The 10-year’s biggest drop since SVB, plus an AI bear says let them die | The 8:30

Welcome to the 8:30. What a week it has been already. We're almost done, but not quite done. Um, futures indicating a little bit of a lower open here this morning after what was a very eventful session yesterday. I was just looking at the numbers. The NASDAQ is now off by about 6% or so from the high where it was. >> We're glitching. >> We're glitching in the background. That's how crazy a week has been. >> It's been a nuts week. >> Sold out. Sold off so much. >> Oh my gosh. that it is completely This is like uh what are they calling it? Black Wednesday on Wednesday or Black October from all cyber security. So, we just had our background. We could show it even when the background is glitched out. Anyway, um nobody saw any of that cuz we're just on the you miss they missed the excitement of the background being there. Anyway, um I digress. Um the NASDAQ is down 6% from its highs. Um it closed at a record on o just on October 6 and since then we have seen enormous amount of volatility um and we have seen bond yields go higher and then lower again we have seen uh bond spreads on the corporate side also credit spreads kind of blow out so it's been a big week where what what do you guys what what are your thoughts >> I mean the bond move is maybe the most interesting thing right now because we finally saw the 10-year get back below 5% after a bunch of buying came back in looked Think a lot of people got caught on the wrong side of that bet. A lot of people who were shorting the treasury market had to suddenly start coming in and buying when the trend reversed because let's look at the last few months when those yields have been going up. Treasuries kind of stopped being that that you know flight to safety bet. >> All of a sudden, >> if you want to prove the point that when things really go wrong, people buy treasuries. This was a great example. No matter what you think, they are the ultimate flight to safety. >> Um Nick Timmer had a great stat on this yesterday. Of course, he's the Fed reporter at the Wall Street Journal. He said the decline that we saw in the 10-year Treasury was the largest single day yield decline since March 10th, 2023. You know what happened in March 10th, 2023? Silicon Valley. >> Silicon Valley Bank. >> And you know what else is notable about the bond really quickly about the bonds? >> Treasury yields are falling. Guess what's rising last night into this morning? Oil prices. >> Right. >> This is no longer just like an inflation predictor. This is a growth scare. >> Right. Well, and it's it's funny because you mentioned that that statistic. I mean, the the basis point move is was insane, right? I mean, never seen that. >> It was 19 basis points, >> which is crazy. But you you talk about Jake, you talk about flight to safety, you know, and we for the longest time we saw oil up, bonds getting crushed. Now it's we're seeing the reverse flight to safety. Is it is it a flight to safety because of potential war talk or is it the fact that oh, these bonds are actually a good buy here. People start buying them and that brings the yields. >> Exactly. So I thought Krishna Guha captured this perfectly in his note this morning. He's the vice chair at Evercore ISI. He said treasury yields rose in early fall as oil moved up reflecting the idea. And here's the key. Treasuries are a poor hedge against adverse supply shocks. But he says on the flip side we are relearning that treasuries are a good hedge for the risk of a deflationary AI bust. Yes. >> And so that's the difference now that he highlights that I that feels right. You have all these concerns right now about what is going to happen with the cost of funding the AI buildout and now people are saying okay let's buy some treasuries >> if you're worried about an equity growth scare and that things are going to slow down and reerate dramatically you want to be in treasuries and bonds. >> One of the things I noted yesterday's latest AI investment sentiment poll right >> basically bearishness hit let's see 45.8 eight, right? Steadily climbing for the last three weeks in in that poll. Uh, you know, it's always been a contra indicator, right? People start getting bearish, time to buy. I'm not saying it's happening this time, but we're seeing like very high levels of bearishness in the market. Uh, and that's probably being reflected in bond prices right now and in sectors like staples up 11%. >> Yeah, I was going to say like there is an argument. So, so there's an argument about bearishness, but I've also seen some arguments that >> it's not wholesale selling, it's rotation. Yes. >> And that's reflected in what you just mentioned. Staples are up the most. So, I looked at I ran the numbers since that record high. Okay. As you might expect, information technology is down 8%, comp services is down nearly 7%, energy is up 6%, healthcare is up 8%, and consumer staples are up 10% in that specific period of time. Um, and what's also interesting, as Bloomberg pointed out in a chart this morning, is that market breath has actually been improving. Right. Right. Right. And to put a fine point on this, um, Jim Reed over at Deutsche Bank put out a chart and a commentary this morning when he I mean, I won't get into the exact numbers, but the point is it was very, very unusual yesterday to see stocks decline as much as they did, >> but as many stocks rising within the index. In other words, more than 300 stocks in the S&P 500 were higher yesterday even as the market was pulling back. And he talked about that the key question. He he says, "Is this just another temporary wobble? We've seen a bunch of AI related sell-offs this year." He says, "Or is the market finally starting to believe that the size of the checks matter more than the promise of what they will buy." >> Well, it's like the seesaw. It's like a seesaw. went up with all these were concentrated tech names going up lifting the whole market up but you know a lot some bare markets in the other sectors and all of a sudden those guys start getting bid up these guys are bid down but because they're still so big it brought the overall sort of index down but a lot of these sectors improved really interesting dynamics across that S&P 500 right >> and this this comes back to that point of like is this the sell off or a sell-off and again one of the things we've kept talking about is that you don't need to have a crash to have a rerating Yeah, >> that could be healthy and productive to just take a little bit of steam out of that trade and rebalance that across some of the more defensive sectors. We've seen uh the the defense manufacturers getting a bid off some of the war, but also because they're a solid defensive bid. Energy getting a bid from Iran also because it's a defensive sector. Healthcare, as you point out, getting a bid because it's not AI. >> This is a good rotation. It's a and I was talking to someone yesterday, a strategist who was saying, uh, look, I when I talk to clients, when I try to run money, what I try to do right now is find anything that's not AI, and it's become pretty much impossible. Um, we had a guest on the show just maybe yesterday, a couple days ago, saying the same thing to us that it's so hard to find things that aren't AI that people are now consciously searching for that diversification. Well, it sort of goes back to like the the concept that Mike Wilson came out with a couple of months ago where he said maybe now is the time not to buy the uh makers, but to buy the takers. >> Buy the takers, >> right? Buy the stuff that's going to benefit from AI health. I mean, healthcare is a prime example of that. The perception is is that that is a group that can benefit whether you're talking about the insurers or drug discovery. Now, I had a really fascinating call with a a a VC fund uh this week that invests in drug discovery, and they said like it's not 5 to 10 years. It's probably further than that. But nonetheless, there is this optimism about what it's going to bring to that >> and these companies aren't spending hundreds of billions of dollars on a buildout that could work or could falter. >> Right. Exactly. >> I think a good little thing here is BA's Josh, not Josh, Michael Hartnett, right? I believe not Josh Hartnett. If only if only Josh brother so Michael Hart and I talking about how sees sort of the riskoff mood lasting through November. What's happening early November? >> It's not the election. It's GTA 6. No, I'm kidding. It's it's the election. Uh so maybe there's going to be a little bit of sort of hedging and can being careful about what you do until you get that clarity about what's happening and then you might see some uh some moves to the upside potentially. >> I I love our number one fan producer Dan Nelson who we can see out in the newsroom who cheers when we mention GTA 6. He's doing it again. Ross Ross's new favorite song is the first hot single off the soundtrack for GTA. >> You know what? It's It's a good track. >> It is a good track. >> It's a good track. Can we play that for a guest to come on? >> No, we we haven't paid for the play on music. No, not quite. >> Or we're not quite ready for We do have a special guest coming, but we're not quite ready for that guest yet. >> The other thing we should talk about uh as we talk about this rerating is a little bit of a jitter in uh the South Korean market. Well, really in the US market actually. Um we got the news uh reported overnight that SKHEX this you know one of the huge semiconductor manufacturers who's massive in the Korean market really leveraged there. They've pulled the US IPO of their unit Solid. Now Solid was acquired by SKH Highex from Intel back in 2021. They renamed it. It makes flash memory and they've pulled the US IPO listing. Right >> now, before we get too into this, it's it's important to clarify this isn't the exact same thing as what we've seen with some of the NeoCloud IPOs that have been delayed because they couldn't find investors or they were too spooked about the market. A lot of this hap h has to do with regulators questioning, is this going to be a double listing? Are we going to be deluding SKH Heinix investors? if there's a parent co and a child co both listed on the same market. SKHX had its US debut a couple months ago, but it still does get to this idea that like these it's is this the IPO market we thought it was going to be. One >> a no >> a no, but also two you've just got to be careful now with how you come to market. >> Yeah. Yeah. Yeah. >> Yeah. I think that's fair. Um, and it's also interesting that the Cosby initially fell after the US selling and on this delay and then it actually fired by the end of the day. >> And I was reading some commentary from some strategists who focus on Korea and their point was that the business community in Korea sees this as a really good sign because it shows that SKHEX was willing to listen to regulators, willing to listen to investors who said, "Look, we understand you're excited about Solidine. We understand you're excited about the US market, but there are real uh you know dilution risks. There are real regulatory risks you have to take into account and it was taken as a good sign that SKHEX which makes up uh a huge portion of the Cosby. >> Yeah. Between it and Samsung like 50% >> 50% that they were willing to slow that down. >> That's interesting. >> I guess they're >> which is not the kind of outlook you'd see in a US company typically. >> No, it's not. Um okay, so that's the bright side of things. I want to bring in someone who I think probably is does not look at the bright side of things when it comes to AI trade. I think that's fair to say. Ed Zitron is joining us. He's CEO of EasyPR and author of the Substack. Where's your Ed at? Are the Ed is here. >> I'm here. There he is. What's going on? >> Make yourself comfortable on the couch. I will. >> Thanks for coming. Of course. Oh, nice. >> So, we were just talking about the SKH Heinix pulling solid. Now, just to set the scene for people out there who are not familiar with you, anybody who's sort of like online is I think probably ext familiar with your work and you are an AI skeptic, I think, um, to say the least. >> Yes, that's fair to say, I think. >> Um, and so you probably just heard Jake talking about this Solid IPO being pulled. As you know, there have been a bunch of IPOs that have been delayed. There have been valuations that are reportedly lower for the likes of Anthropic and OpenAI, too. It seems like Saladine like to your point probably isn't that >> it's not the same story >> terrible of a thing. >> A little different that one. Yeah. >> But in general, you know, it seems like there's a lot riding on Anthropic at this point going well. >> Yes. And Anthropic is a peculiar company. the I've been wondering what their credit rating is going to be because they're a negative a bit the company no matter what monkey business they play with their valuation or with how they capitalize things and all that which makes it I'm not sure how they rate anything above CCC and if the ratings agencies allow them to go above that they're basically corrupt and disgusting but fundamentally these AI labs don't really make sense economically. Anthropic has $413 billion of non-cancellable commitments. There is no getting around that. And people are saying, "Oh, Microsoft will let them off. Oh, Google will let them off." No, they won't. That's that's >> Well, but even if they don't let them off, you know, if you look at the revenue numbers that have been leaked, right? Um I know there was a lot of talk about the revenue growth decelerating, but it's still growing. They are still m you know, they are still bringing in revenue. And of course, the hope on the part of investors is that that growth in revenue will perhaps reacelerate that it's lumpy quarter by quarter so that it could see a reaceleration. In other words, that they're going to bring be bringing more money in the door. >> Well, that's kind of the point though. We don't know their cash flows. And that whole 80 billion net loss, but 72 billion was convertible what have you. There are rumors going around that some of that is credits from hyperscalers for compute. So, I think it's reasonable to believe that Anthropic is likely sheltering some of their compute spend in there. The reason I say that is they have a $3.7 billion $3.75 billion comput agreement with SpaceX every quarter. That means that across Amazon, Google, and Microsoft, they're spending $6 billion in compute. That does not make any sense to me. That doesn't makes it's not >> like it's too low. >> It's way too low. OpenAI burned I think 12 billion worth of uh compute just in the first quarter. And that was on like four seven I I forget the exact numbers of of revenues that report by the information. Something doesn't make sense about these numbers. We might and I think Anthropic has to put their S1 out there today if they want to make it before Thanksgiving. >> I really want to see what's going on with these cash flows because there's something off with this company cuz let's say revenue reacelerates, what have you. So will the costs >> and you've got this company. Oh, they only burned, let's say, $9 billion in Q3, I think it was. How is that possible with the big commitments they have? Something doesn't line up with these numbers. And so revenue may accelerate, it doesn't really seem like it is. The reports I've seen have just the annualized run rate, which is a madeup number anyway, is just still it's just barely above plateauing. Anthropic isn't a company that is going to do well if it's just okay. This is a company that needs to be basically 10 times the size in about 3 years to keep up with its own compute commitments. and with the ridiculous amount of building around it. I mean, they have I think it's $161 billion just with Broadcom. There's an Apollo deal that was $35 billion with >> Apollo like 100 each with what Microsoft or not Microsoft's lower, it's with Alphabet and Amazon. Yeah. >> And it's just it's astonishing amounts of money that don't line up with what's been reported so far. So, I really can't wait to see this S1. I think it's time we stop playing with run rates, stop playing with non-GAAP adjusted. Yeah, this is this is Jake's reference. >> This is something I've said that just give me some gap metrics. Give me a number that a first year business student can understand what it means and what it means for a balance sheet. But then let me ask you this because to your point, our team reporting that we could get that S1 as soon as today if they want to make it before Thanksgiving. Probably going to have to or at least get it in soon after that. What are you expecting to see when you do actually see those? >> Like what are you going to be like? What's your what's your you know F search? >> Command F cash flow. I want to see how the cash has moved around the company. I also want to see how they actually classify some of these adjusted numbers because right now everyone's guessing. Everyone, everyone out there, myself included, and I've read basically every story about anthropics revenue for years >> and we are still guessing. I think that the journalism around this company has been between horrifying and upsetting in the amount of times that adjusted stuff is just reported as clean profit. So, I think it's time we need to put away these childish things. It's time to stop talking about run rates. I never want to hear about them again. I don't think that they are a reflection. This is a company. These aren't cutesy little startups anymore. These are basically the inspiration for the large what I would say is the largest misallocation of capital in history. Why are we talking run rates? These are not cutesy children. These are big startups that have made the largest agreements of anything I think in history. I mean, I think Microsoft's opex is like 150 billion a year. How are they possibly going to keep up? And I don't know if you saw Open AI had to drop the valuation, reerate their fun their >> and you know how bad it is when you go to the Middle East and you're like, "Yeah, I want 1.5 trillion." And they're like, >> "Well, they've got some different they've got some different capital pressures of their own. I mean, what what what do you mean? What What is OpenAI specific?" Oh, you mean Oh, the Middle East. My bad. Yes. Yes. Oh, there's something less cash. >> I hear there's something going on over there. Yeah. You think there do you think there those two companies are sort of connected in the same problems or you think open eye and anthropic have their own specific issues that that could cause your own problems within those two companies? >> I think they're basically the same company. I think one of them is run by basically cultists. The effective altruist types of poisoned anthropic. There was a 400,000word Harry Potter fanfiction written by Elaziowski that Dario Amade is in. So that's what anthropic is. But they are basically the same kind of book. >> Have you have you read that whole thing? >> No, I have. I could literally do anything else. Run into a wall at high speed. But the thing the thing is >> I think people also need to realize how important these companies are because they are 70 to 80% of all compute demand. They are 70 plus% of all of Microsoft, Google and Amazon's revenues. Microsoft I think consensus estimates have 70% of their growth in the next few years coming from cloud and most of that growth is coming from OpenAI and anthropic spend. Google Cloud. UBS's Steven Ju said 48% of Google Cloud's revenue, not AI. All of cloud will come just from open AI and anthropic spend. These are loadbearing companies. These are companies that we literally can't afford to have not spend. And that get but it gets back to the things we've heard about anthropic. It's like $9 billion of comput spend in the core. What do you mean by that with all of these unless every analyst is wrong? Unless all of these compute agreements are for so far in the future that we may as well not be talking about them, something does not line up >> or demand is not as high as they're saying it is. Right. >> Indeed. But even then, it's like, okay, why are compute costs so much lower for anthropic than OpenAI? It could be the free users. I would buy that because OpenAI has these hundreds of millions of freeloaders which they can't monetize because I think e-arketer said all the world's ad revenue from generative AI is going to be like 6 billion in 2030. So none of that. >> It's just it's a peculiar situation because some of the stuff that I'm hearing right now where people are saying, "Ah, is there enough money for this stuff? Is there enough demand for this stuff?" Stuff I've been saying 6 to 12 to 18 months ago and they they would say I'm was mad back then. They say, "Well, you couldn't possibly be couldn't possibly. These are the smartest guys in the room, you know, like Enron." >> And it's just it's frustrating but good to see this. And I think that the S1 could be a really grim moment for the AI industry. >> Well, okay. So, at the same time, couldn't you just argue just argue that we are seeing a rerating in process already in the public markets, right? and in the debt markets for that matter where we're seeing things like what's happening with Cororeweave and the other NEO clouds uh the the tradable bonds the yields are going higher equities are coming lower and that the market is pricing in some of these doubts that you're talking about right that we're not necessarily looking at a collapse of the whole thing but rather just a more rationalized pricing environment for what the potential is >> but this industry is not built for a rational pricing market anthropic and open AI. I think open AAI Anis at the Wall Street Journal reported $750 billion of planned comput spent through 2030. Where's that money going to come from? Venture capital. >> No, they've not got enough money. Middle East clearly tapping out. So dead. So they're going to get triple C rated. I mean anything above that the ratings agencies have failed. Anthropic in a similar position. Where's that money coming from? Clearly not coming from cash flows. OpenAI's raing a $30 billion fridge round. What are you a startup in 2020? >> Well, at the same time, while the court while the Neoclouds of the world, you know, maybe they will have more trouble going forward and there's reports that um from SEO that SpaceX is going to have to pay more for its latest round of debt. But okay, so it's paying 8.3% um with some of its uh lowest rated debt, paying 7 and 3/4% on its higher rated debt. Okay, it's going to pay that, right? It feels it's worth it. the hyperscalers when they're raising debt, they're still, in other words, I guess what I'm saying is they're all still able to raise the debt. It's a question of at what price, right? So, it's not that they're not going to be able to get funding. It's that they're going to have to pay more for that funding for the debt. >> All I'm saying I it doesn't seem like anything has totally shut down and frozen. It's rather that it costs more. >> Sure. I'm just saying with OpenAI and Anthropic specifically who have not got credit ratings yet, >> how are they going to get that money? How are they going to get enough money to pay their bills? Not even arguing against anything else. We don't know how they're going to do it because venture capital cannot support. >> No, it won't be venture capital. It'll be the the corporate bond market. Even if it's high, even if it's lower rated, >> but you're not suggesting that they won't be able to do it. It's more that they will have to pay for it. >> I mean, if they're rated triple C, they won't be able to do it. there is unless they're going to take on 10 20 billion of leverage loans every year their cash flows will not sustain this. This is beyond we have never seen anything like this. The reason that I'm kind of humming and haring is there is no historical precedent for this. There are triple C is like the least wealthy sovereign nations and the worst companies the companies closest to death and we have no comparison. On top of that we have a data center capacity issue. We have billions of dollars of GPUs sitting in warehouses not being built. So we've got the situation where hey they may get out of paying because the data centers won't be ready. But if they are, how the hell will they pay? Because it's either going to be oh we can actually pay for these but we don't have the money or we don't have the demand but we still have to pay for them. Either way the cash's got to be there and everything's riding on this. The future hyperscaler earnings riding on this. Coreweave I mean coreweave's up a creek without a paddle at this point. They are heavily delayed and their revenue is basically 75 to 80% anthropic and open AI. Microsoft's one of their largest clients for Open AI, Google for Open AI, right? >> Sorry, go ahead. >> No, no, I want to come back to something you said earlier about open AI and enthropic, which is this idea that they've become loadbearing. >> Yes. That that we almost can't afford for them to fail. You've also said that they shouldn't be allowed to go public. >> Yes. >> And so what's the other option? Do you nationalize them and like pull a pull a railroads? Like what? Do you force them into a nonprofit model? Like what's the option? >> Let them die. Why do we have to keep them alive? >> But if they're loadbearing, then how how do you let them die without inflicting more pain? >> That's not my problem. I I'm sorry. They're loadbearing for Microsoft, Google, Amazon, Corewave, Nebius, Irish. >> Well, actually, it's all of our problem. I mean, if you're looking at there is now a record high number of Americans who hold stocks. And so, you know, people like Eric Baltunis at Bloomberg have argued that if you did have an enormous collapse in the market, you could see a scenario where the government would actually come in and and bail them out because there is such broad stock ownership. This is too big to fail problem. This is this is basically capitalist socialism. This is the we're already seeing that. No, but this is the argument here is that because these companies have made too many promises, the American taxpayer should be responsible for bailing them out because the American taxpayer owns what's like 33% of their net worth or more in I don't know. I think we have to let them die. I think we have because the markets here's the thing. Even if they continue as is and they survive, but they will be smaller, the market's still going to tank because the market is mostly based on Microsoft, Google, Amazon, Meta, Nvidia growing and growing and growing, which comes from those companies feeding money to Nvidia, which can only happen and continue to happen and continue growing Nvidia if the revenues keep growing. Nvidia's guiding to 670 billion in 20 fiscal year 28, which begins in February 27. That and then the year after that, they're going to sell have to sell a trillion. You can bail them out all you want, but unless everyone's buying more and more GPUs at more and more high prices, it's going to crash either way. OpenAI and Anthropic are only s they're symbolic at this point. The GPU sales are what matter. That's what's keeping the market alive. That's what's keeping Blackstone. I mean, Blackstone's a whole other situation. >> Yeah, I know. You wrote about that. >> Oh, yeah. Yeah. Yeah. >> All right. Well, we're going to take a break. That seems like a good place. While Ed takes a breath, we'll take a break. And when we come back, we're going to keep talking about this and cover some earnings as well. And also, guess what? It's Apple Duo Day. >> Yes, it is. >> Be right back. >> Yeah. I think. Heat. Heat. Oh, hey. Down. Hey. Down. Welcome back to day 30. We're back here, guys. Ed Zitron joining us for another couple segments here. >> Wait, you know what? We didn't ask Ed. Are we Do we Does everybody say your last name right? >> You You said it correctly. People say the weirdest stuff. >> So, how do you say it? >> Zitron. Zitron. Zitron. Okay. Pardon me. Pardon me. Yeah, >> carry on. >> We want to cl We got to clarify these things. But uh >> let's let's stick with some kind of AI adjacent stuff here. Maybe maybe fully fully adjacent here, but talking about Elon Mus SpaceX. They're, you know, reportedly going to be uh building out a terrestrial network for their their direct to sell mobile service here. Uh Bloomberg reporting they're going to be uh giving uh access to 80,000 tower sites uh needed for that buildout here in this country. and and Crown Castle CEO their big tower operator saying you can assume we're talking to all parties involved right >> and Crown Castle shares were spiking after this we're seeing this happening Musk has said I'm going to build out this whole terrestrial network for our direct to cell service etc but but again can you challenge these these top three mobile carriers >> the other problem for us is the money it takes to build a mobile terrestrial network and look what we've been saying collectively is >> you're probably not going to build it you're going to buy it because it would be so expensive and take so many years to get a return on that, >> right? And on this report yesterday, not only did Crown Castle shares go up, but again, all the carrier shares came down. And so, as we've talked about, as you've theorized, like at some point, do you put enough pressure on one of those carriers some kind of deal with you? >> So, I mean, what's funny is it's like Musk wants to like a Katamari wants to collect every low margin business. >> Great game, by the way. >> Oh, yeah. probably makes more money than the sale carrier. I mean, I was looking into a lot of junk debt few weeks ago and always the sale carriers are on it. It's always they're just capex heavy businesses. He wants data centers. He wants rockets. He wants cell carriers. What's he going to move into like consumer package goods? Like what's the next he's going to become a wholesaler? Like it's just a very strange thing. And I think that >> I think he just wants to do a bit of everything. He wants to do Cena Weebo, I guess. Like I think he wants he really wants to do the everything app. But if you look at the quality of like Twitter and like X money or what have you, these are rough products to say the least. And I mean I guess the current sale carriers are pretty crap themselves. So it's not really a huge challenge. Why? >> Well, there is this hubris, right? There is this like this it's this whole Silicon Valley first principles kind of thing. I anything you can do I can do better kind of thing. If I start from the beginning you the examples that you brought up, but there's also the example of Doge. I can come in. What is a more legacy operation than the United States federal government, US government >> and this thinking that I can come in and do it differently and fix it? >> The most complicated bureaucracy in the world. >> What's funny is he could have just gone and dealt with Medicaid fraud, >> the huge amounts of doctors over billing Medicaid, an obvious >> clear set well doumented place. is like, "No, I'm going to f get rid of US aid." I like the the we do that so that the countries like us, so we have soft power. Right. Right. And relatively cost us nothing. Right. Yes. Uh but back to the whole cell >> sorry no back real quick on on the carrier stuff is that you know he did have this first principles thing where we're going to come in for over the top from space give you direct cell service down to satellites. Oh that doesn't work. We have to get the terrestial network. So you're just doing it all over again. What AT&T and Verizon how is it any different? Right. the stuff that they're doing now does work very well for the use case that exists. We've said this Starlink internet I've said this if you're out in like a remote part of the world Starlink internet is unbelievably >> but that is a different proposition than running a cell phone in the New York City subway. >> Right. >> Yeah. >> Yeah. >> That's a different proposition. One little thing that I that Julie you you spotted this was that and you might like this that is in SpaceX 10Q they talk about you know part of that gain that they had was a $561 million gain from their investment in Elon Musk's boring company right which he also owned. So it's like forget circular financing, you have the circular musconomy here, right? With >> we got to we got to at the end of this we got to reeregulate accounting standards and stuff like we got to work out a way to fix this net income boosting from company valuations. The things that Google did with SpaceX's valuation, the gains on anthropic and all that. We need to change the equity like we actually have to do something about this because companies should not be able to post massive profits based on oh yeah on paper I tweaked this here and there. I don't know. I think it's if we do that though, we open up Pandora's box with all of the net asset values of things like Blackstone's funds and Blue Owl and all the I mean, we have a problem with private credit that we could spend an hour talking about. I know it's just frustrating to watch everyone fall for Musk again, though, because you say, "Oh, AT&T stock crash." It's just like, >> are the markets piloted by actual children? It's like that. Oh, they're piloted by bots. >> Pilot line and then and then it gets I mean and I don't mean bots in the sense of AI quantitative good old James Streets of the world who quant trade. >> Remember that Catrini thing from a few months ago the global intelligence crisis. Yeah. The only global intelligence crisis was the bunch of idiots read it and freaked out. It's like oh agents are going to take on Mastercard. Shut up. >> So okay. So Ed, I want to ask you about something else because I was reading your most late your latest note and I know you've been asked about this before. You are super emotional about this stuff >> and you really paint the people who are doing all of this as villains. In your most recent note, you single out Jensen Wong in particular, but do you think that that sort of like diminishes your case because you are so vehement about the villain of the of these people? And is it possible that they actually believe in this stuff and that's why they're selling it? >> I think that we have insufficient contempt as a society for these people and I think it's one of the reasons that they get away with so much. And I actually think people say, "Oh, you're too emotional." I think that people are insufficiently emotional about this. The stakes are huge. The damage like Musk's data center, I think, is in Mississippi, uh, guessing a black neighborhood. People are just like, "Oh, yeah. I don't feel anything about that." Feels I don't know how I don't think it diminishes my case at all. And I think what people's reaction to stuff like that when the I can't repeat what I said about Jensen Huang and the newsletter, right? >> Familyfriendly show. >> Here's the thing. I think it's really easy for people to see that and go, "Who cares about the rest of it?" because it's a really easy way of just not thinking. It's a comfortable way of getting away from the actual real problems because Jensen Hong is channel stuffing. It's obvious he's forcing GPUs down the channel saying you have to buy these now or they won't be available in a few months. I think that's morally reprehensible. I think the hyperscalers involving themselves in it are morally reprehensible because it's driving up the price of every imaginable consumer electronics. It's making everyone's life worse so that Jensen Hang's life can be better and so that whoever owns Nvidia stock can feel slightly better. I mean the gains in the Nvidia stock have not been >> on on the channel stuffing point um from from Nvidia. >> Is there a is there any legitimacy in your eye to the argument that it is just simply a demand signal? Jensen's going to the market and saying look if you want these you should buy them now because we can see where demand is. We see the three four five six year lead times for products in the semiconductor space and if you want to get in you should get in now legitimacy there. How is their scarcity of a product that they have too many of? How? And if the scarcity is because I think 70% of their accounts receivable for the first half of the year was five companies, one company made up 16% of their revenue and everyone's taking months early delivery of these GPUs. There's not scarcity other than that which is created by Jensen Hong. This isn't like 100 companies and they're saying, "Yeah, you got to pre-order because there's 99 other companies who no, they all know each other. They all >> right." But all of those companies are building out compute as fast as they are. >> Build it out, >> right? I mean, what I'm sorry like that. What does more data centers actually get us? We talk about these things all the time. What does more data centers do other than allow them to charge anthropic and open AI more? It isn't really clear what the actual point of them is. Amazon just canled a data center in Luden County. Like what do we we need more clarity at the minimum into what these data centers are like how many of them are online because Bloomberg reported a few week a month ago actually that Microsoft only has 2 GW of AI compute capacity and that's out of 12 G of reported. What is going on here? And the thing is a demand signal would suggest that there was demand for something cuz you need it right now versus I literally don't need this right now but Jensen's saying oh well you're going to take it right now. early rack receipt program to quote Eugene Kim over Business Insider. >> And so this isn't demand in the traditional sense. It's not like they're getting them a month early. There was one quote in that Business Insider story that said that there was an email from an NG saying we have no foreseeable path to installing these. That's insane. >> But that's one story. Has there been others that have supported this whole idea of channel stuffing? >> I reported with the Guardian that Microsoft has only got 2 gawatt worth capacity before Bloomberg. And I have read the list of Microsoft's usable GPUs. They have spent $250 something billion in capex. They have about $50 billion worth of chips in operation. So yes, the answer is yes. So real quick, you know, we talk about you have these chips that are sitting in storage. They're not like they actually stay in time and they're good to go next year. Like they can age, right? They can actually age out tech technically speaking, >> technically speaking in years, right? So that's also potentially a concern if you have chips that are just not being used and aging out. Uh but you know talking about SpaceX and Musk again you know they've sort of showing that their data center or their sort of their business with macro hard is making some money right the question is I guess your question would be or your answer would be they're not going to keep be able to do that in the future we're seeing them monetize it right now >> but most of that's coming from Anthropic it's all of this is just a chain of venture capital pays Microsoft Google Amazon Meta or not Meta didn't work out SpaceX and who pays anthrop IC 80% of the revenue per ramp comes from 1% of their customers who are mostly ventureback startups. Who funds them? Venture capital. Who funds anthropic? So they can pay the c the uh hyperscalers venture capital. Everything's funded by chains of debt and venture capital funded by pension funds. Who funds pension fund? Well, the pension funds also fund the private credit firms who are also building the data centers. >> And we've kind of seen commentary in the last 24 hours around that maybe there's not enough money to fund this. At some point, the well is going to dry up somewhere along this chain and suddenly all of it's not really going to work out. Sure, the hyperscalers can raise again, but can Anthropic and Open AI get the cash to pay them? >> Mhm. >> I guess we'll find out. Ed, I think we're going to leave it there. We got some non AI stuff actually to talk about today. Thank you so much for coming in. >> Thank you for having us. He likes He likes AMX. He likes talking MX, right? >> Yeah. >> Um and we'll look for your I'm looking forward to looking at your ex account, your tweets when uh the S1 drops. looking forward to that does happen today. Um, all right. So, um, Eden, you can you can hang out, you can leave, you can do whatever you want. We're going to talk about AMX. Um, so American Express came out with its numbers this morning. Um, and it missed estimates. Actually, it's build business missed estimates. So, those shares are trading lower. $454 billion is what it reported in that build business. 457 or so billion um, is what analysts have been looking for. It it did raise its full year forecast. So, it's interesting to see the shares that are trading lower, but as we know, there is a high degree of sensitivity um you know around earnings in general right now. >> Yeah, it I it's actually brings me back to one of one of Ed's points he very briefly brought up which was this whole idea that you know some of these payments processors are going to be supplanted by an AI or supplanted by whatever. These do have a very powerful business. they're very bought in and there is a real market there that you can't really supplant or you know recreate easily and so it like that case has always struck me as a weird way to take a bear signal on like an MX or a Mastercard or a Visa. >> Well, and by the way MX is very invested in aic shopping too. So it is I just want to quickly flag that um you know they've been obviously MX is known for targeting a much more wealthier customer, a higher earning customer and there's they're kind of doubling down on platinum, right? they've been investing more in that the perks and the all the different sort of access you get. Uh they said back in July that it was that that the platinum card is the fastest growing product in this US consumer business. >> You know, >> people I mean you know what the platinum card looks like for MX, >> right? >> But you started seeing it more and more and more and you're like how exclusive is this product? >> Could I get one? What are the perks? I get $75 off Lululemon every six months. I'm like is that a real perk? Like >> the other thing we have to mention with MX is they're cutting jobs. So they're cutting 5% of their jobs globally. They have about 7,800 78,000 employees, excuse me. So it'll affect about 3,500 jobs. And we've seen some other job cuts happening across the financial industry. So this is um the latest and this is basically he says he said on the call um that this was about making the company more agile and efficient, speeding up decision-m kind of the classic middle management these kinds of cuts. The other two numbers I want to bring up from these earnings, um, and I and I apologize if you went over this first one and I missed it, but net card fees, >> yeah, I did not. Yeah, >> we're up 16% uh 17% when you adjust for foreign exchange. So there's growth where they're seeing maybe price to your point more of the platinum cards, those cards charge very high fees. You're talking few hundred a year. So their card fees are going up a year. >> Yeah, >> some some would be their card fees are going up. Also, here's the other thing that's really interesting. Consumer spending >> looking pretty good for them. Yeah, >> US consumer spending up 9% year-over-year versus 11% in the second quarter. So, it's decelerated a little bit, but it's still growing. Millennial spending holding on, Gen Z spending holding on, Gen X holding on. This is one of the things we keep talking about. Even with all the >> They're Gen X broken on that. That's >> even with all the um >> finally we get our due. >> Even with all the concern about everything going on in the market and whether it's there's a rerating or the war or the midterms, whatever, >> people are spending money. >> Yeah. And for a platform like MX, that's always a boon. >> Yeah. I mean, their expenses also are rising a little bit less than anticipated. Their expenses were up 9%. They've said that they expect expenses in the second half of this year overall to rise 10%. So, that was a little bit better um than expected here. So, um as we said, the shares are down. Um but, you know, we'll keep keep a watch on how they continue to do throughout the session. They're already down about 12% this year going into the report. >> Yeah. All right. Let's pivot back to not really pivot back to AI, pivot back to big tech. >> Yeah, definitely big tech. Actually, literally not AI. This is it's Duo day. Um if you want the Apple Duo, it is now available in stores. Uh ranging from a $2,000 starting price to up to I didn't realize how high it got. $3,200 for a for a two terbte storage version. It is I believe Bloomberg had this the most expensive consumer smartphone that's been marketed. Like what would you do with two terabytes of storage? Who would have two terabytes? >> The argument for for something like terabyte storage has always been for a video editor or someone doing really intensive stuff. >> But usually you'd be doing that in a laptop, not a phone. >> Well, maybe they're on that option. >> This is like the storage two terabytes, not like not like RAM, but I mean yeah, what are you storing on that requires two terabytes? I mean like >> I have a freaking desktop and it wants two terabytes, you know? >> What are we talking about? um they are sold out and they're refilling some of that. New online orders as of uh either this morning or late last night were showing delivery as uh late as end of January. >> This is this is a real kind of comeback to form for Apple in a lot of ways because if you go back over the last few years, they've they've made a lot of iPhones and each one's been pretty hot, but you haven't had the crazy lines we used to see outside the stores. You don't see the immediate sellout. No, but I'm saying for the duo, >> it's it's a return to form. Everyone's getting excited. You look at the footage. >> I got distracted by Howie's video of him playing with the phone. Sorry. >> Yeah, Dan, our tech editor, Dan Holly, was in the office yesterday. We all got to fumble around with it. Um, and we've learned from some of our Yahoo colleagues that John Turnis is not making an appearance at the um, iconic Apple store here in New York City. Is interesting. Maybe he'll show up at one of the other stores. >> Interesting. >> And there was a big line of fav. What's also interesting about the duo is that some of the early sort of analyst reports, channel reports out of Asia is that demand for the 18 was less than anticipated. And so I guess the question is for Apple going forward, you know, how many if they've sold all these sold out of the duos, does that make up for >> lack of demand for because they're at a higher price point? >> I have a counter take. I think for it truly is a pro. The iPhone 18 Pro is truly a pro phone in the sense that the camera is legit and all the other features of it are very robust, right? The Duo is like a mass like a it's a consumption device, right? It's more of a >> consumerf facing. >> But it's more about just me consuming stuff and you know we've been hearing like Joanna start did a review of it and she was very negative on the fact that the cameras were really kind of not great and it heat up >> for which one? For the duo duo for the duo. It doesn't have an optical zoom like the that the the Pro does and it was heating up a lot. Now, Apple can of course they can use software updates, tweak it up, but you can't fix a bad camera. And for me, that's just I I'm again I stable. You can't we can't have that. But if >> Well, it's also because Apple's been known to have such good cameras on their phone. It's an expectation. >> And then as as Dan Holly told me, he said, "You know what? You know, Samsung's foldable phone has an optical zoom on it. They figured it out. So why can't Apple?" I mean, look, so Apple for their point of view is probably this is more about not about capturing content. It's more about you consuming it. Um, and look, could I could I use it to file a story on on the on the road? Yes, I could. I'd be very happy that >> Boston, are you listening? Anyone? >> Duos for everyone. >> We spoke about the duos for our set. >> Yeah, >> it's it's it's a worthy investment. Write it off. It's right off. It's right off, guys. It's right off. >> Send this Send this to the upper upper crust. >> Sure. I'm sure they're happy to hear this. It's also um I think just the last thing to mention on the duo, iPhone sales make up about 50% of Apple's revenue and for a while there, we've talked about this um Ed briefly brought some of this up. They were punished by investors for a long time for not investing in AI and not spending hundred billion in capex. >> Now they're getting kind of rewarded for that because they're not issuing the debt. They're not spending like crazy. But if you're not going to do that and you're deciding to s not sit it out but not invest like that you need catalysts and so can this be the catalyst and then once this sells what's the next catalyst >> a friend of mine works at Apple and has worked with Turtis and he says that he's he's a he is a product guy through through an engineer hardware guy >> and maybe the catalyst for Apple these days is maybe it's a higher cadence of product release so maybe it's more you know we saw the not the homeline home >> maybe just different and better yeah >> seen we've seen the duo we're having an event out at 26th, I believe, October, a new event for I'm not sure what they're going to release. Maybe new uh the touch Oh, it's it's the touchcreen Mac. And we're not we're not far away from the iPhone 20, which is we don't know what it's going to be yet, but it's being rumored to be a huge change. >> Huge change. Yeah. Yeah. Yeah. Just a big update. Yeah. >> So, one more point to make on the stock of Apple, which as we've talked about again has been sort of defensive in a way here. So, Apple's market cap right now closed yesterday 5.02 trillion. Nvidia 5.11 trillion. So it is possible in the coming days if Nvidia goes down and Apple goes up >> for Apple to want to surpass Nvidia with the largest market cap >> and retake its spot. >> Retake it spot >> as the most valuable company on the market. >> So we'll be on watch. Couple other things I want quickly on Apple is that we saw Mark Zuckerberg talk about how he's running Muse on Mac Mini which is a thing was a big deal because you know the two C companies famously been fighting each other a lot but it was it was positive for them to see that talking about catalyst. Um that's that's a good thing to see. Also I've heard that you know for a long time Nvidia used to used to work with Apple products and they they then Apple went their own way. Now we're hearing that there's some collaboration where Apple stuff would work with Nvidia products. Maybe there's other things happening >> when that's all right. This last story today we've been talking about in the newsroom over the past. >> Yes, we have. I've been trying to get this >> shoved into the >> your your moment is now. >> All right. All right. All right. I I I'm going to call this segment I'm stealing from Family Guy. Grinding my gears. What's grinding my gears? Look, Airbnb is trying to tackle one of the biggest complaints of the service from people like me is that hosts are requiring people who stay at their places to do stuff like clean the the the the area. Fine, that's fine. But then there's also take out the trash, strip the beds, and even in some cases that I've experienced, wash the sheets. Okay, so you know, so this is a bad thing and Airbnb is trying to address that because people are upset. Now, some hosts are complaining, right? And Techrunch did a story about them. A host said, "Guests can be certain can certainly be expected to wash your dishes and put them in the dishwasher and remove dirty linens, right? In exchange in exchange, they enjoy a personal connection and a unique environment that hotels simply can't provide." >> That is a terrible That's a terrible. >> Sorry. I No, no, no, no. >> I feel more connected when the thing is easy and simple, seamless. >> I get that it's someone's place and they've they've they've made this whole thing that's their their curation and I respect that, but don't make me take out I mean, don't make me wash your sheets. I'll take out your trash, but I'm not going to wash your sheets. >> Especially if you're going to charge a cleaning fee because you do have a crew coming for it. >> I suspect we're both >> I would venture to say that I have stayed at more Airbnbs than either of you. >> Sure. >> I would say I'm probably an Airbnb power user. I stayed in an Airbnb probably two to three times a year at minimum. >> Okay. >> Because I have two kids who are teens and it is much more cost effective for me rather than getting >> That's fair. hotel rooms plural for us to stay in an Airbnb. So, I have extensive experience with Airbnb. I can't recall ever having had to wash the sheets. I'm sure it happens. I am very particular about the Airbnbs I choose. I read the reviews. I make sure. But I agree that like certainly at the very minimum there should be transparency about those things before you book the Airbnb about what is going to be required. Well, so that's one of the rules that Airbnb is putting in place is they're saying in the past hosts haven't done that, right? They're saying now do it. I want to quickly say before you jump in, viewers, please tweet at us, respond to us. I want to hear what you have to say about your experiences with Airbnb. Please go ahead. >> I'm probably in the minority that I haven't had to do. >> No, I think I think I think you know, bears versus a bull. Like that's fine. >> I also don't mind taking out the trash. I don't know. >> No, no. It's it's not >> I'm not I don't say it's a bad thing either. >> It's not about like I will happily take out the trash and it's about the fact that and I have had this experience. I had it this summer. You show up at an Airbnb and there was a little list online of like >> please take out the trash. Please put the dishes in the dishwasher. >> Fine. I would do that anyway probably just cuz it feels gross not to. >> If you're there for a few days. Yeah. >> But then you're there for a week. But then you show up and there somewhere on the counter. There's a list that you have to look through of like 20 pages of instructions. And at that point, >> yeah, >> I will pay the premium to go to a hotel and have everything taken care of. The thing that doesn't make sense and we this I agree I 100% agree with you on >> there's a cleaning fee. >> Yeah. Right. Exactly. They're going to bring a crew in. >> So like do the cleaners charge more to also take out the trash? >> Well then if you don't do the things like the sheets and the trash they charge you fees, right? So it's like >> what's going on here? >> But then wasn't your crew just going to do it anyway? >> Yeah. Don't they have to take out the trash and make the beds and wash? >> Also the other problem we've got to mention is that >> Sorry, I'm really enjoying this. When when Airbnb first started, you'll appreciate this. When Airbnb first started, the model was you and I renting out a room or our home and we're gone on the weekend. >> Now, it's professionalized. >> It has been so professionalized to the point that a massive share of Airbnbs are now investment properties owned by either private landlords or investment firms who run a hundred Yes. >> and have fully staffed cleaning crews. And then you're going to tell me that the extra $400 in my billing is a cleaning fee. Yes. >> All right. I have a funny story. Offer off air. We'll talk about that later. Are we done? We done here. We going over I think I think we'll leave it there. >> Uh uh. Next up, a man who I am sure has never stayed in Airbnb, mostly because he doesn't go on vacation. That's Brian Sazzy with Sazi. Yes. down. Nah. Heat. Heat. Down. Hey. Hey. Down. Down. Down. Heat. Heat. Heat. Heat.