people in the next three to five years, they're like, that was fun. I'm glad I did it. I just want to be back in New York. So I would take the other side that there's going to be any kind of reversal. And I'm looking at the real estate leases being signed, not, not just for apartment buildings, but commercial activity offices. Last week, there was a billion dollars worth of development loans, um, for two apartment complexes on, on Brickell in Miami.

I, I do not think these these these people are doing something dumb. I think they are understanding the demands coming in and they are mobilizing accordingly. And the amount of building and business migration happening probably means that by the time we get IRS data for 2023 and 2024 someday, we'll realize that the end of the pandemic did not mean the end of the migration. So maybe it should slow down versus 2020.

But I don't know if it slows down versus 2022. I mean, we're going to find out. We're going to find out. I also think you'll see some other states on that list. I think you'll see Colorado popping up as a, as a net migration winner. I think you'll see more people into North Carolina, South Carolina, bigger. Um, so maybe it doesn't all go to Florida and Texas. Um, but I, I don't, honestly, I don't see it reversing. Uh, all right, you're up. All right, you're up. Okay. Warren Pies showed that analysts are expecting imminent EPS growth.

For the S&P 500, it's been two years of flat earnings growth. And then he has another chart saying, there's Warren, it's easy to doubt this inflection, but it does track with the historic path of earnings to the bull markets. In other words, it is normal for the market to bottom and then have earnings flatline for about one and a half years before moving higher. Next chart please, John. And we better get it because if we don't, the market is going to be expensive and investors are going to be disappointed.

Okay. So they think that... So show me again what the projections are for earnings. That dotted line on the first chart. Go back. Oh, here it is. Yep. Okay. So the dotted line is the trajectory of analyst expectations. Well, there's two dots. There's two dotted lines. The dark one, the thicker one was a year ago and the thinner one, which is really getting more aggressive. They're raising, they're raising their estimates. Okay. Show me the, show me the next chart. So what, what's your takeaway from this? Well,

as Warren says, it sounds like crazy that all of a sudden earnings are going to hockey stick higher, but it's, that's actually been pretty much in line with previous bull markets. Why do you think that happens? There's this pause during a bull market where stocks catch up to the earnings growth and then earnings growth consolidates for a little while and then it reaccelerates. I couldn't tell you. I don't know. But that's what we're saying is- That's what he's saying. So if you look at, I had white charts, created a chart. Thank you, Rishi. Looking at sector breakdowns of earnings per share estimates for the next 12 months. And not surprisingly, information technology is pretty damn high, 39% growth estimated. But look at healthcare. And I'm guessing that this is all the GLP stuff.

And I'm guessing that this is all the GLP stuff. Wow. So this is not a sector level and you have some companies that are so dominant within the sector. So that's how like AI and GLP one might account for like half the expected earnings growth of the S&P this coming year. But the point is all this shit. It's baked into the pie. And so if earnings materially disappoint, like that's how you

get a pullback and maybe worse. Or, and hear me out, it's possible. Let's take energy. We expect these companies, Wall Street expects these companies to show 22% earnings growth over the next 12 months. These stocks are selling like 10 times earnings net of cash on the balance sheet. What stocks? The stocks that dominate the oil indices, these gigantic integrated natural gas companies. This is one of the cheapest multiples you've ever been able to pay on a forward earnings basis in that one sector. And I haven't gone through all of these sectors, but you could have another year where the expectations are too high in some sectors,

and the other sectors take the leadership. So I just showed you the top five S&P 100 companies. Yeah, three are tech, but two aren't. You know what I mean? Like it's a conceivable story. I don't know that we really have companies in these other sectors that could replace the biggest technology companies if earnings growth for tech goes bad. But you could have a scenario where these other areas outperform just because the expectations are not that high

and the stocks aren't that expensive. Put a pin in that. We'll get there in a second. I didn't even know that this was a survey that the New York Fed did. They have earnings growth expectations and the median one-year head expected earnings growth from, again, a survey of consumer expectations. It looks like it's breaking out to an all-time high. So I don't know.

I thought that was- Wait, this is consumers talking about what earnings growth. I don't know. I guess the market. Okay. All right. So everyone's in the bull camp. I suppose. Yeah. All right. So I'm going to make the case for financials. I was going to do something different. There's actually, despite the fact, and this is well-trodden material, that the market is at an all-time high. There's a lot of stocks that have pulled back, that have pretty attractive entry points. So I could have chosen, I had a hard time narrowing

it down by making the case, but you made such a compelling case on TV today that I stole what you were talking about. We're going to talk about financials. All right, chart on. So ChartKid made a chart looking at the percentage of XLF components that are above their 200-day moving average. And this is a good thing. 83% of financial stocks are above their 200-day moving average. Wow, I wouldn't have guessed that. When you look out over the next six and 12 months, this is not bearish.

Now you have to remove the GFC because that obviously distorts all the data because financials did actually quite bad during the great financial crisis, it turns out. But 12 months after they return, they meaning financial stocks, 6.1% compared to 4.5% of all periods and it's similarly a little bit higher, six months out. So just the fact that they're either overbought or that a lot of them perform well, that's not bearish. It's the opposite. It's bullish.

How many, do we know how many instances there were where the XLF components, where 80% of the XLF components were above the 200 day? Rewind, John. Rewind two charts, please. This is showing you all those instances. Yeah, a lot of them. Okay, oh yeah. So all right, so this happens often and the 12-month forward return is pretty damn good when we get a flash like that on average. Yeah, it's not bad. All right,

I own two financials, I own MasterCard, Nextchart. What a surprise that the earnings per share is leading to price higher. And I also own one that's been challenged. That's Schwab, which has been acting better lately. We know the story there. They call it cash shorting, but we know what that means. But I want to go through a few charts. John, throw them on. Goldman Sachs.

Josh, you mentioned this. Not bearish. If the IPO window is going to open. I mean, this thing is rocking and rolling. It's an Altima for Goldman Sachs, Josh, you mentioned this, not bearish. If the IPO window is going to open, I mean, this thing is rocking and rolling. It's an ultimate for Goldman Sachs. All right, next chart. Bank of America, 52 week high. Keep it rolling.

What's next? Citigroup, who wants Citigroup? I don't know, 52 week high. One more. Wells Fargo, looking pretty good. All right, now where are we going next? Interactive brokers, healthy looking chart, keep it rolling, ally, and this is direct exposure,

not just to the consumer, but to the auto market, which I'm told is falling apart, and delinquencies are piling up. Well, stock looks pretty good. Next one, Prudential, life insurance company, or insurance company, I should say. A lot of insurance companies are looking good. Look at these.

If you didn't know they were financial, and I just put these charts in front of you. So I'm buying them. You're like a buyer. All right didn't know they were financial and I just put these charts in front of you, you're like a buyer. All right. Anything else? Oh, and the last one, Josh, you spoke about NASDAQ. I own this one.

This one's going to take a little longer, but if there is a capital markets party in the second half of this year, this thing's going to go. This is NASDAQ, the company NASDAQ at 61. Those prior highs are not very far away. I think the stock is within 5% of its 52 week high. Relative strength has been a little bit weak recently. The same reason Goldman looks like that. By the way, there are some charts.

S&P Global, holy shit. There's things like 470 right now, all time record high, breaking a triple top. There are some charts in the investment banking stocks that looked really good. Ari did a whole thing on some of the capital market stocks. And the really easy way to find these companies is to look up the equal weight capital markets ETF. What's the ticker? It's KCE. And you know who's in here?

Evercore, Faxset, Molis, Piper Sandler, a lot of the private equity stock, anyone that has anything to do with capital markets. So Goldman's in this, but it's equal weighted. So it owns like 1.7% of every one of these stocks. This ETF doesn't look that great. But either way- Now listening. I don't want to own the ETF. I'm saying this is, if you're interested in playing what I think is going to be a very active second half in capital markets, you don't want to own Wells Fargo. You want to find stocks that directly benefit immediately and are pure plays on IPOs, M&A, et cetera. I'm looking at Jefferies. I mean, this looks like Eli Lilly.

It looks sick, right? Anyway, JEF. Financials are 12.5% of the S&P 500. It's the second biggest sector. So in terms of like, breath catching up and the time being passed, like this could be the one. Or not, but it can be. In the chat, Moody's is another big name in that group. It's not like a Buffett one. I'm just, some of the viewers, FICO, PJT Partners, SPGI I mentioned, that's S&P Global.

Yeah, these tips are rocking and rolling. All of these stocks look so good. And a lot of them, here's what's interesting. These are, other than Goldman, these are not mega cap stocks. These are $14 billion market cap, $6 billion, $25 billion. There's a lot of opportunity in capital markets. If the stock market holds up, you're going to see underwriting come back. You're going to see M&A. All the things that these companies make money from and they're going to roar. They're going to roar.

These names are kicking ass, Chase. Somebody was saying JT Marlin. True. I have employee stock options in JT Marlin, so I'm kicking ass. Somebody was saying JT Marlin. True. I have employee stock options in JT Marlin. So I'm all set. All right. I didn't do this on purpose, but here's a mystery chart for you. Hopefully you get it in two seconds. What do you think this is? What do I think this is? JT Morgan? No. We talked about it today. I mean, we talked about a lot of stocks. Can you give me anything else? Well, we talked about it very recently. Is it Moody's?

I don't know what to give you. I don't know, what is it? All right, give us the reveal. You just made the case on this. Goldman. Okay. Yeah, I mean, the stock looks. That was your make the case stock.

I stumped you with it. I didn't make the case of Goldman, just financials. Looks great. First chart you put up, but okay. Let's grab. I have some more post reveal. Can I show you some shit? This is a technical look at a Goldman relative strength at 70 very healthy, not crazy overbought.

Here you see the 50 day and the 200 day parallel following the stock higher. And you see the stock just recently retested the prior highs from late 2021, bounced off those numbers on low volume like they weren't even there. This is like, if you're in the market for a technical setup, you really can't do better. This is a textbook technical setup. Doesn't mean it's guaranteed to go up, but I'm saying like people that look for chart setups, if they came across this, they wouldn't care if it's Goldman Sachs or if it's AMC,

they would be buying it. So. That's a buy. Not a investment advice. It's a buy. And listen, trail it with the 50 day. 50 day is 380. So it's a 20% stop. Like I know the stock is extended.

So if you say to yourself, like, I think I'm going to make 50% in Goldman, but I'm willing to risk 15, 20%, trail it with the 50 day. And then every Friday. My God, this is so bull toppy. If you think you can make 50% in Goldman and what, in three weeks or four weeks, when Goldman consolidates for three years, normally the subsequent breakout is really big. Go, I mean, go back. Oh, here's my next chart.

Can I show you this stuff? You see what I mean? This is since inception. Sure. So this is back to 1998 or nine when they came public. No, but can you listen for one second? Do you see it break that consolidation in 2005? The next thing you know, it's up 100%.

Then it did it again in 2016, excuse me, in 2020, it broke out again. Look what the stock did. Another 100%. So I don't think it's toppy to say this stock's been consolidating for three years. And now it's going, I don't even own this, by the way. I don't know. Is that so toppy? No, looks good. Looks good, right? Looks great. Keep in mind, fundamentals are way better now than they were in 2021. In 2021, they were

still feeding all these bullshit businesses. And the CEO was DJing in the Hamptons. That's not what's going on at Goldman right now. They cut all that stuff loose. They doubled down on the things that they're really good at. And they're earning a ton of money and buying back stock. It's a better business than the last time it was at this price. All right. Hey everybody. Did you know tomorrow is Wednesday, which means my favorite podcast, Animal Spirits,

brand new episode on all podcast platforms. It'll be up here on YouTube later in the day. On Thursday, we have an all new Ask the Compound with Duncan and Ben. Michael and I are back this Friday with a special guest. And Saturday, it's the one and only Jill On Money. Keep it locked on the Compound YouTube channel. And please make sure to visit our sponsor,

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