The $3.5T Bailout: Elon's Plan To Merge Tesla And SpaceX

that mark our time are you going to see the the zuckerberg movie so we got this we got zuckerberg movie elon musk movie which kara is in and then we have sam elton movie coming out in december So we got four big tech founder movies. I'll see the Sorkin one because I just like him and I really enjoyed the first one. And I want to see what happens in part two. Although I'm traumatized from seeing Sex and the City 2, I don't think I can ever see a sequel again. God, I'm so bad. And I'm a Sex and the City girl, Ed. I didn't know if you know that about me. I did not know that. I can't see the Musk one.

It's four hours. I just can't do that. Did you see How to Rob a Bank? No. What's that? I'm in that. Really? I'm not aware of this. I'm playing me, although they called me back and said, we'd like to get a Signal Award-winning podcaster to do the next one. Yeah, it's with Pete Davidson. What is How to Rob a Bank? It's a movie about a bunch of kids who, it kind of touches on income inequality and a lack of opportunity for young men. And these young men start robbing banks, or actually a young crew start robbing banks, and they start posting videos on how to rob banks on YouTube. It's actually a pretty good film.

And this just came out? Is it out? I should know that, shouldn't I? The only movie I'm going to go see in the theaters is the new Ali G movie. I'm going to go see that. I'm going to take my boys to that. We're excited about that. Interesting. Okay. I'm excited about that. Okay, well, we have a lot to get into. And by the way, if you like this show, please be sure to hit follow wherever you're listening or subscribe to us on YouTube. And also hit the bell icon, which gets notifications for all of our latest episodes. We appreciate it. It means a lot. Thank you very much. And with that, let's get into our show.

Now has been time to buy. I hope you have plenty of the well-resolved. Last week, Elon Musk's two biggest companies delivered very different results. Tesla's revenue was flat year over year, while its automotive business continued to struggle. Both auto revenue and deliveries fell compared with a year earlier. SpaceX, meanwhile, had a very strong quarter. Revenue surged 161% year over year. Profits beat expectations, and capital expenditures came in slightly below what investors had anticipated. But the biggest story wasn't in either company's earnings. Musk officially confirmed that special committees at Tesla and SpaceX are evaluating a potential merger between the two companies.

and investors are increasingly betting that a deal will happen. On Calci, the odds of a Tesla-SpaceX merger before... or 2028, have climbed to 81 percent. So, Scott, we can talk about the earnings, but to be honest, the merger seems more relevant and more important here. Elon has confirmed that both boards have formed these special committees to study potentially pursuing this merger. Elon said last week, quote, I do think there's a lot of merit to combining the companies as we are pretty much in the superintelligence singularity, and there is a lot to be gained from cooperating. And as I mentioned, the odds that this happens before 2028, at least according to prediction markets traders, is 81%. So this seems very, very likely that this is going to happen.

SpaceX is a $2 trillion company. Tesla is a $1.5 trillion company. Combined, I guess it'll be a $3.5 trillion company. What do you make of this? Well, I think actually, Kalsias is wrong. I think there's an 80% chance it'll get approved by the board. I mean, the board is sort of a, you know, the board is doing a lot of work here. And that is, when you're talking about decisions involving SpaceX or Tesla, the bride, the groom, and the officiant are the same person. And that is, this is just a formality so he can check an SEC box. Having said that, I think a real existential risk, and we'll circle back to this to Elon Musk, SpaceX, and Tesla, is I think on November the 4th, if Democrats take the House and the Senate, I just can't imagine the number of subpoenas and calls to testify before Congress that Musk is going to receive. I think that there is bipartisan anger around him throttling back Starlink in Ukraine and potentially, you know, neutering at the worst possible time the defense of the West. But anyways, so his board will approve it. And I think most likely it does go through, but let's talk about kind of the winners and losers here. The way I would describe

And I say this admiringly, even at a small business.

So this has been great for Tesla shareholders or Tesla because it creates cheap capital such that he can pull the future forward. I mean, that ridiculous circus act of a flying car with five seconds of thrust that takes five hours to fuel on an empty shell of a car. I mean, that's just. that's not going to happen. And it's, look over here. Does that make you bullish when you see that? Like, I see that, and I know that's the idea, is that, oh, look, the car is flying. Look at our engineers. Look how talented they are. But I look at that, I'm like, why are you doing that? Like, why are you spending money on that?

No, he's running out of rabbits. And he did it, notice how he did it two days before the earnings call, where they announced that this company trading at 300 times earnings is in structural decline. is flat to down anyways but there is a lesson here and that is as a leader of a company you always want to be painting a promise that's something to reach for because it not only gets quote-unquote the markets excited and we don't have shareholders other other than the employees but you want to give the employees something to think okay we have a vision here we're moving towards something bigger that will make the company worth more and is exciting to work on And I think you always want to be, I think it was Al Pacino said, what is God if not grasping beyond your reach?

You always as a leader want to be a little bit, I don't want to call it, not God-like, but give people something, say, okay, this is what we're going to reach for next year. He has done that like no one in history. and he also has a great sense for okay when do people when do people start figuring out that i'm full of shit and that there aren't going to be there likely won't be i won't be producing five million robots a year and then my autonomous is just not living up to expectations i know shove it into the rocket thing because that's going very well uh but there you do a little bit, and I'm sure the movie you referenced has some of this, there's a pretty thin line between being a visionary and committing outright fraud. And that is, if you can paint an extraordinary enough vision and you are credible, and to be fair, he keeps delivering for shareholders.

Shareholders want him to continue to do this. I'm a Tesla shareholder. Oh, God, this does feel kind of scary. Oh, wait, I'm going to own SpaceX? Great. And then he can stare down the SpaceX shareholders who I believe are on the wrong side of this deal and say, bitches, I have always delivered and I will continue to deliver. And this is the reason why we're doing this. It's going to add a lot of type line revenue. It's going to add a lot of manufacturing scale. But the idea of a brand being promised versus performance, he exudes, no one has ever at a greater ratio of promise to performance, even distinctive as incredible accomplishments, than Elon Musk. So I totally agree. I do think, though, that this isn't necessarily good for

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like in the world of bullshit pick your fighter bernie madoff or elizabeth holmes in terms of valuation here i get why you would say and we've said this that spacex is dramatically overvalued But SpaceX still has the promise of—Tesla has no moats. BYD is making a better Tesla for half the price. The entire rest of the world has 8% of the launch payload capacity right now. I can tell you personally, there is nothing like Starlink. Nothing. I think there will be eventually, but there's nothing like it. XAI, the AI portion of SpaceX, is up 9x. Now, granted, it's off a small base, but that story has legs.

The Tesla story is running out of steam. It's like, I feel like it's one of those TikToks you see of the guy in the 26th mile who collapses and this great guy who would have won the silver medal picks him up and we're all like, oh, well done. They're in a triathlon and Tesla is out of. I'm out of steam here because, and when you talk about governance, oh, he'll get control. For God's sakes, he committed securities fraud at Tesla. And the board didn't even kick him up to chairman for a week and then make him see it. They gave him a trillion dollars off. Yeah. So the notion that Musk isn't in charge of Tesla is, I mean, maybe it makes it harder for shareholder lawsuits, but be clear.

I mean, there can only be one. and he sits on the iron throne. The board members aren't even allowed to, I don't even know who's on the board. They're not even allowed to talk. It's like his brother, yeah. Yeah, so basically he puts him on the board and says, bitch, I'm gonna make you rich. And occasionally you can, you know, you're gonna come to product demos and you're gonna make a bunch of money, but be clear, you're not a fiduciary for shareholders. You're a fiduciary for Elon Musk. Anyways, the governance is not the motivation here. It's a free, he's like, while we're at it, let's make sure I'm in control of both companies legally and not just practically.

But it's something that Tesla shareholders technically lose. And I think this is my view. It's like, I can see how Tesla shareholders might feel that they're getting a good deal, but I think we should be real about all of the ways in which they're also getting screwed and all of the ways in which the bag that they're going to be holding is equally premised on BS narratives about the future. like the gift that he's giving them is their current narrative bs narrative about humanoid robots that one is running out of steam and people aren't buying it anymore and so he's doing this grand kind gesture of okay here's another narrative which is also bs but it's just newer and so it's more exciting and also i think it's financially manipulated because the float is so small So it's easier to pull off this circus act.

But to me, it's like, okay, I can see how that will be, that might be good for shareholders in the short term. But ultimately, I think you're running into the same problem, which is like, this is still a bunch of bullshit. Like, this is still a bunch of, you know, as you said, pulling rabbits out of the hat that, you know, God bless Elon Musk for finding another rabbit. it i'm just gonna uh propose my my final little conspiracy here i was thinking about this like okay we're all tesla shareholders because we all own the s&p so i own tesla whether i like it or not what's gonna happen Ben. to my Tesla shares when they get acquired by SpaceX.

I mean, for one, I'm immediately, those shares, I mean, we'll see what the S&P will do about it. Sometimes what the S&P does is they remove it from the index. But I think this is worth really digging into because my new conspiracy theory is that I think that this might be his way of false tracking SpaceX into the S&P, which currently it cannot join because the S&P has these strict laws on profitability on the float requirements on how long you've been trading publicly all of these things which make spacex not eligible for index inclusion and it won't be for quite some time of course they got included in the nasdaq because they cut a deal with the nasdaq and they decided to change the rules but everyone was was kind of breathed a sigh of relief when the s&p came out and said we're not going to include spacex but i just want to read to you one of the exceptions to the rules. And this is, I'm quoting from the S&P's bylaws, quote, non-S&P composite companies that acquire S&P composite index constituents, but do not fully meet all of the eligibility criteria may still be added to the S&P index at the discretion of the committee if the merger consideration includes the acquiring company issuing stock to target company shareholders,

which is exactly what's going to happen. And the committee determines that the addition could mitigate turnover and enhance the representativeness of the index as a market benchmark. In other words, there is an exception to the rule, which is you might not be profitable, you might have an artificially low flow, you might not have been trading for very long, but if you are large enough to go in and inquire another company that is systemic to the S&P, which Tesla is, then the S&P committee has the right to say, okay, that's good enough, and we're going to include you. So I could see this turning into the grand circus act of Elon's going to acquire this company and that way SpaceX is included in the index. And then none of us have a choice. We all own SpaceX, which puts enormous amounts of buying pressure on the stock, which artificially inflates the price even more. I know I'm being conspiratorial and I'm open to that not being the case. But honestly, given Elon's track record, I genuinely think that that is going to happen here. Well, JP Morgan said that a stock for stock merger could give the S&P committee grounds to make exceptions to some eligibility rules, right? Because you noted.

You're supposed to trade for 12 months. And other laws, other restrictions, which they don't meet. And other restrictions, yeah, float, et cetera. And JP Morgan also estimated that inclusion would create a passive buying equal to about 10% of the combined company's free flow, which is real.

I think the wolves are coming for this guy. And when I say this guy, I don't mean these companies. I mean, this guy, I think there are so many elected representatives who will be hitting subcommittees on commerce, defense, intelligence. They're going to go, let me get this. This guy was throttling back. Starlink? As inbound projectiles from Russia came in? Bitch, you have some splaining to do. Oh, and by the way, you want us to approve or not have CFIUS reviews up your ass and all sorts of antitrust up your ass?

And just to clarify for listeners, what you're referring to is what we heard last week, which is that in Ukraine, their drones, which rely on Starlink and StarShield, which are SpaceX products, their drones started falling out of the sky because Starlink just was turned off randomly. And reports say that it was Elon who did this. That is what The Wall Street Journal has been reporting on. But Elon saying, oh, no, I don't make these decisions. This is a decision by the government. And then Trump came out and said, I wasn't responsible for this. So everyone's kind of pointing fingers as to like who was responsible for this decision. But it's clear, I mean, at least to me, I mean, read between the lines however you'd like. Seems to me like Elon, who has expressed that he doesn't want to be seen as someone who's providing protection for Ukraine in a war, who I believe has criticized Zelensky publicly.

— Zelensky has gone too far, was his tweet from two weeks ago. — Right. So the idea that it wasn't Elon Musk who turned those things off seems to be a little bit ridiculous, especially given his track record of lying. So you're pointing out, like, you know, that's worth an investigation. Is Elon Musk controlling the trajectory of geopolitical warfare, a war in which we're supposed to be defending our ally in Ukraine? Is he controlling that trajectory and then denying it? in which case does that warrant review does that warrant congressional testimony probably probably warrants a federal investigation these guys are going to ask this guy to put his elbows in the tail table and cough for the next four years they are going to probe him like i he's going to wish he could go for a five-year colonoscopy versus what's about to happen to him because can i just clarify that like because you're saying that you know democrats are going investigate him he's going to be having his arms over the table coughing elbows i know that car elbows by the way which means you haven't had your prostate checked it's never too early to start ed it's never too early to start elbows so uh because i saw that cara swisher

uh said something similar on the bulwark where she was like this guy might go to prison. And I know that she's getting a lot of flack and a lot of- Let's be clear. She said that he'll be investigated. He'll be investigated. Okay. Well, she's getting criticized for suggesting that we use political power. And when the Democrats take over, we just investigate people and send them to prison. And that's how Elon has responded to her. And he said, like, okay, game on, essentially. And it's flaring up into kind of like a pretty intense and nasty political debate. The criticism of her was, what are you investigating him for?

What is the problem? Or are you just saying, I don't like Elon Musk, let's investigate him and let's send him to prison. I know that's, I don't think that's what she's saying. But for you here, what do you think that he is going to be investigated for that will warrant bringing him in for congressional testimony? I think that the Ukraine thing is certainly something. That seems pretty bad. But is there anything else that you're referring to? He is a traitor to the West, a traitor. And to think that he's not going to be have a full fucking body cavity search around the decision making and how on earth in a democracy we let an unelected official decide geopolitical strategy and warfield and and battlefield technology that threatens the sanctity of the West from an unelected.

megalomaniac who sleeps with a loaded gun next to his bed who's addicted to ketamine. Let me repeat, Elon Musk is a traitor to the West. Your thoughts, Ed? I agree. I agree. I just wanted to clarify. I think the other thing that he could be brought in for is what he did with Doge and USAID. I mean, that's an investigation waiting to happen. The argument that is unfolding is that they're going to say this is lawfare. You're using political power to pursue investigations wrongfully. And then, you know, the Democrats will say, no, this is us using political power to pursue investigations correctly and righteously.

And the question is— He may not be guilty of anything. I'm not sure he's even broken any laws. Right. But— But he's going to get hauled in front of Congress to explain his actions. Exactly. I mean, the idea that he's not going to be held to account at all for what has happened with the Ukraine-Starlink situation, that he thinks that he can basically just say, oh, I didn't know why that happened. I thought that the president of the United States... States was responsible for that. And that'll be the end of it when you're Elon Musk and you're worth a trillion dollars and you have control over companies that were three and a half trillion dollars combined. And you spent three hundred sixty six million dollars on the midterms after saying you weren't going to spend any money on the political midterms that you had done with politics. And after you spent all this money on Doge, which was a disaster and got shut down.

So, yeah, I'm with you. I just wanted to hear a clarification because I know what the pushback is. they're going to say the libtards carol swisher and scott galloway are willy-nilly accusing elon musk of being uh a criminal and saying he should go to prison for no reason whatsoever and i just want to clarify that there is reason i don't know if he's a criminal i'm comfortable calling him a traitor to the west and by the way i i don't think he could have done this without trump's probably implicit approval i think trump's lying i think they both i think they're co-conspirators around this Ukraine thing. I agree. But the bottom line is he is going to be hauled in front of Congress. And if they think a bunch of AGs are just going to rubber stamp and not get in the way of this merger, oh my gosh, there's all sorts of reasons or quote-unquote legitimate concerns that regulators will have. It's going to be such a mess.

Oh, it's going to be, he is going to be so busy fending off incoming. He's probably smart to be putting $300 million into the Senate races. If the Democrats take control of the Senate. 366, yeah. If I was worth $100, and I thought, okay, I really don't want Senate chairs calling me in front of the Intelligence Committee and the Commerce Committee, whatever it might be, I'll spend $0.30 to see if I can reduce the likelihood of that happening. That's what it is. If you're worth $100, would you spend $0.30 to try and get political advantage? It's no burner. I mean, Gary Stevenson said something so powerful.

he said taxes prevent us from corruption. There are protection against trillionaires amassing too much power. When you can spend $300 million on a whim and basically buy a corrupt senator or try to with Paxton, why wouldn't you? So you need to tax. We can't have anyone aggregate that much power. It's never worked out. We never look back and think, wow, I wish Genghis or Khan had had more power. We never think that. We never think any individual. should have more power. We wish they'd had less. When they aggregate too much power and they have no checks and balances, as you could argue right now, two of the three branches of government are no longer a check on the president. That's when we get into trouble.

But this is, we've spent the last 40 years thinking about how to create wealth. I think we're going to spend the next decade talking about the obligations of wealth. We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com. trust, check out LegalZoom. Say you're registering a business yourself, looks easy, sure, but getting one thing wrong can lead to penalties down the line. LegalZoom has 25 years and 5 million businesses worth of experience, so they can help you start off on the right foot. Once your business is up and running, they can also help you stay compliant. Tracking deadlines and filing reports so you're not hunting down answers yourself. And when it comes to creating a will or trust, LegalZoom helps you protect what matters, and they're accepted in all 50 states.

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Go to Shopify.com slash ProfMarkets today to hear your first... Hi, everyone. I'm Kara Swisher. And I'm Sky Galloway. Twice a week, we get together on Pivot to sort through the biggest stories in tech, business, and politics. And we're taking the show back on the road for a live tour in November. So we'll bring hot takes. I'll bring the insight and the dick jokes. And Kara will try. Keyword is try to keep me in check. You'll get to see her hit me in person live. I'll do it. If someone has to do it. We'll cover AI, whatever chaos Washington has cooked up that week, and every billionaire misbehaving. That's all of them. And you'll also get to participate in audience Q&A. So bring your best questions. Scott will probably answer ones you didn't ask. We also have secret special guests, which you'll enjoy for every city.

Get tickets at PivotTour.com. That's PivotTour.com. We are selling out, so don't wait. And we look forward to seeing you. We're back with ProfG Markets. We know the hyperscalers are spending enormous amounts of money on chips to fuel the AI build-out, but new reporting raises questions about how quickly those chips are actually being put to use. According to Business Insider, Amazon is spending billions of dollars a month on NVIDIA server racks and GPUs that it cannot immediately install. And as a result, a lot of those racks are sitting in warehouses waiting to be used. That raises a bigger question for investors.

If demand for AI infrastructure is so strong, why are so many of these expensive chips sitting idle? Plus, the delays may extend beyond the hardware itself. Since September, eight data center listings have been pulled postponed or repriced raising further questions about the pace of construction and the viability of some of these ai projects um okay scott there's so much we can get into here with ai um just a lot of red flags last week i mean there there were the the the ipos for a lot of these data centers that were either pulled or they were delayed. We had Firmus, which cancelled their IPO. SP Energy delayed their IPO.

Elise, which is another data center company. But they went public, and immediately the stock just craters more than 30% on day one, which kind of is a canary in the coal mine for what happens when AI data center companies go public. They don't do very well. We're seeing that the credit markets are souring on AI. We're watching credit default swap spreads exploding every day, and they're hitting record highs on some of the very big AI names like Oracle, even NVIDIA is rising, and CoreWeave, of course, hitting record highs. We have the ramp data showing that corporate token spending is slowing down. And then there was this warehouse story where we don't have many numbers on it, but it's a really interesting and concrete example of maybe the hyperscalers did overbuy because Amazon has a warehouse filled with GPUs and AI chips that were supposed to be generating cash today. That was what we were told. But instead, they haven't plugged them in. They're collecting dust and depreciating in real time. It all spells for anxiety in the AI trade. Lots to get into, but let's start with your initial reactions. I would argue you've been spending a little

And people are saying that the neoclouds are kind of the subprime lenders of AI, borrowed money, long-dated promises, and no power. But the thing is, everyone's saying there's a glut. In a glut, prices and margins fall. And it appears that the opposite is happening. AWS's operating margins rose from 33% to 39%. Google Cloud's operating margins went from 21% to 36%. If there was a glut, margins would be collapsing. Instead, they're expanding. There isn't too much supply. there's too little power. And construction delays are obviously really hurting here, but they're normal. They usually, I mean, if you've ever renovated a house, that's what usually happens here. But I think, I mean, what you're hoping for is a bit of a soft landing. And that is these things come down 10, 20, maybe even 50%. But at some point, the revenues, if these companies continue to grow, I read Anthropics S1 and everyone was like, came for them with knives out. And I thought, actually, this business just looks, it's kind of living up to the promise is the way I read it. You read the S1 or some of the reporting on the S1? Some of the reporting on the

S1. Yeah. Okay. I mean, I don't want to read, I didn't want to read 68 pages of like how it's going to destroy humanity. The S1 isn't out, right? No, but this is, this is what it'll be though. It'll be 50 or 60 pages. I already know what it's going to say. It'll be 50 or 60 pages. the numbers have basically been linked by the bankers it'll be 50 or 60 pages of the business and then typically an s1 is uh let's describe the business then let's have a risk section will be 50 or 60 pages on the business and 100 pages on the risks. It'll be usually it's here's the business and these are the risks of the business. This S1 will be here's the business and the biggest risk is that the business is so successful it destroys humanity. It's going to be a very interesting read. But when I read the numbers that have been leaked or are a result of their latest round evaluation, I think the media is unfairly characterizing or playing down on the success of this company right now.

Now, I think there's other threats on the horizon I'm going to talk more about in my prediction. But my sense of when I talk to people kind of in the know that work at these companies or are investing these companies, they're like, yeah, they're skeptics in the media. And then you sit down with them and you see their numbers and their growth. And there's just like, we've never seen anything like it. I disagree with you. Go for it. Yeah. I actually think that the media is not buying into necessarily

personal anecdotes. I do. I do. Every summer, by the middle of the summer, I would be or by the middle of school year, I'd be putting everything on credit cards because I'd run out

of money. And my fraternity house bills would come and I wouldn't pay them. And the quote-unquote trustees of the fraternity were nice and would let me rack up debts. And I had 12 weeks over summer to make and save about $3,000. Otherwise, I wasn't re-enrolling at UCLA. And I would live on top ramen and bananas and milk, which I read you can live on. And you can. But as a treat, Every Sunday night, I used to clip a coupon out of the Daily Bruin and go with some of my teammates from the crew team. And for $3.99, we could go with our student ideas down to the Sizzler. And we could have all-you-can-eat salad bar and all-you-can-eat fried shrimp for $3.99.

Wow. It would open at 4 p.m. on a Sunday evening or close for lunch. It would open at 4 p.m. We'd be there waiting. We would gorge for an hour. and then we would walk around and some guys who were crazy would run and then we'd go back at 8 p.m. and eat another 11 million calories. And I remember sitting there eating like seven pounds of bad fried shrimp and I was scared to stop eating because I'm like, all I have is bananas and top ramen for the next six days. And I feel like that's basically big tech and CapEx. I feel as if they're afraid to stop spending. They do see evidence that this shit is paying off and that the demand on a lot of scenarios feels infinite.

Worried about falling behind and missing, it's like when Janet Yellen in stimulus, COVID stimulus, was just criticized, $7 trillion, flush in the economy, incredible inflation, 85% of recipients didn't even spend the money. You overdid it, Janet, or, you know, chair, Fed chair. Was she Fed chair or was she the head of? Treasury. Oh, she was head of Treasury. You, you know, Secretary Yellen, you blew it. And she said the risk of overspending was dwarfed by the risk of underspending. And I think that's how these guys are approaching it. The risk of missing AI and not making these huge expenditures.

And also, it's kind of a moat. There's only a small handful of companies that can make these kind of expenditures. So they think capital as a point of differentiation, I'm meta. I can spend $40 billion, you know, whatever. Or I forget what they were spending per quarter. But what other sector could spend three quarters of a trillion dollars on CapEx? And sure, if it goes away, if it doesn't work out, notice how they're trying to offload a lot of these expenditures to other investors in the private credit markets and create separate entities such that if these things default, it won't hit their equity.

Quite frankly, that's really financial or prudent financial management. But the existential threat here is the one you outlined, and that is the level of CapEx commitments these companies have made connotes the following, that this market will grow to $3 trillion in revenues, and right now all of big tech is $1.5 trillion in revenues, that AI is going to treble the spend on big tech with applications and B2B services that it is currently now. That is sort of the overhang or the existential risk. But, you know, the railroads, right? The technology survived, changed the world, a ton of bankruptcies along the way.

And I think a lot of people are saying the same thing here. But I do think a lot of the, unfortunately, I think a lot of the traditional players are going to be the big winners here. And a lot of the newer players are going to be the ones that suffer. Agreed. I think that's all exactly right. it's like it's it's a classic boom bust it's a classic bubble and it's it's not like these companies there's not some you know grand conspiracy theory behind the thing like you look at the railroad company boom as an example those companies went bankrupt not because they were grifting their customers they went bankrupt because essentially because they had mismatched durations, which we've talked about a lot.

They laid down too much railroad for traffic that didn't never come. It just didn't come on time. And so the companies that miscalculated their timelines and took on too much debt, they went out of business. They went bankrupt. And we're seeing the same thing here. It's like, I look at those chips in the warehouses, you know, in our conversation last week with Ed Zitron, And credit to him because he predicted that we would see exactly this story, that we would see warehouses filled up with chips that aren't being used. And to be credit to him, people were calling him crazy, saying it was ridiculous.

Where I disagree with him is this idea that it was this sort of grand conspiracy theory that was concocted by Jensen Huang to sell more chips than the system actually needed. But no, it's just they thought that they were going to be able to get them online. They ran into this snag, which is that it's actually very, very difficult to get data centers online as quickly as they had hoped. And so now they have all of these chips that are depreciating. That is a bad thing. It's a problem that there is a snag in the supply chain here because it probably means that we're going to see more delays. It probably means that in their next GPU order, it's going to be significantly lower. It probably means that a lot of these data center construction companies are going to continue to struggle to actually start generating profits from those data centers. And they also have locked in these very, very high rates because they've been taking on debt, companies like CoreWeave, like basically all of the neoclouds.

And yeah, it's going to be the same thing. It's going to be a handful of companies like them going out of business. And again, the markets are telling us that. Like you look at the names, the neoclouds, which are being taken to the woodshed right now. That's the markets just telling us exactly the story that we're laying out. So I guess it's kind of an interesting thing because it's all of the telltale signs of a bubble, but it's almost like the market is so aware of bubbles. Like we've watched the big short so many times. We're so familiar with what happened in 99 and 2000 that we're actually displaying a level of caution that maybe we haven't seen in previous boom bust cycles because it seems like the market continually is pricing in the possibility that this does go wrong.

So until valuations go totally crazy, I'm not so worried about it. I think that this bubble is... And I certainly think it's infecting prices in the private markets. But, you know, I would want to see these hyperscalers trading at ridiculous valuations, trading at like, you know, 50, 60, 70 times earnings. I would want to see something like that before I say, oh my gosh, you know, stock markets about to crash. I don't think it's going to happen because I think investors are generally pricing things for the stocks that matter, pricing them sensibly, would be my view. Not true of anthropic and open air.

Yeah, so you're saying the markets are sort of behaving rationally. And, I mean, what would Josh Brown tell us to do? He would tell us to buy NVIDIA, which is what, trading at 17 times earnings? What's it trading at? Yeah, I think 17 times forward, something around there. It's come down significantly. I've been thinking about it. It seems so cyclical. And as soon as it runs out, I don't know. I'm stuck on NVIDIA because it does feel a little bit dislocated, but I don't see how we don't see a massive slowdown in the AI cycle. And I don't see how the sentiment wouldn't continue to hurt NVIDIA. But on the fundamentals, I don't know. I'm a little stuck on NVIDIA.

Let's take a look at the week ahead.

We'll see the Personal Consumption Expenditures Index for September and Consumer Confidence for October. We'll also get the Federal Reserve's latest interest rate decision on Calshi. The odds they'll hold... Steady are at 93%, and earnings will keep rolling in from Visa, Coca-Cola, Boeing, Google, Microsoft, ServiceNow, Amazon, Eli Lilly, Intel, and SanDisk. Scott, any predictions? Well, a small one and a bigger one. Eli Lilly has become, I think, kind of the AI trade of your waistline. I think it's going to show. I think it's going to even blow away its incredibly ambitious estimates. I think this is the most interesting company, at least to come out of Indiana.

But I think that GLP-1s, and again, I've said that I think GLP-1s are going to be more transformative than AI, but I think we're going to see that in their upcoming earnings. My bigger prediction is my friend Whitney Tilson sent me a WhatsApp me with a friend of his views on a company. And if I were to ask you, what company in three years do you think will look back and think that was the big winner of this AI boom? Who would you say it would be? Honestly, meta. Oh my God. In my view. Wow. The student becomes the master. Is that your answer? Yeah, I feel like I'm on. Well, no, it's good. We agree.

I think I'm on what's it called? The starship or the Death Star. And I'm Obi-Wan Kenobi aging with my shitty little limp dick laser or lightsaber. And you're about to send me back to, I think I turned back into Anakin Skywalker. Do I get some sort of redemption? Anyways. But let's hear it. Yeah. Meta. AI strategy is finally bearing fruit, and it's a business model only meta can execute on. Think about this. A lot of technologists are saying meta is arguably a parity with Anthropic and OpenAI in terms of the quality of their LLM. And here's the moat, the mother of the Amazon-like moat. Unmatched distribution. They have direct relationships already with 500 million businesses, which the other AI foundation models have relationships with thousands and a small number of them make up a huge percentage of their revenues. I don't think any one business or advertiser is more than like a third of a percent of Meadows revenues. So, okay, 500 million consumers? No, 500 million businesses. How many consumers? 3 billion every day. So when we talk about the future of AI, everyone said it's going to be, and Mark Benioff's been talking about this for years, the agentic layer where my travel agent is going to go talk to the agent, you know, the

the compatible AI agents at Delta or at the Waldorf or wherever and negotiate with each other. Who can set that marketplace up faster than a company that already has 500 million relationships on the business side and 3 billion on the consumer side? So, and then it's app Muse is already number one in the app store. A huge moat in revenue unlock potential. And also they're talking about that Muse is moving to a confidential voicemail where even Meta can't see content trying to kind of address privacy concerns. If Zuckerberg just, and I agree, but by the way, but let's be fair, consumers have shown they talk a big game about privacy and really don't care.

I know, it's not a bragging point for Muse for me. I get it. But if you take, I mean, I hate to admit this because I think he's a sociopath. I think Zuckerberg is arguably the best operator in business right now. And if you take these 500 million businesses, these 3 billion daily active users, and you layer on top of it a parity model and cash flow to support the ridiculous capex that's required here, these advantages compound. And so I see messaging, I see commerce. To me, and also just this is anecdotal evidence, I cannot get over how addictive and good Instagram has become. And it's AI. I literally feel as if they're reading my mind in terms of, Scott, we have an idea to keep you here for another 3, 5, 30, 60, 90 minutes.

And they keep mixing videos with Great Danes and then Vivek Ramaswani's new Kalshipal. It's as if they're literally reading. They know what I want before I know. Yeah. And we see it in the numbers. I mean, the ads are double-digit growth in terms of impressions and also double-digit growth in price per ad. Targeting, they get higher CPMs because they can use that. But here's the crazy thing. So I 100% agree with you. And by the way, my victory lap is I bought it this year. I loaded up at 564. We're at 640. So I've locked in a kind of a big win on Meta. But still, one point. $6 trillion market cap.

Anthropic is supposedly $2 trillion. Like, if there's any example of the dislocation between the private and the public markets here, it's like, that's ridiculous. Not only is Meta competing neck and neck with Anthropic, they also have one of the most profitable, best businesses in the world right now. The only thing that downside is that they're spending a shit ton of money on the CapEx, and it does look a little bit crazy. But in terms of the health of their underlying businesses and, like, who's really getting a return on AI, I mean, you've got to say, if we believe that the strength of the recommendation algorithm is a function of AI and machine learning, meta, it's right there.

It's right there in the earnings. So, you know, how do you play, people are constantly, how do you play the AI trade? Is it NVIDIA? Yeah, that's a good, that's a decent one, decent PE, but it's the E that scares everybody. But I think on a risk-adjusted basis, the biggest upside in this AI world right now, if it's delivering it, both from a consumer standpoint, has the biggest moats, has the capital to engage in this arms race, and is showing they know how to leverage AI for their own internal purposes, I hate to admit it, it's Mark Zuckerberg and Meta right now. I think I agree. I think I might wait for a better entry point.

You did agree. You guessed it. I did. Yeah. Correct. I'm just looking at the price now. I guess. You're starting to sound more and more like a signal award winner. My prediction, this is a hot take. I don't know if it's actually going to happen, but it's fun. I think that SpaceX is going to join the S&P, not because it actually qualifies for joining the S&P, but because it's going to take the backdoor option of acquiring Tesla. And that's going to be its shortcut into all of our portfolios. I hope it doesn't happen, but I think it will. this episode was produced by claire miller and allison weiss and engineered by benjamin spencer our video editor is jorge carty our research team is dan chelon kristin o'donoghue and mia silverio jake mcpherson is our social producer drew burrows is our technical director and katherine dylan is our executive producer thank you for listening to prof g markets from prof g