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POWER HOUR $SPY $QQQ $TSLA
Recorded: May 17, 2023 Duration: 2:02:12Space Recording
Full Transcription
It's been an interesting day in the market.
I haven't been able to focus as much on it.
We've been traveling, but still an interesting day.
We had some Wendy's news.
We had a couple other stories from this morning.
Obviously, the Tesla annual shareholder meeting yesterday, a lot of those reactions to it,
and target earnings this morning were pretty fascinating as well.
Overall, a pretty little busy day here.
Stock Talk, we appreciate you joining us up here as always.
We're excited for this space.
How are you doing today?
Doing good, man.
Doing good.
Obviously, Ripper Day.
So, anyone that had the right longs on felt like it was a good day today.
We certainly did.
More continuation for Google.
We've been all over that name.
I shared a post yesterday about the swing we were in.
IonQ had another monster day today.
That was really fun for me because it was actually at the end of April that I opened up a 7.5 call position for January 2025.
So, about a year, you know, a year and a half out.
And those are up 55% today after this move.
So, with a year and a half until expiry, seeing the contracts move like that is pretty crazy.
We kind of picked them at the right time.
And so, that IonQ rip, face rip over the past two sessions has been nice to see.
I only talked about one name in our pre-market prep this morning.
I've been giving usually about three or four names every morning before pre-market for members.
Just kind of watch the stocks that we think are going to move.
Today, the name I gave was Wynn, Wynn Resorts.
Had a beautiful breakout off the open and it just held relative strength to the session.
So, that was a nice one.
These, you know, names have been great to trade this year.
Wynn, Las Vegas Sands, Caesars.
They've been tremendous traders.
Probably still one of my best trades of the year was Las Vegas Sands in the first three weeks of January.
That was an amazing move.
And we caught that one as well.
So, we've been all over these casino names.
The Macau exposure.
We've been following the Macau story very closely.
And so, Wynn, Las Vegas Sands, and Caesars have all gotten really powerful intro-week moves off of those catalysts.
And the analysts chiming in on the sell side have really helped along on those names to kind of cue in the market on when any overhangs are lifted regarding the operations in Macau.
So, that's been a great catalyst all year long.
It's moved a bunch of names outside of those big ones.
It's even moved some of the smaller sports betting names.
Stocks like Genius Sports have done very well as well on the back of their earnings release.
So, yeah, that's been a great space to trade this year.
But really nice day.
Really big breakout, obviously, past that 412-60 level that we were stuck at for a while.
So, yeah, nice trading day.
Nice trading week.
It's been actually a terrific last couple of weeks for trading individual stocks.
We've been kind of staying out of the way of the indexes.
Just hasn't been as much action as we would have liked over the past few months.
I mean, we're still trading relatively the same range we were at the start of February.
So, you know, from our view, from my view, the alpha has been in individual names, long and short.
And that's where we've been focused.
And so, the event...
What do you think is behind that?
Why do you think that's happening?
You think it's the low-bix?
Do you think it's earning season?
Well, I mean, that's really the beauty, at least it's the reason why I've kind of focused in the past six, seven years
on shifting my trading style to be focused on this.
Because, you know, in my very early 20s, when I first started trading back in, you know, 2014, 2013, 2015,
those years were...
I was just sporadic.
I didn't really know.
We all know you're actually 16.
It was like 1990.
Yeah, I'm 16 years old.
Yeah, yeah, yeah.
Oh, you said 60?
Yeah, yeah, yeah.
It was 1992.
But, yeah, I mean, back then, you know, it was different.
I didn't really have a fixed strategy.
And the last six, seven years, I just hyper-focused on this catalyst and event-driven style trading.
And, yeah, it tends to work in any market, which is why I like it.
You know, bull or bear, picking individual stocks always works.
Like, you kind of hear people sometimes say, you know, this is a stock picker's market.
And I think in certain climates, that's maybe more true than other times.
But every market is a stock picker's market, right?
I mean, even in a bull market, if you pick the right stocks, you're going to outperform the indexes.
And the same goes for a bear market.
So I think that style, and I'm not advocating everyone trade the way that I trade,
but I think the style of trading around catalysts allows you the flexibility to find opportunities,
even when it's a bear market, right?
I mean, obviously, we're not technically in one anymore because of the rally that we've seen.
And we're not at a 20% depreciation from local highs.
But, you know, even when we were in an actual bear market last year,
or I should say a technically defined bear market last year,
there were still opportunities to the long side.
And this year, you know, even during the face ripper weeks that we've had here and there,
especially during January, there have been opportunities to short side as well.
So, you know, I just think being deliberate and kind of analyzing your available options.
I mean, there's probably 10 stocks I've traded this year that I've never traded before, like ever.
And I've traded hundreds and hundreds and hundreds of tickers over my career.
But, you know, these are the kind of years where you're going to look at names that you haven't normally looked at,
or you're going to look at opportunities that you haven't normally looked at.
I mean, these casino names in general, like, you know, those,
I have not traded the large cap casino names in a long, long time.
But this year, you know, the climate felt right.
The catalyst felt right.
The sell side research was on our side.
So, yeah, it just depends.
It's very case by case.
It's not like, you know, there's a rule book to it.
But, yeah, it's been a terrific week so far and the great last couple of weeks as well.
Awesome, awesome, awesome.
Appreciate that.
Let's bring in some of our other speakers into it.
I would love to hear how your guys' days have been so far, some of the stocks we're looking at,
and some of the news maybe on your radar as well.
Michael, I would love to throw it over to you first.
Yeah, thanks for having me on.
Really happy trading day.
I finally kind of got broken out of some of this range right on the index level.
And so I think that led to a lot of follow-through on a lot of stocks.
I made my money today trading Tesla.
A nice little news catalyst, right?
Nice little breakout above that 170.
So a lot of joy there.
But I think today really the big narrative, right, is we finally broke out of that range.
And I don't think it's a coincidence that that happens when the Fed speakers aren't talking here today.
It's like the first day of the week that we're finally kind of getting that opportunity
where they're not making their speaking fees or they're not trying to pump themselves up
for a future career in the private sector.
So it was a nice kind of range day, nice opportunity to kind of make a bit of cash.
And hopefully a lot of you guys took advantage of it.
For myself, yeah, I played Tesla this morning.
I looked for a breakout above 170, 150 for a move up towards sort of that 173.
And then, you know, just with this low volatility environment,
I'm pretty much finding my kill zone to be sort of like first 90 minutes of the day,
first two hours of the day.
And then just kind of walking away, enjoying my life, having nice lunches,
taking long walks outside.
It actually snowed here for me today.
So maybe a little bit of seasonal depression in mid-May.
But otherwise, no real complaints.
This market's been a lot of fun.
Sort of the same narrative that's been kind of already preached a little bit
where kind of trying to avoid the indexes as much as possible
and really picking sort of individual names.
But I kind of focus on the mega cap tech names most of the time anyway.
So, you know, like the NVIDIAs, the AMDs of the world,
those have been sort of my tradable superstars over the last little bit.
And they've been fantastic to me.
But just a market that requires a ton of patience, a lot of discipline,
and just crushes you if you start chasing entries.
Like the bigger pullback you can get, the more patient you can be
on your sort of decision-making process, the more consistent you're going to be.
And yeah, just find that one perfect opportunity a day
or two perfect opportunities, and you'll end up doing pretty well.
Awesome.
We appreciate that, Michael.
And we'll circle back on a bunch of that stuff and really get into the conversation.
But I want to make sure we can get everyone into it at the start here.
Jonathan, we appreciate you joining as well.
Jonathan, Michael, we love it.
We got kind of two Michaels up here.
But Jonathan, we really appreciate you joining in.
We'd love to know what you've been watching today
and anything that stood out so far.
Yeah, I appreciate the invite to join you guys.
Enjoy doing these things.
I would echo what Michael in Stock Talk mentioned,
just about the lack of volatility in the indexes.
It's really, you've got to be focusing on specific names
that you can really get to know.
For example, ASTS is a name I'm very familiar with.
I focus on it a lot, and I would encourage people to pick their stock
that they learn the personality of or pick a handful of them,
for example.
But individual stock picking has been working quite well.
And I also talk to a lot of people about today has been a great day,
but don't get too overzealous.
We've had a good run here over the last week or two.
I've kind of been flipping to the short side.
I took some IONQ yesterday, getting a little run over today,
but I don't worry about it.
These things just take a little bit more time.
I'm happy for everybody that's making it on the front end here.
But I'm looking for stocks that are just irrationally, illogically overbought,
oversold, and you're going to have to be patient.
That's one thing that people, I think, are having the hardest time adapting to,
is that I'm not really looking at trading as much on the day-to-day basis.
I'm focusing on the first hour, the last hour, focusing on the daily charts.
But you do need to scale in cautiously now and take your profit when you see it, like today.
But that's kind of my outlook and what I've been looking at.
So I haven't been super active today, but I'm getting active at the end here.
I'm not going to lie.
I'll probably add a little bit on the put side of IONQ, that would be.
And just looking at some things that are a little bit more overbought.
Although I much prefer to be long with the rest of you guys.
Shorting is very stressful.
But yeah, we'll see.
And by the way, I like IONQ as a company.
I don't think it's a bad stock in the long term,
but it's trading at like 130-something price-to-sales ratio.
It's just ridiculous.
And the earnings was different.
So I'm looking for unique opportunities.
I'm not trying to trash the stock at all.
You just have to pick and focus really hard and stay engaged with where we're at.
And I'm waiting on the indexes for something to break out of the eternal 400 to 415 range on SPY.
So yeah, that's kind of how my day has been going over the last couple of weeks.
Awesome.
I do appreciate that.
And then last, but definitely not least, our other co-hosts up here, Wolf Financial.
So we'll love to hear anything you got to throw in here, anything.
I know we've been traveling a bunch and maybe not watching too much,
but we'll love to hear how your day has gone so far.
I'm still getting my computer onto the Wi-Fi, actually.
So I don't have commentary just yet on anything with the stock market, but it was good to hear some of the things that StockTalk was saying up here about Google and some of the others.
I think that those are going to, you know, seeing them go to the upside never hurts.
I'll take a look at my phone actually real quick, see if there's anything that's been standing out to me.
So I'm starting to look at the market as well for the first time.
I see Neely down below.
I would love to get your thoughts on those target earnings from this morning.
But StockTalk, what is happening to NVIDIA today?
Up 3%, $9?
I haven't even gotten a chance to dig into it.
Is there any news?
Is this off the back of the test level from yesterday?
No, no, no.
NVIDIA has just been crazy strong.
I mean, semis themselves in the last couple of sessions have begun to pick up that relative strength as well.
NVIDIA is just cruising, continuing to cruise to the upside.
I don't think there was a specific catalyst today.
I could be wrong.
But I didn't see anything on the sell side or anything in the news specific to NVIDIA.
Yeah, look, was Tesla's AI emphasis yesterday just adding fuel to the fire?
Maybe a little bit.
But, you know, there are a lot of names that are getting pushed off of this that probably don't deserve to be getting pushed, you know, that aren't going to be true beneficiaries.
On the AI topic specifically, actually, I shared a tweet from Morgan Stanley Research, which I thought was really interesting.
For anyone that's, like, nerdy about that stuff like I am, but I pinned it at the top, I'll just read out what they said briefly.
I just summarized the report.
It was quite long.
But while AI is diffusing at a faster pace than any technology in history, and while related public company valuations continue to skyrocket, over 80% of the $12 billion in 2023 funding for generative AI, which is 10% of the total 2023 venture capital deployed, has been allocated specifically to large language model builders rather than downstream application builders.
The result has been a 60% compression in the valuations of private AI-related companies.
So what Morgan Stanley is trying to demonstrate there and show is that this hyper-focus on the LLM theme has led to most of the premium that markets are willing to offer for this trend going to the mega-cap tech names, going to NVIDIA, Google, and Microsoft,
because they're perceived by the market as kind of the undisputed winners or will be the undisputed winners of the large language model race.
That being said, there are downstream applications in AI and a number of other smaller companies, especially in the private markets, that have seen a compression in their valuations at the same time that we've seen these massive ramp-ups in NVIDIA and Google.
So it's kind of demonstrating that the market is hyper-focused on one element of this industry currently, and that's the element that's awakened public awareness, which is the large language models.
Now, do I think that that's right, per se, or that the market should be doing that?
In the long term, probably not.
I think that this is going to have a lot more verticals.
It's going to have a lot more legs than people think.
I think LLMs, like I've said before, I think they're a demonstration in marketing and consumer awareness more than anything.
And once you start seeing more real-world applications or more specific applications, then I think that'll open up a bit, and you may see some of these private company valuations recover slightly.
But the same way like there is with any other emergent technology or new theme, there's a lot of garbage, right?
And I think that what ends up happening is because there's always going to be a lot of garbage in a new industry, there's always going to be people that are going for the money grab, right?
We saw this with EVs as well.
Most of those companies are not going to make it.
And the few that will end up being industry leaders or end up being incredibly valuable companies, the very few that will.
And it's going to be the same thing with AI.
And so, you know, is there, are there private companies and public companies that are likely still overstretched in valuation?
Yes, I would say almost certainly so.
But are there other companies that, I think the point I'm trying to emphasize is that there are other companies with which we don't know how this is going to impact their business.
Like we, we can estimate and project things, right?
Like I saw this, this report, I can't remember where it was from.
I don't want to misquote the source, but I read this like two days ago.
And it was somebody who was writing an article on the careers that are at risk by AI.
And the entire article was centered around LLMs and the threat that they pose to specific careers.
I think the issue with that is, is it's short-sighted.
It's a bit myopic.
It's like you're focusing on the first rendition of the industry and thinking that the effects will stop there.
I don't see that being the case.
For me, bottom line, my view remains the same.
There's a lot of dog shit running off this.
There's a lot of companies that will die.
There's a lot of companies that probably won't make any money, but there are a handful of companies that I think will be transformed by the surge in investment.
Talk talk.
We kind of talked about this.
There's been a lot of these very hype themes recently, and a lot of them we don't necessarily believe in.
You've been very clear that this is one you do genuinely think will happen and will be there.
I wonder if you still think this kind of, we'll hit that point where this enthusiasm goes away and we'll get that trough.
I feel like it tends to happen pretty much every single time.
Oh, no, it will.
As crazy as this is, I think it's got to happen.
Yeah.
Like, you have to assign some portion of the premium that's being given to the equities that are related to this industry.
Some portion of that premium is just pure hype, right?
It's just air.
Now, the question is how much, right?
That's always the question, right?
Like, how much of this is genuine fundamental attribution by the markets and how much of it is just AI, AI, AI, AI, buy everything AI.
Say AI 30,000 times in a conference call, right?
Like, there is that element of it, and there's always going to be.
And that element was there with electric vehicles as well, right?
And now we've seen in a year how much public valuations have compressed for so many of those companies, right?
You know, look at Rivian compared to all-time highs.
Look at Lucid compared to all-time highs.
Look at all the EV SPACs compared to all-time highs.
Look at, I mean, they've been crushed, right?
And will that same thing happen to a bunch of these AI companies?
Yes, I think almost certainly.
But I think, like I said, there are a handful of players here that I can't genuinely sit down and be, at least if I'm being intellectually honest, I can't sit down and be genuinely skeptical about the impact of this.
Because I think it's going to be profound.
And I don't really know at this stage how to fundamentally value that impact.
And so for me, I'm just kind of staying out of the way, right?
Like, no part of me is itching to short Google and NVIDIA.
I know the valuations are extended.
They've been extended well before this rally, right?
You could argue that Google's one of the better big tech valuations, but I digress.
It's a separate conversation.
But Google, Microsoft, NVIDIA, like I have no desire, not a single ounce of desire to try to call the top on those names.
Because I don't, I genuinely don't know what level of significance not only funds are assigning, the institutional entities.
I mean, you cannot possibly genuinely believe that the rally, the concentrated rally in big tech equities has been driven entirely by retail.
I mean, the numbers don't even make sense, right?
The inflows have been far.
The 13 Fs we just got confirmed that it was not just retail, 100%.
Yep, that's a great point.
Yeah, the 13 Fs have confirmed that, look, I mean, these institutional guys, they're smarter, you could say, than most retailers, more experienced.
But they, at times, are sheep all the same, right?
And from a mechanics and a positioning perspective, sometimes these guys get caught up in the game, too.
I mean, you've got to think about last year, how many of these funds could not eke out a profit to save their lives.
We just talked to Dan Niles two weeks ago.
It was like something like 85% of tech-focused funds returned negatively last year.
85%.
Dan Niles barely squeaked out a profit because he was able to hedge effectively.
And now you're at a stage of the market where the first three months of the year, you had a ripper in January.
Like, the index has basically created flat for the last two months.
And some of these guys got caught off sides, and they chased it on the big tech side.
And we saw that on the 13 Fs, right?
So does that stay happening?
I don't know.
Markets feel extended here?
Yeah.
Does it feel like they're climbing a wall of worries that maybe shouldn't be yet?
Yeah, I agree with all of that, right?
I'm not dismissive of, like, the bearish concerns.
But mechanically speaking, you know, there's something to be said about it's very rare that everyone is clamoring for an obvious crash, and you get it when everyone's clamoring for it.
That's exceedingly rare.
Usually it happens when no one's expecting it.
And we still have overhead risk that could make that happen, right?
There's still commercial real estate risk.
I think it's very real, very well articulated by a number of people.
I think that there's still consumer risk, which Neely's up here and has discussed that in detail with regard to student loans, right?
You can't dismiss these issues entirely.
I mean, being aware that they're there and knowing that equities are going to have to navigate them in the second half of the year, that's also a reality.
Does it mean the market can't go higher?
But being privy to these things, but also not being stubborn, right?
I mean, the notion of being a bear in the stock market, which is that bears call for 11 out of every two crashes, right?
Like, that's the joke that's always made.
And it's made like that because equity markets are built to go up, right?
I mean, the integration of central banks in our financial system, like, they're built to go up.
Are there going to be periods and maybe years where they don't?
You know, yeah, that's happened in the past before, but they're built to go up, whether it's this year, next year.
You know, I'm not saying we're going to hit all-time highs this year.
My forecast on equities is the same as it was in January, which was that I thought we'd trade flat this year.
You know, my idea for a close, which I don't like to call it a crystal ball, my idea for the close in January was 4,100.
Maybe we'll close a little bit higher.
Maybe we'll close a little bit lower.
But I just don't think that there's enough ammo on either side of the case here to really push the narrative.
Like, I don't think bulls have enough of a case for all-time highs, and I don't think bears have enough of a case for all-time lows yet.
You know, I'd like to see something else break.
So I shouldn't say I'd like to see something else break, but something else would have to break for me to be convinced in either direction.
So, yeah, that's my broad little rant on all this.
I want to ask what we will be watching for and what you think it could be, but maybe let's circle back to that discussion and let's maybe bring either Michael or Jonathan back into it.
I know you guys, I was reading the bios, might be a little bit more of active traders in there.
Michael, maybe I'll throw this one to you first.
How have you been trading these AI stocks recently?
Have you been staying in the Megacat names?
Have you been finding a lot of volatility in those kind of smaller AI names, or are you kind of just staying away from it?
Yeah, so I have a pretty focused watch list that I kind of stick to on a day-to-day basis.
From an AI exposure level, I'm pretty much looking at NVIDIA only, and I'm trading that based on technical levels.
So as much as the news is impacting things, I'm mostly looking at this as sort of a technical breakout, right?
From my perspective on the daily timeframe, this is looking like a textbook both-like breakout that's now above a psych level.
And then we kind of got that same kind of confirmation in AMD there yesterday, right, where they reclaimed $100 on pretty impressive volume.
And so as a technical trader, that's almost like an A-plus look or as good as it gets from my perspective.
It does seem to me, right, that these Megacat names are almost behaving like a safe haven within the market,
where, you know, the market breadth, right, is not that impressive, where we have so many names that are kind of in the lower ends of their ranges.
And it seems like, you know, people are, yeah, FOMO-ing in, right, those 13F evaluations.
You know, they kind of show us that maybe, you know, some of those institutional guys are rushing into players
or they feel like they're missing out on some stuff.
And we seem to be getting just these inflows into these Megacat names.
And so as long as that volume is backdropping, then I'm trying to really tune out the noise as much as possible,
especially as long as that volatility is kind of where it's at, where it just sort of seems like the pain trade right now
is that sort of slow ball grind higher.
And it's hard for me to want to fade that move until I really see some confirmation in either direction on a technical level.
The news, I think how kind of markets react to that or how specific names react to that is a little bit of a coin flip here sometimes.
So, yeah, I'm trying to read a little bit, right, try to stay kind of on top of things,
but mostly just trying to judge price and volume and use those as sort of my catalyst for decisions.
Yeah, that definitely does make a lot of sense.
Are you kind of more of a smaller cap trader in there?
Or are you kind of really trading a SPY, Megacaps?
Yeah, just only the Megacaps.
It's kind of your bread and butter.
Yeah, so I'm trading SPY, QQQ, Apple, Tesla, Microsoft, AMD, NVIDIA, Meta, Amazon.
And that's it.
That's all I focus on a day-to-day basis.
And that's pretty much what I traded when I worked institutionally, or at least kind of in that space.
And like the liquidity that you get there on a day-to-day basis, the spreads you get are as consistent as they possibly can be.
So from a kind of pure day trading perspective, I find that these are, at least from my trading style,
the easiest names for me to trade on a consistent level.
Gotcha. That makes sense.
I know some newer traders kind of go in and try and trade everything on the market.
And the more experience that people get, the less stocks and indexes and whatever they tend to trade.
At least that's what I've experienced from the outside looking in and hosting all these spaces
and getting to hear all the really smart people up here.
That does remind me, make sure you're following our speakers up here.
Make sure you're following the host of the space if you enjoy this type of a live, free content.
I'm going to keep us rolling around, throw it over to you, Jonathan.
And then after that, I want to talk some target earnings and the consumer with Neely.
But Jonathan, I want to know if you have anything to add in kind of on this AI conversation.
And then I would love to know, if you don't, a little bit more of the type of stocks that you are trading in there.
There's mega caps, small names, indexes, and the reasoning behind that.
Sure, sure.
So I just wanted to reinforce before I forget something Stock Talk said.
And one thing that I've been noticing, you know, and people will ask me, well, what do you think about shorting Google, NVIDIA?
You know, the bottom's got to fall out.
Why would you short mega caps that seem to be the sort of safe havens, the brand names?
Because at the end of the day, at a certain point, sometimes stocks are brand names that people want to buy.
They want to own.
They want to say they own Google.
They know it's been around forever.
They trust it.
They know it's going to be there in 10 years, 20 years.
More than likely, it's not possible that it won't be, but more than likely, when there's so much different opportunity, if you insist on shorting and sharing all this bear porn, as we call it on Twitter, you know, if you insist on doing that, there's so much junk or overbought or trends that you can find if you dig a little bit deeper rather than focusing on that stuff.
So if you're newer to trading, you're kind of looking at what trading, what you want to trade.
I always advise against shorting those, whether it works or not.
I mean, it worked when everyone got caught off sides last year.
You know, we had some significant drops, but everyone's looking for it, and everyone's looking to buy the dips on quality names.
As far as what I've been trading this year.
Really quickly, because I agree so much with that point.
That's a great point that you made there.
There was a stat that I saw earlier.
It was a week or two, so I don't know if it's still the same, but NVIDIA has caused the most short-selling money lost so far this year.
And I feel like it's a lot of those newer investors who are like, NVIDIA, it can't keep going up forever or whatever when there's these, as you were saying, there's 50 terrible names that have no real thesis in AI that have been pumping recently.
So, I 100% agree with that, and definitely an interesting concept.
I wouldn't be jumping in front of that NVIDIA train when there's some easier trains to jump in front of.
Maybe not the best analogy, but I will throw it back to you in here about some more of the stocks.
Absolutely.
I've been focused.
You know, it's been a quieter year for me because I'm also in the same boat with Stock Talk, as you said.
I'm kind of repeating a lot of stuff that he said.
But I see this year being very flat, so I don't see a lot of edge one way or another.
I'm looking for more special situations.
I'll give you an example.
I posted this one about a month ago, I think, a little bit less than that.
But Fisker, not a stock that I love.
Not sure it's going to be here long-term, although I'm interested in their light asset model.
I think it could be successful over the long-term.
But the stock in the last quarter, I'm looking at the chart right now, just to give an example.
In January, it was $8.
It got shorted on no material other than, all right, you know, it's a risky business model, down into the low fours.
I picked some up there because I knew that they were going to announce deliveries.
It was going to spook the shorts, and then they were going to cover.
Well, sure enough, I exited around $6.
It's still hovering at $6.30.
But there's been a lot of these biases that you guys are talking about.
There's been a lot of, you know, just people overdoing it, going too far long, going too far short.
Those are the kinds I'm looking for.
And then, you know, I started commenting on SPACs here when that was really hot, you know, a couple years ago.
There's still some unique opportunities.
AGBA was one that I was covering earlier.
That was based on filing.
So I look for unique opportunities that the market isn't maybe observing more often than not.
As far as the AEI trend, I look for those things, but it seems like everyone's been on it already.
There's no sort of unique edge.
They just keep getting extended as far as you can push them until people realize that, oh, this isn't the only thing to trade.
This isn't the only thing to do.
So I've been mostly avoiding that and just looking for a trade here, a trade there.
This is really oversold.
This is really overdone.
You know, shorts have gone too far.
This is really overbought.
I'll do, you know, I'm never a straight short.
I'll buy some puts, make sure, you know, that I'm protected and not size too hard on those.
Because when you're short, short compared to long for me is long, you know, hey, if it's five bucks, I can lose five bucks a share.
Short, you could hypothetically lose forever.
So you have to be more careful in sizing those positions.
But I'm playing both sides.
I much prefer the long side, and that's the side that I stick on.
But I hope that answers for folks kind of what way I'm looking at the market and how I'm doing things.
Perfect.
I do appreciate that.
All right, I want to cycle us over to Neely.
We had the Target earnings come out this morning, and they were pretty interesting.
The number that I was most fascinated by, I don't know if that's the right word, but the shrinkage fee.
What shrinkage is in retail is basically how much money their inventory says and how much is actually in the store.
And the difference between that is shrinkage, how much people or items are getting stolen or whatever there.
And Target came out and said that they expect shrinkage to cost them $500 million more than it did last year.
I thought that was a pretty interesting one.
They came out with EPS of $2.05, being in expectations of $1.76, revenue of $25.32 billion, slightly being in expectations of $25.3 billion.
Their forward guidance for next quarter, EPS was below expectations, but the full year was still in line.
So I don't think that's the biggest of deals, but that shrinkage quote, which I believe Target did tell us about last year as well, was pretty fascinating for me.
And then, Neely, I would love to know any takeaways you had about from Target specifically on the consumer front.
Yeah, sure.
Thank you, Evan.
Listened to the call first thing this morning, and I would say just in their first 24 hours of retail earnings, there seems to be kind of this immediate theme, and that is discretionary retail is still at risk.
I mean, even Target called that out specifically.
The categories that underperformed for them were apparel, home, and hard lines, and they were citing seems for sales declines of mid-single-digit to low-double-digit in those categories.
Those categories are important because they actually lift the overall margin component to a retailer's earnings, especially when you're primarily selling low-margin food, right?
High-frequency, low-margin on food.
But that seems to be the case with Home Depot underperforming in some of their home, obviously, categories, as well as the container store.
So you see this kind of thread of underperformance in that broader home category, which might seem a little counterintuitive because everyone's been staying at home, but there's a lot of factors behind why that might be, whether it's kind of we've already spent a lot on the home,
or possibly in some cases it's tied to interest rate-sensitive purchasing, et cetera.
But it is a discretionary category, and it's broadly a category that's pulled back.
HomeGoods, another division of TJX.
TJX reported, TJ Maxx this morning.
They also reported good numbers.
The HomeGoods division, which I think is like $2 billion plus in size off the top of my head, that also underperforms.
So that seems to be the thread of category performance across the first 24 hours of retail earnings that we're seeing.
Another thing that seems to be confirmed as a thread is that we are in a confirmed slowdown on consumption here in spring.
Pretty much everybody's citing that.
How they're handling that slowdown is the difference between success or failure, right, on some of these stocks and in these earnings reports.
And the key component that seems to be determining that success rate is whether or not someone came into the year, came into the quarter with clean inventories, and therefore fewer items at risk on markdown.
And Target certainly had very clean inventories heading into this year, and that's what's helping their situation.
So I'd pause there, see if there's any additional questions.
But yeah, there are some themes already emerging in the first 24 hours of retail earnings.
What did you think of the shrinkage quote and the quote around theft and everything like that?
I don't think too many of these other retail companies have really pointed it out, but we kind of know what's the problem.
Maybe Walgreens did and one or two others, but I haven't heard that too, too much.
Walmart has talked about it in the past.
Walgreens has talked about it.
I'm not sure about CVS specifically.
Target has talked about it in the past.
I live right by CVS.
I promise you a bunch is getting taken from there.
You're like, I've seen it.
I have seen it at least once a week.
Yeah, it definitely is, particularly the certain cities.
I mean, we've started to see, right, companies have been talking about closing stores, right, because in certain areas where they're more at risk or their employees are at risk.
Right.
In some of these areas.
So it is a topic.
Do I think it's important that they're talking about it publicly?
Yes, because they're probably privately lobbying for things to the National Retail Federation would be our presumption, kind of the primary lobbying arm of the retail industry.
So there's probably a memo going out about talking about it if it is an issue, because they're probably in D.C. talking about, you know, how to mitigate these risks and the things that they need.
I don't know what else to say about it.
It's obviously it's an issue.
It's causing retailers to have costs associated, right, like unnecessary, unknown sort of costs associated with these thefts.
I'm sure it has been an issue.
Everything in New York City, like anything that's worth anything is now behind the lock.
You're behind the lock.
And you do like 10 minutes.
And that's going to that's going to impact your ability to convert on impulse buying.
Right.
So that's why you care about making sure things aren't behind lock and key or you need someone to go unlock it.
And that means you need to make sure you're fully staffed in a certain way.
So there's a lot of implications behind that oven.
And, you know, not even the most valuable things are locked up, like even like like like candy is locked up.
You know, like there's a lot of things that are small and that are.
But, you know, at this point, right, if it's costing these retailers this much money, you know, I've noticed that, you know, I live in New York City as well.
I've seen Dwayne Reed get security and I've seen it firsthand how much it does help.
You know, one security guard really deters a lot of people.
So, I mean, at that point, if you're losing this much money, you know, that's probably the next phase, right, for these companies is really implement the personal security that you can get.
One or two people per store.
Andrew, that's actually a great point.
I don't know.
It's empirical because it's just what I see in my area in New York City.
But CVS does not have a security guard.
And pretty much every Dwayne Reed I see does.
And I would very be interested.
Dwayne Reed is owned by Walgreens.
So I'd be fascinated to see if there's any difference there of what they're seeing and if it affects it.
Yeah, and I know, Evan, like even last, like a year and a half ago, I think you could say this too.
There were no security guards at Walgreens at that point.
And I think it got so bad where they're like, all right, we really need to because I've spoke to, you know, I actually live on top of a Dwayne Reed.
And I asked the people downstairs and they're like, yeah, like, you know, at night, it's 24 hours too.
At night, you know, just no one's there.
And, you know, they had to get people there.
So, yeah, no, I could definitely, I would love to see those numbers.
I think quantifying it for investors is important, but the public declarations, I believe, could also be around signaling to the local authorities as to why they need to be supportive, right, from these public services, because they're going to lose business taxes.
So, there's a way to quantify this as well.
So, not to chuckle about crime.
I'm just saying, I think the public declaration of these numbers might have dual meanings to both inform the investing public, because it is substantial and meaningful, but also to put some numbers out there in the ether for the local taxation-minded folks.
Neil, this is definitely something I'm going to pose to you, because, you know, obviously you're the expert in the consumer space.
I'm wondering if this is something you've ever thought of, but this might be a random question.
So, if it's not something that's data-driven, please feel free to let me know.
But you mentioned impulse buying, and I've always kind of thought about this in the back of my mind, but what's the difference, I guess, in terms of magnitude between the impulse buying effect, in your view, I guess,
and maybe this is just speculative, but the impulse buying effect in a retail environment versus, like, a digital sales environment.
And do you think it's even the same thing?
I think that's a really good question.
I think impulse buying in digital is having the selection available at the moment the individual thinks of it.
So, wide selection gets you to impulse buying.
Like Amazon.
Right, like Amazon, you know, Walmart, you know, any of the ones that have the access to, like, the widest selection.
Impulse buying in stores is around proximity and geography of traffic flows and patterns, and there's a tremendous amount of technology that goes into monitoring that.
We know because we actually advise companies on that.
So, yeah, I would say in-person is very different on the customer journey than it is online.
But fascinatingly, though, Target's digital channel showed a 3.4% decline in their sales for the digital channel, which helped actually contribute.
Were the physical channel up at the same time?
Yeah, their physical channel was up.
So, you know, does that mean that they, you know, with their purge of inventory last year, which has been well telegraphed, in fact, they ended their inventories even this quarter down 16% year-over-year.
So, like, really, really clean inventories.
Did some of that come from reducing selection and choice out of digital?
Yeah, they actually, they called that out on the call.
So, to that point on the pathway of impulse.
Okay, so last question on that specific topic, do you have, I guess, a speculative view on, you know, if we push this digitization AI automation trend forward and kind of imagine it maybe in a, either in like a local warehousing logistic format or in like an Amazon store style format, which we've already seen some of those deployed where, you know, the customer walks in.
And there's very few, if any, human employees and it's just synced with their Amazon account and they walk out of the store and they get charged immediately.
What industries specifically in the retail environment do you think are most resistant to, I guess you could call it like the vaporization of the brick-and-mortar trend?
Like, which industries do you think are very unlikely in the next 10, 15 years to have their physical presence eroded?
Which ones have the least likely?
Yeah, like which are the least likely, which do you think are going to be the most resistant to this digitization and online sales trend?
I mean, I think the dollar stores are kind of, the dollar stores are kind of fighting it, right?
I mean, the off price in dollar stores by even just resisting putting their treasure hunt online.
You know, they're kind of like, yeah, you got to come into the store to see what's going on in the store, right?
So, I mean, and you get some evidence of that even with TJX's results today, right?
They're very much around that kind of treasure hunt.
Now, the question, though, becomes what happens when treasure hunt or the ability, the capacity, the willingness to do treasure hunt goes away.
It's a good question.
We'll see.
One to watch.
It could be economically sensitive.
This is just a comment given the world we live in.
But I still find it hard to believe that I'm going to get clothes and, like, see it online and it will actually fit as it says.
Maybe that will come one day.
We'll get there.
AI might change that, but yeah.
I mean, like, I think clothes, you know, on first glance are probably resistant.
I think furniture, to some extent, people think is resistant, obviously on the service.
I don't know.
I'm literally picturing myself having an app in my house that has dimensions, features, and I can just really picture my thing.
I know, but people don't use it.
It's probably not the best thing in the world.
When I think about furniture and stuff, I feel like I'd rather do it at home.
Yeah.
I mean, maybe.
I mean, I think it's going to matter to some degree from consumer to consumer.
But another random anecdote before we move on from this topic was I know somebody, you know, the company Micro Center, some people might be familiar with that.
But they sell, you know, computer parts and components and build your own PC there and stuff and gamers like it and whatever.
It's an electronics-focused shop for people that might not be familiar with it.
But I know one of the, I guess I'll call him top-level guys.
He's pretty high up in the company.
I've spoken to him several times just about retail stuff in general, just chatted with him.
He was telling me that, like, they have been talking about it at Micro Center for a while, that their customer base is so digitally inclined that they've been one of the real, I guess, beacon holders of this whole, hey, you have to come to the store to get the deal.
The thing that Neely mentioned, Micro Center has been huge on that.
Like, you can't even check inventory on certain items at Micro Center without going to the physical store.
I remember this was an issue because when I was building my last PC, that was the same problem I had.
Like, I was trying to, there were certain components, high-demand components, where I'd have to, like, I would call the store and they're like, we can't give you inventory over the phone.
You have to come into the store to check.
And so, you know, some of these attempts feel, and again, I know this is on an anecdotal basis.
I'm not trying to make some, you know, overarching pound-the-table conclusion here.
But for an anecdotal basis, it feels like a lot of these are, like, desperation attempts to force consumers to come to physical locations.
And that makes me kind of less bullish on the idea that that can last for a lot of these industries.
I'm just not sure.
It really feels like a consumption in general is headed for that local warehousing model.
Like, I think if you really stretch this out 25, 30 years in the future, it feels realistic that you just have all of these massive companies operating micro warehouses locally and then operating to deliver direct-to-consumer out of those.
I mean, even in Dallas, like, I'm in Dallas, which, you know, Dallas last year hit the sixth biggest GDP by city in the country.
So, you know, Dallas is a pretty wealthy city.
And we get a lot of these, I guess, like, new test products early.
And I remember when Amazon launched two-hour delivery, they launched – Dallas was one of the first cities they launched it in.
And it was mind-boggling.
Like, I remember this was, like, a year ago.
You could get, like, I don't know, 60%, 70% of the products I would normally order on Amazon were available for two-hour delivery because they had a local warehouse in Dallas.
Amazon has been building out this logistics plan in general.
But I think at a certain point of efficiency, and maybe we're not there at that inflection point yet, right?
Maybe two-day delivery wasn't that point.
But at a certain tipping point of efficiency, when Amazon can deliver in two hours to any geographical location in the United States, maybe it's two hours, maybe it's one hour.
But there is going to be an inflection point where it becomes prohibitive to even consider going to a physical location to acquire those same things, right?
Not only from a cost perspective of getting in your car, but from a time perspective.
And so I just don't know when that's going to happen.
But that tipping point, I think, for digital versus physical commerce is coming soon.
What do you think of that story from Amazon, from Amazon about two, three weeks ago at this point, saying that they are now paying customers who order online $10 off their item if they go into the where – into either an Amazon Fresh store or Kohl's or something like that to pick it up.
So maybe that's just kind of an in-between phase here before we get to that old.
Yeah, I mean, that would –
It's interesting.
That's an interesting story on the kind of opposite side of the trend.
Yeah, I think that that's just an attempt – yeah, I think that that's just a strategic attempt to remove tension from their logistics change.
I don't think that's a permanent decision.
And even if it is a permanent decision, I mean, there's no harm in doing that to say, okay, we'll incentivize you to pick up your goods rather than – I mean, all of this is just a function of resource and scale, right?
So it's like you have X amount of drivers and X amount of logistics routes, and if you can alleviate pressure on those routes by offering an incentive to consumers, you can do that.
I don't think that that decision in and of itself is indicative of, like, I don't know, some attempt to go back to brick and mortar, but maybe.
Yeah, one last point on this would be it's not been profitable, right?
I mean, digital commerce just broadly has not been profitable, like, profitable enough.
The variable cost is still too high.
And I think charging to pick up in-store, charging – they're charging now for returns.
I don't know if you guys have covered that.
You know, they're charging $6 basically now for returns.
And that is fairly new.
And I just went through that process where I was like, okay, fine, I'll go into the Whole Foods.
You know, I actually hate Whole Foods, but I went into Whole Foods to, like, drop something off in the little kiosk.
And it was a complete debacle.
Like, it was such a horrible experience.
I got to tell you, I'm going to think twice before I pick up an impulse purchase, you know, from Amazon because of it.
Because it has created a whole new friction on even returns.
And that's a big reason why I think people have been able to go, like, yep, flip it up, press buy, instant buy, let's go.
Because there's no friction on the returns.
There's friction.
There's absolutely friction, whether it's cost and or time.
So, you know, Alon said it best, right?
Time is the only currency we really have.
And I agree.
I mean, it's this whole – trying to return $19 of compression socks, right, for my husband,
apparently is going to be, like, the bane of my existence in the month of May.
So, there you go.
I'd rather be on Spaces talking with you guys.
On that Whole Foods topic, I agree.
Trader Joe's – Trader Joe's – Trader Joe's – Trader Joe's much better than Whole Foods any day of the week.
Straight up.
You said Amazon's charging for returns?
Yeah.
Try.
Try returning something.
For everything?
Uh, maybe it's just my market.
Maybe it's just my items and certain price points.
No, Neely, it's literally just you.
Jeff heard you speaking on the Spaces last month.
Jeff Bezos is like, it's time.
It's over, Neely.
They're coming for you.
They should because I don't speak kindly of Amazon.
Neely, I do have another question.
We haven't really mentioned this yet.
We have Walmart earnings tomorrow.
I would love to know kind of what you're looking for there.
Maybe how Walmart – like, when I think of Walmart and Target, I do think of them as similar-ish companies, similar-ish makeups.
I'd love to know how kind of they're different.
I feel like Walmart might be a little bit more grocery-focused than Target.
Oh, definitely.
And even that can be a little bit off.
Yeah.
Off the top of my head, I would say Walmart's probably about 60% grocery.
Because keep in mind, they've got Sam's Club in there as well.
And that is a lot of grocery.
So, broadly speaking, I want to say they're about 60% grocery, whereas maybe Target is 20-ish plus percent.
So, it's a big difference.
Different margin structures.
Walmart employs about 2 million people.
Target employs about 400,000, 500,000 people.
So, it has four times the amount of employees.
It reaches in markets that Target doesn't exist in.
Obviously, it's more international than Target is as well.
So, there's a lot of things that are different between the two, but they are similar in that they will, you know, they are Gen Merch category sellers.
So, some of the things we're going to be listening for on the Walmart call is, you know, Doug McMillan has been making commentary around how people have been coming into the Walmart brand from higher income demographics to experience a lower overall cost to some of their food budgets and other items.
We're going to be listening for how he's characterizing that market share shift.
We'll also be listening for trends.
It seems to be coming off the Target call and confirmed by others that the weakness that we started to see in March continued into May.
So, no one's talking about May being a rebound here.
So, we would like to hear some trend commentary from Walmart as well.
And similarly, after the close today, we're going to get Boot Barn.
That's going to be discretionary, you know, you don't get any more discretionary than $200 boots, right?
And then, we're going to hear, sorry, Bath and Body Works tomorrow morning.
That's kind of who needs a candle in the interior of the mall.
So, there's some other discretionary categories that we're listening for to kind of round out this view in the first 48 hours of retail earnings.
You know, I like a heat candle every once in a while.
So, maybe that would be me.
Not yet, though.
Not this quarter.
So, I didn't help them.
But I definitely do appreciate that, Neely.
And I'm excited to dig in more into that tomorrow.
We also have Alibaba, which should tell us a little bit maybe more about the Chinese consumer as well.
Anything you're watching there?
Is Alibaba a name you watch for?
I'm a U.S. girl straight through and through.
Yeah.
I mean, I read the headlines like everybody else, but where I spend my time is on the U.S. consumer.
That definitely makes sense.
Who knows if we can even trust those numbers, but I digress.
All right.
I want to shift the conversation a little bit over to the VIX and volatility.
Jonathan, I was reading on your page, you tweeting about the VIX a little bit.
It is kind of crazy given all these debt ceiling conversations.
The VIX has not budged.
Volatility is staying low.
I haven't looked at it today, so watching you be eating my words.
But I would love to get your thoughts around the VIX and what your thoughts, what it could be.
Do you think we're going to be moving higher as this debt ceiling conversation continues in the VIX?
I heard today I believe there was some cautious optimism on debt ceiling, but I have a hard time believing that there won't be some theater added in for each party's base as that goes along.
And it could increase here coming up, in my opinion.
I've been playing it off about 16, 16 levels.
What is it at right now?
I'm not even sure.
I don't have it up in front of me.
But I play it every time pretty much it hits 16, 60 or lower.
It seems to be a point where the VIX itself now using – now keep in mind using other exposures such as UVIX, UVXY, which I like to use.
That has time deterioration every day, so you have to be careful and size appropriately.
But, yes, certainly I still do believe that as we approach this debt ceiling talk here, it could get a little bit more volatile.
But I am surprised, in one hand, that it stays so low, but also on the indexes, all we've been talking about is how stuck in the mud they've been.
So the volatility hasn't been extremely high.
It seems the market is reacting a little bit later to some things or, like, as soon as something comes out, something that you could have seen in advance.
It just seems that people are kind of plugging their ears and just going along with their lives and keep buying.
And one of the interesting – or one of the more related to the retail that I was curious on, and I don't know if we want to go backwards, but consumer credit keeps going up.
And people are still spending on credit, but at what point does that become illiquid?
So these are some things that probably apply to the VIX.
And by illiquid, I mean harder to get credit and wondering if those numbers, while positive so far, are somewhat of a lagging indicator to where people are still spending on credit.
But, yeah, the VIX doesn't seem ultra logical at the moment, but it's paid me a few times in the last couple of weeks.
This last trade, I was in and out real fast, was really just flat.
I'm not in it right now.
So I'm keeping an eye on it as it trends towards 16.
I think it was at 17-something earlier this morning.
But, yeah.
I did also see this morning that credit card debt in the U.S. is still hovering at all-time highs.
This quarter and last quarter were both nice jumps.
Well, nice isn't the correct word there.
But, yeah.
Neely, you have any thoughts on consumer credit, credit card debt, anything like that?
Maybe.
Yeah.
Any thoughts on that?
I was going to ask you.
Yeah, there's risk.
I was going down a hole.
Yeah, we view it as risk.
And, you know, Stock Talk has mentioned this earlier.
We're very, very, almost myopically focused on what happens when student loans go back into repayment.
I think it's really important to understand that just millions of cars and homes have been purchased by people who had student loans.
And those loans were not part of their credit profiling when they went into those loan agreements.
And so now we're going to have a situation where they go back into repayment.
13 million people were sent an email saying, hey, your loans were forgiven.
If the Supreme Court of the United States decides otherwise, not only are you going to have 13 million ticked off people and confused people,
they now actually have to go back into repayment.
And so I would say whatever the numbers are, they're at risk, would be our view.
Gotcha.
That makes sense.
We'll definitely be keeping that on watch.
Stock Talk, I want to throw it back over to you on that question around the VIX.
Are you surprised, given kind of what's been going on around the debt ceiling and some other conversations,
that the VIX has been able to stay so consistently under 20 over the last little bit?
And is it something you're expecting to move up over the next couple of days and weeks?
No, there's a we'll actually do a space on this so I can explain it in detail.
But there's a lot of reasons why the VIX doesn't function the way people expect it to and why it's been suppressed.
It's mostly marketing mechanic driven, zero DTE action is part of that, sideways trading in the indexes is part of that, a dramatic, I should call it an accelerated shift in hedge fund positioning is a part of that.
There are a lot of reasons why VIX doesn't function purely as a measure of fear or volatility the way that like a lot of retail traders expect it to.
It's not a, it's not a perfect indicator in that direction.
And a lot of times what happens in environments like this is people use other positioning metrics to express their fear rather than buying the VIX.
So I'll repeat that.
People use other exposures to express their fear.
Investors do other than buying the VIX.
The fundamental mechanical misunderstanding where people say, well, the VIX isn't moving.
Why isn't it moving?
That's a mechanical misunderstanding of the way that it works.
Zero DTE call buying, which has surged from, you know, anywhere from 20 to 30 percent of total notional options activity in the past three years has surged to 50 to 60 percent of total notional options activity.
This is a meaningful shift in the way that markets function, because the zero DTE exposure on a day to day basis affects the 27 day lagging exposure of the VIX as well.
The longer dated options activity you have, the healthier it is for the VIX.
So all of these elements, again, we can host an entire space on it because I can spend about an hour explaining it.
But there's five or six mechanical elements that are pretty reasonably explaining why VIX has been suppressed this year, why it has not been responding to perceived fears or perceived volatility events in the market.
But, yeah, we can host a special space on this maybe next week, and I'll explain it in detail.
But I don't have the heart to go through all the details right now.
All right, ready?
We are 70 followers away from 6,900 on the Stocks on Spaces account.
We got 600 people in here.
I feel like 70 of you are not going to be following.
If you want to see us go deep dive into the VIX next week, get Stock Talk going on some nice rants here.
Maybe we get them to just talk for two hours straight about it.
No, we'll bring in our friends and have a really good discussion around it.
But if you want to see that Spaces next week, get this account to 6,900 followers by the end of the Spaces, the host up here.
And we will get that planning for you right away.
Awesome.
Yeah, the guys that explained it to me, they are a private research firm.
Yeah, yeah.
I will try to bring them up as well.
I understand it pretty well now after I was explained this back in 2021.
But I'll bring them on because they're really smart guys, equity research guys that came up with this thesis.
And I think it makes a tremendous amount of sense.
So I'll look to get them on.
Hopefully we will get them on.
We'll have that sometime next week.
I won't give you guys a day, but I'll see when they're available.
Back to some of those previous conversations we've been having around AI and the institutional investors getting involved in it.
There was two quotes that I saw today of two people very, very bullish on the topic.
We had Steve Cohen, .72 and owner of the New York Mets as well.
Shout out.
He said that investors are too worried about a market downturn and that focusing too much on a recession odds may cause them to miss the big wave in AI.
I don't know if you guys can hear that background, but Goldman also said something too.
Institutionals are getting on the AI wave.
They will, right?
And like every theme, there are elements of risk as well.
But it's very difficult.
I mean, in fact, I don't even say it's very difficult.
I have debated this topic with, I don't know, hundreds of people in the industry and outside of the industry as well.
I have not yet heard a single convincing argument.
And I consider myself pretty open-minded.
I like to entertain both sides.
I speak to people of all different types of, you know, ideals and opinions.
But I have not heard a single remotely convincing argument on how this isn't going to ramp exponentially.
Not a single one.
The promise of corporate efficiency is too strong and it always has been too strong.
I mean, a very rudimentary analysis of all the major industrial innovations of the last hundred years will tell you that immediately.
I mean, anytime there's something that is invented that promises a dramatic improvement in efficiency, profit margins, reduction in workforce demand,
any of these things that are promised to a corporate playground are going to be pursued.
And, you know, usually what ends up happening is investment begets more investment, which begets consumer awareness, which begets more investment.
And then the cycle just gets out of control.
That's what happened with chips.
It's what happened with cell phones.
It's what happened with computers.
It's what happened with every major technological innovation in the last hundred years.
And it's what's going to happen with AI, too.
I would be very hard-pressed to believe otherwise.
The only thing, I would say the only risk factor that anyone can convince me of is that there's government regulation risk, which there is.
You know, there is, I guess, X possibility, X percentage possibility, which I don't know what that percentage is,
that the United States government or the Chinese government or both will make significant interventions that prevent progress from happening naturally or development from happening naturally.
Now, could you make the argument that it's going to happen anyway, even in spite of any potential regulations under the surface or, you know, in the back rooms of some of these major tech companies?
Sure, it probably will.
But, you know, it's one thing to have a publicly supported government subsidized or maybe not even government subsidized, but government endorsed industry.
Those grow much more quickly than something that grows, you know, in between the cracks or under the hood.
And so it's a function of investment like everything else, right?
It's the same argument I make about EV adoption when people are, like, hesitant about all the infrastructure that's needed.
That's all a function of investment, grid stability, battery metal supply, even all the things that come with AI are all a function of just money.
That's all it is.
It's money and time.
And so enough money solves those problems.
And the question people should be asking themselves is not whether or not these trends are going to take hold.
Again, it's very hard to make a logical case.
Otherwise, the question you should be asking yourself is how quickly they will take hold and how much money it will take, right?
Those are the debates.
What's the number and how long?
And that's worth debating.
And there's plenty of, you know, nuance to argue on those topics.
But when it comes to the trends themselves, I don't know.
Maybe I'm, like, blinded by the light.
But to me, it just does not – it seems impossible to stop here.
The promise of efficiency is too great.
I mean, this morning, I was just playing around with chat GPT-4, which I just – I actually just started using GPT-4.
I had used 3 and 3.5, but I just recently started using GPT-4.
And I was playing around with it during my pre-market research prep, which me and our head of research, Inezu, we do that every morning.
But we were just going through stocks, and usually when I see, like, a mover in pre-market and I'm looking for sympathy stocks to trade or, you know, I see a trend in the news and I'm looking for stocks that are specifically related to that news article, those things take me hours.
I have to go through, look at companies, make sure that the charts look good, make sure they're directly exposed to the theme I'm seeking.
That takes hours and hours of my time every morning.
Like, this thing does it for me in 10 minutes.
Like, I just – I tell it, hey, I'm looking for lithium refining companies under a $1 billion market capitalization that have been profitable for the last three quarters.
Boom, I have a list.
And it's like – it's instant.
And so, I mean, look, these – right now it's just tools, right?
And I'm just finding ways to, like, use it to improve my own efficiency.
But at a certain point, those tools get better, right?
And that's the huge caveat here.
Like, the number one fundamental assumption about this whole thing, which actually in and of itself refutes a lot of the counterarguments, is that it will get better.
Just that simple phrase.
Like, it doesn't stop here.
LLMs aren't like, hey, we impressed everyone, so it's done.
No, they're going to get better.
I mean, they just released GPT-4, they'll release 4.5, then they'll release 5.
Google will release their next edition.
Apple will release AI Siri.
Amazon will release AI Alexa.
The LLM race is already – it's off.
It's off to the races.
And these guys are sprinting quite literally with dumping tens of billions of dollars in CapEx, skyrocketing some of these private valuations to 2030.
I mean, what, AI's – OpenAI's last private valuation valued them at, what, $48 billion, okay, from a company that was worth, what, less than a billion two years ago?
This is how quickly it's happening, right?
I mean, Morgan Stanley in their research report this morning, the one that I shared, where they talked about private company valuations dipping,
the first line of the report was AI is growing faster than any technology ever.
That's what Morgan Stanley Research said.
That was the first line of their note.
Now, I don't know how you objectively measure that, right?
I don't know how you objectively measure, like, the growth of the steam engine, for example.
I mean, that would be difficult to, like, come up with a metric to compare those two.
But that being said, it's kind of terrifying, you know?
It's kind of terrifying.
The implied risk to the workforce, I think, is being dramatically understated.
I think every analysis I've seen is dramatically understated.
But, again, this is just my view.
We'll see what happens in the next five, six, seven years, ten years.
But, yeah, this is my view.
Inevitable.
It's inevitable.
AI is Thanos.
Why didn't Ant-Man just go inside Thanos and then just get big?
Is that how we're going to end AI?
All right.
Moving on swiftly from that.
We did get a news story out during this.
The Treasury's cash balance rose to $94.6 billion as of May 16th.
That is up from $88 billion on Monday.
What happened there?
I have no idea.
Neely, I know we've been talking a lot about the California and them delaying taxes.
And I have absolutely no idea if this is that, but I don't know why the number would go up here.
You know, the numbers fluctuate.
That's the good news.
One of the better accounts, I can post it up in the nest, that this guy's just been nailing it.
I think, and I've been watching him since, like, nobody knew who he was.
He's literally grown from, like, 1,000 followers to 5,000 followers in, like, a week.
His name's John Comiskey, and he is just doing some really good and highly transparent work around estimating the, you know, 250 or so accounts on a daily basis.
I've had a chance to go back and forth with him a little bit on the TGA.
That's the Treasury General account and some of his methodology.
And, I mean, I've been swimming in this data uniquely and nerdyly for, you know, two decades.
The dude knows his stuff.
And, in fact, he estimated, I think he estimated the increase to be, like, 98 billion for today.
And he's putting out daily estimates.
And, Ed, to your point, it came in at basically 95 billion.
So he's doing really well on his estimations.
So I'll put something up in the nest about it.
But he's a great follow.
Awesome.
Yeah, always looking for new accounts, tweeting out information like that.
I can't lie.
Once he said his name, all I was thinking was John Krasinski the entire time.
So there is that.
We do have an earnings or two out right now as well.
Cisco EPS came in at $1, beating expectations of $0.97, revenue of $14.57 billion, beating expectations of $14.4 billion.
And then Take-Two, ticker TTWO, they came in with EPS of negative $3.62.
That is probably not comparable to the estimate of positive $0.67.
And then, ooh, actually, the gap net loss included an impairment charge of $465 million regarding to acquisitions.
So that's why that's there.
And then revenue was $1.45 billion, beating expectations of $1.35 billion for Take-Two.
Evan, Take-Two is up like 7% right now.
Interesting.
Yeah.
I wonder if they announced GTA 6.
Let's see.
Also, randomly on Neely, I think gaming is something else.
I was interested to get your insight on.
I feel like gaming is one of those weird sectors that really always kind of stays consistent.
And even in bad times, people always – they're franchises, right?
So people are embedded to those franchises.
And, you know, there's a better chance of someone wanting to buy a game than go to a movie because you get 60 hours of entertainment for $70.
So Nintendo, in three days, sold about $10 million Legend of Zelda.
That's $700 million in three days.
So curious what you think about that from a consumer side.
All I can speak to is a mom who pays for the gaming bills.
My son is 17.
And, you know, he's actually, like, a really good, you know, like, social media regulated kind of person.
Like, he knows how to regulate his time.
But I'll see him go in and out with his friends.
I mean, they won't play, like, you know, Smash Brothers or Smash Bros or whatever that is.
And then all of a sudden, like, they'll start playing it.
He won't play Fortnite for a while.
Then they'll all start playing it.
So to your point, I think there's some resiliency in gaming, whether it turns from, like, an addiction to nostalgia, right?
But it's a continuous stream of dopamine hits, right?
It's like Starbucks.
Another one of those legal drugs.
Exactly.
It's like Starbucks.
It's a legalized drug.
It's coffee.
You guys want to hear a crazy story?
When I was 13, 14, or 15, I may have been streaming on Twitch a little bit.
And I also may have spent $3,000 in two months on NHL 15 or 16 or 14 or something like that.
We need to go back in the archives.
We need to go back in the archives and get those things right.
We're going to find this.
By the way, they are still up, and we got the money back.
My mom ended up calling Microsoft and was like, how could you let a 13-year-old spend $3,000 without any warnings on it?
And Microsoft gave every single dollar back.
Imagine if Fortnite Bucks existed when we were 16.
That would have been a bad time.
All I know is I was addicted to opening packs in NHL and felt like they were marketing to me.
So when they do those stuff of child gambling through these video games, I am a real-life example of that.
I think there's some interesting stuff that should change, but we got all the money back.
I mean, microtransactions on video games have proven to be massive revenue generators.
I mean, Fortnite did it, but Fortnite 2K did it.
GTA 5 did it.
They all did it really well.
But why is Take-Two up 10% after hours on an EPS miss and a revenue bids?
It was actually Evan buying a bunch of packs.
No, but I'm actually curious.
Did they announce GTA 6?
What's going on?
Yeah, right.
That's a huge joke.
The EPS, that's not going to be comparable because they took a one-time charge, and I see their revenue as a small beat.
Forward guidance.
What was the one-time hit from?
Was it from the Zynga acquisition?
It just says for acquisition-related and intangible assets.
Yeah, the Zynga acquisition, I think.
That's when they bought that mobile gaming company, Zynga.
Candy Crush.
Which is worthless, and they really overpaid, but that's a separate...
Oh, I played Candy Crush today when I was on the airplane.
So there is that.
Anecdotes for the win.
Yeah, anecdotes are OP.
Evan, I didn't realize you were like a 45-year-old female.
That's cool.
I played that, and I played the 2048...
No, what's the game with the cubes and stuff?
I need new and better...
Damn, Evan, you're tasting games deteriorators.
No, these are non-Wi-Fi.
When I don't have Wi-Fi, I don't have internet.
So I have other games that I play.
Damn, the gaming bug is real.
Don't have Wi-Fi, don't have internet.
Must game.
Candy Crush, please.
What else am I supposed to do on an airplane for three hours?
You could read some definitive 14-day proxy documents.
That's what you could do.
That's what we normally do.
That's what a committed-to-the-craft people do.
I was on a JetBlue flight this morning,
and they were trying to charge me for those headphones you have to plug in,
and then their most terrible thing works like zero cents.
So I didn't buy it, but I was watching CNBC this morning
with no volume behind it on the airplane.
I like how Wolf is being super...
This story is getting worse and worse.
I like how Wolf is being super silent ever since he rolled in that PJ, too.
So you're going to have to get in on the PJ action for the Wolf account.
I was trying to get another for this morning.
You know, unfortunately, it was booked up.
So next trip, next trip.
Dallas is doing that company that offers, like, single-seat private planes.
Like, they...
JSX.
Yeah.
I don't know what the company's called, but they're doing it out of Dallas now.
They're actually pretty cheap, the tickets.
They're, like, I mean, comparative to, like, private flights.
But they're selling them for, like, $300, $400 a ticket, but it's a private jet.
You get your own private terminal.
It takes off from Dallas.
They only have, like, four or five destinations right now.
But I've been seeing more of those as well.
But does anyone know this Take-Two story, or are we just all lost in the sauce on this?
No, so forward guidance, gap, net revenue is expected to be in the range of $5.37 to $5.47 billion.
Wall Street was expecting $5.25 billion, so slightly above.
I know the bad news.
I'm saying, why is it up 10%?
I'm seeing adjusted EBITDA miss.
I see net bookings miss, adjusted EBITDA mix, adjusted EPS miss, forward guidance on net bookings miss.
I see gap, net revenue, forward guidance above expectations, not below.
Okay, maybe the gap for it?
I don't know what it is.
I mean, that doesn't seem like enough to push the stock 10%.
I don't know.
Maybe I'm just...
Oh, no.
I thought that was a GTA VI thing, but they're just discussing the number of copies sold.
Take-Two says it has sold 180 million copies of GTA V and 53 million copies of Red Dead 2.
I don't know if that's new or not, but that's a disclosure.
Red Dead 2 is such a weird property for them.
They don't even care about it, and that's a game that they can make so much more money on.
They stop the online service.
It's their most recent game.
I don't know why they don't really care about it.
Yeah, 53 million copies is a lot.
180 million copies for GTA V?
Jeez, dude.
I mean, it's been around for decades.
I mean, but that's still a lot of copies.
It's the most successful property of all time.
Any entertainment ever.
It's the most successful entertainment property.
I'm looking at their future product pipeline.
There is no GTA VI.
There's a Grand Theft Auto, the Trilogy.
Actually, is that GTA VI?
Let me double-check this.
No, that's the three games that they released.
Okay, yeah.
Yeah, then it was awful.
But no, it's TBA.
No, no, no.
GTA Trilogy is TBA?
Yeah.
Because they released the GTA Trilogy a year ago.
They might have just announced it.
Because they had a definitive edition of all the three games a year ago they released,
and it got really bad reviews, and it was panned.
They sold a lot of copies, but it was so buggy, and no one liked it.
But that was the Trilogy that I think they're referring to.
Interesting.
But yeah, I'm looking at their future lineup, and there's no mention of GTA VI in here.
So I feel like no one actually cares about Take-Dews numbers.
It's just, is GTA VI coming?
All right, on to the next one.
Nope, on to the next one.
And somehow, again, as Stocktalk, you said, jumps 10% on, like, nothing.
So, okay.
Yeah, I was imagining they made an announcement, but I guess not.
I guess there wasn't any big announcement.
Let me double-check if they put out an extra folly with it, too.
There's a four-mate.
The tea leaves.
No, the four-mate's just their earnings.
Yep, nothing here.
Nothing outside of it.
We were just talking about this earlier, but ex-Google CEO says China's use of AI in military applications should raise alarm for Congress.
I agree.
Which ex-CEO is that?
I don't know.
It just says ex-Google CEO on the headline.
So, Stocktalk, with AI, you know, how far along do you think the government is, you know, militarily?
Because, again, I think, what's the scale?
They say the military technology is about 25 to 30 years ahead of consumer state products or something along those lines.
So, you know, how deep do you think they, you know, their own research has gotten into AI?
Oh, I think very deep.
I think the world governments are probably far ahead of anything that's been shown to consumers.
Yeah, I mean, look, even if you talk to, like, AI experts about, which I'm not an AI expert, I just consider myself an AI enthusiast.
But if you talk to industry experts about large language models, what they'll tell you is that to industry experts, it's not that impressive.
And this is partially the reason why I make the argument that this was more of a marketing event and an awareness event than it was a demonstration of technology.
Because if it wasn't meant to impress the people within the industry, then what was it meant for?
The answer is it was meant to impress the consumer.
And so, yeah, the industry itself is far, far ahead than what the public has seen, let alone the governments, which are, I mean, international spy organizations, the CIA, the Chinese private intel communities, the British intelligence communities, they are likely far ahead in deployment of AI than anyone realizes because it's directly useful to everything, right?
I mean, people have already been emphasizing the financial relevance and the implications of the financial industry.
You know, every major bank in the world has already started to deploy AI risk models.
And so you extrapolate that to military applications, things like military strategy, development of materials, armor materials for plating of tanks, aircraft carriers, fighter jets, guidance technologies.
All of these things have direct relevance to AI.
So the idea that the United States military, which is arguably, you know, has some of the most spending power of any entity on Earth, right?
I mean, they have an $800 billion budget annually.
The idea that they aren't spending tens of billions on this already or haven't been, I think, is probably not true.
I imagine that they've been doing that and they probably continue to do it.
I mean, yeah, like you said, military technology and government technology tends to be years ahead of public technology.
I think the same thing applies here.
And that's why it is a national security risk from the get-go, right?
I mean, if you look at the industries that have been elevated to a level of concern that they're considered industries of national security interest, it's anything that is valuable pretty much now.
I mean, it started off as high-end chips.
You know, that probably like eight, nine years ago, high-end chips became a cornerstone of the international political debate because, you know, it was seen that for the highest-end chips, the cutting-edge chips, the next-generation chips, there's only a handful of meaningful producers in the world.
And those meaningful producers are geographically concentrated.
And so what started as an industry issue became a geographic issue.
And like all geographic issues do, it evolved into a geopolitical issue.
And AI will do the same thing.
The only difference is we're not going to need 10 years of industry development to make that conclusion, right?
I mean, chips in their inception were just marveled at, right?
When the microchip was invented, everyone was just in awe, thinking, oh, my God, think about all the implications of this and what it can do for the world.
And the first 10 years post the inception of microchips was spent in a celebration of industry.
I mean, it accelerated a ton of industries.
There was a massive amount of investment, hundreds of billions of dollars in investment in microchips in five years.
And then it became the industry that it is today, and you gave birth to companies like NVIDIA and AMD, et cetera.
It won't be that slow with AI because from its inception, the understanding that it has national security implications is already there, right?
It took 11 years of chip development, microchip development, before there were meaningful contributions to next-generation weapons systems.
Even if you look at the CHIPS Act, which was just passed, and you look at the detail of the CHIPS Act, one of the key points that is repeated within that legislation is that chips relevant to specialized next-generation weapons systems, the Pentagon will be given priority access to those chips.
So the U.S. government is telling you directly through legislation that this is the national security industry and that the United States government will prioritize access for the Pentagon to any chip that could enable next-generation military capabilities.
If that is the case, and that is the official policy of the U.S. government, which the legislation would suggest that it is, then that directly and immediately applies to AI as well, because AI has next-generation military technology implications for weapons systems and otherwise.
And so, yeah, it is a national security issue from the get-go, and it's probably going to be one of the only industries that functions that way.
And so, I don't expect collaboration between China and the United States on this.
I don't expect the United States to institute widespread regulations with the fear that it will leave them behind in the race.
And so, I think this is going to be turned over to the corporate playground.
And that is both dangerous and will also accelerate the development.
You've got to find a balance here.
I'm not an advocate of regulation, but there must be some kind of national agency to oversee the development here.
Otherwise, it's just a genie out of a bottle, and these guys are going to chase it to maximum capability because they won't be able to differentiate between capability of these systems and profitability of these systems.
The line is too blurry, right?
When you think about the production efficiency that is gained from these types of systems, and you weigh that against the risks of sentience or a system losing control, it's impossible to make that calculus at this stage because no one's done it yet.
No one's achieved AGI.
So, we don't know what the calculus is of the risk between developing this technology versus the benefits of developing this technology.
And because that's not a clear equation, it's going to get turned over to the corporate playground like it always does.
Whenever there is not a clear-cut legislative inspiration, something that will convince enough members of Congress to put the stop on it, nothing's going to happen.
That's the way that the U.S. regulatory environment has always worked.
The U.S. regulatory environment is too much red tape, too much compromise is required, that if you don't have overwhelming consensus that's informed by an event or some kind of development, then you're likely not going to get any change in policy.
And I don't think you'll get any here.
I think at the most, what's going to happen is you'll likely see a government committee on AI that will do largely nothing.
I think that committee will probably have a handful of rules, quote-unquote, things like companies can't develop AI to harm humans.
But I think the benchmark or the boundary of those rules will be very blurry.
I don't think that the corporate community is going to recognize immediate harm or display an intention to provide harm to humans.
And so you're just going to, the ball's going to keep rolling, like it always does.
I mean, I said this about electric vehicles in 2015, everyone thought I was stupid, and here we are today.
I'm saying this again about AI today, and we'll see where we are in five years.
But I think I will be right.
I think that in five years, you'll have a massive invasion into the workforce.
I think most companies will replace tens of thousands of jobs.
The next business cycle, in my view, will be brutal for the average employee.
Because whenever the next business cycle comes and the next financial crisis comes and rates go back down and we go through this whole game again, on the other side of that cycle, these companies will not have to weigh employment risk.
In every business cycle, including this one, in every business cycle before in modern history, what companies are forced to do is they're forced to adjust their employment base and their production capacity to the whims of the business cycle.
So when rates go down and demand naturally goes up as a result, companies are forced to employ more people and to expand production capacity to meet that demand.
When rates go back up and demand naturally comes down, companies are forced to fire those people that they hired and to reduce production capacity.
This happens in every business cycle ever, and it's largely a general effect.
There's a few companies that can bear exemption to it because of certain balance sheet capabilities.
But other than that, generally speaking, that's what happens.
Next cycle, it's five, six, seven, ten years down the road.
When that first wave of demand comes in, companies will realize that they don't need to hire human employees to meet that demand.
That is the fundamental shift.
That is the change that the function of human labor is no longer needed to to adjust to interest rates because you can simply install AI systems that have a fixed cost of installation, that have don't need health insurance, that don't need to take a piss, that aren't going to sue you.
And that's what companies will do because it provides less risk for them to get out of that cycle, right?
Like even when you look at Tesla cutting prices now in the context of business cycle, people are like, oh, well, are they going to raise them?
That question applies to every industry.
And so when they're in that position and you're a CEO or a manager of a company in the next business cycle and you know demand is going down, are you going to take the employment risk?
Are you going to embrace the employment risk to say, well, I'm going to hire 500,000 more people and whenever the business cycle is over, we'll figure it out.
Of course not.
That's a terrible strategic decision.
What instead you're going to say is we'll implement AI systems to meet this demand temporarily.
And the next time we get this influx of demand, they'll be there standing ready to meet it again.
And this prevents the, I don't want to call it volatility, but the inflection in demand for labor up and down will become muted in the next cycle.
And that is, in my view, the fundamental thing that's going to change the labor market.
But again, very bold, I guess, hyperbolic thing to say, some people might think, but I don't think it is.
And we'll see.
Next business cycle, I'm very convinced that that will be a very real effect.
And a lot of people who lose their jobs in the front end of a financial crisis won't get them back.
By the way, we might have actually heard more about GTA 6.
So there were some guidance given around fiscal 2025.
I'll give you a quote directly from the CEO of Take Two.
So this is a quote from them.
We believe that we will enter our next phase of growth in the fiscal year 2025, as we plan to deliver several groundbreaking titles that we anticipate will set new standards of quality and success and enable us to deliver over $4 billion in net bookings and over $1 billion in adjusted, unrestricted operating cash flow.
So I don't know what other game that's going to be besides GTA 6, in my opinion.
And Roundhill, a company we've been doing work with, I respect them a lot in their research.
They came out and said, based on what they were looking at, it looks like, based on forward guidance, it will be between March 2024 to March 2025, their fiscal year 2025, probably around that holiday season.
So GTA 6 kind of getting the inclinations when it's coming, hopefully.
Yeah, and something like a $300 million investment, I think, into that title.
How much did GTA 5 bring in?
Billions.
So the fact that they're investing $300 million into it, and that's also probably revenue, not profit, but still.
Not to mention, again, going back to microtransactions, that's where GTA 5 really excelled for six years.
It's just GTA Online and just pumping out content and new cars.
I mean, I think inflation has hit the GTA world, where I think a cost of a car in the game is like $19 real U.S. dollars for a high-end version of the car.
It's insane.
So they've been able to really squeeze out every dollar.
And that's, again, go back to microtransactions, just raise the bar.
But Evan, also, on the point of GTA 6 and when they will release it, generally Rockstar does a teaser trailer about two years or a year prior.
So they're expecting potentially, like, towards the second half of this year, there's a chance we get a teaser.
So that might be the teaser.
And then the following year would be the full reveal, like, hey, you know, this is the full story and all that stuff.
So definitely something to keep an eye out for.
That's exciting.
Sounds like we may be getting it soonish, that first teaser trailer.
I will definitely be looking forward to that one.
Awesome.
See, I think we've gotten through most of the names and the big stories from today.
I want to ask Stock Talk you a little bit about some of the names that we have coming up tomorrow, if I can, in this next 30 minutes or so.
We have Walmart and Alibaba reporting earnings tomorrow.
So I don't really think these are either names that you really look at and trade.
Maybe Alibaba because of the whole Chinese theme.
Do you have any thoughts on these earnings, what you're expecting, if you will be playing them at all?
Any thoughts around them?
Obviously, with Walmart, we've gotten a lot of retail sales from Target and Home Depot this week.
And Neely was talking about the differences.
And in Alibaba, we've been getting a lot of those Chinese names as well.
So I feel like we might be able to expect where they're going to go.
But are you watching anything with these earnings tomorrow?
Maybe Alibaba, how they're going to do the split up?
Yeah, I'm keeping my eyes on the split up, or I should say the potential split up.
I'm really fascinated by that split up.
And I'm surprised.
Like, we saw GE doing it.
J&J spun off their healthcare name.
I wonder if this is going to be a continued trend going forward.
It will be, you know, there's something to be said about pure plays.
And, like, when I say pure plays, I mean pure exposures to a given industry on the market.
They tend to receive a higher premium, okay?
So when a trend is in favor, I'll use – what should I use as an example here?
Oh, I'll use lithium as an example since I love talking about lithium.
So LTHM, which is the first mid-cap position I ever opened in lithium, LTHM was a spinoff from FMC Corporation of their entire lithium business.
And it was the first ever pure play on lithium listed on the public markets.
Albert Marley is the world's largest producer of lithium, but they don't only make lithium.
They're involved in other metals and materials.
So that pure play exposure gave LTHM a monster two-year rally when the trend was in favor.
I mean, people just aped into the stock.
I bought it at $8, and it was, like, $20 within five months.
So people aped into the stock because it's considered a pure play exposure.
And that's what these companies are seeking when they do these spinoffs.
They're seeking pure play exposure for the different components of the business because they think those individual businesses will therefore receive a higher multiple, making the aggregate worth more.
Diversification, when you're a massive company like that or when you have a number of verticals, diversification can actually dampen your multiple to the market because, you know, there are considered risks in each of those individual verticals.
And it also makes it more difficult to have, like, a consensus view, right?
Different analysts on the street are going to have different projections about all of the different verticals that are within that business.
And so as a result, you have price discovery, right?
You have this game of cat and mouse and up and down and analysts raising and lowering price targets because it's very difficult to get a consensus view on a multifaceted business like that.
When you spin it off into a pure play, what you tend to get is not only, generally speaking, do each of the businesses trade at a higher multiple than they would combined,
but you also get a much higher chance of sell-side consensus because it's much easier to, quote-unquote, see clear.
When you're looking at these businesses individually and you're analyzing them and they have 12 different verticals,
it's very unlikely that you're an expert in all those 12 different industries or products and that you can make an accurate conclusion about them.
When you spin off a business, that picture becomes much more specific.
And so there's a lot of reasons to spin off a business.
Those are some of them.
I don't know if that's Alibaba's exact intentions.
You know, sometimes it's also to remove risk, right?
So another example is Lithium Americas Corporation is talking about spinning off the Argentina portion of their business.
Why?
Because they want to separate the risk of the Argentina portion of their business from the United States portion of the business, right?
So that's another reason why you might do it is to separate risk.
So a number of reasons, but I'm generally a fan of it when it happens.
There's some exceptions.
I'm generally a fan of it.
I think it's usually a good thing.
There have been mistakes made in that way in the past, but it's usually a good thing.
It feels like this theme is starting to creep up a little bit more and more, but very much not.
So I'm not getting it all in these mega-cap tech names.
It kind of feels like there's that mega-cap tech that is really being rewarded for being these massive conglomerates with a lot of stuff under it.
And then there's pretty much everything else below it, which is doing these different plays and trying different things.
So I do have a question here for you, actually.
Given kind of how – it might be hard to answer, but given how these big tech names have been holding up and really became kind of safety areas in the market,
do you think the sum of the part that Apple would be valued more than $2.7 trillion?
Do you think this is the case for all those big mega-cap companies or whatever it is now?
No. See, in Apple's case, I don't think it's a good idea.
Like, there's certain cases – like, this isn't a universal principle, right?
Like, it's not always a good idea.
That's why I made sure to say, generally speaking.
Like, in Apple's case, Apple built a company around the brand, right?
I mean, it's – you can argue that their products are excellent.
I think that they are, too, especially today.
But they're also significantly pricier than competitors, right?
And you would have to make the assumption that, you know, when you have products that are comparable in performance and specs,
but one price product is selling for significantly higher, in American economy terms, there's usually due in some part to brand, right?
You see this in clothing all the time.
I mean, everyone can relate to that in clothing, right?
You slap a logo on it, and it's worth more.
The same way a Rolex is worth more, even if I made an identical watch, right?
Even if I got an expert craftsman to make me an identical watch and put a different name on it, the Rolex would be worth more, right?
And it's the power of brand and pricing, and it's also the power of brand in the ability to push a suite of products, right?
So brand has customer loyalty impacts.
It has pricing power impacts.
But the most important impact, in my view, is ability to basically blindly push a suite of products onto the customer,
where the customer is purchasing other products within your brand purely because they are brand loyal, right?
Apple did this with the iPhone very effectively.
I mean, dramatically effectively, right?
I mean, if you look at AirPod sales, MacBook sales, and what they did to reinforce that was Apple created their own dongles and their own ports and their own synchronization between devices.
Like, even now, when I turn on my MacBook, it says, like, would you like to connect your iPhone to your MacBook?
Or when I pick up a FaceTime call, you know, so this reinforces the ecosystem of products.
And then you use the brand leverage you have to kind of shovel it to your existing consumers.
And so Apple's not a business that a spinoff would work well for.
Because, you know, Apple's standalone Mac business is unlikely to be as valuable as Apple's Mac business with the impression of the entire Apple brand.
And so, you know, there's a lot of elements to it, but Apple, I don't think, would be an ideal business for this.
Neither would, like, you know, a Microsoft.
Any of these businesses that are pushing a suite of products behind a brand would not be a good example.
Tesla would not, for example, not be a good example, right?
Like, Tesla's, a great example of this is the demand for Tesla's energy storage products, right?
Like, Elon shared a graph of this, but if you look at the growth in Tesla's demand for their energy storage products, it's exponential.
Right?
Why were they able to do that?
Because they leveraged their brand.
When they were going to companies like, you know, do you think companies like PG&E would have partnered with them?
Or do you think these municipalities in Australia and Texas would have welcomed Tesla to come in and build, you know, an energy storage facility that their municipality was relying on?
No, of course not.
Not unless they trusted the brand.
And they did.
And did they trust it because they had built energy storage products before or sold them energy storage products before?
They trusted it because it was a massive company that had cars everywhere.
And to some extent, that was brand value.
So brand value isn't just, like, a lot of people dismiss it, in my view.
A lot of people are, like, way too discounted of brand value because it's one of the most important elements in a business.
It lets you leverage existing customers.
It lets you shovel out new endeavors into new products that you wouldn't otherwise have been able to execute.
Like, could you imagine if at the pace that Apple is introducing and making new products that a smaller company tried to do that?
They would be dead within a year.
And it's not just a function of scale.
You can say, oh, Apple has a ton of cash and a ton of scale.
So, duh, they can try new things.
It's, yeah, but trying new things versus trying new things successfully, that's a different notion, right?
I mean, Apple launches a product and it sells out.
I mean, forget about their products.
They just launched their fucking Apple card and it got a billion of inflows in the first four days.
In the first four days, people took their a billion dollars worth of money, came out of bank accounts and into an Apple card.
Why?
Why?
Why?
Is it some notion that Apple is a tremendous money manager?
It's the brand, right?
It's purely the brand that they were able to leverage.
So, yeah, like companies like Apple, Microsoft, Tesla, Google.
I actually think Google's brand images has weakened tremendously.
I think the most brand strong part of their business is YouTube.
But I think in a way, YouTube's kind of become disassociated from the Google brand.
Like, I don't think, I mean, people who know that Google owns YouTube obviously make that conclusion.
But I don't think the regular consumer who has zero financial literacy, I don't think all of them are immediately associating YouTube with Google.
So I think in a way, you know, sometimes having de-branded or alternate branded verticals, which a lot of these big tech companies do have, by the way, because they've spent so many years doing M&A.
I think there's even a risk to having some of those elements of the business that don't have immediate recognition with the brand, because it prevents your ability to really push the suite of products, right?
Like, I'm sure at some point, BARD is going to be coming to YouTube.
Will the consumers be surprised by that?
I think they will be, right?
But had they immediately associated Google with BARD, and they've been like, oh, it's coming because it's on, or sorry, not, I'm tripping now, not BARD, but Google's AI.
What is it called?
It is BARD.
There you go.
Yeah, sorry.
I thought I was misphrasing, mixing up the two.
But yeah, you know, whenever that comes, are people going to directly associate it with the brand?
I don't know.
And, you know, that's the tricky thing.
Like, Apple, is there an excellent job of the businesses that they have acquired?
Everything is branded as Apple, right?
Except for the Beats by Dre, I think, is the only real major one they haven't, you know, turned into Apple.
But now, even now, they're using the Beats by Dre technology.
Like, the new MacBooks have the Beats by Dre technology and the speakers.
So it's like they're co-integrating the products all into the core brand.
And, you know, I think Google has probably done the worst job of that out of the bunch.
And so, you know, I still like Google.
Obviously, I've traded Google and I have a position in it as well.
But, you know, I think they probably have done the worst job out of the big tech companies.
I think Apple has done a tremendous job.
I think Amazon has done a tremendous job at brand.
You know, I think Microsoft maybe even not that great.
Tesla has done a tremendous job with brand.
I mean, brand, I think, is becoming more and more important because we're turning into a convenience economy more than we ever were.
And brand loyalty is associated with the convenience economy as well.
Because when you go back, way back, price difference mattered more.
Right. Like 100 years ago, more consumers were focused on price in a vacuum of competing products than they are today.
You know, if you ask the consumer 100 years ago, if they walked into a store and one bottle of water was priced at $3 versus and obviously these dollar numbers aren't relevant because don't obviously a dollar was a lot of money 100 years ago.
But my point is, if you ask the consumer back then, if there's two bottles of water and one's $3 and one's $1, which one are you taking?
That consumer is going to tell you 99 out of 100 of those consumers are going to take the $1 bottle.
Today, that number might be 60.
They'd be like, well, what brand is the better water?
That'd be the first question.
That would be the first question out of the mouth of most consumers.
And tell me if I'm wrong.
I mean, it would be.
If you asked American consumer which bottle of water, that'd be the first fucking thing they asked you, what brand is it?
Well, if it's Fiji, maybe.
Right.
And it's like you can make the arguments for the difference in quality, the difference in taste.
But this effect is pervasive.
It's in every element of consumer culture.
There is brand preference.
And whether that brand preference was built, sometimes the brand preference is built initially by just being the best priced product.
But it's very rare.
It's very rare that that's the case.
If you look at the leading brands in the world today, few of them are the leading brand because they sell the cheapest product.
That's rarely enough to enforce an industry-leading advantage.
And that alone, just that, that one statement to say most leading brands in the world don't sell the cheapest product,
that has implications of the entire speech I just gave,
which is that the brand is part of the business and is probably the most important part of the business.
Well, Stock Talk, even for Apple, I mean, how many years did it really take them to build this ecosystem?
You know, again, the iPhone was for, you know, the iPod, the iPod Touch, the iPhone, then the App Store.
So you, and then you have the iPad.
And at no point were they the cheapest product.
Never at the cheapest product.
And it was all about making this product the best possible product, right?
No one ever had an iPhone and said, oh, I'm going to wait for the iPad, something that could come out in five years.
They're like, you know, everyone wanted that product.
And then Apple said, well, secretly, we have a way to link these all together using cloud and all this stuff.
And you're 100% right.
You know, again, even Apple, it took 10 years to really get the ecosystem within like the way it is now, perfectly synchronized.
Yeah, exactly.
And the leverage brand at every stage and it worked.
And if you, if you have the ability to grow, that's only one element of the equation.
If you ask a rudimentary, a layperson, hey, if I've penetrated an industry, what is the best way to achieve industry leading scale?
The first immediate and seemingly obvious answer would be, well, just undercut everyone on price.
But that's not how any of these guys got here.
It's not how Apple got there.
It's not how Microsoft got there.
It's not how any of these guys got there.
And so that notion tends to only work in micro economies.
In economies of scale and in international and an international economic perspective, it doesn't work like that.
Because the thing about brand is it transcends borders.
You know, it transcends cultures and borders.
Right.
People have an immediate association.
Coca-Cola.
I mean, I mentioned, I don't know how many companies already,
but Coca-Cola is another great demonstration of this, right?
I mean, Coca-Cola's company is almost entirely built on brand.
I mean, they also have the best tasting cola in my personal opinion.
But, you know, they've built a brand that is globally, I mean, you can go anywhere.
There's places in the world where you can get Coke that you can't get water.
And I mean, Coca-Cola, not the other kind of Coke.
But the point of that is, is that there is, you know, value in the ability to use your brand as a vehicle for every other component of the business.
Every other component.
Apple would be worth a fraction of what it's worth today without the brand.
Coke would be worth a fraction of what it's worth today without the brand.
And this story goes on and on and on.
So, you know, I'm a huge advocate for, like, building brand and all the steps that are taken to do that.
And I think, you know, there's just too many examples in every industry.
By the way, we did have a news story or two break during this.
We did have the Snowflake.
They're reportedly looking to acquire some company called Neva or whatever.
Normally, these type of headlines would send the stock making an acquisition down.
But given this market, Neva is apparently an AI company.
So I think the market is liking Snowflake maybe going after an AI company.
And then we did also have NVIDIA CEO Jensen Huang.
He is currently, he was on CNBC for a little bit.
Them, and I believe it was ServiceNow, announced a partnership.
So they were being interviewed.
NVIDIA CEO Jensen Huang, a quote from him.
We have reinvented computing for the first time since IBM System 360.
So some big words from Jensen Huang and NVIDIA.
And a couple of stuff to watch there.
But he is live on CNBC right now if you want to see that, check back later.
But Wolf, I see you got your hand up.
Yeah, I also saw, well, first off, I think that the conversation here has been fascinating.
And I agree with a lot of what's been talked about with AI.
I just can't imagine that.
First off, StockTalk, you're a co-host.
You can change the title of the space.
Don't text me to change it.
I'm not a co-host.
All right.
Number two, I do agree with a lot of the AI stuff.
Definitely inevitable.
I love, I think it's going to be such a huge, huge leap when Google integrates it into Chrome
as search.
We actually had Ross Gerber on Spaces yesterday.
We talked about this with him.
And he was uber bullish on it and really talking about it as Search 2.0.
And I completely agree with that.
I think that's by far the best use case for it, right?
Because right now, I'm basically, JotGPT, to me, just feels like Google, if Google knew
what my next six search requests were going to be and didn't have to go through all those
steps to put it all together.
And also, Google is just pretty stupid, honestly, with that search bar.
So I think that integrating them, obviously, we saw what it could do for Bing, which was
really just a dead search engine, which generated a decent amount of traffic for them.
So I'm super excited to see, you know, what it does for Chrome, which is actually getting
the real search.
Okay.
Also, with the other piece, I think that, you know, the brand, I completely agree as
well that people just don't associate YouTube with Google.
So maybe they do some, maybe they need to do some more advertising around that with kind
of like, because they never really advertise it as like YouTube by Google or anything like
that.
That's what I think they should change it to.
I think they should just add a small by Google at the bottom.
It's like powered by Google or something.
I mean, they obviously push it the most, right?
They put it at the top of your results.
Anytime you search for something, they push a YouTube video to you first before really
a lot of articles.
But yeah, a couple of good pieces.
The other news story that I just wanted to also talk about for a second, and this is maybe
more towards the media side of things, but it looks like Laura Ingram might be out at
Fox as well, following up on what just happened with Tucker.
So curious if, you know, more people start coming over to Twitter, bringing their shows
over.
Is she a reporter or something?
I mean, she's like their...
I don't know her.
She's like their majoring.
Okay.
I would say besides Tucker, like if you're, I mean, conservative, she's probably like the
one that a lot...
I mean, have you heard of Sean Hannity?
So I've heard of Hannity.
That Lemon guy, when he was helping on the other side, I didn't hear him.
I don't watch this news stuff.
I'm so far away from it.
Hannity, Ingram, and Tucker were like Fox's big three.
I mean, listen, I don't watch Fox necessarily, but as somebody just observing from the sidelines,
that's what I see.
So I think that, you know, it's interesting to see if they continue to see moves.
And I'm wondering if more, you know, big cable personalities start migrating to Twitter
and having shows here.
So just putting that out there.
I don't think they will.
Maybe they do it on YouTube.
How are you going to make money from it?
In the nicest way of possible, they have these huge systems built around them, these large
companies that are doing the advertising for them, and Twitter doesn't have the way to
directly make money from them yet.
Well, okay.
So most of them are rich, right?
They've been getting paid millions of dollars.
Yeah, it doesn't matter.
Rich people don't stay rich by doing stuff for free.
Exactly.
Wait, wait, wait.
Let me talk for a second.
So all they need to do is use some of that money to hire a marketing team, right?
It's not that hard for them to go and sell advertisements.
They obviously aren't going to sell them at the size of Fox.
But if they wanted to, like, say, hey, I'm going to do, you know, I just was doing this
show that was getting millions of viewers on Fox.
I'm now going and doing a show on YouTube or Twitter or something.
We need sponsors, or we're looking for sponsorship, or we have openings.
They can hire two people to run a marketing team, just cold DM all day.
They have big enough names.
I mean, listen, you have to have a big enough name.
I agree with you.
A lot of people aren't going to be able to cut it.
But if you have, I mean, she has like 5 million followers on here, right?
She's going to be able to get sponsorships.
So I think that a lot of people will be able to make that jump.
And although they might not realize it, I think if some of them are smart about it, they
can actually make potentially even more money being independent.
I agree with that.
But I hope Elon is not listening.
Twitter has not proven that it knows how to really push out these videos or these live
streams outside of Spaces.
Spaces, for me, has been proven.
It's at the top.
They know how to promote it.
And these can get very large.
But there's no way to discover these Periscope videos or whatever.
There's no way to find it unless you're on the timeline.
We had more people in our Twitter spaces listening to this stuff.
Did we touch on the snowflake thing, Evan?
I mentioned it quickly, yeah.
But really quickly, and we'll throw back to that.
We had more people listening to the Tesla earnings call in our Spaces than on the official
Tesla account on their live stream.
So I think Twitter Spaces is possible.
I do not think if you are making video content, YouTube is a viable place at this point in
time.
Twitter is a viable place.
Hard to tell.
But they could sell ads.
So there's different pieces to it.
Also, I just wanted to give a real quick heads up to the audience.
We're going to be running about five more minutes until 5 p.m.
Eastern.
So if you haven't already followed the Stocks on Spaces account, now is a great opportunity
to do that.
Myself, Stock Market News and Stock Talk Weekly co-host Spaces with the Stocks on Spaces
account from 3 to 5 p.m. Eastern, Monday through Thursday.
We cover a number of topics.
We did a live stream yesterday for the Tesla Live Day.
Last week, we had on Dan Niles.
We continue to bring on CEOs and a variety of investors.
So completely free to the public.
All we ask is that you check out the Stocks on Spaces account.
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So when you follow it, you can turn on notifications without worrying.
You'll get one notification Monday through Thursday, and that'll be a Twitter Space opening.
That's it.
I'll turn it back to you, Stock Talk.
If you wanted to mention that, we did talk about Snowflake.
First of all, yeah, make sure you're following the account.
Also, shout out to Stock Talk and Wolf, both fantastic accounts as well.
But yeah, we did touch on that Snowflake earnings announcement.
They are reportedly looking after a company called Nevo, looking to try and acquire them.
I was saying that normally this type of news, I would expect the person who's looking to acquire a company to be down on this, not up.
So I would expect the Snowflake to be down normally, but the kicker here is what type of company are they trying to acquire?
Of course, it's an AI theme.
So I think that might be why the market is liking this.
Stock Talk, do you agree with that?
With a normal scenario, when a company is rumored to be going out to make an acquisition, I would expect the stock to go down generally.
Obviously, if it's a really good deal, it will go up, and this is not 100% rule.
No, you can't.
Am I starting?
No, you can't make that statement, because it just totally depends.
It depends on the strategic implications of the deal.
If I was going to put a percentage on it, I think it would be over 50%.
I think it would be something like 50%, which means that it doesn't matter.
Fair enough.
Anything that's close to 50% means it's just arbitrary, and you shouldn't be worrying about it.
But, yeah, I would say that that's not an assumption people should make.
Maybe it's when the deal is closed, though.
You haven't seen this, that a lot of times when one requires a company.
It's recency bias.
It's recency bias.
So what is this, a two-, three-year thing that you've been seeing?
No, no, I'm saying what you're saying is recency bias.
No way.
I have seen this for the last multiple years.
Well, I'm going to explain to you.
A company will go in, make an acquisition.
That's what I'm saying.
Their stock will go down, the company getting acquired goes up.
I'm not shooting you down.
I'm just saying the observation that you're basing that statement on is recency bias.
The M&A is a very nuanced animal.
I mean, there are a number of acquisitions that are creative to the bottom line, beneficial to the brand, have strategic implications that are just nothing but positives.
There are plenty of acquisitions that are terrible.
Price matters, strategic implications matter, synergy matters, the ability to integrate the businesses seamlessly matters, overlapping market share matters, internal competition matters.
There's so many elements.
The existing management team, the ability to integrate versus displace talent.
Yeah, it's just, I would just, my point is, I'm not shooting at what you said.
I'm just saying I would hesitate and say it's unwise to make blanket statements about whether M&As are generally beneficial or not beneficial to the share price of an acquiring company because it's pretty random.
So, you know, like you said earlier, it's something probably like 50%.
I think it's closer to 60%, 70%.
And I think in here we can kind of move off of this one.
I think it's not bad to have a general, this is what's expected to happen here, and then look in of the nuances and should it be going that way.
I think you should take it on a case-by-case basis is what I would argue.
Let's see.
Let's play this game tomorrow.
Someone down below, I think Snowflake's going to move lower than this pump-up we just had.
So we'll see on that one.
It's just one example in there, and maybe we'll keep a tally on going and we can actually have this discussion again in the near future.
But overall, we do love having these conversations often, and we will continue having them.
So make sure you're following the host on this basis.
I have no problem saying that you definitely could be right on this one, and we will continue watching it going forward.
I definitely do caution against blanket statements in general.
For me personally, sometimes I'll use them as a place to start, but never a place to go in and click buy or sell or go in and do that.
I like to look at it because every single case is different.
But we are rolling up on 5 p.m. Eastern here.
We really do appreciate everyone joining in on this basis.
Make sure you're following all of the amazing speakers up here.
We do have a couple of earnings tomorrow.
We have Walmart and Alibaba earnings.
And, of course, we're going to be back live on these spaces for our Thursday power hour, 3 to 5 p.m. Eastern every single week.
Stock Talk, do you have anything you want to add here at the end?
Just make sure you're following the Stocks on Spaces account.
Again, all the content we do is free.
We just donate a couple hours of our time Monday through Thursday to try to chat about topics,
provide you guys updates on what happened in the markets, trades, everything financial markets related.
So, yeah, myself, Stock Market News, Wolf Financial, we partnered to make Stocks on Spaces.
It's not a company we're promoting.
We created it.
It's just a little project to host Spaces.
And so if you guys enjoy the content, dropping a follow is a great way.
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We'll see you tomorrow, same time.
I may or may not be going to a wedding.
So I might not be here on next week, Monday, Tuesday, and Wednesday.
But that's still pending.
So I will let you guys know.
But I'll be here tomorrow.
They're getting married every single day.
No, it's an Indian wedding.
So you know how those are.
Actually, I do not.
But fair enough.
I'll take your word for it.
Okay, well, they're long.
Awesome.
Well, no problems at all.
Make sure you're following the host of this space.
We'll still be going live.
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And we appreciate everybody.
Make sure you're following the speakers.
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And we'll catch you all tomorrow.
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