In this episode of Market Hang, Laffer Tengler Investments CEO and CIO Nancy Tengler and her panel of experts weigh in on the risks of circular financing as Meta’s (META) partners with Nvidia (NVDA) and AMD (AMD), and Apple’s (AAPL) focus on hardware rather than joining the AI race, and the risks with combining AI and banks.
Today’s panel includes Yahoo Finance Senior Autos Reporter Pras Subramanian, Axios senior AI reporter Madison Mills, Envorso founder Adrian Balfour, and Clocktower Group chief macro strategist Eric Wallerstein.
All right, welcome to Market Hang. I’m Nancy Tangler. Joining me today to my left is Adrian. We’ve got Maddie, so viewers who are have been rabid viewers know Maddie very well. Uh, on remote we’ve got Eric, and then Praz is with us here in the studio. So we’re gonna jump right in. There’s all sorts of interesting news on the heels of the anthropic IPO. So we’re gonna get started and I think we’re gonna start with our first story is gonna be on Broadcom.And uh the negotiation, the arm twisting, whatever it was to get uh the $40 billion and then additional monies which makes it about a $63 billion debt deal, um, and Broadcom is stepping in the gap and and securing uh 40+ million dollars of that so I’m interested, uh, it brings back up again the question of circular financing and so Praz, I’m gonna go to you first and just see what you think about the deal if you do you have.
Yeah, I mean, Imean, I’m not necessarily surprised that Broadcom did this. Uh, it is interesting that Anthropic, I guess, was, from what I understand, the debt deal was not going through, at least what what the banks were asking for a lot more. So Broadcom CEOO wanted to get this deal done, wanted to get those, those chips to, to Anthropic eventually, so they backstopped some of it, you know, helped with that deal. Um, my understanding.Uh, is that the terms weren’t that great either in terms of there was additional interest expenses that need to be paid. That’s right, um, and I saw some really good reporting here from, um, CNBC’s, uh, uh, Leslie Picker talking about how the banks actually they can’t unload the debt until the chips are delivered, which is, I think probably next year, and that means they’re on the hook for any interest expenses that that are rising. So it’s, it’s a lot of moving parts here, uh, just to get this sort of deal done and to get the chips into anthropic’s hands eventually. But you know, Broadcom taking on that risk, right, of.Of that, so I don’t know what you think about it, Maddie, but it, it was not surprising, but also this is a big deal.
It points to something that Nancy, you’ve talked to me about before that the capital markets can find a way to finance a lot of this infrastructure. I think one of the big questions is when that spigot will start to get turned off, but this story feels like an example of proof that.Markets are going to find a way to make this financing work and you can get creative with what that financing looks like. Um, Praz, something you mentioned that I think was super interesting from Anthropics S1 was this idea of how compute is formed on the balance sheet, you know, for anthropic they’re on the hook for $650 billion and.Compute, but that’s not going to hit the balance sheet until they use it as capacity. So I think that’s just one example of how there’s this big headline number, but it doesn’t necessarily hit the earnings until it’s used and to your point on Broadcom, it’s like, where is this debt actually showing up? And I think for you know the everyday retail investor watching Yahoo Finance, it’s a challenge.Because you don’t necessarily have the insight into what this debt looks like and where it’s sitting on these balances,
it’s funny too because you also have, you know, Broadcom, which has the balance sheet, has a credit rating, you know, Elon Musk talking about the fact that neo clouds and companies like that, they have their revenues based on future revenue, future revenue of cloud compute. This is the
exactly.And then so they, they have, they’re having problems raising money, but if you, if you’re a Broadcom, you can raise money on behalf of anthropic who then is going to have this whole liability down the line, but we’ll see. No,
it’s, it’s going to be a challenge, Eric. I know you have a background in banking, uh, etc. or at least, uh, financing. So what, what’s your thought on all of this?
Uh, yeah, my background’s mostly the central bank rather than the actual bank, but, um, no, I mean there’s a, there’s a ton of circularity off balance sheet. I think the story for, you know, retail investors who are long stocks or along the index is, um, you know, there was a very large announcement by Meta, which kind of got overshadowed by the S1, but issuing $95 billion in equity.Especially as the cost of debt continues to rise, whether through credit spreads or just higher rates, um, I think there’s just going to be a ton of equity issuance, and it’s really the first half of this year was the most equity issuance we’ve had in decades, and it used to be that corporates would take supply out of the system, and I think it’s just going to keep coming, um, and interestingly from the S1.Anthropic has a ton of cash on hand, pretty good cash flows from operations, and I think it points to just whether it’s, you know, only the hyper scales and neo clouds or or whatever, um, the party is going to keep going, and that means probably more pain, at least from an equity multiple perspective.
Ultimately, yeah, well, and Adrian, you’re.Big an expert in this space, um, what are, what are your thoughts as well? I mean, I, I loved what Eric said about, about equity issuance. and you could make the argument too that all these years, you know, the Wiltshire 5000 is now the Wiltshire 3500, so more securities is not necessarily a bad thing but available for purchase. But what, what are yourthoughts?
I think that the the um.The big balance sheets are going to do fine. I think the problem is small balance sheets. And if enough of those neo clouds and the small balance sheets kind of get under pressure, then that could start to tip some of the market behavior a little bit. So that’s the one thing I’d be a little worried about. But you know, the Metas, the Microsoft’s, the broadcoms, they have the balance sheets to do a lot of consolidation.And the growth is there, so it will continue to happen. Um, I just wonder about some of the bottom end of the market and what impact that’s gonna have.
Yeah, and I, and I think as is usually the case, um, the, the startups get squeezed, um, you know, we, there was an article about meta, uh, a recent piece that was written by one of the analysts about Meta’s muse that it’s not really the best.Um, agent available, but that the real innovation is happening at the small end and the big guys are swallowing up all those companies, that’s somewhat good news, but it’s also bad news for innovation.Because oftentimes the first mover advantage. I mean, what do you think about that first mover advantage?
I think, I think there’s a lot of startups that have got products that are better than Muse. Yes, but I think what you’re going to see is a lot of those startups being bought and acquired to get the technology into Muse. So, there’s a very, very healthy AI startup market and companies are being acquired. So I do see that that that’s starting to happen. I think that’s really healthy. They will create the market, Muse, Meta, Google, Microsoft, they create the market.Um, and then those really interesting technologies will get gobbled up and that’ll create a very good ecosystem. So I don’t worry about it atall.
And then the founders will leave because they’ll be frustrated and
or they’ll get laid off or.
Yeah, um, alright, well I, I wondered too, like on the on the meta news, so we’ve got Broadcom in the deal, AMD in the deal, Nvidia in the equity issuance, uh, any thoughts on that, Madison, in terms of, you know, what does that mean in the marketplace or I mean it’s more of the circularness but not necessarily bad. Yeah,
I mean, and you brought up the circular funding at the.Beginning of this when when we’re reading that S1, you know, right at the top, you start to see all these other mentions of members of the MG 7. It doesn’t exactly quell investor fears of circular funding, but that’s been par for the course for these companies. That’s not necessarily new and it hasn’t been a problem for investors before. Why would it be a problem for them today as long as these companies are able to keep up with the pace of money that’s needed to.Fund this infrastructure build out to me what’s gonna be interesting, and I’d actually love your thoughts on this is the neo clouds and whether or not the market tolerance or patience for those companies is what’s starting to wane more than a tolerance problem for the kind of circular funding big names. Yeah,
I, I mean I think you know we got a report from Goldman that and, and then we had Thorsten Slack of Apollo saying you know that.The AI build out is going to peak. I’m not sure what they mean by AI spending because you know that’s a pretty broad term, but that it was going to peak this quarter or 4th quarter, yeah, we’re in the 4th quarter, um, and, uh, and then I checked what what Gardner’s saying and they’re saying Gardner’s saying, well, yeah, it’s when it does peak it’s going to be.Ugly, but I don’t think it’s going to be ugly for everyone to your point where the big are swallowing up the smaller companies. In this case I think the hyper scalers will be interesting, which begs the question, and Eric, I’m gonna go to you on this, and you may or may not have an opinion, so you can always pass. We’re having dinner. It’s uh.It’s a family event. You can go. I, I don’t want to talk about that, uh, but, but, uh, CalPERS just announced that they’re, they sold 25 or 26% of their mag 7 holdings, and they are putting the proceeds into private equity now. I don’t know what they think private equity is investing in, um, but, but what’s your thought, if any, on that, or you can pass, as I said.
Yeah, so, um, I was just in Hangzhou, uh, we hosted a conference with a lot of ex-Chinese allocators, and then, um, both tech firms and hedge funds, uh, onshore in China, and I would say the general vibe from allocators isI’m incredibly overlevered in the US and I’m incredibly, I’m incredibly overlevered AI. So if you just look at the Acqui, the broad world index, 65% of it’s in the US. The average allocator is like 75, 80% US, and then you have to add in whatever you have in Korea and Taiwan and like ex USAI investments, so.Everyone’s trying to figure out where do I go, you know, what could protect me, um, from this, I don’t, Calpers is always kind of a contrarian indicator for me. I’m not sure they’re, uh, indicative of the broader allocator community. I think most people are frustrated with the lack of cash coming back to them from their private equity investments. VC is a little different because a lot of those companies are doing quite well, but private equity vintages are.In rough shape, um, so I think with these large liquidity events, so you obviously had SpaceX, potentially anthropic soon, and for Middle Eastern sovereign wealth funds for pensions in the US or pensions in Canada, the question is where do you put that cash and,That’s kind of coming to a heel. Do you put it in, you know, US stocks, do you put it in US private equity, private credit? Do you look abroad? Um, I know certainly, especially in the Middle East and the Asian sovereign wealth funds, they’re thinking about increasing their allocation to China. Uh, it’s only 2% or 2.5% of the acqui, so if you’re double the benchmark, you’re only at 5% of your total portfolio. So yeah, no, it’s a real challenge, and I think.With stocks at all-time highs or near there, with equity inflows into the US, $1 trillion over the last 12 months just in the public markets from foreigners, the question is, where do I go next? Probably not France, but I
think Brazil is on sale. Yeah, there you go. Brazil
is on sale.
Yeah, I mean it’s on sale, it’s on sale, but every time you know the past Lulu elections, the market tanked and it went back up. So it’s like.It is on sale. Yeah, have fun. I mean, I’m curious, Eric, what do you think about Brazil? I mean, you think that’s something that as a macro guy, are you concerned about it? Is the, is the, is the, is it an overreaction right now?
No, I mean, positioning was, it’s mostly a positioning move, but also there are some fundamental fiscal issues. Um, some, some people took money off the table after the first round, especially like emerging market macro funds, but a lot of real money, so large allocators and a lot of just plain vanilla macro hedge funds, were still in this trade, uh, and you have to think about like,The BRL is one of the biggest carry opportunities in the world, so a ton of people are just taking, you know, earning carry, uh, you can get 14% rates, 8% real rates, you can go fund that in Japan at like 1 or 2% or whatever. So, um, it’s a legitimate issue and one of the big themes from, so I was in Bangkok for the IMF and World Bank meetings.One of the big themes was the blurring of the lines between developed markets and emerging markets, you know, is there more political stability, um, in fiscal terms, like maybe they’re all kind of the same, everyone has fiscal sustainability issues, but I think this Brazil election is a big knock to that theme because everyone’s in Brazil, everyone’s in Colombia, and Brazil’s one of the larger markets, so I think it’s,Going to be tough for people for the next, you know, year or two to figure out, OK, where exactly, again, if it’s not the US, where do I go? So that’s still pretty prevalent. Yeah,
well, I mean, growth drives a lot of those decisions andThe US is still, I know that that doesn’t solve over, you know, allocation and concentration to the US, but it’s still the best house on the uglyblock.
One of the queries I have is over the last sort of 3 to 4 months there’s been kind of a pullback on the Chinese AI stocks, um, and that was very, very frothy. Uh, do you have a perspective on those or, or on that? And, you know, do you have a perspective on what that would happen maybe potentially for the US AI stocks?
Oh, me, um, no, I mean the, I mean, Chinese regulatory and policy apparatus tends to drive the benchmark a bit, uh, more so than adoption, like, however the tech is doing on the ground, um, from what I heard and like physically saw from some of these companies was pretty incredible, um, adoption, I think.There’s a big question as to whether they’re just narrowing the pace at which they follow the US frontier, or if they’re on their own track and could ever surpass it, kind of in the former camp, um, I think they’re just playing follow the leader and getting better at it, but nonetheless they are,You know, the, the application of AI I think is really interesting there, whether it’s in biotech, life sciences, or robotics, I think they’re just quicker at that stuff, um.So no, I mean, I think AI is continuing apace there, and I would read less into the overall stock market performance or like individual firms.
So you would sort of see your way through that, you know.
Well, if you look at the venture eco like if meta, you know, falls or if hyperscales, you know, multiples fall 34 turns, but like anthropic andYou know, OpenAI continued to do pretty well. I think it’s something more like that, uh, where it’s just like public markets are sensitive to different things, but under the, under the hood and certainly the venture ecosystem, uh, if anything, it’s accelerating. Yeah,
that’s interesting, um, and they can move faster.Because they don’t have to get approval from Congress but uh let’s go to our our next topic of the day which is um the way that meta is becoming more and more intertwined with companies like Apple who who would have ever thought that um AMD now and um Nvidia so I, I think I I wanna approach it but we can approach it however you all want to. I would like to talk a little bit about.The management, I think, um, Mark Zuckerberg is.Shall we say hard to trust, um, or maybe the company is hard to trust, so I never thought that we would see after the big lawsuit where Apple locked him out. I didn’t think that we would see this collaboration, um, but I should have known better because, uh, you know, money solves all ills. But what are your thoughts? I’m, I’m gonna start
with you. I mean it was surprising to see that to Adrian, see, you know, Mark Zuckerberg tweet, not tweet, but he.That picture of him using a Mac, a Mac Mini, I believe, with running Muse and stuff like that. And look at us doing this thing now and, and, and I think the Apple’s, yay, we’re, we’re back together or something. So they’re all excited about that. But I mean, it’s again, it’s not surprising to see that. Why wouldn’t they work together, you know, I’ve heard that rumblings that maybe Nvidia chips are may might be finding their way into Apple. Like maybe Apple might somehow work with Nvidia in some, in some sense, whether maybe it’s server or I don’t know what.Uh, I saw, I saw that, but you know, I think you touched on Nancy talking about, you know, Nvidia’s, you know, deal with meta, right, the $3 billion investment in that latest round, which then results in, you know, deployment of some CPUs, some, some, some GPU CPUs from Nvidia at, at Meta, and it’s like, again, I’ll give you money to buy my stuff, yeah, and it’s like great, but in this case you have.Nvidia and Meta, two of the biggest, most moneymaking firms out there, like, fine, we’ll allow that. It’s like, it’s like GM being like, I’ll lend, lend you money to, to get a pickup. Yeah, great, thanks, I’ll take it, you know, like it’s, it’s, is it that simple or is it, no, no, there’s more shuffling of the, the card, the deck of the card, the deck of cards there, you know what I’m saying? Like it’s also
like going back to, I hate saying this, but the first principles of these companies, like we have news that Amazon is shutting down one of its AGI units. They don’t see.Themselves necessarily being a big winner on AI, whereas you know Nvidia has been investing in openweight models, but really at the end of the day they want to be the chip supplier that underlies all of these companies. So, OK, maybe we’ll make a deal with Meta and Muse can be the agent that everybody uses and as long as we benefit from that because they still need to buy our chips, whatever, it’s, it’s kind of feels like these companies are starting to choose which lane they wanna, they wanna win on and the industry
is bifurcating it.To a great extent. Adrian, what are your thoughts on this?
I, I just remember back in the day when Apple and Microsoft were going head to head and no one ever thought they would get together. And then Steve Jobs and Bill Gates are on stage together. So, these companies will do, they’ll do contortions depending on what the market says. So I’m not surprised at all. Um, I think you’re right. It’s basically Nvidia um are the platform of choice. They are the infrastructure company and they will prop up everyone and anyone to make sure you get.More in video chips, including core weave, including core weave. Anybody, you know, anyone that’s really a material player in the space, I think will get propped up. Um, it’s, it’s the smaller guys and do this, do a number of the smaller guys pop out at the same time? And would that cause some sort of knock on reaction that could potentially hurt the market. That’s the only thing I see. Otherwise, you know, the big guys are going to do what the big guys do.
Yeah. Yeah.Well, back in the day, um, I, I grew up in the business in San Francisco and we used to go to Oracle, um, like announcements, and, and back, back then we had BlackBerries. And so we would, uh, there, you know, you knew maybe 2030 people in the business and, and we’d text each other, how long is it going to take Larry to trash Bill Gates. And then we’d bet on it.Like 15 seconds, a minute.
Only you had Chy back then. You made real money,
you know, it was, uh, I was the bank. But, um, it was pretty funny because that, that rivalry was intense. And, uh, and yet I’m sure it doesn’t carry through to today. Well, Larry Ellison, maybe yes, um.
Could be it’s funny you mentioned that because Oracle World is happening right now. They just tomorrow, that’s right, right, right, and they just announced uh some chat GBT integration with Oracle cloud stuff, so more and more of that happening together, uh, tools that are gonna be working on this, on the, on the platform that you, you’re working on, uh, itself and maybe it’ll be.Eventually open, not open in the sense that you can, I can use cloud. I can use chat GBT. I can use whatever, but right now it’s just chat GBT, I guess is my understanding, and also
Codex, right? The cloud providers are kind of going the way of Amazon and Bedrock and saying, you know, OK, whatever model you want as long as you’re coming to us to pay for it as the as the intro, that’s fine,
right, because you don’t want to lock anyone out.
exactly. Capitalism is so shallow to values and I’ve hated you my whole life and.Um, so Eric, I’m going to ask you what you make of this Microsoft voluntary, um, resignation. I sort of switched topics a little bit, but, um, yeah, do you they’re voluntary buyouts, thank you. And it’s all voluntary. So it’s 60,000 potentially.People are eligible and it’s 223,000 Microsoft employees. Do you is your, what is your thought? Is this, uh, just a rationalization of the business and we should applaud it or do you think this is is evidence of AI taking jobs?
Yeah, so, um, just really quick on the, the topic of discussion, uh, previously, one kind of wrinkle in the circularity, we’re all friends story is that I’ve heard, um, a lot of the hyper scalers or some of them are starting to investigate kind of their own chips businesses to hedge away from or not have that just single provider, uh, and so Nvidia in response is working on some of their own models.Internally, so perhaps it’s not all, you know, sunshine and rainbows as presented on the surface. Um, in terms of the Microsoft announcement, um, I thought it was really interesting also the Dutch government is shedding, um, I think 10 to 20% of its workforce because A, it’s bloated, B, AI can ostensibly fulfill or backfill some of those roles. So I think it’s twofold. On one hand,You’re issuing a lot of equity and debt to fund these, you know, Capex expenditures, um, capital expenditures, and you want to trim costs, like those free cash flow charts, you know, these companies have agency and, you know, can manage an organization, they can keep, you know, free cash flow positive, um, so it’s partly that and then partly like.If people are resigning or leaving, hopefully you can fill it with AI and I think over the next few years you’ll try to see what you can squeeze out with AI. Um, so an interesting thing is, you know, the US stock market’s been driven by rising profit margins for the past few years. We have like 16.5 or 17%, yeah, record highs, and it’s a big support for, for valuations.It looks too high to maintain, especially with all the investment going on, but some announcements like these kind of point to, OK, if a third of the market is hyperscalers and they’re being very judicious with their spending outside of AI and headcount is of course one of the largest expenditures for, you know, financial services and tech.Maybe you can kind of, you know, stay afloat, and that’s a, you know, really positive, supportive story for the equity market broadly.
And, and we saw that in the S1 for anthropic, you know, revenue per employee is ridonkulous. So yeah, go pause and then we’re going to shift topics.
You mentioned the Microsoft, uh, the buyouts, right? And it’s 60,000 is a tremendous amount of workers.25%, 25%, yeah, right. And who, and if you don’t accept it, do you get laid off eventually because Madison, you were tweeting today. I saw our X.com posting today about how we didn’t see those white collar layoff impacts in the anthropic S1 and then Microsoft the next day is like we’re gonna look into that 60,000 people going away, right? Like, and they’re citing AI, right? So that’s sort of like interesting.On anthropic’s part, right,
and tech has already wiped out so many jobs over the past couple of years. You have to wonder how many more they can trim to
get to if you look at the nature of their businesses as well, like so Microsoft, Windows, Office, Dynamics, you know, the core platforms and so forth, and then they moved more to an Azure centric business where it’s all about cloud consumption, and now they’re applying AI on top of the cloud consumption.So, that is kind of where their business is going. So it’s becoming less dependent on having skilled experts in say Microsoft Excel or Microsoft Word or Outlook. So there’s a lot of people in those groups that you could probably free up. So, I think it’s the nature of their business that shifting, and that’s enabling them to, to take some headcount out. And then that obviously frees up a lot of capital. Um, they bought Four Mile Island, they’re going to build out massive data centers. Again, balance sheet.They’re they’re looking at it and going, balance sheet is key. You’ve got the strongest balance sheet, you will survive. If you’ve got a weak balance sheet, you’re in trouble. So
yeah, so interesting. I wrote a piece um called The Best Offense is a good, good defense and I think that’s opposite of the actual phrase, um, but one of the defensive names was Microsoft, who’s debt light still has positive free cash flow. Apple was the other one which we’re going to shift to in a moment, uh, and then Nvidia, which is trading out of.Value stock multiple and therefore we put it in our values but so that but you still need to take risk. I’m just, I’m just defending what you just said um and I also thought, you know, the SASS apocalypse was gonna kill software so few that didn’t happen but let’s let’s talk a little bit about management. I’m gonna come to you on this, Madison, but.Um, when I taught literature, uh, we used to always focus on Holden Caulfield as the unreliable narrator, um, and we have a number of unreliable leaders, I think, in this, in this space, and I’m just wondering how you think that’s important, is it, is it not? Um, who would you identify as maybe an unreliable leader?
I mean just take a bold stand like, like Eric did, uh, you know, Cowper.Is my contrary indicator. Yes,
I’d say that again it is, it’s just helpful as a reporter that’s covering, especially anthropic and open AI so closely to understand your founder as well as I can. Someone like Dario, for better or worse, people think they’re making up the safety stuff. That guy is obsessed with safety and the impact of AI, you know, that is his driving force is making good for the world, Sam Altman.is someone who has historically been very adept at saying things to the press that aren’t necessarily a full lie but don’t reveal the full truth of any situation that we are asking him about so it’s really important to know that going into a conversation with him to be able to get as much truth out of the conversation as possible. Sam is someone who investors who I talked to who walk away from conversations with him feel very ready to fork over.Or more cash. Anthropic, on the other hand, investors leave and they say we didn’t get the Q3 revenue numbers and we kind of wanted them, but they seem like they’re going to be able to cure cancer, so that’s a really good pitch too. So understanding those two different pitches is sort of a really important way to get at, OK, which parts of what the CEOs are saying is something that can be reliable versus what is a really good story, not just for their investors, but now for the entire public market as they IPO.
That’s interesting.And, um, Praz, do you have an opinion? We’re gonna, I promise we’re going to go to Apple next, but no, no, no,
I, I, I agree fully with, with, yeah, I mean, it is the whole Dario versus Sam thing is really just two different animals, right? Totally, um, and, and we, we see how these these companies are run and how they raise money and what the future is, and I’m surprised, I’m honestly surprised anthropic has been is first going out out out of the, out of the gates. I know we’ve, it’s been happening for a while, but I’m still surprised by that. But yeah,who knows?
Yeah, OK, Apple, Eric.Um, we got the announcement today from Turnus, in my view, the Dream Team CEO for this stage of Apple’s, um, but I hope I didn’t, you know, skew anyone’s opinion on that, um, but what, what’s your thought? You know, we got the, we got the, uh, Mac Pro, I think was the latest. We’ve also got the duo news that some of the phones are cracking.I went to the store yesterday and uh the the Manhattan flagship and wow I think it’s a super cool tool but not if it cracks and breaks um so what what is your thought um on the announcement today and the pace at which uh Turner seems to be releasing new products in time for the holidays, which has not always been the case.
Yeah, no, I think it’s interesting, Apple’s always been the hyper scaler who didn’t join the AI race, um, you know, they kind of play in the, play in the sandbox, but not as much as the other companies. The fact that the CEO is reallyYou know, going with his product background and sticking to hardware, um, and kind of XAI software, I think is good from a stock perspective and whether the phones, you know, physically crack or not, I’m sure they’ll figure it out, um, but if you’re, you know, someone that invested either broadly in the US stock market or you’re stock picking, and you don’t want to just die if AI falls apart, um, I think it’s kind of good and unique that Apple is just like really going down this path, so I think it’sIt’s good, uh, and if there’s hiccups along the way, then whatever, but, um, probably, you know, I think it’s,it’s healthy.
Pent up goodwill with Apple customers. Yeah, I think you’re right. Um, so Adrian, in the, uh, announcement they made today, in the footnotes, this is Apple, um, they, they said, and this is from Dan Ives, so I’m, I’m want to give him complete credit, but they said, uh,That they were going to charge, they retained the right to charge 38.99 a month on um on for AI.
because that’s monetization, isn’t it?
That’s monetization. So if you take a look at.Microsoft, when they introduced, you know, co-pilot, basically they moved it from $60 for your E5 license to your, with co-pilot it was $90. So they moved it by $30. And guess what? Apple are doing, we’ll take that and some on top of it. So, um, it does not surprise me at all. Apple have a veryUnique situation versus the other tech companies because they own the full stack. They own the stack from the chip all the way through to the actual computer itself and the software that runs on it. And they, they sell based on security. I’m secure, you’ve got a motor on your stuff, you can trust me. They, with Siri has typically beenThe lesser of the assistants, we’ll leave it at that. Um, so I think with their push onto AI they’re trying to improve that, they know they’ve got to catch up and get Siri better. How far they take that in the future, I don’t know. In the auto world, they’ve got a pretty dominant position with CarPlay, etc.Um, so they, they have the eyeballs, they, they have the full stack, um, and they seem to me to be copying Microsoft with, you know, $30 with a little bit more. Yeah,
I’ve beenplaying with Siri AI, and it’s, yeah, it’s pretty useful in, in the phone in terms of, you know, I took a picture 5 years ago, Siri, of this Roman Greek column. Can you pull it up and let me see it and it’ll find it. Or I sent a recipe to Madison 2 years ago when she worked at Yahoo. I’m, I want to find it and it’ll find it.
true?
Yeah, yeah, if, if I, if I text her something like 2 years ago, it’ll find it.
send her a recipe? No, I, I did not. I did not waiting, yet, not yet. I know, I know, I know we’re both into home cooking and stuff like that. But then you’re saying that, so Apple carved out a little, little thing where they can charge you 60 bucks a month, 3839 potentially for Siri AI if you that seems to me like they gotta build out the product for me we’re worth 40 bucks a month.
I mean, it’s the ecosystem, right? I mean, it’s, it’s the same.
I am playing for iCloud. I am paying for, I am paying for iCloud. Well, you
play for iCloud already, but also you take a look at like, you know, so basically co-pilot for Microsoft, it’s like it’ll help you write a better email, but people are paying 30 bucks a month for it. So when you say the word AI on something, people are like, well, I’ll pay for that because I don’t want to miss out. Is it actually a valuable product for you today?
And for consumers who are downloading Muse, which is free, and now we’ve got another product that is coming soon from Anthropic that’s very similar to Muse. I’m sure I mean OpenAI has Dot. Like these are free products, so I feel like the bar for now, so I feel like the bar could be higher for an Apple product. It’s especially $38 is not
cheap. No, I know. Well, and I, I tried, I did download Muse, and when they asked for my birth date, I was like, I’m out.
Are you saying you don’t trust
me? Good for you, Nancy, because there are people giving it a lot more than their birthday.
smart. Nancy’s looking at Mark Zuckerberg’s face in her hair. I don’t think so. I don’t
think so. I mean, the curly hair is kind of cute. No, you know,
Eric, you’ve got better. This kind of goes back to our previous conversation on leadership, right? So
100% it does. He didn’tsell you versus.
Yeah, so perhaps there are companies that are a little bit more trustworthy, um, like Dario, his DNA, it’s in his DNA. It’s not, he’s not making it up. Um, and then with Chachi BT or with Mark Zuckerberg, you know, maybe they’re on the other side ofthat.
Well, I wrote a piece on effective altruism using their, um, their own quote, which is things were not, will never be chill again. AndThere’s a, there’s a lot there. I don’t, I, um, there’s a lot of dichotomies, but, uh, apparently in the S1 they said, uh, management’s going to get 50.1% and they’re going to donate 80% to charity. So, um, if they’d let us vote on which charities, I would be even happier as a shareholder. And
then you also have Elon donating like a share of, yeah, so there’s, there seems to be some sort of, OK, well.If I want you to buy my product, I’ll give you a piece of it for free and then you jump on board. Um, there’s maybe a little bit like that, but I’m just a lot, a
lot of big talk. We haven’t seen what’s, what’s going to happen. Where’s, where’s the, where’s the check?
that one. I’m still waiting for the cage match between Elon and Mark Zuckerberg. I don’t know if you guys,
of course. How could you forget that?
that back or we’ll see. Yeah, um, OK, so we’re going to shift gears to Otto.Um, and, uh, so we all saw the GM announcement, uh, moving to the NASDAQ. Um, I’ll say two things and Eric, I’m coming to you and then we’ll go to Adrian, but, um.So, so first and foremost, we had written a lot about uh Walmart being our poster child of our investing theme which was old economy companies pivoting to new technologies, and they really did across the company and then they moved to the NASDAQ and the stock since then is up under 5%. So I don’t know if this is a contrary indicator or not, but um.And I, I do think it’s interesting and I’d like to get your view on it. And then secondly, you know, I, I just bought a new car. I bought a Ford Expedition, Max, Xcel Platinum. I don’t know. It, it’s got a Raptor engine which is super helpful when you’re going to the grocery store, but, um, I, I.I, I can’t operate 90% of what’s in there because I haven’t taken the time and it’s it’s so computerized and automated. Um, so those are just two dichotomous pieces of gee whiz factoids. What, what’s your thought on the potential for them to go into the NASDAQ 100 if they move over? Do we care?
Um, I think zooming out from index inclusion, uh, the auto industry is probably.The sector industry globally, I think, or I’m most worried about, that’s, that’s most under threat. Um, last year I was uh a senior economic advisor in the White House, and one of the things that we worked on, among others was tariffs, and, um, one of the, the messages to the Europeans was, you know, like your lunch is going to get eaten, essentially, and especially the auto industry, and I think that’s clear as day right now.Um, you have Germany and France finally working together to, to think about trade barriers against Chinese EVs, but if you, so I was also in China and IYou know, rode in the cars and even broadly in East Asia, the cars are far better, uh, they’re much cheaper, you know, like you can get in a highly luxurious van with seats that massage you and like everything is amazing and it’s the same cost as my used Jeep Wrangler. So, uh, it’s very difficult. The labor is far cheaper, there’s subsidies, um, if there’s anything I would be short from an equity market perspective, it’d be the auto industry broadly, um, it’s just, it’s just scary and it.No, I would never short Tesla. You couldn’t pay me to do that. Um, and Tesla’s of course a different kind of company, if they merge, uh, with, with SpaceX, that’s of course very different, um, so no, I wouldn’t short Elon Broadly, but also not Tesla, but, and it’s different because European stock markets, they’re actually pretty low exposure to the auto industry, but European economies, and therefore bonds, rates, FX are very exposed to the auto industry.And they’re in really dire straits. Um, I think the US, you know, we have the Canada-Mexico trade deal stuff going on, which is a short term wrinkle. I think North America broadly is better positioned, but globally it’s really
ugly. Yeah, Adrian, your thoughts? I know you’ve spent.Giant portion of your life in this business.
Far too, far too much. Yeah. But look at the stock price today. Stock price is going up. Markets are rewarding it. So GM’s journey started many years ago where they brought in a bunch of Apple execs into the company to try and help turn around products, uh, even before.That they had um you know, the OnStar system and so forth like that with Verizon. So they’ve been playing in the connectivity world, like connecting to the car for 1015 years. And then, you know, 10 years ago, 8 years ago, they brought in a number of Apple execs to try and turn around PD. That didn’t quite work out as well as they thought, and you kind of had.Um, one of the senior guys at, uh, at, um, GM mentioned to me it was like a high school sorority dance. Boys on one side, girls on the other, the, the, the technology folk in GM wouldn’t necessarily mix with the, with the Apple guys in Palo Alto. So, but I think they’ve got a little bit better now. Um, there’s been some churn. Some of the guys that are in there now I know are actually pretty capable. Um, is it a good move to move on to NASDAQ?Uh, Perhaps if you’re a data company and you’re selling data, um, how many NASDAQ companies are selling hardcore products that are hardware. Um, cars are the first robots out there in the wild. Um, but I don’t see GM making a robotic play. Um, you know, they, they got rid of the cruise business, they’ve kind of integrated their own self-driving units. Um, there’s been a couple of different steps there, so it’s a little confusing.Um, if, if it was a data play or if it was a robotics play, I could really see it, but without that, I’m not sure.
Yeah, it’s kind of like, you know, so for the GM, right, they’ve definitely been pivoting hard towards more of a tech focus. They had their GM forward, uh, day last week in New York City. They, they talked about their new design process and making cars quicker with using AI, talked about new software defined vehicle architectures, talking about new batteries, and so they’re really pushing that tech, you know, first kind of viewpoint with, with autos. But at the same time, like this NASDAQ listing, like give me a break like.I’m gonna put on a firefighter outfit and now I’m a firefighter, you know, like it’s like you’re still an auto company with, with big tremendous physical capital expenditure needs. You have thousands and thousands and thousands of workers. Um, you, I mean, it’s, it’s look at the Ford PE, right? I mean, it’s like this company is still stuck in that, in that we are an industrial company and just changing the listing location and then, you know, NASDAQ 100 NASDAQ 100% inclusion is nice, butYou’re not necessarily a tech company like, like you’re saying, you know, you’re still an automaker.
So the big winner is the NASDAQ.
I just literally took the words out of my head. Yeah, like I feel like, what, what are you thinking if you’re leading the nice, you know what I mean, on how, how to keep people and
yeah, like you didn’t need to leave, like just stay in the nice seat, who cares? Like I mean, I, I mean, I missed something. I mean, look at the stock’s up today, so maybe I missed something, but it just seemed to me kind of.We’re Paul Jacobson said today GM’s customer focused technology-driven strategy is creating value for our stockholders, making NASDAQ a natural home for our listing as we grow. Does it matter?
I don’t know. Grow what, right? That’s my point is like if you’re growing hard, you know, if you’re growing hard iron on the road, that’s not growing a tech company, right? If you’re doing self-driving units and you’ve got robotics and.And then you’re going to be able to take it’s kind of like Elon’s done with the robots factory in Fremont. If you’re able to then take that into further, you know, with motion control robotics, perhaps, right? But I don’t actually see that. I do see GM getting a lot more competent in the way they apply technology versus where they were like 5 years ago. But this is a stretch. Yeah, this is a stretch.
Well, you’re a cynical crowd.
I’ve been around the block too many times. I could be wrong.
No, I, I couldn’t agree more. Um, alright, we got big earnings week. So, uh, tomorrow I think we’ve got Google, uh, ServiceNow and Microsoft. Uh, and then who’s later in the
week? Amazon is Thursday. Ford is tomorrow. Rivian is Thursday.
Yeah. Yeah, I knew all that too, Praz. I just wanted to.
I know those three.
Not that you work in the automotive. I know
thank you. Um, so what, what are you expecting? So I’m gonna start with you, Praz, and then if you guys will just kick it to someone so everybody gets a shot at it, um.What, what are you looking for? Who’s the most important to you?
Well, youknow, so we’re talking about, you know, companies like you mentioned Microsoft and Amazon and these companies, you know, are we going to keep seeing the layouts, right, the more we need more cash, we need more cash. We’re going to keep bumping up those those full year capital expenditure forecasts, you know, we saw that with with with Meta.Um, and in the capital rates, are we going to see that happening again, you know, maybe not so much with the Amazon, but maybe, but definitely, you know, for the alphabets and and
I’m going to let you continue, but don’t you think like Amazon and Microsoft have kind of floated above all the angst in the market, not that it showed up in their stock price, but that people are not even last quarter when they raised capex spending, um, the stocks, I, I’m pretty sure they both went up.Um, and, and I just, I just wonder like you’re damned if you do and you’re damned if you don’t, uh, announce big capex or reduce capex, God forbid. So what are you
thinking? I mean, well, we’re talking about, you know, Tesla, right? There’s they showed that Capex was actually.Below what people expected and that was a concern. They’re not able to monetize or they’re not able to, to fulfill their vision of, of, of everything they’re doing with robots and FSD and cybertaxis. So you almost have to show that we, we have, we’re gonna spend money and it’s gonna go towards a good place and we’re gonna make money, um, and so that’s sort of what the, the, I mean, that’s a very simplified version of that, but that’s what we’re looking for with these big, big high risk killers when they, they, they report, right? I mean.Yeah, you want to see moreof that
and seeing any sort of return on that AI investment you had mentioned Thorsten Slack’s great piece on this, but proving that, you know, we haven’t exactly seen a return on all of this AI spend from these Fortune 500 companies. So can these hyper scalers, especially the likes of Google, after they turn free cash flow negative, can they come forward and say, hey, this is the amount of money we’ve been able to make because of this specific AI tool. Do you think we’re ever going to get those specifics,
Nancy? I don’t.No, I don’t know because we’ve had many years go by with a number of these companies where they didn’t break out important data that we all want to see. I don’t know if I 100% agree with him on this though, because we’re listening to the companies and we are hearing monetization um across industries and sectors, but I, I don’t, I, I, I’m not Torsten slog, so I can have my opinion, but it may not matter nearly as much. But
what do you think he’s missing?
I, I just think there’s a drive to be cynical about this and I think that is good because in the 90s we didn’t have it, you know, there wasn’t skepticism. We talked about this yesterday.Um, but, you know, I remember going to, I mean there were two things that shocked me when I went to like analyst conferences. One was that I was the only person that was taking handwritten notes. I was like, wait, when did I miss the memo on laptops. But, and that was, you know, that was in the 90s, you know, all of a sudden things had changed, but it was e-toys and pets.com and eyeballs on the screen, and everybody, you know, was falling over themselves to get more of that.That went bankrupt. So I don’t see that going on right now. I think that’s good. He’s one of the skeptics. Goldman’s come out too and said we think this is it peak 4th quarter AI spend. Uh, again, I don’t know what the definition of AI spend is, but your thoughts,
Adrian? I don’t, I don’t see it as as I, I would be contrary to that. I think they’re going to keep on plowing ahead. I think if you look at the, the use of AI within startups, they’re using AI to augment.Employees. So they’re adding employees. Yeah, as agents. Uh, if you look at bigger businesses, Ford, Cummins, GM and so forth, they’re still using it as a productivity tool. They, they haven’t really embedded agents as employees, right? And so that gap between how startups are operating versus how large industrials are operating is, is, to my opinion, it’s the biggest gap I’ve seen since the early days of the internet.Um, where the, where the, how they’re applying it is so, so different, yeah, and it’s
hard for those n that to show up in productivity numbers, but, um, Eric, get ready, we’re coming to you, but I wanted to ask Adrian one more question. So Tesla, um.Just made it. I forget who they bought. Do you know this prize? I forget for $60 billion and there were, it was a coating company. Peanuts. 00,
Cursor. You mean Cursor, Cursor with
SpaceX. Cursor. That’s right, yeah, SpaceX, sorry, same company, which
is a great deal actually. Yeah. No, but think about it, 20 employees and they sold the company.For $60 billion that’s productivity if you ask me. It’s not a bad return. Yeah, I, I mean people doing more with less, yeah, and so I don’t know how do you measure that, but that’s an important component. Eric, your thoughts, you’ve got a global view from LA if that’s possible.
Um, my thoughts as to the productivity gains fromAI,
yeah, or yeah, we can start with that.
Sure,um, yeah, I mean, so we have, uh, we directly invest in early stage fintech firms. Um, I would say there’s a lot of gains there, and if you think about financial services broadly, um, you know, they’re not the most, you know, banks are not the most innovative, you know, organizational institutions, they’re more innovative with financial products, and I think in terms of payments, um, just broad banking services.There’s a ton of innovation going on and AI will be a great way to kind of hasten the process, and I think hasten the regulatory and compliance process, which,Burdens capital markets activity, know your customer, all of that. So, no, I think there’s a lot of productivity going on. I mean when we hire someone, they just are like if we hire someone younger or like a junior staffer, um, they just kind of bring additional AI usage and just improve our.Uh, I mean, I’m 30, so there’s, there’s a few people younger than me, um, but yeah, no, I mean they just tend to accelerate the organizations and by adoption broadly, I think. So that’s a really interesting way that people will continue to get hired, but I think it is nice that we’ll probably.As older, uh, people or people who have been in organizations longer, um, leave, you don’t really have to backfill it with another senior executive, um, I think senior execs will be more productive themselves, which leads to like less bloated, you know, employee compensation.So maybe that’s a good thing in terms of, you know, well, and
back to your margin comment earlier, I mean that would, that could be what drives margins going forward, but let’s go back to our original topic which was earnings this this week and then we’ll kick it to Madison. What anything important that you’re thinking about company that you wanna focus on?
Um, I mean, the Fed, ECB, and BOJ are meeting, so I’m more focused on that. Um, earnings have been not really my thing, so you can kick it to Madison.Well,
well, before we do that, um, that was the next topic. So what, what are your expectations from our friends at the Fed?
Yeah, um, I mean they’ll probably hold, uh, and then just hike in December. I think I was in the much more dovish camp for a very long time. I think of the sitting participants, my, my view kind of aligns with President Goolsbee’s the most, um.I think neutral is lower. I think policy is becoming increasingly restrictive. You’re seeing it in the consumer, uh, you’re seeing it in wage growth, you’re seeing it in, we literally can’t build anything that’s not a data center, so I don’t think that’s crowding out. I think that means policy is restrictive, and that’s in spite of really supportive tax incentives from the OBBB last year, so.It’s a challenging situation and um, I don’t think, you know, like 100 basis points of rate hikes is like kills the AI trade or kills Capex, but it certainly kills everything else. So I’m pretty nervous for what’s, you know, what’s to come, uh, this week’s meetings or whatever, um, but I think we’ll we’ll be in a world in the next 6 months where rates are higher globally in a way that actually starts to bite.
So we get a slowing economy.Um, which is good for the reliable earnings growers.
And also from, from Europe, it’s going to slow more aggressively in Europe than it is here in the US to your point about where do you put your money? Yeah,
the super rate sensitive economy. Yeah,
no, that’s it. No, that was helpful. Thank you.Want you in your sweet spot, Eric. So we’ll come back to you again on, uh, on the Fed.What are you thinking? What are you
watching? I mean, I cover AI and so these days it’s very specifically open AI and anthropic, but to Eric’s point on the Fed, I do, my understanding is that there has been a little bit of a wage growth ceiling because of some of the AIification of these employers and maybe, you know, in relation to the Fed here, you know, does that put a ceiling on inflation in a way?That is helpful in the Fed’s goals, um, and again the companies that I cover, you know, that’s certainly what I’ve been hearing though a lot of the uh employees who I talked to a lot are about to get extremely wealthy, so they are potentially going to fuel the inflation inflation problem from Silicon Valley, um, so, so there’s that side of it and then just the deal making side. I mean, it doesn’t seem like, you know, a few extra basis points on rates are slowing these AI deals.Really at all. So, um,that’s been interesting. I mean,
how does anyone buy property in in in SF and the valley and they don’t into an area it was flatfor so long
then it’s, you know, it’s gone up there
or they use their anthropic shares to buy. That’s been happening too. Yeah, yeah, margin, yeah, margin.
Yeah, yeah. I mean, one of the, if only one of the productivity use cases I see in the banks and in particular is there is a large base code base.That are like from the 80s and 70s and so forth, like a lot of the infrastructure stuff. Um and people have been so scared to touch it because they’re too scared for it to break. But if you look at the codexes, you look at these new coding tools, the best use case is to ingest old code and turn it into more modern code, more productive code. So I see that as being a massive potential use case within the banking sector, which in turn will make it more nimble.Um, no, is that a good thing or a bad thing? I don’t know, but that’s my pay grade. But yeah,
youmean a bad thing because of,
because they become more nimble, um, you know, um, I guess it’s a good thing, but you know,
yeah,yeah.Well, and they apparently can have their arms
twisted.
That’s correct. Now you wrote a piece on agents breaking into banks. Yes, so
yeah, uh, I reported that unvetted and unauthorized AI agents from third parties are accessing consumer bank accounts at some of the biggest financial institutions in the US, so Bank of America, Wells Fargo, Morgan Stanley, uh, and this is.Obviously a huge security risk for these financial institutions. In some cases we saw that these agents appeared to be doing things that the customer hadn’t asked them to do. So one example is a customer whose agent called and complained about something without clearing that with the customer first. So this is just an example. This is our critical infrastructure that’s supposed to never have something bad.Happen and we’re, you know, reporting that all of these agents are accessing customer accounts without, uh, approval from the banks first and, and in an unauthorized manner in some cases um and we also reported that banks are preparing for a day after scenario where an agent does go rogue or hacks into accounts which is good you want your bank to beprepared
a diehard fire sale.This is a shit movie, right?
Yes, yes, yes, it’s, it’s, it’s, you know, again, two separate things here the unvetted and unauthorized agents, they’re not, you know, depleting customer accounts yet, but the banks are preparing for if and when that that might happen because they haven’t had to face this before. And as we know, AI is moving at breakneck speed, so they got to get ready quick
it’s also like it’s it’s the nature of that business.is that the banks created APIs so the fintech companies could access through those APIs into the back, the core backbone of the financial system. And it’s those APIs that are getting pushed. Um, so it’s, it’s the nature of the business. And I think they’re the banks will be very, very protective of that, I would think.
Well, and I do, I, I’m, I’m not stretching here, Eric. I do wonder if there’s any implications, uh, for the Federal Reserve System that.Um, I mean, fun fact that’s horrifying. I interviewed for a position at the Fed. I failed miserably and I’m so grateful because I would have been bored out of my skull, but, um, and, and I think the, the person they picked was excellent. But, um, what, what do you think about security and innovation, um, from a security standpoint at the Fed?
Yeah, it’s probably one of the biggest, if not the biggest risk to the financial system right now. Um, there’s a ton of key man risk or key institution risk, so between Bony Mellon, um, DTCC, FedWire, there’s like one core pillar of various parts of the US financial system that if it’s hacked or if it suffers from something, um, so a few years ago I actually covered this when I was at the Journal, um.ICBC, which is a large Chinese bank, but really small player in the treasury market, just like had a cybersecurity issue, um, and Bony Mellon was like running tens of billions of dollars of Treasury trades via like a, not a floppy disk, but a hard drive, like across the street kind of thing. So that was a very small issue, but points to the fact that,These are all super vulnerable institutions and the the foundations of the financial infrastructure are kind of weaker or on fewer pillars than we imagine, and it’s like,It shouldn’t be a surprise. I think Jamie Dimon and JP Morgan as an institution cite cybersecurity as one of their biggest, you know, existential risks to their organization. Um, I think central banks, like the Fed, moving rates 25 basis points in either direction is probably going to shrink, uh, in importance for the global economy and their role in terms of protecting just payments, uh, and protecting, you know.User accounts is probably going to grow. Yeah,
yeah, well, thank you for that and thank all of you for joining me today. It was a lot of fun. I feel like we didn’t cover nearly as much as we should have, but Froz, thank you, Eric, thank you. Madison, it was so good to see you and Adrian as well in person. Thank you. Yeah, thank you for coming. All right, that’s it for Market Hang.
Thank you, everyone.
