The Prof G Pod with Scott Galloway - Prof G Markets: Is Boeing a Buy? AI Picks & Shovels (and Scott’s Ketamine Trip)

Episode Date: March 18, 2024

Scott shares the most impactful parts of his recent (and totally unrelated to the markets) ketamine trip. Then George Ferguson, senior Aerospace, Defense, and Airline analyst for Bloomberg Intelligence, joins the show to break down what Boeing’s crisis means for the future of the company and its competitors. Finally, Scott and Ed take a look at an AI-adjacent investment area that’s starting to get a lot more attention. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. This week's number, 25. That's the percentage of daily trading volume on Robinhood that happens overnight. True story, Ed. The founders and investors in Robinhood Sequoia Capital are total mendacious fucks exploiting a flaw in young men's brains that makes them more risk-aggressive and prone to gambling addiction. How are you, Ed? That wasn't very funny.

No, it's not funny. I like to mix it up. I like to mix it up. Yeah, that's good. I'm doing very well, Scott. How are you? I'm seeing the world more clearly after my ketamine trip on Monday, which you didn't ask me about. Yeah.

Well, I'll ask you now. How was that? Well, first off, I'm in love with you, Ed. I'm still processing. By the way, sorry, was this your first psychedelics experience? Yeah, I had never done psychedelics before. I have done a lot of marijuana, a lot of drinking. I've done mushroom chocolates. I've done X a few times, not a lot of drinking. I've done mushroom chocolates. I've done X a few times, not a lot, because I liked it so much. I thought this is something I could do a lot, a lot, and that's probably not a good idea, so I don't do it very often. But it was my first ketamine and injection in a clinically controlled environment at this place called Coya or Kuva in Austin.

And by the way, it's a great environment, great firm, or a great setup. I think it'll be really successful. The downsides were I had some anxiety around things that had happened to me in a couple of weeks recently, interactions with people I didn't feel like I handled myself very well. And those kept popping up. And that was more a function of just the timing. I think those aren't profound things, but I did have some anxiety. And also, ketamine therapy has been shown to be really helpful for people with PTSD and suffer from certain depression or addiction problems. And I would absolutely say, if your doctor recommends it, then by all means, consider it. If you are not good at drugs and experience with drugs, and I mean having had

enough experience with drugs where you have gotten way too high and been really freaked out, but what happens is you're going to be fine. This has happened to me a few times. I've smoked in a pot and done a number of drugs where I'm like, I'm too high. I want off this train. And what you find is despite the fear, you are fine. And having that confidence that everything's going to be okay is kind of what I call what I refer to as being good at drugs. If you don't have experience with drugs and a doctor has not prescribed this, I would not do it because there's just no getting around it. There was some portions of this experience that were uncomfortable verging on terrifying. And to not be able to say, get me off this

fucking thing was really scary. So I wouldn't take this lightly. I wouldn't do this just as like a recreational activity for a Friday afternoon where you're bored. You go down these very deep rabbit holes. Physically, you feel very comfortable, but very heavy afternoon where you're bored. You go down these very deep rabbit holes. Physically, you feel very comfortable but very heavy. People have described it as floating through space. For me, space was kind of flying by me. The visuals were so intense and so colorful and so overwhelming. I had to take off the blindfold at one point just to get recalibrated. And I'm not exaggerating. The walls were breathing. The upside is, for me, it didn't illuminate anything new. What it did is clarify and cement a couple things. I had these very strong, kind of beautiful 4K, ultra high-definition images of my boys. I have these specific pictures

on my home screen and in my camera roll that I love of my boys. And they were like right there, just these beautiful pictures. And I started thinking about just, I probably spent most or half of the quote unquote trip or the experience just thinking about the intensity of my kind of emotion and bond with them. And that's something I didn't know, but it was very clarifying and really kind of wonderful. And then the other thing that was shocking to me was my parents never came up. My work, nothing about my work ever came up. Nothing about my childhood. Nothing about none of that. Nothing about my childhood, nothing about

none of that, nothing about my success or lack, none of that. The other thing that came up was their mother, my partner, my wife popped up several times. And it was like, the way I would describe it is, you know, did you ever get a gift when you were a kid where you weren't expecting it and it was something you couldn't afford, something you never even imagined having? For me, it was, I remember I got a $45 Bain skateboard from my mom's boyfriend, Terry, and I wasn't expecting it. And it was just something so overwhelming that I wanted so badly, but I would never have. And it was just like that moment of sheer surprise and joy. My wife kept popping in and I think, God, I get to like hang out with this person. I get to have kids with them. I get to build a life with them. And it was like this overwhelming feeling of like wonderful joy and surprise. And that was very clarifying and very rewarding for me. The other thing is I'm a few days out.

It has really been shocking to me is that I haven't had any alcohol. And it's not because I had some revelation that I was drinking too much, anything like that. Something weird has happened that I've lost too much, anything like that. Something weird has happened at I've lost the desire for the taste of alcohol. So I'm in LA and I go out every night with friends and I go into any social situation and I start drinking and I love it. And there's something weird has happened and we'll see how long it lasts. The idea of the taste of alcohol right now is really off-putting to me. So definitely some upsides and some downsides. I don't think I'll ever do it again for fear that if it went, if it

got more intense and more scary, I just, I wouldn't want to go there. But it was really a very intense experience. Have you ever done psychedelics, Ed? I don't know if I'm at the age and stage of my career where I should talk about that. Well, have your friends done it and what's been their experience? Let's couch it that way. Well, one thing that I wanted to ask you about, like the idea of being good at drugs, it reminds me, I feel like the idea of stoicism is so important on this topic, and the idea of when thoughts and emotions come to you, establishing some distance from them, the idea of not taking them too seriously, not treating them as truth or reality, which I feel like is pretty important in a situation like this, if you start having scary, bordering on terrifying thoughts, the idea might be in your head, well, this isn't necessarily true. I might not this, I'm, you know, I'm on drugs. This isn't the accurate perception of reality right now. And I'm wondering if that's kind of what you mean by being good at drugs and if stoicism has played a part in your ability to move through

those scary experiences because that's honestly that's what i see as the benefit of drugs it almost teaches you how to how to cope with crazy thoughts that can happen on drugs or when you're sober and you know if you when you get through that experience, it's sort of a reminder, actually, I was okay at the end. This too shall pass. I think that's exactly right. And it's well said. I remember the first time, you know, being too high in college, smoking too much pot. And it was so scary. Like, oh my God, I'm going to have a psychotic break and someone get me out of this. And do I need to go to the hospital? And I'm paranoid and I don't like myself and I'm scared. But you come out of that and you realize your description is exactly the right one. And it can be drawn to larger trauma in life or when you're going through a difficult time, this too shall pass. When you mature and you get through hard things, you get through a disappointment professionally,

you get through a layoff, you get through a breakup, and you realize you're going to be fine, you realize it's just not the end of the world, that you may be feeling like it's the end of the world, but that feeling is an emotion. What was really crazy though is you really start separating your consciousness from your actual physical and crazy though, is you really start separating your consciousness from your actual physical and organic matter. And you realize you're just a blip in time and just recognizing your consciousness is its own distinct entity. And this is it. And it's not going to last very long. And everything is about what your response to things, not what actually happens to you. I mean, I just started going down this rabbit hole of just like, Jesus

Christ, this is it. Were you talking with the guide or was it just silent? Yeah, it was really wonderful. It was this guy named John and he's kind of out of central casting. He's sort of this nice, approachable guy who does a lot of yoga. And we did something that was really nice. He's really into breath. We did some breathing just to kind of relax. Because I think if you go into this trip

anxious, that is not a good idea. And so we did a lot of breathing, calm ourselves down. We even did some stretching, which I found really nice. And what was interesting is the doctor, this, I don't know if she's a psychiatrist, she called herself doctor, so I assume she has a medical degree, who prepped me on everything, came in, gave me the shot, I think, and then we all held hands and prayed. Really? Yeah. And what did you think of that? Well, I was thinking 10 or 20 years ago, that would have pissed me off because I'm an atheist and I just don't want to hear someone talk about God. But I actually found it quite nice. Just three people holding hands and just bowing their heads and saying, you know, something along the lines of, you know, just give us grace.

Let us appreciate everything here. You know, it was just to the lines of, you know, just give us grace. Let us appreciate everything here. You know, it was just— To God or to a higher power? I think she said, dear God. I mean, she didn't say, Jesus, and like get up and like say, cast the demons from this infidel Jewish man who has wandered into our lair. I mean, it wasn't like that. Dear Virgin Mary, feel his love. Cast out. Cast into the darkness.

Protect this man. And yeah, no, during the middle of the trip, she said, we're sending us straight to hell unless you upcharge to the Jesus special. That's wrong. But it was, I actually found it quite nice. And they put you in basically what is like the coolest escape room. Anyways, there's a guy there and he occasionally checks in with you. And it was weird.

I found myself a little bit self-conscious. I found myself asking him about his kids because I thought I was being rude, just thinking about myself and my own ketamine trip. Exactly, yeah. And sometimes I wonder if it would have been easier if he hadn't been in the room so I could have just focused on my favorite thing, me and my thoughts. But it was actually, as I think about it, it's comforting to know someone's there. And he's like, if you want to ask any questions or you need someone to hold your hand or be reassuring. And I started asking him, I was thinking so intensely about my son. I started asking, he has a one-year-old son and I started blathering on about, okay,

this is what's going to happen. These are the emotions you're going to feel for your son. This is why it's so powerful. And I immediately turned it into, and that was kind of a discovery. I feel a need, and I don't know if it's narcissism or empathy, but I have a need to like immediately ask people a question so I can immediately bust and into, this is how you should run your life and how you should think. And I think some of that is a good thing, but also it's a form of narcissism where I'm like very good at running other people's lives. Or it's like trying to just be useful and valuable to them or something. It's probably trying to make him feel better in some way.

Yeah, maybe. I don't know. You go to these observations, but Jesus Christ, that shit is for real. I mean, they play some music, this kind of nice hippy-dippy music like you get when you're like, no, we have our own music here. And I thought it would have been awesome if I played Spotify or I have Pandora. And I'm the idiot that can't figure out how to pay for Pandora. So I'm sure a ZipRecruiter ad would have come on or something for Geico. I'm like, how would I have responded to an ad, a radio ad for Geico car insurance while I'm on a massive hit of ketamine? But it was definitely, I'll just wrap here. It was just, it's nice to take the things you know are important in your life

and just to absorb and get lost in just how wonderful they are. So for me, it was on the whole, a very positive clarifying experience. And I promised myself I wasn't going to call anybody or do anything right after it because I didn't want to say things to people while I was still potentially under the influence. But of course, the first thing I did was I called my wife and I said, look, you're my Bain skateboard. And of course, that was very meaningful for her. Oh, that's really nice. All right, get to the news. And now let's talk about the S&P.

Let's do it. Let's start with our weekly review of market vitals. The S&P 500 hit a fresh record. The dollar rose. Bitcoin reached a new high. And the yield on 10-year treasuries climbed. These all feel so irrelevant after that discussion. Okay, shifting to the headlines. Consumer prices rose 3.2% in February from a year earlier. That's slightly higher than economists' prediction of 3.1%.

The S&P and Dow climbed on that news. Apollo Global Management reportedly approached Paramount for an acquisition. As we discussed in previous episodes, Warner Brothers Discovery recently walked away from talks to acquire Paramount, but Skydance Media and Allen Media Group have made offers for the company. Oracle stock rose more than 13% and hit a record high on AI-related demand. Oracle also teased a partnership with NVIDIA, which is expected to be announced this week. Political ad expenditure on streaming platforms has nearly quadrupled in this election cycle

compared to the same time in 2022. Given the current trend, streaming is on track to surpass cable in political ad revenue for the first time. And finally, the House approved a bill that would require ByteDance to sell TikTok or face a ban in the U.S. The bill has received bipartisan support so far, but it now faces an uncertain future as it heads to the Senate. Scott, thoughts? So the thing I found most interesting was Apollo potentially getting involved in Paramount.

And that says a few things to me. So first off, full disclosure, I love the folks at Apollo. I think they're smart, nice. I just, I've done some work with them and I think they're really good people. By the way, I don't have any financial interest in and around Apollo right now. So I have no, not a ton of reason to kiss their ass, but I generally think they're good people. The fact that they're involved, in my view, means this is a broken auction because Paramount should go to a strategic player. And we talked about Warner Brothers could take a consolidated cut costs, bulk up on HBO by combining a bunch of stuff. There's just several

players that should arguably step in. Maybe they combine a Comcast, combines it with Universal. There's just several strategics who, quite frankly, could probably pay or justify a greater price given the, if you will, strategic fitter synergies. The fact that Apollo's here means, in my view, it's probably a broken auction. The price is coming down to levels that make sense for a private equity shop. Because what Apollo will do is come in. The first thing they'll do is likely look at the cost structure. And then what they're going to want to do is figure out the right cost structure, the right strategy, the right management.

And they're looking to probably then sell it again in kind of five to seven years. Private equity holders do. They're not afraid of the long term. They like to hold on to stuff. The advantage of private equity is their money is locked up. But the fact that Apollo's in here means it's going to have to be a quote unquote rational price. Otherwise, they wouldn't be involved, which means that the players, the strategic buyers who would have paid probably a premium have probably all waved off. Any thoughts? Well, what's strange is that Apollo was talking about doing this back in January.

Like we've kind of seen this headline before. And then a month later, they said that they're no longer interested. And supposedly that was a concern about regulation because the backdrop on all of this is that the FCC is currently trying to block a deal between Standard General and Tenia. And Tenia is another American broadcast company. So Apollo's concern is that, at least was, that the same thing would happen here. The question for me is like, what changed? Why have they reversed course?

I can tell you what has likely changed is Sherry's bankers at Paramount said, we need X. And Apollo said, okay, we're not going to pay X. Call us if things change. And two or three months later, they called back and said, hey, we should talk again. I don't know. The regulatory risk or non-risk hasn't changed here. What's likely changed is valuation expectations. Because we said this when they started this whole beauty contest, when they put a for-sale sign in the front yard three or six months ago. Every day that they don't sell this thing, it declines in value.

If they don't end up selling, it's going to be really ugly for Paramount and Sherry. It means that no one was willing to step up and buy this asset. It would appear to be depressed prices. With Oracle, there's AI washing, and then this is what I would call the AI remora fishing, and that is everybody's trying to, it's like, I don't know if you ever did this, but in high school, the best way to increase your social status is to throw an amazing party. And so, you know, I was used to say, I say to my 16-year-old mom in Florida, I'm like, just throw a rocking party. And he's like, I don't need,

and I would use these words, he's like, I don't need to increase my social status, Dad. And immediately I feel like he's coaching me. Way cooler. Yeah, exactly. But the equivalent of throwing the great party here, so if you throw a great party, and what's the key to a great party is the coolest kids in the high

school have to show up. This is that. This is like, I don't know if you saw, but in their earnings, and the analyst pulled this up, they kept talking about NVIDIA and their earnings call. They mentioned NVIDIA four times and they used the term AI 13 times.

And so they're basically, let me summarize Oracle's earnings call. AI, AI, NVIDIA, NVIDIA, NVIDIA, AI, AI, AI, and it worked. The stock was up. And this is a large cap company. I just want to announce that PropG Media is in a deep, deep, meaningful strategic relationship with NVIDIA. And so everybody wants a little of that AI NVIDIA dust around them. And I thought that was, that's purely what this is. I don't know if this is that meaningful in their relationship. Do you have any thoughts? Yeah. I mean, I'm with you in that I'm always skeptical of any AI posturing,

AI signaling, whatever we want to call it. But one thing that makes me actually pretty bullish on Oracle here is, you know, if you look at the cloud infrastructure market, there are four players, basically. It's AWS, it's Microsoft Azure, it's Google Cloud, and then there's Oracle. And Oracle is the only one out of those four that isn't developing its own LLMs, and therefore that isn't competing with other AI companies. So supposedly within the AI startup community, which is obviously growing, there's actually some real incentive to partner with Oracle, because you want to partner with the guy who's not going to compete with you. They're all trying to eat Amazon, Microsoft, and Google's lunch. They don't have to worry about that with

Oracle. And so I think that's sort of the thesis, and it's beginning to be reflected in the numbers. I mean, the numbers from the previous quarter were fine, not amazing. But if you look at the remaining performance obligations, which is basically just a metric for signed contracts that haven't been executed yet, but they will be, i.e. future revenue. So remaining performance obligations, that's up 29%. So they're about to see, they have this massive backlog of contracts that are about to be put into effect. They just haven't been reflected in the earnings themselves yet. So, I mean, I'm with you that the standard numbers aren't spectacular. They don't really warrant that

massive jump. But in this case, there's significant narrative being sold here. And in this case, I actually buy the narrative. And that's really interesting. I hadn't thought about that. I like that take that Oracle, I mean, because here's the thing, Amazon, Meta, obviously Alphabet, they're sick of paying these fees and being totally dependent on this monopoly called NVIDIA. And they've all, I think nearly all or nearly all of them have announced plans to go vertical and develop their own chips.

So it's interesting, you know, your notion that Oracle is in fact a pure play partner for NVIDIA that's not infringing. And for every other AI startup that's trying to compete. Yeah, it's funny. Oracle's in my 401k. I'm not sure how it's done. The TikTok bill, we've been talking a lot about this, passed the House 352 to 65. And it strikes me that if this can't go through the Senate,

then the House and the Senate, you would think that there'd be some consistency here, that if something passes, nothing passes the House, 352 to 65. So I would just think that they'd be able to get 51 votes in the Senate. They don't even need 51, they need 50 because Vice President Harris would vote in favor of it. There's already news, and I don't know if it's the media trying to gin up a real fight and create some creative tension so we tune into CNN more. But if something gets that kind of overwhelming support in the House, I think it would get at least 50 votes in the Senate. Have you heard anything? I don't know how it'll perform in the Senate. I'm not sure anyone does. But one thing that was pretty interesting is looking at who voted against the bill. So from the Democrats, Barbara Lee, Ilhan Omar, Alexandria Ocasio-Cortez. From the right, Nancy Mace, Matt Gaetz, Marjorie Taylor Greene. So it's this very strange dynamic here where you have

the extremists on either side coalescing against this bill, and by the way, Trump included, and then the centrists are coming together in favor of it, which is, I don't think that's something I've ever seen before. The other news that I would follow up on, which is more markets-focused, I don't know if you saw this, but Steve Mnuchin, who's obviously Trump's former treasury secretary, he's putting together a consortium to go in and buy TikTok, which to me feels like it's an incredible idea. I mean, just capitalizing on this forced sale, which you often talk about is the best time to buy. I'm wondering your thoughts on that. And is that something that

you would be personally interested in as an investor? Yes. But I got to think that the amount of money and capital they're going to need to raise to do this lends itself to an existing player. To me, it seems like the most likely acquirer should be Microsoft because they have the capital. I don't know if that would run afoul of any trust if they're the biggest player in AI and now in TikTok. But I mean, the thing is, whoever takes it, Mark Cuban made this point that it's worth less to an acquirer because the key to TikTok or the secret sauce is its algorithm. And there's no guarantee that that could be recreated. I don't agree with that. I think that our advances in AI, I think someone could absolutely figure this out, and there's so much money on the line here.

I got to think it's going to be an existing player that the amount of capital you're going to have to show up with. Microsoft buys this thing, or I don't think could Meta. I don't think they... With reels, it feels like nowhere. Yeah, I don't think it makes sense. I don't think the DOJ would let Meta

with two-thirds share of social come in and take. But it's got to be someone with massive compute, massive capital, an understanding of AI, someone who's already a letters D&E, a massive number of engineers, because there's a lot of people, including all of the CFOs at every big tech company who are thinking, wake up and look in the mirror and say, hello, new owner of TikTok. I mean, this is the ability that's very rare that the most ascendant technology platform that has 1.7 billion people already lined up is for sale, assuming that this goes through. But it's going to go at a big number. And I don't think this can be a club deal. I think it has to be a player that already has huge compute power already.

I think, I mean, it's an interesting question. Who does it go to? Or does it go to a consortium of people? Because Microsoft has the capital. If they paid, I don't know, a few hundred billion dollars for this thing, they can do that. It's pretty difficult for other folks to do that. I mean, maybe in this environment, you could raise the kind of money, but, you know, we're always, we're so American centric, like, is there potentially a consortium of European

companies that could come together and say, hey, we're the only ones that won't run afoul of, of, you know, the DOJ, you know, if Biden forces them to sell, but then the Biden administration gets in the way of the sale. I mean, just as we think it through real time, if Biden says, okay, we're forcing them to sell to an American company, does he call Lena Kahn or Jonathan Cantor and say, and by the way, it doesn't make a lot of sense for us to mandate that they have to sell the thing and then to block it. You know, that's just chasing and eating our own tail here. And then streaming gets a boost from political ad spend. I thought it was a bad idea for these streaming platforms to take on advertising.

I was probably wrong. It looks like they're picking up incremental income and creating an offering for people who, you know, don't want to spend 10 or 15 bucks a month. So far, political spending's at 164 million. That's up, get this, that's up 266%. It's almost quadrupled since the same period in 2022. Paramount, Warner, Discovery, and Hulu allow political ads. Apple and Amazon do not. This is just, I mean, I remember meeting with Hearst and I thought, God, it must suck to be Hearst. They own magazines. Hearst is killing it. They own all of these kind of information-driven assets. They own Fitch, which is an amazing company in ratings. They own a company that tracks analytics for airline companies or private jets, a subscription company that everyone signs up for.

And they own a bunch of regional news stations. And basically, regional news stations are just shitty businesses, except every two years, they have an absolute torrent of money wash over them. Because old people do two things. They watch the news, the local news, and they vote. And so they just jack up their rates and every political operative or, you know, any campaign with any money just starts buying up all the time on these local news stations. I wonder if we'll ever run political ads. Do you think Amazon and Apple will change that no political ads policy? I don't think so. If they haven't changed it already, I don't think they're going to. I don't, yeah, I don't,

honest answers I don't know, but I can't imagine they would shift this, shift this slide. I don't think Apple will, but maybe with Amazon, Amazon are bigger whores. Actually, that's not true.

That's not fair. They're both pretty big whores. I don't think so. I think they would have already announced it by now. But we would. 100%. Yeah. Literally 100%. Yeah.

Literally, 100%. If fucking Goebbels wants to run ads on our podcast, I'm down. Bring it. Bring it. Daddy needs new shoes. Daddy wants to order that second non-alcoholic beer at the hotel pool at the Beverly Hills Hotel. Oh, my God. I'm so fabulous here.

We'll be right back after the break with a look at Boeing's crisis. We're back with Profiteer Markets. More than two months after a door blew off one of its airplanes, Boeing is still in hot water. Last week, a 787 Dreamliner plunged suddenly mid-flight, sending passengers hurtling to the roof of the plane. The very next day, a Boeing whistleblower was found dead in his car. He was a former quality control manager, and he was in the middle of testifying in a deposition concerning the company's safety issues. So it now seems like Boeing is in a full-blown crisis. The stock fell more than 9% through the week, and year-to-date, it's down 28%.

Here to break down the state of Boeing and its impact on the airline industry is George Ferguson, Senior Aerospace Defense and Airline Analyst for Bloomberg Intelligence. George, thank you for joining us. Thank you for having me. So this is the second major crisis for Boeing in recent years. The first was in 2019 when two MAX 8 airliners crashed within six months of each other. When you look at this, as someone who's been studying this market for a long time, does Boeing's situation today feel more or less dire than it did five years ago?

Given that it's coming after the crash and the MCAS problems on the airplane in 2018-ish, I think it's more dire, right? I think that, unfortunately, they're coming out of a pandemic and grounding after those crashes to have these manufacturing problems. And that's put them in a very tough spot. I think worse spot than they've been in their history. We discussed this a couple months ago when the door actually fell off. We were thinking that maybe this wouldn't harm Boeing long term, or at least not as much as people were predicting. And a few reasons we were thinking that.

One is just the duopoly that they have with Airbus, which seems like it protects them. The switching costs to go to a different aircraft manufacturer. And also the fact that commercial aircraft sales aren't the whole business. It's like 40% of the business. Do you consider our analysis to be accurate there? Are we missing something or is the situation worse than I just depicted? No, I mean, I think that Boeing is fortunate because the business is a duopoly with Airbus. And right now, the supply chains for both manufacturers, while they definitely appear to be doing worse for Boeing, I would say

aren't providing Airbus a lot of flexibility to crank up deliveries, crank up production quickly. And so what we really see from the outside is that Airbus isn't really able to capitalize very well on this. And Airbus's backlogs are, you know, longer than Boeing, especially for the narrow body A320, which is the competitor to the 737. You know, when we do the calculations, we think there's seven or eight years of backlog in there at least. So it probably means, you know, some of that backlog isn't sort of serially one behind another coming out the door of Airbus, right? Some airlines have placed orders that take them well into the next decade. But our guesstimate on this is that you probably have to wait near the end of this decade to wedge yourself into the A320 delivery pipeline unless they can get their supply chain to work better. And so because of that, if you're a Boeing customer, the cost of pulling out and switching the Airbus is, I think, just too high, too far down the road.

And that's protecting Boeing's market share right here. And so that's definitely a mitigant right now to the problems that Boeing's having. So, George, nice to meet you. Just a thesis, and you tell me, you nullify or validate this thesis. So the S&P over the last five years up 84%. Airbus is up 37%. Boeing's been cut in half. It's down 50%.

Is this an opportunity in terms of buying a stock that's been cut in half but will get through this and return to sort of its traditional economics? So, you know, look, stock prices can be a little bit challenging because there's a lot of things that go into it, you know, fundamentals, the fundamental performance of the company from a financial standpoint and valuations, you know, component of it. What I will say is from a fundamental basis, from the fundamental driver of stock prices, their earnings, I think a recovery will happen at the company.

I think that their potential purchase of Spirit Aerosystems here shows you that management is serious to dive deeper into the supply chain of the company, pull in a supplier that used to be not a subsidiary, but used to be part and parcel of Boeing. You know, it got spun out 20 years ago. They want to pull it in so they can control quality in that business and they can make sure that what they're putting out the door, you know, is an airplane that's not going to have the problems that they've had.

And so I'd argue that, you know, from a, hey, we're going to build a more quality product and we're going to be profitable. I think that's a step in the right direction to the book of business inside Boeing, the backlog, isn't as profitable as you would have expected last decade. And the reason I say that is because, one, I think that they're going to have to spend a lot more time in their manufacturing business doing more oversight, controlling the processes much closer, And that means that the cost of manufacturing is going to be higher, at least for a number of years here, while they make sure they stabilize the manufacturing process. And the second issue here, I mean, Boeing's had a bunch of these issues filtered through the company. Coming out of the pandemic, if you recall, for a while, the Chinese were not taking deliveries of Boeing airliners.

They started this year, but coming out of the pandemic, they did not. And Boeing went out and essentially sold a bunch of airplanes to some of their core customers, a lot of airplanes to their core customers. They were the big Southwest order, the United order. You know, Ryanair is always sort of pulling in a certain amount of airplanes. We think a good portion of those orders were placed at really good prices for those customers. And so I think that materially changes the profit characteristics of the book of business right now inside commercial. So I think when you look at commercial and the turnaround, there's still plenty of work to do. I think you're talking, there's long cycles to this business. I think when you look at commercial and the turnaround, there's still plenty of work to do. I think you're talking, there's long cycles to this business.

I think, you know, I think you're going to see diminished deliveries this year below what, you know, consensus sort of thought as they turn around that manufacturing business. And as they turn that back on, and I think you're going to start to see better deliveries in 25, and it'll take a while, right, 26, 27, as they try to catch up to Airbus or catch up to even their old build rates that they had in the last decade, which were approaching 60 for the 737. It'll take them a while to cycle it up, and it's just not going to be the same margins. And at the same time, not to throw more on this whole discussion, that defense business, you rightly mentioned that commercial isn't all this business. That defense business is underperforming as well because of a number of fixed price contracts they put on the books. And those are going to take a couple more

years to clean up and start to improve profitability on. So you have, I would say, two of the three cylinders, if this was a three-cylinder engine, in this business that aren't really going to function well, I think, until you get into 25 and 26. But is the company going away? I don't think so. Does this present an opening?

I recognize this is a capital manufacturing intense business. You can't just spin up a commercial jet manufacturing business. Is there any opportunity to take advantage of this, what appears to be an opening in the market? Could a Bombardier or a Gulfstream or a Dassault or, I don't know, name the company, go upstream and start producing commercial jet airliners? Those companies are very capable companies. And I think Bombardier, for to have that product ready to go now to capitalize, right? Because if you're going to go into the engineering rooms and start to draw that airplane up, I think you're a decade away from building something, right? Or maybe seven or eight years.

So that's the real problem in this business. The barriers to entry are huge. It would just take too long unless you had something ready to go. And I would say the second side of that is, if you recall when Bombardier built that C-Series, Boeing and Airbus absolutely honed in on them in sort of the competitive landscape. They came in, they bid the smaller size of their narrowbodies against that airplane. We believe that they dropped prices on those smaller narrowbodies a lot to knock Bombardier out of that market. And Bombardier ultimately sold the program to Airbus for a dollar after Boeing and Airbus just sort of beat them up in the marketplace for years to keep them out. And I mean, it's something not to be underestimated.

If you have an airplane that's already built, you've already done all the engineering on it, you've already done all the tooling on it, you can bear more pain in the marketplace by discounting to keep other participants out than the new entrant can, right? Because they're typically burning cash as they design a new airplane, they tool up and they start ramping up production. It's really hard to break in. And so I think those items keep another competitor out, except for the Chinese, which already have an airliner in the marketplace. But I think that's Western

acceptance of that airliner is still years away to half a decade away, at least, I think. When we were discussing this earlier this week, we were pointing out that there's been this downstream effect on the airline stocks. So last week, Southwest shares sank 13%. And that was basically because they announced that they're going to get fewer shipments from Boeing. They were supposed to get 79 planes this year. It's going to be 46. United had a similar thing. Their stock dropped 2%.

And when we were trying to figure out, okay, what's the disparity here? It's basically that 100% of Southwest's fleet is Boeing. And for United, it's 80%. And then you look at the stocks that weren't really affected. It's like Delta, for example. Delta's only half Boeing. So there's this interesting thing that I hadn't thought of,

of supply chain diversification, basically. And I'm wondering if that plays a big role in your airline analysis. And do you think that having a healthy balance between Boeing and Airbus is something that investors should be focused on right now? Yeah, so I think it depends what your airline type is, right? If you're a big full service hub and spoke carrier like Delta, American, United, your operations are complex enough that you can bear having two fleet types in there.

And so diversification, you know, some of each one in your portfolio of airplanes, if you want to call it, is absolutely a positive when you get into situations like this. And I agree. I think you've seen that, you know, American has a nice mix. Delta is very much an Airbus shop. There's still some Boeing stuff around there. And those two stand to capitalize potentially if there's a shortage of airplanes in the U.S. market this year. And we've seen this before. We saw this where Southwest pre-pandemic was

having problems getting delivery from Boeing on the new MAX and other airlines capitalized on it. When it comes to low cost airlines though, I think that the ability to drive down costs with a single fleet type is probably paramount, frankly, right? Because those airlines really, you know, they really cut costs to the bone with their ability to streamline operations and having all the same fleet type and be able to allocate pilots to airplanes, not worrying about what the airplanes are and what the pilots rated, I think does a lot to ease their operations and keep costs really low. And so there's a couple different airplane engine challenges that are rolling through the U.S. market that if we get

tight on capacity, if demand is really good this summer and these folks can't get airplanes or have to put them down, means that the airlines that are not flying those will absolutely capitalize and could have a pretty good summer. And one of the things I read from Southwest was not just the Boeing problem, but if you read into their 1Q adjusted guidance, they step change down in what they thought they were going to get paid per seat mile that they put in the air. And part of that is because they're not seeing near-term demand as strong as they thought. So we'll see those two things are playing out right now in the U.S. airline market. We're watching them closely.

Right now, I don't think the airplane issue is going to be as important as the economy and general demand, but we're watching it. So just last question, George. From a consumer standpoint, I'm fascinated with aviation. The only thing not perfect about my life is I spend way too much time on planes. And I look at my phone, I look at media, everything's changed so dramatically. When I look at the flight experience 50 years ago, when I took my first flight with my dad versus now, it's disappointingly similar. And while I know there's been huge efficiency gains and costs of, I think on an inflation adjusted basis have come way down. What do you think of the likelihood that we're going to have supersonic travel in the next decade or so? And specifically, do you know anything about boom technologies? Disclosure, I'm an

investor there. Do you think that supersonic will see a renaissance of fuel? So I haven't spent a lot of time on boom, but we've absolutely thought about Supersonic. I'll tell you what my impression is of this. I'm sad to say that I'm not going to tell you that the next new age of flying, Supersonic flying, is coming. It's right around the corner, and we're all going to have a blast going out there across the Pacific in half the time and across the Atlantic and half the time. So the big challenge in this business is getting the consumer to pay up for that supersonic travel and enough of those consumers to pay up to be able to build those airplane fleets in size. And so if you think about a wide-body airplane from Boeing or Airbus, wide-body, remember, means probably have two aisles in it rather than the, you know, A320, 737 are single aisles, one down the middle. You got two, you got a lot more people inside that tube. The typical wide-body airplane designed and built by Boeing and Airbus, a successful one, over a thousand units built, right? So you typically,

you see 12, 13, 1400, that usually gets them into the, into the, let's call it the green zone, the profitable zone, you know, for the cost that it was to, to design it, tool up for it, build it. You know, what we saw with the Concorde, it was great technology. It's old technology now, but they built what? They built less than 20. I think they built somewhere in the, I think they got over 10 maybe or so. You can't get the economies of scale you need for manufacturing to drive down costs building in those sizes. You got to get up, like I said,

into the thousand plus. And right now, I still don't think you have enough demand for supersonic travel to get the numbers you need on the manufacturing side of the business. One of the challenges too is like, if you think about when we go to Europe, if we, if we, you know, we're all here on the East coast, you go over to Newark at a Kennedy, you get in an airplane, you get a lie flat seat, which you probably pay less for than supersonic travel. You and I get in that tube and we lie down seven hours later, we're landing in London. We almost don't care. We don't want to be there in four hours because we'll be, you know, I guess we'll be in London at, you know, at 4 a.m. their time or something like that. We'll say, hey, what was the gain? The gain was I didn't get a full

night's sleep. I paid a heck of a lot more money and now I'm stumbling around London at 6 a.m. waiting for businesses to open. So right now, I think on Transatlantic, I think LifeLat, I think the services you have work pretty well. I don't know that I would pay up for Transatlantic on a supersonic. Into Asia, yeah, the distances are a lot larger. So I think I'm ready to pay up on an Asia trip, 17 hours to Singapore. It's a heck of a lot of time. We'd have to see fuel burn and see how far they could get and where they'd have to stop. That could be a limiter. But right now,

I just don't see the technology having progressed enough to change the equation on supersonic. I just don't see the size. But it's like a lot of things in aviation. We start going there. Some people run out of money. some ideas die for a little period of time it's the seeds that that are replanted next and grow again and we try again and at every iteration i think we learn more take costs out of the equation develop the idea the day will come i just don't think it's in the next i don't think it's in the next decade. I think it's great analysis, but the frame where I justified my investment is, and I think you're looking at it correctly, looking at a consumer. My sense is the fastest growing demographic

is billionaires. We've gone from 500 to 2,500. We're probably going to have 10,000 in the next five to six years. The average age of a billionaire is 69. These guys have more money than time. If I'm a billionaire, I'm buying supersonic. I actually think the market is for billionaires, not for commercial aviation. A supersonic bizjet could probably do better than a supersonic commercial jet. I get it. But all those guys have private jets, right? So they're all, those are the guys that are buying the Gulfstream 650ER, 700, 800, the Bombardier 7500. They're bringing their own airplane to the game and they'll pay up. They'll pay 75 million for a Bombardier 7500 or a Gulfstream 700, 75 million more than a commercial airliner. Because like you said,

time matters to them. Time matters a lot to them. They're willing to pay for it. George, this was great. Thanks for your good work. And we really appreciate your insights. Appreciate it. We'll be right back after the break with a look at AI compute power. We're back with Profity Markets. A few weeks ago, we discussed NVIDIA's run-up in the markets and asked what other downstream picks and shovels could benefit from AI. There will likely be many, but there's one area in

particular that's been getting a lot more attention. Computing power. By 2030, electricity demand at US data centers could triple, using as much power as 40 million homes or the annual energy demand of the UK and Greece combined. Businesses that can figure out how to support that demand sustainably should be well positioned to ride the AI wave. So Scott, people often point to crypto's energy consumption as one of the main negative externalities. Annually, the global crypto industry uses as much electricity as the Netherlands. AI's consumption is poised to eclipse that. What do you make of this problem? And what kind of solutions do you think we'll see? I think this is super interesting. I've never understood, one of the things I've never gotten,

I've never understood about crypto is in a world where we see the existential threat is climate change. And we invented a currency, We invented something of our own making that requires the electricity consumption of Argentina. I've always heard Argentina. By the way, in Netherlands, do they use any electricity? Aren't there a bunch of polar bears on treadmills powering everything? I've just never understood that we decided to invent something that we really didn't need that's based on mathematical computations that require the energy of Argentina. Anyways, I think this is fascinating. And so the question is, are there knock-on or downstream investment opportunities in making AI more energy efficient? This company, Astera Labs, which has filed for an IPO, they make hardware and

software products that increase the efficiency and reliability of data transfers within AI systems. And it has Microsoft, NVIDIA, Amazon, and Intel as investors. Shit, that's a company I'd like to invest in. I mean, that is the crazy, huge trend. Boring company doing really, really hard work. Oh, disco, Ed, disco. AI and data center infrastructure. A company called Vertiv provides power management and cooling equipment for data centers.

Another like stupid fucking boring business that's going to make a lot of people very rich. And in a typical data center, only 40 to 45% of the energy use is for the actual computing. The rest is used just to keep cooling down the servers, right? Just to make sure that they can operate so they don't overheat. By the way, I remember I was at one of my first clients. Let's talk about me, Ed. One of my first clients. The ketamine didn't fix that.

It was. No, no, no, no. It's one of the things I found on my trip through the universe is that it's my universe we just all live in it. I remember I worked with the COO of William Snowman, this guy named Denny Chantlin. And I ultimately ended up putting him on my board because I just found him so practical and thoughtful and strategic. And they had a server room. They built this big e-commerce

operation. We actually, believe it or not, yours truly and Profit actually built their first e-commerce site. And they had the server room and it was overheating and the power went out. And they got Denny on the phone and they said, Denny, what are we doing? He said, is there a window? And they said, yeah, but he said, well, open the fucking window. And they said, we can't, it doesn't open. He's like, okay. He's like, go find a hammer. And we all looked at each other. I was in the room when they were doing this and they went and found a hammer and they just bashed the fucking window and problem solved. And I thought, that's how you become the COO of a global, like of a Fortune, whatever, 1,000 company.

In a million years, we were like, oh, no, but the window doesn't open. I was like, go get a hammer. Open the fucking window. We got, whatever, $3 million in servers that are about to explode. Anyways, so the cat is out of the bag. Vertiv outperformed NVIDIA in 2023, rising 269%. Jesus Christ. So we're late on that one.

Prologis, which is one of my favorite companies. Back to me, a mentor of mine is a guy named Hamid Moghadam who ran AMB. And then they merged with Prologis, which I think is the largest warehouse or logistics storage company in America. And they announced they're planning to invest $8 billion in data centers over the next five years with the potential to expand to 100 data center projects and a $25 billion investment in the longer term. Like, this just makes a shit ton of sense. This is, in my opinion, word is out on the big guys, the NVIDIAs. I think in terms of if I were a fund manager or stock picking, which I'm not recommending you do, I'd be looking downstream at this type of stuff. What are your thoughts, Ed? Yeah, I mean, it feels like there are two main issues that are to be solved here when you have compute power growing this rapidly. I mean,

it's estimated that by 2037, global spend on compute power will be greater than the current GDP of the US, which is $27 trillion. So there are two things to solve. One is computational efficiency. That is, how can you minimize your energy consumption while, you know, accelerating inference, decelerating latency. And there are a bunch of companies that are working specifically on that problem. You mentioned several of them, Astera Labs, but there are more Broadcom, Marvel technology, Parade technologies, etc. The second thing is just computational production. Like, how do we just produce and deliver massive amounts of computing power at mass scale? And obviously, NVIDIA is a huge part of that story.

But the way I see it, so are just the plain old energy companies that actually power these data centers. So like Exxon and Chevron, BP, Aramco. Having said that, it's been a very bad year for energy companies in general, especially in terms of their stock price. I mean, the energy index is down one and a half percent this year. Compare that to the S&P, which is up by 26%. But it feels as if AI could inspire a resurgence here. So I'm wondering if you think that we're going to start to see

some renewed interest in energy stocks as people start predicting this massive computing power wave over the next few years. Do you think that we'll see more investor interest in energy? Yeah, you'd think. I mean, it strikes me, energy consumption is just not going anywhere. Every year we come up with new ways to use energy. It's never like, oh, we have too much. I mean, oil prices will come down, wind prices might come down, whatever it is, but there's never kind of energy just sitting fallow. And the fact that the energy index is down a percent, I would imagine that industry is pretty cyclical and it's probably not a bad place to park some money right now. So any estimate of energy consumption is up over the next 10, 20, 100 years. The question is, is there some sort of breakthrough that's all of a sudden going to provide massive. And remember a year ago, they announced that they had achieved fission and that they had figured out a way to, you know, collide two molecules that create more energy than they absorb. But the infrastructure around it was still like 53 times the amount of energy they created. So that number, there's a term for that.

The number is going to have to come down until it gets below one. But yeah, it strikes me that, I don't know, it's just one of those industries where you feel like those people are always going to figure out a way to make money. All right. Thanks, Scott. Let's take a look at the week ahead. We'll see earnings from Nike, FedEx, and Lululemon. We'll also hear the latest interest rate decision from the Federal Reserve. And finally, Reddit is expected to IPO this week. Scott, do you have any predictions? My prediction is that Reddit gets, and this is dangerous, that Reddit gets a fairly substantial day one pop. And it just goes back to, we used to live in an agriculture economy.

Then world's trade routes were driven by spices. And then it was, obviously, we're in an oil or natural resource-based economy. I think we are in an attention-based economy. The most valuable firms in the world basically monetize our attention. And if you look at the most trafficked sites in America, number three is Reddit. And if you look at those four companies, three of them have a trillion dollar plus valuation, and one is going out at a valuation, I think it's estimated about six and a half billion. So if you look at the charts from, I used to love this chart from 10 years ago that I used to show in presentations, and it had attention versus ad spend. And so, for example, newspapers were getting 6% of the nation's attention,

but they had 15% of the advertising. And digital was getting 35% of the nation's attention, but only had 8% of the advertising. And you just knew over time that they would calibrate or they would equalize. And when I look at the third most trafficked site in the United States, going out at 6.5 billion, I think States going out at six and a half billion, I think that that has opportunity, and this sounds crazy, but that has opportunity to be 100x in 10 years if they can maintain that sort of attention. So my prediction is Reddit gets a substantial pop on the first trade in the IPO. Do you have any thoughts on how they could start monetizing that attention more efficiently

and just better? I mean, you look at where it ranks in web traffic, but then you look at its revenue, $800 million in revenue. That's a fraction of all of these other companies you mentioned. How do they unlock that attention and start monetizing it in a substantial way? I think it's about management and the ad stack. And by the way, the exact same criticisms were levied against Meta. I remember our buddy Bill Cohen interviewing me on Bloomberg 15 years ago before the IPO of Meta. And he said, what is this business? Is this in? You know, the revenues weren't that big. They were growing fast. But this is in some, this is about the ad stack. This is about figuring out a way to target people the right, you know, right place, right time, right, right kind of situation and hit them with the right ad. It's about developing crazy ad tools that help advertisers reach the right people in

the right context. But it's, I think that is less difficult. I think then building an offering that gets the third most attention of any website in America. I think they've got the hard stuff done. I think they've done the heavy lifting. I think good management, good management with just the third most traffic site in America can figure out a way to get this thing worth $100 billion. You'll be buying? I'm going to try. I'm calling everyone I know, trying to get in on the IPO. And depending on, A, if I'm able to get shares in the IPO, I might not be able to. But if I can, I'll look at what the first day pop is. And if it's not too extraordinary, I will probably buy

some shares. Yeah. All right. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead, and Drew Silverio is our research lead. And Drew Burrows is our technical director. Thank you for listening to ProfitG Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours. And we'll be back with a fresh take on markets every Monday. You held me In kind

Reunion As the world turns And the dove flies In love, love, love, love