The Prof G Pod with Scott Galloway - Prof G Markets: GameStop & Market Manipulation + Is AI Becoming a Bubble, and Is Nvidia Safe?

Episode Date: May 20, 2024

Scott shares his thoughts on the brief meme stock resurgence of last week and considers whether Keith Gill, otherwise known as Roaring Kitty, should be accused of market manipulation. Then Scott and Ed discuss xAI’s potential deal with Oracle and question if investments in AI could be reaching bubble territory.  Follow our new Prof G Markets feed to receive a new episode Thursday: Apple Podcasts Spotify  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this show comes from Constant Contact. If you struggle just to get your customers to notice you, Constant Contact has what you need to grab their attention. Constant Contact's award-winning marketing platform offers all the automation, integration, and reporting tools that get your marketing running seamlessly, all backed by their expert live customer support. It's time to get going and growing with Constant Contact today.

Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca Support for PropG comes from NerdWallet. Starting your slash learn more to over 400 credit cards. Head over to nerdwallet.com forward slash learn more to find smarter credit cards, savings accounts, mortgage rates, and more. NerdWallet. Finance smarter. NerdWallet Compare Incorporated.

NMLS 1617539. Today's number one. This is our first episode on our brand new property markets feed ed i've decided to class it up a little bit no more profane inappropriate jokes this is where you talk ed this is where you're speaking for a punchline all right all right all right you know me too well ask me ask me why they call it Girls Gone Wild. Why do they call it Girls Gone Wild, Scott? Because when girls go wild and not women, they show their tits.

When women go wild, they drown their kids in a tub and murder their husbands. We're back, ladies and gentlemen. That's what you can expect. That's good. Double the profanity. Okay. Double the likelihood of being canceled. We're just going to take a quick five-second break and find out if our producer is okay with this.

Hold on. We'll be back in a second. Everyone's traumatized. All right, Ed, here we are. Prop G Markets has gone to twice a week. What does that mean? I don't even know what that means other than we're doing it twice a week. How's it different? Well, this is our new Prof G Markets feed. If you're tuning in from the new feed already, thank you. If you're listening on the old Prof G Pod feed, be sure to subscribe to Prof G Markets to receive a new markets episode every Thursday. Thursday's episodes will run exclusively on the Prof G Markets feed, not on the Prof G Pod feed. And we have some pretty incredible guests lined up. I kind of want to disclose them now, but maybe we should save it.

Oh, disclose it. Like discretion is not our call sign here, Ed. Who do we have coming on? I'm just going to give everyone a hint. Okay. My hint is biggest hedge fund in the world. Do with that what you will. Wow.

I don't even know who you're talking about. Great. Excited to meet him or her. Is it Kathy Wood, the ultimate grifter? Is she coming on? Let me guess. She's now managing $10 trillion. Yeah. She's a huge fan of us now. After you railed against her for the past three years. Jesus. All I got to do is spew total nonsense about hash rates and wear chunky glasses and I can manage $3 billion? That's pretty much who you are. Okay, so today we're discussing a meme stock comeback and XAI's deal with Oracle.

Here with the news is PropG Media analyst Ed Elson. Let's start with our weekly review of market vitals. The S&P 500 hit a record high, the dollar fell, Bitcoin rose, and the yield on 10-year treasuries declined. Shifting to the headlines. The Consumer Price Index showed inflation cooled in April, increasing just 3.4% from a year earlier and easing slightly from March. Following that news, all three major indexes closed at record highs.

At its annual I.O. Developer Conference, Google rolled out a new feature that uses AI to summarize search that news, all three major indexes closed at record highs. At its annual I.O. developer conference, Google rolled out a new feature that uses AI to summarize search results at the top of the page. The AI overviews feature will push links to other websites further down in the results, which could potentially hurt publishers that rely on the search engine for traffic. OpenAI unveiled an update to the AI model that powers ChatGPT. GPT4.0 will be faster and cheaper than previous versions, and it'll give all users the ability to have a voice chat in real time with ChatGPT. Two days after that announcement,

the company's co-founder and chief scientist, Ilya Sitskiva, announced he was leaving the company. And finally, Comcast is offering a new bundle, which will tie up Peacock, Apple TV+, and Netflix. The bundle, called Stream Saver, which is expected to debut later this month, will provide the streaming services at a significant discount compared to subscribing to each service separately. Scott, your thoughts? So it feels like inflation, I don't know, it cooled in April for the first time in six months. Analysts now expect two rate cuts. God, I'm so sick of talking about rate cuts.

And the market doesn't seem to care. The S&P hit its 23rd all-time high this year and has surged over 20% since October of 2023, adding $10 trillion market cap. I was thinking about the Biden campaign, and I think they've done such a terrible job of getting the message out there around just how incredibly strong the economy is. I think what they've pulled off here is what we refer to as the Goldilocks economy. I think it's just incredible. Any thoughts from you on state of the economy or inflation? Yeah, I mean, I think the thing to remember with this report is, yes, it dropped, but it barely dropped. I mean, it went from 3.5% to 3.4%, which is basically a rounding error. And just one other point on the accuracy of this inflation data. If you look at the itemized CPI report, there's one category that stands out as especially

bad, and that's shelter, i.e. rent. Rent is up 5.5%, gas is up 1%, food is up 2%, it's really high. So it appears that rent is kind of out of control, and it's actually what's driving these high inflation numbers every month. It makes up a third of the weighting of the CPI. Now, here's the thing. That data probably isn't totally accurate and the reason i say that is that if you look at price increases on zillow as we know zillow has this massive rental database and it even has its own rent price index prices on zillow have risen only 3.7 percent which is drastically lower than the official cpi number so i think this brings up a pretty important point about CPI accuracy, which we should mention, which is that these numbers aren't actually exact

measurements. They're actually just based on these surveys that are conducted by the government. And in the case of rent, the way that they do that is they go to existing homeowners and they ask them, how much do you think you'd charge if you were to rent your house out today, even if these homeowners had no history of renting? And that gives us a rough idea of price inflation. But I place emphasis on rough. It's not an exact reading. So I think two takeaways here.

One, I think that 3.4% number is a little high. And two, we should just never take these numbers totally at face value. They should paint a picture of where things are headed for inflation, but they're not the exact truth. And it's always good to look for other data providers. In the case of rent, Zillow is a great place to start. But let's move on to these AI announcements. Google had its developer conference and OpenAI announced ChatGPT 4.0. Thoughts on those two announcements? I was really just fascinated by this OpenAI basically becoming, I mean, it really is the movie Her. The first thing I thought is, this is absolutely a Siri and Alexa killer. And Siri, I would argue, is one of the worst tech

brands of the last decade. It just consistently never lived up to the expectations you would have for a product from Apple. It's probably the most, I would argue, the most disappointing Apple product until the Mixed Reality headset, which will go down as one of its biggest failures. By the way, when do we get to actually call that thing DOA? Anyways, another talk show. But what's super interesting here, and it kind of sent chills down my spine thinking about it, is that essentially it's going to become more human-like. And when you think about why you go to the media, you go for news, right? But almost everyone has access to the same news, unless you're spreading misinformation or disinformation, which is kind of their new go-to so they can pretend it's news and act like they've discovered something new,

and they haven't. They just made up something. Oh, Dominion voting machines are linked to Hugo Chavez. No, that's not news. That's a lie. But real news is very hard to find, and it's very difficult to differentiate a media product on news, right? We don't differentiate on news. We take other people's news and try and provide some insight or perspective, which is really just Latin for voice. Most people go to a media outlet for voice, and that is a take on things or inside or humor or no voice. I really like Reuters because I find Reuters is kind of just the fax man, right? I also like The Economist because I find it very dry and looks at stuff through sort of a capitalist lens. Anyways, what it got me thinking about is the voice, if you will, of chat GPT-4 Omni or O, every morning I could just say, hey,

give me today's business news in the voice of Reuters. And I'll be able to say it just similar to what I used to do with Alexa. And what this does is it's going to fulfill the dream of these big tech firms that are increasingly consolidated. And that is what Google hated was that you left Google. You type in lowest airfare from New York to St. Barts, right? And it would bring up a bunch of paid for sites, including United, including JetBlue, and then you would leave and go to JetBlue. And then they said, no, no, no, we don't want anyone leaving. So they started sending you to other components of Google and Google has Google Flight or Google Travel so they could further monetize it. Now, I think this could be really bad news for media organizations because at some point it just might be easier for me to go, give me a view on campus protests in the voice of Anderson Cooper, and I won't need to go to the CNN site. It'll just keep me right there. So this kind of blows my mind that there's going to be an even greater consolidation and a concentration of power or a seeding of power from traditional media outlets to these compute or

these AI-driven compute-powered LLMs where you'll be able to instruct them almost effortlessly, hey, Omni, or whatever they're going to call this thing, or hey, Gemini, give me today's business news on the UK in the voice of the Wall Street Journal with a mix of humor from Monty... I mean, you're going to be able to create your own media company. And because they've crawled every other media company, they'll be able to mimic that voice and you'll never need to leave OpenAI. And then you think, well, but wait, Scott, there's an opportunity for those media companies to charge a lot of money to license their content for that LLM to create that voice. But what I also read that sent shivers down my

spine is that there are now LLMs that are creating content for other LLMs to crawl because they're running out of data to crawl. So this might be one giant internal walled garden. I think the real fear would be for the very, very small publishers. And it's possible that with this, you know, you mentioned that this sort of applies to the GPT-4.0 update. I think it's most applicable to Google's update with this AI overview feature. But I think the fear would be that the very, very small publishers who probably don't have the capacity to come up with these licensing contracts with these big AI companies. Those are the ones who are going to go out of business.

Do you think that's right? Yeah, it's going to be a few big players that have original content that can command something. And then very niche players, right? Like William Cohen has a great voice and real insight because he was an investment banker. So he can kind of look around the corner and say, this is how the Paramount deal might play out because I was an investment banker and this is probably what's going on in the boardroom. You're going to have to have a really unique deep voice or just such massive content and reporters all over the world. There'll be a space for those guys, but there may be a few of them. And then everyone else will just slowly but surely train their LLM or the three or four players with the compute capacity will just train their LLM, or the three or four players with the compute

capacity will just train their LLMs to provide you with whatever kind of voice you want. You like CNN? No problem. We'll perfectly mimic it, and you don't need to go anywhere. I have an idea, and I want you to respond to it. We have an enormous deficit. We have huge externalities or potential externalities from AI. We have a massive concentration in wealth and power. What if we put, similar to the way we've put taxes on gasoline, if in fact big tech are the new sort of compute energy companies providing energy to four or five, or there's basically Saudi Aramco, Chevron, Exxon, Shell, et cetera. What if we, just as we do with gas, we tax compute? I love that idea, but it reminds me of, I mean, the same idea was floated several years ago when we were all saying that data is the new oil. Now it seems like we're saying compute is the new oil. But, you know, there was this idea of the data dividend, and that was put forward in California by Gavin Newsom. It didn't gather steam. I think it's probably a

result of the lobbying power that nothing was able to go through. But I think that makes total sense to me. I mean, as we're slowly learning on this podcast, it's basically a commodity in the same way that all these utility companies get taxed. I mean, a data dividend made sense. I think a compute dividend makes sense as well. But just I want to shift over to GPT-4.0. It's pretty incredible. And I don't think us describing it really does it justice. So what I would recommend to our listeners is if you want to get a real sense of this thing, just go on the CTO and one of the researchers, and the GPT just translates the whole thing. It basically just shows you this technology is going to shatter language barriers. Every time you hear English, I want you to translate it to Italian, and if you hear Italian, I want you to translate it back to English. Is that good? Perfecto. Mike, she wonders if whales could talk, what would they tell us?

They might ask, how do we solve linear equations? Now, the other news on OpenAI is that Ilya Tsitskiva, who's the chief scientist and the co-founder, he is leaving the company. And you might remember about six months ago, Ilya was one of those board members who moved to AUS, Sam Altman, who's the CEO. He later reversed course. He said, quote, I deeply regret my participation in the board's actions. Now he's leaving altogether. What are your thoughts on this? And do you think this has to do with the board drama from back in November? He had less chance of surviving than Prigogine. I mean, if you stabbed the prince, you better kill him. And he stabbed the prince.

And then the true owner of OpenAI, Satya Nadella, said, no, I want Sam back. And you think Sam was going to say to this guy, oh, Ilya, we all make mistakes. I'm the next Steve Jobs and you fired me, but no, let's let bygones be, you know, spilled milk. No, that guy was going to go down. So it's no surprise. I'm sure he's going to make billions from his stake in OpenAI. I got to imagine he's getting a few calls saying, hey, would you like to, no, you guys fucked up and you need to hire Sam back. And once this guy realized Sam was coming back, he tried to say, oh, I'm really sorry, stand in front of the judge and say, don't sentence me to death. I'm guilty. And I throw myself at the mercy of the court. But he was on the green mile the moment that happened. And this streaming bundle, Apple TV+, combined with Peacock, combined with Netflix. I think what's pretty interesting here is the timing. I mean, this is coming less than a week after the same announcement was made by two other media giants, which we reported last week.

Disney and Warner Brothers Discovery are teaming up to create their own, call it mega streaming bundle. And now this is happening less than a week after. So I'd love to get your thoughts on this. To me, it feels highly coordinated. I mean, I can picture a scenario where all these big media execs got together and they said, hey, you know, things aren't going great for us individually. So let's just split into two teams. We're going to put Bob and David on this side, Ted and Brian on this side. We'll combine forces, and hopefully that'll solve our unit economics problem.

You've worked with some of these people, I think, or at the very least, you know them. Do you think that's how this all went down? I think that essentially they're kind of running out of new subscribers, so they need pricing power, and one means of pricing power is consolidation. Basically, it strikes me that what's old is new again. It just feels like cable all over, where they're bundling, and pretty soon you're not going to be able to... These companies have a problem because they would sign up for Apple TV+, download the season of Ted Lasso, and then cancel. And when they bundle, they've probably done the math and said, okay, when we bundle, it's almost impossible to cancel because you can't disarticulate. It's like that South Park episode where someone's saying, I don't want the Food Channel 8.

We want specific networks dropped from our cable. Oh, you have to pay for the bundle. You can't just pay like, you know, there is no perfect human. They're bundled, right? And you can't have certain attributes of an individual, except maybe with chat GPT for Omni, you're going to be able to say, oh my God, I just thought about it. If your spouse is not home, but you're lonely, you're going to be able to say, please have Scott here, but without the anger and the depression. Oh my God, this is going to get very strange, very fast. Okay. Anyways. Yeah, this is their bundling, which will give them pricing power and lower their churn. And my guess is in exchange for bundling across the pipes, it's just cable all over. We're ending up with more channels than we need, and we won't be able to cancel because even if you don't want Paramount or even if you don't want Apple TV+, which people can live without,

you're not going to be able to cancel, you know, the Food Network 6. We'll be right back after the break with a lookGMarkets. Memestock mania returned last week, if only for a few days. The rally began after Keith Gill, commonly known online as Roaring Kitty, posted a picture of a gamer on X, formerly known as Twitter. As you may recall, Gil played a key role in igniting the frenzy back in 2021 and driving GameStop stock up more than 1,700% in a matter of weeks. His post on Sunday night

was his first since that year, and followers quickly took it as a sign to start buying GameStop again. After the opening bell on Monday, GameStop's price swung so violently that trading was halted nine times in just over an hour. Shares ripped as much as 118% that day, and other meme stocks took off too, including AMC. By Tuesday, those two companies had added roughly $11 billion in value, but the rally was short-lived. On Wednesday, those stocks lost $4 billion. So, Scott, we should note that things could change again by the time our listeners hear this, but it does appear that GameStop is coming back down to earth now. Do you think that is the end of the rally, or is this not over yet? Oh, who knows? It's just so insane. I mean, GameStop today is off 23%. It's at 30. And it peaked at 65 two days ago. So I would imagine it feels like we're living through

this, but in faster cycle time, because the market said, oh, you know, Roaring Kitty is back. The stock's going to go way up. People piled in and they said, okay, but we also know how the movie ended the last time and it'll be the same here. Let's get out sooner. And you're already starting to see the return to earth of the gravity. It feels as if it's just the same thing playing out much faster. What are your thoughts? Well, I think this brings up really interesting questions about market manipulation and securities fraud, because what's happened here is pretty unprecedented.

You have a guy who has no actual affiliation with GameStop, but who is, through the internet and through live streaming, just sort of culturally affiliated with the company. And he posts an arbitrary benign photo. And then overnight he adds $3 billion in market cap to the company. And there's no question that it's all because of him. Now, again, the photo didn't say anything about GameStop, but I feel like he must have at least suspected it would do something to the stock. I mean, he hasn't posted anything in three years, and he's famous as the GameStop guy. So here's just a thought experiment for you. Let's say he bought a bunch of GameStop call options before he posted that tweet.

And then after the stock exploded, he sold it all for a profit. Do you think that should count as securities fraud? And to be clear, whether or not it actually is fraud, legally speaking, is currently being debated by legal analysts, people who have more expertise in this than we do. But my question for you isn't whether it is fraud, it's whether you think it should be fraud. It's an interesting question, but I think ultimately where I end up is no, because the easy one is you have material insider information. I'm on the board of a company.

I know the earnings are going to be great, and the day before the earnings, I go out and buy stock. I have an edge over public investors. That's insider trading. That's an easy one. Market manipulation is if, Ed, you were to announce that you're buying, you're going to put a bid in at $12 a share for Warner Brothers tomorrow, and you are a Carl icon and you have some credibility doing that, and then you buy the shares, it runs up, you sell the shares, and it comes out that you actually had no intention of buying the stock. That's market manipulation. In this instance, I think it'd be a pretty serious leap legally to say that a picture of a guy leaning forward is saying to the market, I'm doing something. I mean, this is a tough one. I guess the argument they would make is that it's clear you're about to go in and buy the stock. I don't know. I think this would be a really tough one. I think this is

free expression. He doesn't have any material inside information. Is he trying to manipulate the market? We don't know when he bought, when he sold. He's basically just saying, I think he would say he's trying to draw attention to the stock again, or he's thinking about getting involved. And that's his right as a consumer to buy shares and sell shares when he wants. They'd have to make the connection that he's trying to fool or mislead people such that he can profit off of false statements. I think this would be a really tough one. It gets into intention and state of mind, which would be really difficult to prove. And also, to a certain extent, it's sort of buyer beware. The people who buy a stock at 60 bucks in a company whose underlying fundamentals don't

justify that price, and then they lose money. Is a jury really going to feel sorry for them? I mean, it's tough. It sounds like a lot of what you're saying, I'm trying to figure out why you believe that this is okay, as opposed to other pump and dump schemes. And it sounds like a lot of it has to do with one, he didn't lie about anything. So he's not misinforming anyone. And two, it sounds like a lot of your belief has to do with the fact that he's not an insider, that he's not actually inside the company. So he kind of has a right as an outsider on the company to sort of say

whatever he wants. Would that be the right characterization? Basically, almost every person who goes on CNBC is pumping. They're talking up or talking down a stock based on their own financial interests. Some are independent analysts, but a lot of them own stock. When Keith Rebois went on CNBC and started spreading misinformation about Opendoor, that wasn't true. And to her credit, Deirdre Bolson fact-checked him real-time and said, no, this company is not profitable. You can't say that.

And he threw a fit. And he started saying she was stupid or crazy. In my view, that is closer to securities fraud, given he obviously has a financial interest in the company. And my guess is he's been selling like crazy since it peaked whenever two years ago. My guess is that's much closer to securities fraud than a guy putting out a sketch of someone leaning forward. I think this is a tough one. Just to finish out this scenario, I mean,

assuming he bought the options beforehand and then he posted the photo and then he sold, that would assume or that would, I think a jury would say, okay, this wasn't just a benign photo. There was clearly intent there. He knew that he was going to profit off of it. And I think the argument to criminalize this would be that it generally erodes our faith in markets. If a dude who has all of this internet power can become a centimillionaire overnight just because he's associated with GameStop and he has a large megaphone on his Twitter platform and he takes that stock up by $3 billion in 24 hours, it's sort of a signal to the rest of us investors that the market isn't totally serious and it can be manipulated and

controlled by random guys in their basement. Do you think that that's enough of a case to argue for criminalizing? I don't, because if somebody claims they're about to put in a bid at $14 a share for a stock that's trading at $8 and it goes to $12, and it ends up they weren't sincere and didn't have, I think that Elon Musk stating that he was taking his company private at $420 and that funding was secured, I think that is securities fraud. He is claiming that he has the capital lined up to take a company private at $420 a share, and the stock popped, and he got wealthier. And then the people who believed him and tried to pile into the stock thinking they were going to make money, that he was telling the truth, later found out he did not have funding secured.

I think that is securities fraud. If this guy says, so let's take the leap. He's saying, I am buying the stock. Okay. And he thinks that because I am buying the stock, that it's about to ignite a rally that's going to go up. He's not lying. I mean, first off, we don't know if he sold, right? As far as we know, he kept buying thinking that him, that roaring kid being back would take this thing to a hundred bucks a share. So I don't, I think this is a really, I think this is really a tough one. What you're trying to make is the leap that a drawing of him being interested again in a stock would naturally take it up. And he knew that. And then the other assumption is, is that when the greater fool theory kicked in, he got out.

Well, again, I think you're going to have to show harm to people who were fooled. And it's like, well, you saw what happened before. You saw the stock go up. You saw it go down again. There's no underlying dynamics here. There was no tangible offer to take this company private or anything that would indicate it was worth more, that the intrinsic value had gone up, but only that this person was interested again. And we don't know if he ever sold. As far as we know, he's still, we don't know if he bought and we don't know if he sold. And even if he did, I'll use you as an example. You go on CNBC ad and you say, I'm really interested in AT&T. And the stock pops and

you see the stock pop and it goes down and they go, well, you just said you were interested to see the stock pop. Is that market manipulation? I don't think it is. Yeah, it's a tough one. I don't have the answer. Just a larger question on meme stocks. I mean, this idea of meme stocks is new. It was kind of a pandemic era phenomenon. It began because of the GameStop saga and this guy, Roaring Kitty. In fact, that's when we invented the word meme stock back in 2021. At the time, it seemed sort of like a one-time event. It sort of came and went. But since then, we've seen lots more of it. We've seen AMC, BlackBerry, Bed Bath & Beyond, Truth Social, now GameStop again. This keeps on happening. Do you think meme stocks are just a permanent feature of capital markets today? Do you think they're sort of here to stay? I think the idea, the financialization of everything and the politicization of everything combined with access to phones and real-time trading 24 hours, or they're talking about taking the markets to 24 hours, the lack of friction to buy and sell stocks, yeah, I do think it's here to stay. Because as long as there's markets, there's going to be people trying to create hysteria or create momentum around those markets such that they can profit. And the question is, do they have insider information or are they manipulating the market to their own benefit?

And then the term market manipulation is going to take on sort of what you're saying is it needs to go further downstream and maybe have new inclusion of new activities potentially around what is market manipulation. But then the question, if you were to find this guy guilty of market manipulation, then anyone going on CNBC, what you're essentially saying is if they had more influence, they would be accused of market manipulation. But because no one really gives a shit what they think, and they can't move the markets, they're not guilty of market manipulation. So his guilt is a function of his authority and his power. So I think that's a really tough case to make. I think meme stocks are here to stay. And I think what people are looking for here, I don't think we should infantilize the people buying these stocks. I think if they look at the stock chart here and they know anything,

or they've seen the movie, Dumb Money, they know this is gambling. This is a pyramid scheme, right? It's fun. Someone's going to get hurt. Someone's going to get hurt. This is bungee jumping at night when the instructor isn't around, and no one's tested the ropes, and everyone's on X. It's probably a lot of fun, and it could be amazing, but there's a really good chance someone's going to get hurt. And they know this. These folks are skydiving without a backup parachute. I mean, the markets are, you are in the most volatile stock ever. You're in a stock that's going up 100% and getting cut by 50% the next day. It's just unlikely you're going to have a lot of widows up there saying,

I didn't know I invested my pension in this. It's like, well, really? You didn't know? So I don't, I think this is what it is. It's gambling. Some people will make money. Some people will lose money. I don't see how you stop it.

When do you decide a stock is a meme? Is NVIDIA a meme stock? He's throwing big events and people are excited about the future and they're talking up the future and they're talking about the future of AI and how it's going to be the next big thing. And he's talking about biology and how basically he's saying NVIDIA, that his chips are going to start to cure disease. That's effectively what he's saying now, that the biggest opportunity for AI is in biology. Well, okay, that sends the stock up

beyond an irrational level. And my guess is he's selling. Is he guilty of market manipulation? So I just don't see how you could go there. I think the SEC would rather say, anyone who files a plaintiff's lawsuit is like, we can't wait to get those shareholders on the stand and have them tell the sob story of how they thought they were going to make a bunch of easy money on a movie theater stock, but they feel like they were taken. I just don't think that makes... It's like these people would make for... These people would be worse witnesses or less credible witnesses than Stormy Daniels and Michael Cohen. They would be less sympathetic witnesses than Michael Cohen, who used to tell

people, I'm going to kill you. It's going to be sad what I'm going to do to you when he was working for Donald Trump. Just a final question on meme stocks. I mean, you say this is here to stay. A lot of this feels pretty silly, like Roaring Kitty, GameStop, AMC. It feels like, you know, we're talking about dumb stuff. I mean, the movie was called Dumb Money. Do you think, though, that this is the kind of thing that all investors need to start educating themselves on meme stocks.

And just to draw this out into a hypothetical, say you are looking for a new wealth manager or a new investment advisor, would you consider it a basic requirement that he or she understands meme stocks? They understand the dynamics of meme stocks. They can more or less identify the relevant trends in meme stock world. If you ask your financial advisor, would you ever invest me or anyone else in a meme stock? And he says, yes, and you've got the wrong financial advisor. And also just keep in mind, if you want to invest in a meme stock, have at it, just keep in mind you're gambling. So look at it as how much money would you take down to the casino and assume you're going to lose most or

all of it. And if it's fun, and I do think it's fun, then fine. But be clear, you're not investing. You're not investing. And any financial advisor that would ever invest in a meme stock outside of buying a huge basket of stocks that might include a meme stock because they're investing in mid or small cap companies should not be your financial advisor. We'll be right back after the break with a look at a new deal between Elon Musk's AI startup and Oracle. We're back with Profit Markets. Elon Musk's artificial intelligence startup, XAI, is negotiating a $10 billion deal to rent cloud servers from Oracle.

Oracle shares rose more than 5% after the information reported that potential deal. While negotiations progress, XAI is also finalizing a $6 billion equity funding round. But the company will need even more capital than that if a deal is struck and if XAI becomes one of Oracle's largest customers. Scott, another AI startup partnering up with another big tech company on cloud. We've discussed OpenAI with Microsoft, Anthropic with Amazon, now XAI with Oracle. What are your initial thoughts on this story? You said this, that everything is becoming, basically every big tech company is converging and becoming the same company offering compute. And what's interesting is

that Oracle's trying to squeeze itself, or it desperately wants to be part of the cool kids club. It wants to be one of the magnificent seven. And Larry Ellison is, he's probably, he's one of the most, I don't want to call him underrated, but he be one of the Magnificent Seven. And Larry Ellison, he's probably, he's one of the most, I don't want to call him underrated, but he's sort of the quiet billionaire in the background. I know that he is Elon Musk's mentor, but that doesn't in any way diminish the $10 billion deal. I think the big winner here is Oracle because Oracle is getting a $10 billion deal from XAI. And we're still not entirely sure if XAI is going to be able to carve out a unique positioning. My understanding is that so far, Elon is playing catch-up and has basically come out with GPT-2. He hasn't been able to really do anything here

that's of the ilk or the quality of his efforts in other categories that he's playing catch-up. But the big winner here, hands down, we don't know if XAI is going to work. What we do know is that Oracle with a $10 billion contract, that that's very good for Oracle shareholders, because it doesn't matter if XAI works. The story sort of reminds me of this famous statistic from, I think it was around 2018, which I think you talked about a lot, which is that startups spend roughly 40 cents of every VC dollar on Google, Facebook, and Amazon. Specifically, those 40 cents are going towards ads. Now, I don't know if that stat is still true. It's from a long time ago. It probably

isn't. But here we have a very similar dynamic, only this one's far more exaggerated because, you know, XAI is raising $6 billion. It plans to spend $10 billion on Oracle, which means in this case, 100% of the venture funding is going directly to the big tech company, which is Oracle here. But it could be any cloud company. It could be Microsoft, could be Amazon, it could be Google. And we know all these other AI startups that have very similar deals with those companies. So my question to you, do you think we're about to witness the same thing here with cloud and AI? And perhaps do you think it's going to be on an even larger scale than before? R&D, mostly around cloud-based AI-driven applications here across the Magnificent 7 is $200 billion, just across the Magnificent 7, which is equivalent to half of all R&D across all industries in all of Europe. And that just struck me as, oh my God. So one of two things is happening. Either AI is about to be the biggest bubble in history or a small number of companies are the only ones that are well capitalized enough to pull this off and are going to run away with it.

It's funny. I do meet people, a lot of people here in London. I've met several people from Cambridge who love to come up and say, you realize that AI was invented at Cambridge. I'm like, well, smell you, boss. How come you didn't make any money off of it? It's just you, boss. How come you didn't make any money off of it? It's just like, okay. Yeah, the unwashed masses in San Francisco have made hundreds of billions,

but you can tell people that you invented it? I mean, wow. I mean, it's just so, and I also had someone in Hamburg claim that AI was invented in Germany. I'm like, really? Well, guten tag. Well, farfen Nugent for you.

I'm kind of blown away by it. And I'm starting to believe that an AI bubble is beginning to form. Because what happens if the expectations around what you can do with AI at your Fortune 5000 company that makes cardboard boxes or supply materials or textiles,

if the AI dream doesn't live up to your hopes to revolutionize your business and you begin reducing your spend, the first quarter that comes out that shows that sort of medium and large-sized businesses are cutting back their spend on AI, wow, that could be really ugly around these companies. Yeah, I i mean i wanted to ask you about that because you know one read of this news is wow ai demand is growing but another read would be that things are getting super frothy i mean 10 billion dollars is so much money and it feels as though the only reason they're really doing it is to just follow the pack anthropic signed a deal with amazon open ai signed one with microsoft oh OpenAI signed one with Microsoft. Oh, we should sign one with Oracle. Now, when we discussed this earlier this week, you said that

this kind of reminded you of Cisco in the late 90s and the early 2000s. Tell us why Cisco comes to mind here. Well, we got very excited around the internet. There was a Netscape browser, then there was Internet Explorer, and it was clear that the internet was going to be huge but then somebody realized that aardvark pet which was my e-commerce pet supply company that i started thinking that there needed to be something a william sonoma of of pet stores online my idea true story half a million dollars built the website sold it nine months later for three million dollars to petopia you were i think probably my god, my God, I don't think, were you even born then?

Yeah, you were like maybe two or three years old. Anyways, when we all realized that this wasn't happening as quickly as we were hoping, that there were a lot of companies that just weren't selling anything, or if they were selling things, they were basically buying consumers. They were buying a Furby for $300 for Cybershop and selling it for $99, or they were selling a 70-pound bag of dog food that costs $100 to deliver for $19.99, pets.com. And everyone said, okay, the internet might work or e-commerce might work, but it's definitely not going to work anytime soon. The unit economics here are shitty.

And all the front-end B2C stuff crashed. But people still thought, okay, but the internet is not going anywhere. So what do we do? Well, we can invest in B2C. Let's find B2B. And they started investing in these ridiculous B2B platforms. ICG was one of them that was going to figure out a way for people who are purchasing supplies in the drinks or the chemicals industry to meet online. And that was a total fucking jazz hands ridiculousness. And that thing crashed. Everyone's like, well, okay, B2C is not working. B2B is not working or living up to our expectations. What do we do? And like, well, we still believe in the internet. Let's invest in infrastructure. And everyone piled into Cisco, which became the most valuable company in the world in the late 90s. What people forget is that similar to Amazon, between 1999 and 2001,

Cisco and Amazon shed 90% of their market value. Now, they came back. Amazon came ripping back. Cisco never really fully recovered. It came back, but never, never touched those same highs again. Amazon came back in more, was one of the winners that got through kind of the valley of death, if you will. So the question here is the same thing forming. Do we have the same level of excitement that we had in, say, 97, 98? And then when it appears that every company may not spend tens of millions of dollars to use AI to change the way they do business in any industry, and these companies report

for the first time that their fairly scant, mediocre revenues to date actually are flatlining or even declining, you could see the mother of all. You could hear a pop that is a sonic boom. AI infrastructure investments, $200 billion of more than 35% valuations from the AI boom, right? 120 times the estimated $20 billion in revenue that Gen AI will add in 2024. Now, what's that multiple? The combined market value of Alphabet, Amazon, and Microsoft has increased $2.5 trillion. So you have $2.5 trillion in increased value during the AI boom, but the increase in revenue has only been $20 billion. So the market has valued the $20 billion increase in AI revenues at $2.5 trillion or 120 times revenues. The big three cloud providers traded an average P of 38, which is significantly higher than the broader S&P at 23. In October of 2022, public AI hardware companies were worth about $1.5 trillion. Today, they're worth about $5

trillion, and NVIDIA has accounted for 57% of this increase. So if I had bigger balls, I think I would probably create a basket of ai companies and think about shorting them because they claim well this is beginning to feel like 1998 and the problem is when guys like me say something is overvalued that means it usually runs up another 30 or 70 percent and then i throw in the towel and then it crashes it's very hard to time the markets. But I mean, just as we, I do learn a lot on this show, just as we're talking about this and I'm reading these numbers, I've been here before. This is literally 26 years ago. This is 1998, where we

know AI is going to endure. We know AI is going to have a big impact, but has it gotten so far out in front of its skis from an evaluation standpoint? Just a vibe question. What were people saying about Cisco back then? Because what we're saying, oh, potentially AI is a bubble, that's not new. A lot of people have said that. I'm pretty sure we've kind of had that conversation several months ago. For some reason, no one's saying it that much today. It seems like I and everyone else in financial media have been like, oh no, AI is legit. It's here to stay. But was anyone sort of wondering about Cisco? Oh, maybe this is a bubble. Maybe this is getting out over at Skies. Or was it just everyone just bought in unequivocally?

It was the safe bet. I remember my roommate my junior year in college, Mike Vogt, smart guy. And I remember him talking to him when I was an entrepreneur, and he's like, I'm not smart enough to figure out which internet company is going to win or lose,

so I just put all my money in Cisco, because that's infrastructure. So essentially, everyone just thought it was their default safe bet. Invest in the steel in the ground. Invest in the pipes. Sounds like NVIDIA now. That sounds like that's NVIDIA. You're learning.

You're learning. That's exactly right. This is feeling. That's the correct question. Is NVIDIA the Cisco of 2024? That's the correct question is NVIDIA the Cisco of 2024? That's the correct question. And the thing that makes me believe that it might be is no one is saying that. It's the same universal chorus right now. Everyone's barking up the same tree, and that is the infrastructure plays, the few cloud providers are kind of a can't-lose proposition, which means they could get cut in half really easily.

Now, the thing about the biggest players is they have very diversified businesses and incredible business lines that diversify them or they give them other cash flows and other things. But that, I mean, the number, I just want to repeat it again because it's so staggering. The AI offerings from the big, kind of the biggest players, Alphabet, Amazon, and Microsoft, their total revenue from those generative AI applications is $20 billion. And yet their market capitalizations have increased $2.5 trillion. To me, that's just, that just, it does feel like we're headed towards bubble land. All right, let's take a look at the week ahead. We'll see earnings from Target, Lowe's, and NVIDIA. We'll also see the minutes from the Federal Reserve's May meeting. Do you have any predictions for us? Yeah, that NVIDIA is going to blow away its earnings just based on everything I just said.

I just, it just, when a quote unquote, I'm not calling myself an expert, but when a talking head like me says it's beginning to look bubbly, that's when the market's about to scream another 30 or 40%. So that's my prediction. That despite the fact I think a bubble is forming, NVIDIA is absolutely going to blow away its numbers. You are advocating for the inverse Galloway as we speak. I think it's in the money, though. I think the inverse Galloway index is actually – no one tracks it anymore because, unfortunately, all the companies I said were going to crash have crashed. But anyways, but here's the thing. It's not how many GPUs they sold. It's whether or not those GPUs are going to be able to justify the investment that these companies are making million in GPUs from NVIDIA, claiming that

this will help us figure out a way to source the milk that we put in our chocolates and how to organize our personnel and our supply chain and come up with better copy and figure out where we need people and where we don't and the quickest way for our trucks to deliver powdered, concentrated milk. If that shit doesn't pay off, if all of a sudden someone raises their hand and goes, you know what? And I remember this. I remember this in 1998 when we launched, whenever it was, we launched williamsonoma.com and we said, this is going to be big one day, but guess what? Our sales are ridiculously low on.com and our stocks doubled in the anticipation that williamsonoma.com would be bigger than

williamsonoma and it's not panning out that way i think we're in for that moment yeah it's like all the sales are b2b but we haven't tested any of this shit out on the consumer like all those ai startups like who knows what their sales are going to look like but you know that right now they are buying a shit ton of H100s and renting them out so that they can just bring it to us. But I am yet to use AI or pay for AI on a daily basis. I think it's a great point. Just to give you a sense, the revenue so far garnered from artificial intelligence applications is only slightly greater than the revenue of Subway. That's crazy.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producers are Jennifer Sanchez and Alison Weiss. Our executive producers are Jason Stowers and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Josh Brown, only on the Prof G Markets feed. You held me in kind reunion

As the world turns and the dark flies In love, love, love, love Today's number, $396. That's the price for a Ruby Glow Pineapple, a luxury designer fruit for high-end consumers. Supposedly, let me just learn this, if you have a pineapple turned upside down on your front door, it means that you're a swinger. True story, Ed. I met my wife at a swingers club. And of course I said,

shouldn't you be home watching the kids? Good. I like it. Is that good? Yeah. I like the other one more. I like the other one more. We're going with the other one.

Sorry. We're going with the other one. Sorry, everybody.