The Prof G Pod with Scott Galloway - Prof G Markets: NVIDIA’s $1 Trillion Valuation, Pairs Trading, and Understanding Analyst Estimates

Episode Date: June 5, 2023

This week on Prof G Markets, Scott examines why NVIDIA has left other chip makers such as Intel in the dust. He also explains why he’s thinking of taking up a pairs trading strategy to hedge against today’s market dynamics. And finally Scott and Ed take a listener question about where analyst estimates come from. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. This week's number, 5,475 miles that's the distance between london and costa rica where my team was bonding on the beach true story when ed got back he went to the doctor complaining of stickers on his butthole and the doctor said those are stickers from a banana ed how are you how are you feeling too much no No, that's just right. That's just right. I'm getting so many emails about my profanity. I'm just going to lean into it. I'll show them. Welcome to ProfG Markets. Today, we're discussing NVIDIA's trillion-dollar valuation,

pairs trading, and earnings estimates. Here with the news is PropG Media Analyst Eduardo Elson, direct from Rica de Costa. So we got here last night at around 6, and we were doing some work, and then we sat down for dinner at eight and immediately as we sit down for dinner giant thundering rainstorm just starts descending down on us so i think it's i think it's a sign from the gods that they want us to keep working but that happens a lot down there it's very jungly right first off where are you staying where i

don't even know where you guys are i just know you have my credit card where are you staying we're in a place called tamarindo yeah i've been there cala luna wow and what's the hotel like it's awesome i'm i'm we have we have four suites and one room um so guess who got the room but i'm currently in in claire's suite right now well if you stopped having sex with bananas we might they might trust you to share a room. Anyways, what are the activities planned for the team in Costa Rica? We're going surfing tomorrow, I think. Maybe on Saturday we're going snorkeling.

They have ATV rides, which I'm pretty excited for. And then we're going to be partying at night. It's going to be good. So you can go ATV riding, the rest of the team cannot because it's very dangerous. Is that right? So true story, I started a brand strategy firm in my second year of business school. And I pitched, Yamaha Motors came to the high school of business and said, we want to do a student project. We want someone to help us understand the youth market for motorcycles for Yamaha.

And so I said to my soon-to-be business partner, I'm like, this is our opportunity. Let's write them a proposal and try and launch our business. And I'm first semester, second year at the Haas School of Business. And so I wrote a proposal saying, look, you need to be serious about this. I'm going to go out and survey 2,000 teens. I just took a market research course, which makes me an expert in market research. And we'll come back and after surveying youth, we'll come up with some insights and product recommendations. I pitched them and I didn't know what to charge. So I called the front of mine who had been recruited by and hired by McKinsey. And I said, what would McKinsey charge for this? And he said, we charge a half a million bucks. So I put $250,000. And my partner was like, what the fuck are you thinking? We're second year MBAs and you're trying to charge her from a quarter

of a million dollars? You have no background in consulting. I have no background in any of this. And then I remember I had an apartment in Rockridge, Oakland, and I was paying $280 a month and went to the mailbox. This was back when I actually looked at mail. Opened it, and there was a check from Yamaha Motors for $100,000 and a voicemail from Matt Takazawa saying, Sorry, we've been really busy. We didn't get back to you. We're really excited about this project. You should have already received the first payment.

And I remember when I saw the check and I looked at it and realized what had happened, I got physically scared that I had just done something illegal. And that was the beginning. That was the launch of Profit Brand Strategy, which then became Profit, which I then sold to Dentsu and is now a, I think a five or 600 person firm. And there's a lesson in all of this is that the key to starting a business is starting and just committing to doing good work. And they were very happy with us. They used us several times, but our first engagement was with Yamaha Motors. Anyways, ATVs are really dangerous. They don't look dangerous. They're very dangerous. So you and no one else can go ATVing in Costa Rica. Anyways, talk to us about the markets, Ed. Let's start with our review of market vitals.

The S&P 500 finished May down a fraction of a percent, while the tech-heavy Nasdaq was up nearly 6%. Bitcoin was down 3% on the month, and the yield on 10-year treasuries closed out the month marginally up. Shifting to the headlines. Elon Musk has officially reclaimed the title as world's richest person from LVMH CEO Bernard Arnault. That's thanks to an increase in Tesla stock and a decline in LVMH. The Wall Street Journal reported that executives and early investors in SPACs made $22 billion by selling shares before they plummeted. SPACs, also known as blank check companies, they are shell firms that are created to take

another company public, have lost more than $100 billion in value so far, and at least 12 have gone bankrupt. Job openings in April surged above 10 million million, that's the highest in three months, and the unemployment rate rose to 3.7% in May. That's up from 3.4% the month before, but it's still near historic lows. And finally, Washington passed the debt ceiling bill, which will suspend the borrowing limit and rein in government spending until 2025. Notably, the deal slashes the IRS's budget by around $21 billion. Scott, what are your thoughts? So the SPAC thing is super interesting and not surprising.

It's shocking, but not surprising. You can't punish people for having the wisdom to sell when a stock is high. And investors at the end of the day are investors because they want to invest and then ultimately they want to sell. The question is, at some point, is it more than just reputational risks they're taking? Are they taking risks with other people's capital, retail investors' capital? And when they're on wherever they are, whether it's Richard Branson saying, this will inspire new generations. I mean, I can, and then I'm going to prop up my old earthbound companies. And there's nothing illegal about that. The question is, at some point, if you own over a certain amount and you go online and start promoting a stock, should there be some sort of regulation that basically makes you an insider? I wonder if SPACs should even be allowed to exist.

It just seems pretty insane to me, the idea that we have a vehicle where you can raise public funds for ideas and companies that don't exist. Yeah, well, I mean, there's two ways to look at this. Retail investors want access. They don't want to feel as if they're being held out and only the quote-unquote, those rich white people get to play in tech and get to invest early. So, to a certain extent, there's a fulcrum between or a tension between infantilizing investors and protecting them. And so, that's where you find, you know, what is, how do you thread that needle? Because as my colleague at NYU says, as what the motor and the best, the best regulation is life lessons. And SPACs were essentially a form of investment banking.

They've been around a long time, but it was essentially a group of people who said, I'll be an investment banker and take companies public that the investment banks don't want to take public. And here's the issue for two to $3 million, you get, I think, 20% of the company. So say it's a company that goes out at a valuation of $500 million and you own 5% of it. Why wouldn't you just go on CNBC and use your Twitter following to try and get people excited about it, get it to a billion, and then hit the sell button. And in exchange for a million bucks, you've just made 50 million. In terms of job openings, it's good news, bad news. It's great that the job market is strong. We're at a historically low unemployment. It's bad news for inflation. And there's a bunch of

things that work here. And that is because of anti-immigration laws, we've lost about 2 million immigrant workers. So there's just fewer people to staff a lot of positions. We've also had 2 million, I think it's 2 to 3 million people retire early. And that is post-COVID. They think, you know what, I've had it. They saw their stocks go up. They have some money, some retirement money, and they're like, I'm just not going back to work. And we also lost a million Americans. So the labor forces shrunk. A lot of women were taken out of the workforce because they shouldered most of the burden at home. And those burdens were dramatically increased, mostly because of remote schooling. What's interesting around that, just as a side note, is that female participation in the workforce has not only returned to where

it was, it's now at an all-time high. But we have an absolute shortage of workers. I think there's 1.8 open jobs for every person looking for a job. Let's talk about the debt ceiling bill too. What are your initial reactions to that? We predicted that the deal was already done and that strategically Biden, who is a pragmatist, and Speaker McCarthy, who cannot afford to have this go sideways. If it goes sideways, he's out. He'll be one of the shortest-serving speakers in history, if not the shortest-serving speaker. So I believe they got together a few weeks ago and said, all right, how do we get this done? And Biden said, I'm not going to negotiate with terrorists. And McCarthy said, look, I've got to throw my weirdo some red meat. Give me something symbolic

that I can claim as a victory that is meaningless. And we'll take this right up to the 11th hour and then we'll get it done such that I can claim victory. You don't really have to give up much. And we can get back to the, you know, we can act, at least pretend to be responsible fiduciaries for the American public. And it looks like that is exactly playing out. They've took it to the 11th hour and President Biden has given some gives that are mostly symbolic that are almost meaningless, taking IRS budget down from $80 billion to $60 billion, which is, okay, meaningful with the IRS, but... Just to clarify on the IRS, it's not going down to $60 billion this year. It'll only go down $1.5 billion this year.

And then $20 billion will be, over the next two years, allocated away from the IRS to other government programs. So all in all, you're taking out $20 billion over three years. They're kind of reducing it by around 9% each year. The meaningful budget cuts are in the IRS. And the thing that I find ridiculous is that the IRS is the one agency responsible for generating more government revenue. And that's the whole problem that we're trying to solve here. We're trying to reduce spending. We're trying to fix the deficit. But part of doing that also means increasing government revenue, which the IRS is responsible

for. And we've talked about this before. I mean, a couple of years ago, we were celebrating that Biden was going to invest $80 billion into building up the IRS, into increasing audit rates, which have fallen 93% over the past 60 years, so that wealthy people and corporations start actually paying their fair share. Instead, the Republicans and Democrats have agreed upon, actually, we'll just cut back the one thing that's going to make us money in the long term. Am I alone in feeling like this doesn't make any sense? It's insane. I mean, first off, you got to give it to the Republicans. They managed to get 47 or 48 percent of the popular vote by representing the top 1 percent. And the wealthy have weaponized,

and corporations have absolutely weaponized the tax code in government. They make the tax code exceptionally complex. They go from 400 pages to 4,000, all sorts of loopholes, all sorts of tax credits, which means the following. If you're the IRS, it costs X to audit a middle-income, a middle-class household. I mean, your taxes are pretty simple. You'll put down what you make. You won't even automize or you do a standard deduction. Boom. If you start writing off half your rent or try to, a red flag will go up. It'll take a case officer an hour or two hours. Boom. You'll have to pay penalties. Super easy to audit you. If somebody wants to audit FedEx or if somebody wants to audit George Soros,

you need a team of a dozen people for six months. And so every dollar you cut in funding to the IRS, the government needs 23% of GDP to operate. They have to get it from somewhere. So if they're not going to get it from wealthy people because they're too expensive to audit and they just don't have the resources, they've got to raise taxes on everybody else. So any cut in budget at this point of the IRS is nothing but a transfer of wealth from lower and middle and upper middle-class income households to the rich and to corporations who the IRS can no longer afford to audit because of the complexity of their taxes at the hands of a tax code that is purposely complex such that I can weave and bob. When you know how to navigate by starlight, you want to run your boat races at night. And that's what the wealthy and corporations and Republicans have figured out a way to do. This is nothing but a transfer again of wealth from the poor to the wealthy and corporations.

We'll be right back after the break with a look at NVIDIA's rise to the trillion dollar market cap club. Thank you. have shifted their career trajectories. And how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. I just don't get it. Just wish someone could do the research on it. Can we figure this out? Hey, y'all.

I'm John Blenhill, and I'm hosting a new podcast at Vox called Explain It To Me. Here's how it works. You call our hotline with questions you can't quite answer on your own. We'll investigate and call you back to tell you what we found. We'll bring you the answers you need every Wednesday starting September 18th. So follow Explain It to Me, presented by Klaviyo. We're back with ProfitG Markets. Chipmaker NVIDIA hit a market cap of $1 trillion. NVIDIA is the ninth company in history to reach that milestone,

and there are only five other companies worldwide worth more than a trillion. NVIDIA is the ninth company in history to reach that milestone, and there are only five other companies worldwide worth more than a trillion. Those are Apple, Microsoft, Google, Amazon, and Saudi Aramco. NVIDIA's stock explosion is a result of the AI boom. NVIDIA is the premier designer of graphics processing units, or GPUs, which are essential for building and training AI models. Sales rose 19% last quarter, and the company's revenue forecast for the current quarter was roughly 50% higher than analyst estimates. So Scott, clearly NVIDIA is riding the AI wave, but there are a lot of other companies that should probably be riding it too. AMD makes chips, so does Intel, so does Qualcomm, which have historically been NVIDIA's biggest

competitors. But as it stands, NVIDIA's market cap is roughly six to seven times larger than theirs. What about NVIDIA is making it such a winner? If you think about market valuation, it's really two things. It's performance and promise, and probably not on that order. It's probably more important to have promise and performance. We got to give it to them. In terms of performance, they have essentially never missed their earnings. They've only missed their revenue projection seven times out of the last 75 quarters. They either meet or beat all of their expectations.

So the street and analysts just say this company just continues to deliver. It's also better to be lucky than good. They make graphic processing units. And it turned out that the exact type of processor to do this, the exact type of chip, foots really well to the needs for generative AI. And now Intel is playing catch-up. And essentially, AMD, NVIDIA, and Qualcomm focus on chip design. And TSMC focuses on manufacturing. Intel tried to do both.

They were vertical. And what's interesting, and I've said this a lot, is that most companies beyond a trillion are vertically integrated, but NVIDIA is a designer, not a manufacturer. In some, NVIDIA was just able to see around the corner better than the other folks. I mean, it's just incredible. It's up 163% year-to-date. I think it's responsible for something like 10% or 15% of the S&P's gain. The question is, what does this mean in terms of valuation? There's just no doubt this company is incredibly well-positioned. With a market cap of $952 billion, it's worth as much as, get this, Intel, AMD, Qualcomm, and TSMC combined. And it's trading at an enterprise value to EBITDA of 145 versus 18 at Meta or 22 at Apple or 17 at Google. The question is, is this company overvalued or is it an amazing company, really well positioned? And I think the answer is yes. I think relative to valuation, I wouldn't

get near this thing. So something you mentioned, Intel's strategy, which used to be a juggernaut, it's down 45% in the past five years. Their strategy was, okay, we're going to design and we're going to manufacture their chips. That's very different to NVIDIA, which outsourced manufacturing to TSMC and Samsung. And now here we are, and their GPU is 39 times faster than their previous one. It's the premier GPU in all of AI training. NVIDIA is clearly making the case that businesses should strive to be specialists versus generalists. Do you think that that applies to all business and where does it not? This is a tough one because I've been preaching for a long time that you can't get above a trillion dollars without vertical integration.

Because in order to get above a trillion dollars, you have to have such an incredibly strong culture and brand. You need to control the entire consumer experience. You know, verticalization is kind of the trend over the last 30 or 40 years. These guys have bucked the trend and they've been focused more on design. Now, what they have done is they've sort of taken the Uber and Airbnb model and said, we're going to leverage other people's massive multi-billion dollar investment in chip making plants. I mean, chip plants cost billions. And I think what they may have correctly assessed was that there's a lot of manufacturing capacity. What's lacking is truly differentiated chip design around a very specialized IP as it relates to graphics that ends up being really relevant to generative AI. And they just hit the bullseye here

and they probably have better margins because they don't have this five or seven year lag or wait time trying to build a multi-billion dollar chip plan. Now the question is, does that make them vulnerable at some point when they don't control the manufacturing? And if manufacturing capacity slows, are they stuck out in the cold? I think that's the question around whether this company can get much further beyond a trillion dollars without controlling its manufacturing.

We should talk about the CEO as well, this guy Jensen Huang, who I had never heard of until a couple of weeks ago. Just some interesting character traits. He always wears a leather jacket in every public appearance. Mia found this stat, which is that there are only two photos on the Reuters photo database that show him not wearing the leather jacket.

He has an NVIDIA tattoo on his arm. He's got this massive Reddit following. The NVIDIA subreddit page has over 1 million members. Are we kind of witnessing the birth of the next storyteller CEO, sort of the next Elon Musk? Well, again, this goes back to instinct. And our instinct is that we need a super being. Our brain is big enough to ask very complicated questions, but not big enough to answer them. So

into that void slips a super being. When societies become more educated, their reliance on a super being and church attendance goes down, but we still need those super beings. So the Jesus Christ of an information age is no doubt Steve Jobs. Technology is the closest thing we have to spirituality and mysticism. No one has any fucking idea how their iPhone works, so it feels magical and godlike. And these individuals are also billionaires, which means that we really, it's like sex appeal on top of godliness. And that's the reason why Elon Musk can say these terrible things and act so recklessly and everybody decides that it's genius, not just a mendacious behavior. So you have kind of Steve Jobs and maybe Elon Musk is competing for kind of the Jesus Christ of our information age economy. And then you have sort of the 12 apostles and they all sort of maintain certain traits. One, they leverage a new medium. If you want to

outperform your competition, whether you're a CEO or a company, you need they leverage a new medium. If you want to outperform your competition, whether you're a CEO or a company, you need to leverage a new medium. Burberry was great at Instagram. Kennedy was great at television. And Mr. Huang has clearly picked Reddit. In addition, in addition, visual metaphors are really impactful. Steve Jobs had a unique look. And whether it's a black turtleneck or a leather jacket, the personification of a company, trying to personify it such that you like it, such that you will take the multiple on EBITDA up, such that you can raise capital more cheaply, such that you can then invest more in IP and chip design than your competitors, which creates an upward spiral.

Think of all of the CEOs of these companies. They're iconic. They have very strong personalities. They have very strong public images. They're manicured by hundreds and hundreds of people. They manage their brands very tightly. And this individual is doing exactly that and is paying off. NVIDIA's meteoric rise is indicative of another structural trend. Investors are betting that the biggest companies will get even bigger. So far this year, the 10 largest market cap companies in the S&P 500 have gained roughly 45%. Without them, the entire S&P 500 index would be in the red. Instead, it's up 10%. Now, this applies not just to tech, but to banking, healthcare, energy, and a whole host of others. In fact, in every US industry, except for telecommunications, the top 10

stocks have outpaced the rest. Now, the thesis that many believe is that this is a flight to safety. Investors are scrambling to buy shares in companies that can withstand economic volatility and technological change. In other words, they're de-risking. Now, Scott, when we discuss this, particularly in relation to NVIDIA, you mentioned that you're taking up a new strategy called pairs trading. Can you explain to us what that means and what your thesis actually is? Well, so first off, I just want to say, I want to lay down the context that unless you have the capital to wildly diversify and you sort of do this for a living, and I would argue I sort of do this for a living, the best investment strategy is low-cost ETFs, diversified, invest regularly, force yourself, any sort of tax-advantaged, you know, IRA, Roth, any sort of employee match, max all of that out, put it in low cost funds, diversified funds, and then just ignore it. And when you're 65, you'll be able to retire. I, is pairs trading. And what that is, is the following.

I can't get a grip on this market. On the one hand, it just feels historically expensive to me in terms of a price earnings multiple, given some of the clouds on the horizon and the insecurity in the world. At the same time, I can see something like generative AI unleashing this incredible tech age with all sorts of productivity. And I could see the market just catching fire. You could tell me the market was off 20% in the next year or up 20% and I would say, well, of course it is and give you reasons why for each. So a market neutral strategy is to

pick two or three stocks to go long on and then pick two or three to go short on. Just looking at NVIDIA, it looks very expensive. So you might say, all right, I think that's in trouble. Apple's had an incredible run-up. It's trading at 23 times EV to EBITDA. It's at $3 trillion. So maybe we think those are overvalued. Great companies, but overvalued. I look at a company like Netflix. I think Netflix is going to come out a winner from the rider strike. I think that most likely other unions will join the riders. There'll be a pause in spending. The kind of second tier players in streaming, which is basically everyone but Netflix, will recalibrate and bring down their spending. And I think Netflix will see the opportunity and pursue their continued Amazon strategy of just

drowning everyone in capital. And I think they're going to reignite growth again. So I can see, I like Netflix is along. I like Google is along because it's been punished. It's trading at EV to EBITDA of 17, which by the way, is not much higher than Intel and lower than Apple or Meta now, which has run up a lot. I believe that the amount of intellectual capital they have around generative AI is huge and that they're going to be able to catch up fairly quickly. So you would go short NVIDIA and say Apple, and you'd go long Netflix and Google. And the reason why you do that is like, I don't want to take a market bet. I want to bet on companies. Technically, this is what hedge funds are supposed to do. The typical hedge fund is 60% long, 40% short, and then they ramp it up with leverage, but we won't talk about that here because they have a bias towards a long position because the natural trajectory of the

markets over time is up. The markets do go up over the medium and long term, but they take out a lot of market risk. That way, if the market gets absolutely hammered, they're still okay because they're short on 40% of their stocks. And keep in mind, market dynamics will always trump individual performance. So you can be amazing, but if we go into a depression, you're getting laid off.

You can pick a great company that performs, but if the market gets cut by 30%, you're going to wake up and find that that amazing company's stock is down. So this is a means of taking out some of that risk if you're confident that you have some insight into which companies you think are undervalued or overvalued. And I'm thinking about doing it because I want some exposure to the equity markets. I do think there are some companies that have gotten carried away in the hype cycle of AI. I do think there are some other

companies that have been caught on the wrong side of the AI hype cycle, see above Google, and this is a means of exiting from market risk, but still being exposed to some trends and some dynamics in the equity markets. And then finally, just returning to the original stats we were talking about, the S&P would be down if it weren't for the top 10 biggest companies. I think last year, we had this feeling that big tech was kind of fading out. I think you used the term, or someone used the term, biggest tech, referring only to Apple, because Apple felt like the big winner. But now you look at the performance of all of these other tech companies. And year to date, Microsoft's up 37%, Google's up 39%, Amazon 42%, Meta 118%. And then obviously, Nvidia is up more than 170%. So I guess the question is,

have we officially returned to the big tech era? And if we have, how should investors be responding to that? Well, I think what's happened is every time there's a massive innovation or kind of the next thing, the next big, big thing, if you will, that usually the value creation accretes to traditional players or to new players. So e-commerce benefited the new guy, Amazon. The phone went to existing players. I think you'd argue that Metaverse didn't really go to anyone. Crypto, the crypto surge went to new players. It looks as if generative AI, if you think it's the next big thing, and it looks as if it is, is going to go to existing players. I mean, OpenAI has a $30 billion market cap or valuation, I should say, in the private markets, but I would imagine that Microsoft has increased probably a couple hundred billion dollars since they made that initial

investment. So we have kind of the existing players swelling in value. And now I think 25% of the S&P is just four or five companies. And the thing about a pair trade, just going back to that, it plays on a couple other things. One, the reversion to the mean. Everyone says a compound interest is one of the most powerful forces in the universe. I've always thought reversion to the mean is really powerful. And that is when a stock becomes just crazily overvalued in terms of P, eventually it kind of finds its footing again. And the same when it's too low. I mean, just sitting here eight months ago, not even eight months ago, seven months ago, Ed, Meta was trading at a PE of like nine.

I mean, it was trading as if it was Ford Motor and had no growth prospects. And it was sitting on top of a massive cash volcano. And what do you know? It's back to where most big tech plays. So reversion to the mean and collapsing that with a market neutral strategy again are sort of the the attraction here but we're seeing a crowding again to the big guys and tim wu professor at the law school columbia says that the biggest threat from ai is that we're again concentrating more power in the hands of fewer and fewer people

we'll be right back after the break to take a listener question on analyst estimates. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average U.S. company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it. So what is enterprise software anyway? What is productivity software? How will AI affect both? And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? affect both? And how are these tools changing the way we use our computers to make stuff,

communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts. Hello, I'm Esther Perel, psychotherapist and host of the podcast Where Should We Begin, which delves into the multiple layers of relationships, mostly romantic. But in this special series, I focus on our relationships with our colleagues, business partners, and managers.

Listen in as I talk to coworkers facing their own challenges with one another and get the real work done. Tune into Housework, a special series from Where Should We Begin, sponsored by Klaviyo. We're back with Profit Markets. For our third segment, we're taking a listener question. This is from Muffin. That's not the real name.

That's the username on YouTube. Muffin says, can you please do an in-depth explanation about Wall Street expected earnings? For example, are expected earnings made up from a collected average of different predictions, or is it just one entity that formulates predictions? In sum, an earnings estimate is a consensus around the earnings estimates of all the different analysts that cover it. And based on the size of the company, the profile determines how many analysts there are and how reliable the confidence interval, you could say, of that consensus estimate.

There is a wisdom of crowds. Moderna probably has a couple dozen people following it or analysts. You know, a microcap company might be lucky to have one analyst. So they group all of them and they look for the mean or the average or the consensus estimate, if you will. The problem here is that, one, analysts are typically sycophants and stenographers. And that is they're paid by an investment bank that wants to play golf with the CEO of that company and get their wealth management and

their follow-on equity-raised business. That's not to say they're not good at what they do, but they have the wrong incentives. So ideally what you want is an independent analyst. They get paid by investors just to give no mercy, no malice analysis. I think Sanford does the same thing. So there's been an emergence of independent equity. I think Lynn Alden is a fantastic analyst. And as far as I can tell, she just calls balls and strikes based on what she thinks. So when you have an analyst from Goldman and Morgan Stanley

and a company agrees to take them public, you can bet the analyst is gonna come out with a bullish buy report and then they tend to be very rear view looking and that is once the company announces a better quarter the analyst what do you know takes the price target way up and keeps taking it up until the company throws up on itself and then decides the target price for the stock should have been lower what i find is really interesting is taking a basic finance course basic balance sheet finance valuation then decides the target price for the stock should have been lower. What I find is really interesting is taking a basic finance course, basic balance sheet, finance valuation. You can

take that on YouTube. You can take Demodran's course, who is literally the dean of valuation, and then reading through the earnings transcript on seeking alpha and trying to come up with your own valuation. It's just a really interesting exercise and it gives you insight into the markets. Going back to your point about accuracy, there's this one study that found that on a three-month time horizon, analyst earnings expectations are only roughly 18% accurate, put another way, just very often wrong. To what extent do you pay attention to analyst estimates and expectations when you're analyzing a stock? Or do you just look at what the company says

its forecasts are and also its historical performance? I read analyst reports to understand the company and get a better feel for the company, but I ignore the price target. I think the earnings estimates are worth looking at. Generally, they do get ranked and evaluated based on their ability or their accuracy around earnings

estimates, but I don't look at their price target. A lot of times I have a lot of insight into the company and you should read both sides, find independent analysts. I mean, some of you just want to read everything you can about the company and try and get a real feel for it. I find that there's new sources of information that are really valuable, and that is just doing word clouds on the earnings call just to get a sense for their strategy, doing an analysis of Google keyword searches, and that is how many people are searching for Airbnb versus three months ago, which will give you a sense for bookings. How many job openings in AI does a company have will give you insight into its strategy. There's so many new sources of information. People say, well, information is new oil. Not really.

What's really expensive and valuable is refining capability. And that is intelligence that looks at all of this data and these new data sets and says, how does that all bubble up to a buyer or sell recommendation? Yep. And just a reminder to our listeners, we're reading your questions and comments on YouTube, on Twitter, in our inboxes. So keep them coming and we'll be happy to answer them. Okay, let's take a look at the week ahead. It's a very quiet week for earnings and economic data, but Apple is hosting its Worldwide Developers Conference today and is expected to release its reality pro headset scott do you have any predictions i think that apple's headset is going to be one of the biggest tech failures i think it's going to rival the oculus and it will officially be the most elegant

final nail in the coffin of this sort of headset-driven VR consensual hallucination. Yeah, I just want to add on to that prediction. I think it's also going to seriously harm Apple's brand from an investor relations perspective. Because if you look at the history of Apple products, Apple has basically never launched a product that has failed. They've launched a couple slight failures in the 80s and the 90s. Since you've been alive, bottom line. I mean, you don't remember the Lisa, the Newton, or the Cube. Yes, correct. They've had some stinkers. But ever since 2000, so that's 20 years

when all of these other tech companies have been releasing a slew of products that have been failures, as you've pointed out, they've had no failures. The only things that have gone slightly wrong have been basically Siri and Apple Maps had sort of a shaky launch. And the thing that you have praised about Apple in the past, and so has Aswath, is that they've decided to not do a lot of things. Everyone said you should create a car, you should do a TV, you should do a smart fridge. They intentionally chose not to do any of these things. And then what's the one thing that they have landed on after years and years of not creating a new product? It's the fucking headset. So I would add on to that, that I think that if they launch this thing, Apple stock is going to take an immediate hit in this erosion of the brand and erosion of the trust

and building up for so many years. I like it. I like it. We should do a Paris trade. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavers and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prop G 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 dark flies In love, love, love, love And love our lives. questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI

reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. 24 digital disruption report, you can learn the best path to turning that disruption into growth for your business. With a focus on clarity, direction, and effective implementation, Alex Partners provides essential support when decisive leadership is crucial. You can discover insights like these by reading Alex Partners' latest technology industry insights, available at Available at www.alexpartners.com slash Vox. That's www.alexpartners.com slash V-O-X. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters.