Brad Gerstner: No AI Bubble, Semis Eat the Nasdaq & AI's Take Off Problem

Our favorite fifth bestie in the world, the one, the only Brad Gerson of the Mount Timbler. Brad has had unbelievable career starting five companies so he's got a very different mentality than your sort of classic hedge fund guy. He's an amazingly successful guy and he's put up a tremendous amount of money. Every child in America, all 70 million kids under the age of 18 deserve to have one of these accounts. This would not be a law if Brad Gerson did not pursue it with absolute dog and determination. This is not a program. This is a platform. It is the largest unlock of direct philanthropy in the history of the country. I think the antidote to more socialism is more capitalism. Please welcome Brad Gersoner. Wow! Let's go! Let's go. Thank you guys and thank you for so much love yesterday, especially on the Trump accounts. So many people came up. Everybody gets what this means for America. We're in a battle for the soul of America. 70 million kids are going to be made direct owners in America. That is how we beat the scourge of capitalism. We make every child a capitalist and also thank you to all the people yesterday who came up who took the CAC scan, the heart scan outside from the Center for Heart Attack prevention, which we started. There's no doubt based on these results. We're going to save some lives even yesterday, okay? This is the highest ROI thing you can do in health care. Every cardiologist I talk to does this for themselves, their family and their friends. It's a hundred bucks, fifteen minutes. Get it done. If we turn this into the mammogram for the heart, we'll save 50,000 lives a year in this country. It's like ending a Ukraine war in America every year. So go get your CAC scan done if you have it, but today is not about those two moonshots. Today is kind of a throwback to what I used to do on the pod with these guys, which is a market check, a tech check, state of the market. Where are we? Where are we going? What do we have to believe to be true in order for the market to continue to work? We're going to do a bit of a speed round here. So bear with me, get your cameras out, get your notes out, some good, some good chart candy in here for you guys. So markets up 15% this year, up 39% since January of last year, despite all the concerns about tariffs, despite all the concerns about geopolitics, despite all the concerns about AI regulation, the scoreboard. We have a lot of people in the Bestie group who said gold was going to be off the charts this year. It's flat. Bitcoin's down 10%. But look, we have Nvidia revenue up to X hyperscaler cap X up to X, open AI and drop its valuation up to X, space X up to and a half X in a pretty nasty backdrop. This is not about multiple expansion. This is an earnings driven market expansion. We've seen multiple contraction this year. Earnings are up 26% of course driven a lot by AI infrastructure. But the multiple on the NASDAQ and the SAP is actually down. Look at Nvidia trading at 14 times next year's fully tax gap earnings. This is no bubble like it was in 2000. NASDAQ, S&P, SOX, Nvidia, all trading well below their average multiples. Okay? Mag 7 basically in line with its average multiple. But not everybody is winning. At the bottom here, consumer discretionary, software, financials, huge sections of the market have barely moved. This is a market that is being driven by the largest cap X build out the largest super cycle in the history of technology. Semiconductors are 70% of the NASDAQ's return. 70% of the return. That's both good and bad. And we'll get into that. So who's making the money? The makers of the tokens are making the money and the buyers of the tokens are basically going along for the ride. Because of the tightness in the infrastructure market, we have massive public companies that look like venture capital returns. Dell up 5X, high next up 9X, in just 18 months. I love this chart. In blue you have the hyper-scaler cap X. In orange you have the free cash flow of the Semiconductor companies. Do you notice anything? Their cap X is almost dollar for dollar free cash flow to the infrastructure companies. Okay, where were we at the start of the year? This is a really important framework to get your head around. You may remember a certain podcast I did with Sam Altman and Sacha in October of last year. And I asked him a very basic question that was on everybody's mind. How can you commit to a trillion dollars in cap X when you have 13 billion dollars of gap revenue? I thought this would be a way to clear up some confusion in the market and steady told me to sell my shares. But then in the beginning of December, we have Opus 4.5 and Claude code. And then in January, in tropics revenue was 2 billion. And then in February, it's 4 billion. And in March, it was 11 billion. Do you notice anything that happened there in March? People started figuring out what Anthropics revenue was. We had an exclamation point answered to the question, will the AI revenue showed up? It showed up in a massive way. And that's why we got this historic run in April and May. We ripped off the bottom because the fuse was lit by Anthropics monthly revenue. And then in June and July, we had some consolidation. Why? Because Anthropic came out and said, "Oh, our annual run rate revenue is 65." People thought it was 75. So they had to revise down their estimates a little bit. And we had some concerns about open sources. Open source catching up. You know, as Anthropic going to continue to be able to generate those revenues. And so we've kind of moved sideways since then. It's hard to get your head around the fact that these revenues have never happened before in the history of capitalism. Right? We are on parabolic double exponential curves around these revenues. So the collective run rate, let's just call it the top three labs. Anthropic, open AI and SpaceX is about a hundred billion dollars based upon all the rumors that are out there coming out of July. I think they need to collectively get to at least $180 billion by the end of the year. Add another $80 billion across those three labs just to keep the AI trade intact. So this is the single most important data point in the market today. Right? Is Anthropic's monthly revenue, is open AI's monthly revenue going to be four billion or eight billion? It's almost hard to get your head around. Most of us who've been in venture capital for a long time, if you added a billion, if you get to a billion dollars in software revenue over like four or five years, you were in the top five percent of software companies. But this is what the world is now pricing in. So why is this so important? It's this slide. If you're going to build a trillion and a half dollars a year in capex, somebody has to pay for it. Right? Microsoft's not paying for it. They're building it to rent it. Google's not paying for it. Amazon's building it to rent it. Well, who is the person renting it? We have to have the off-take revenues in order to pay that rent. So if we exit this year around, you know, let's call it 200 billion of run rate revenue. That's below the, the year is there. I think you have to go from 200 to 450 to 800 or a trillion dollars just to keep up. The blue bar is the expected capex just from the mag five. And the orange bar is the off-take revenue, the gap off-take revenue that we need to see in order to keep this trade intact over the course of the next few years. Otherwise, we can't build this much capex. So the labs are increasingly, you know, like the conversation I had with Sam last October, they're aggressively expanding compute. Why? All the things you heard yesterday were heading into recursive cycles. They're seeing, you know, incredible demand for the product. And so they're building out compute. This year, the total amount of compute added. So 2026, about 19 gigawatts and about seven of those gigawatts went to the two leading labs. Next year, this is semi-analysis. So Dylan Patel forecast that we're going to add 43 gigawatts and that about 14 gigawatts are going to go to the leading labs. And we'll come back to this question, can we really stand up 43 gigawatts of compute next year? Notice that the amount that we're adding next year is as much as the total compute we have in the United States this year. The cumulative compute we have in the United States this year. So that's what the market is anticipating. What happens if that doesn't happen? And by the way, if you added those bars up by 2028 to David the axis point yesterday, over half of the total compute in the country is controlled by two labs. So it does the TAM exist, does the TAM exist, right? So if we look at the total TAM of knowledge work, right, this is a massive, massive category. You got consumer plus ads, plus coding, and all these white collar workflows, millions of enterprises. I would argue it's the largest TAM in the history of the world. You only have to get to about 4% of that TAM or 1.2 trillion in order to pay for the CapEx. So I don't think it's a TAM issue. Obviously, Jensen was on the pod and he talked two years ago that inference was going to 1 billion X, and remember all the people saying he's full of sh*t, there's no way this can 1 billion X. That's exactly what we've done in the age of agents, right? We've had this exponential token growth this year, 47 quadrillion tokens that are going to be produced. So it's not a question again of demand. Codex users have grown 40 X in the last eight months, and knowledge work at enterprises. If you look at the median amount that enterprises are spending about 17 X over the course of the last 18 months, I've talked to many people in the audience here, small businesses, medium businesses, large businesses, businesses like Altimeter, we can't operate our business without buying AI. So this is not overly surprising to me. And we think about the productivity dividend to the economy. You know, if you look at 2015 to 2025, EPS growth was about 10%, that was 6% revenue, plus about 38 bips of margin expansion every year out of the NASDAQ. So here's the question, can we turn the 38 bips to 100 bips of margin expansion because of AI? The answer's obviously yes. Every company I talk to, Uber says we're going to grow 20%, we're not going to grow head counts. Snowflake says we're going to grow 30%, we're not going to grow head count. That's what's happening, that is margin expansion. The single largest cost input to every one of these companies are humans and engineers. It's not that they're going to fire everybody, they're just not going to hire them at the rate that they hired them before. And then of course, we're going to have consumer agents in everybody's pocket. You may remember this bed I had with Bill, you know, when are we going to be able to book a hotel using your consumer agent in your pocket? I think we've just gotten that with news and with instinct. This could be another trillion dollar category, but it's definitely going to consume massive tokens. Here are the three risks and challenges. I'm sorry I'm going so quick, but I want to keep it moving. Regulation, we heard a lot about this yesterday, power, and then what's going on with interest rates. So, you know, this is the regulation tug of war, right? And I've heard from a lot of people, they're like, you're on both sides of the issue. Here's the fact, okay? The answer is not going to be on one end or the other. We're going to have to have common sense pragmatic solutions that get my mom, my sister, and the brother off the cliff, right? We need to give comfort and confidence to the people who elect our representatives that it's safe. And so you heard Elon yesterday, give a great suggestion around peer review. So, I'm confident that we're going to get there, but it's kind of messy, the sausage making along the way. But we have a prior history of excess regulation when people get scared, when activists start pushing an agenda. We shut down 67 fission reactors in this country. We unilaterally disarmed against China. It's been a disaster for the country, right? All the clean energy we could have gotten instead, we've gotten non-clean emissions because we had a group of activists who were hell-bent on shutting down nuclear. We can't allow this to occur to AI. [APPLAUSE] So, regulations of threat, it's a risk. Atoms in energy are hard. So, getting back to it, can we stand up 43 gigawatts of compute? Our total compute in the country is less than 40 gigawatts. Doing this in one year. We've got overcome permitting and local opposition. You guys see all of that. Grid interconnection delays, skilled labor shortages. Power equipment is sold out. It's the largest build out in the history of the country. I would suggest Dylan's forecast to 43 gigawatts in the next year is too aggressive. I don't think we're going to get there. I think the total amount we're actually going to stand up is somewhere closer to 25 gigawatts. And I think of that 25 gigawatts, half of it will be for Anthropic and OpenAI. I think that's enough to generate the revenue. Remember, Anthropics revenue reportedly this year, 100 billion, 110 billion. If they do that, they're doing it with a gigawatta half a compute. So, if they add another four or five gigawatts of compute, that's certainly enough to add another 100 billion in revenue. So, I don't think we need more gigawatts to get to the revenue targets for next year. But this is my hunch that we're not going to get to the 43. And then, of course, we're going to hear more tomorrow. I think rate hikes are coming. I think it's now over 90% chance that we're going to have rate hikes tomorrow. Why does this matter? Because all of this now borrow money. We're borrowing money in order to stand up these data centers. So, the hurdle rate for that money is going up. And so, that's not only a challenge for data centers, but remember, as Warren Buffett says, that interest rates are to stocks. Well, gravity is the matter. If you can earn five and a half or 6% on your money, without taking equity risk, then it's going to be a challenge for stocks. So, here's where I think we are. And we're going to end on this slide. And then we'll bring the guys out and chop it up a little bit. But this is the flight path. This is how I think about managing the portfolio. Right? We're up about the NASDAQs up about 15%. But as I sit here and think about the risk, do I want to be small, medium, or large? This is how I think about the fan of potential outcomes. If the monthly AI lab revenues are closer to that $8 billion number, I think it's take off. Yeah, I think we are going to see an IPO this year. And so I'm paying very close attention to what, in fact, are those monthly revenue numbers. I think the trends are intact, but we will see. That's going to be the single most important thing as to whether or not between now and the end of the year we have liftoff. Second one is rates, the election, oil prices. Obviously, rates are following oil prices to a certain extent. So what happens there, if rates were to go to five and a half on the 10 year, that's going to be a big burden on the equity market. And then finally, the regulation, the anthropic IPO, we saw a trade down yesterday, because people are concerned that maybe we're going to have a halt or a postponement. That would obviously be a major issue. I don't think that's going to happen. But again, that would be a concern. So that's the fan of potential outcomes. From here, we're up 15%. I think we could go higher through the balance of the year. Or we could go lower. I'll leave you with this. The period of 2023 to 2025, you only had to get one thing right. The AI was going to be the biggest super cycle in the history of technology, and you needed to shove your chips into the AI trade. That's it. If you were in the AI trade, you made money. That is not where we are in 2026. Everybody knows about AI. It's all priced. Now it's about facts and circumstances. Stay mentally flexible. Follow the facts. Don't yolo, OK? Don't go Forex like our friend up north who gave all his money to Citadel, right? Forex levered in this market, very dangerous. So in my estimation, we're medium position. We're mentally flexible. If we see those revenues come in big for these next few months, and we see oil prices retreat, we're going to put more chips on the table if not will reserve the right to go even smaller. With that, thank you all. - Thanks for having me. (audience applauds)