Bubble bursts in 2027, Nvidia earnings preview, Materials sector set-up, AirBnB takes flight

(upbeat music) - Yeah, we're back. - It's gonna be a big show, Michael, what do you think? - You look good. - You loaded. - You look at all the stuff that we're gonna do. - Uh, no, I haven't looked at it. - All right, so everyone's talking about Dolly Parton and the chat. You have thoughts? - You have thoughts. - Iconic, right? - Yeah, Jo and I. - I'm like, what a legend. - I'm a little bit before my time. So I'm vaguely familiar with her music, but probably not as much as you are. - We will never see, and we will never see or hear anything like Dolly Parton ever again. I have to tell you. - Why? - She's just like, she was just so, I keep saying iconic, but really and truly, and could do it all, acting, singing. She started an amusement park in a, where she grew up, in Pigeon Forge, Tennessee. She's like a Hall of Fame, like everything. You name it, Grammys. What's called the country music, Hall of Fame. Like when I was in Nashville and I did all the tours, she's just everywhere. She's just, she's it, she's the thing. So you know what's cool? She did live long enough, Beyonce paid homage to her. Beyonce did a country record a couple of years ago, and had Dolly on it, and she kind of got her flowers from like the youngest generation, and that was kind of, that was kind of cool to say. Anyway, R.I.P. Dolly, you know what else they're saying in the chat? They're saying, am I gonna address the live nation settlement? Yeah, all right, I'll address it. I'm a shareholder, so I am pro live nation settling its issue with the government. Seems to happen every three or four years, somebody decides to sue them, and they always come out of an unscathed because in the end, they are the best operator of concert venues in the world. And people really like the combination of the ticketing being connected to the venue. And sure, I love it. Oh, what's the alternative? Yeah, we need to get into that right now. Okay, anyway, that's my car. And by the way, this was settled in March. It only came to light now, but it's news, but it's not actually new. It's not a new thing that just happened. It happened six months ago. Get over it. Anything else you would like to comment on? Or they would like you to comment on? I got one more thing. I wanna let people know that we are going to be throwing a major event later this year. I cannot get into the details. However, I strongly advise you to go to thecompoundnews.com and subscribe and become a compound insider because the people who are compound insiders are going to get the heads up before everybody else. Will there be, will there be PFPs for the giveaway? What is it, oh, PRP, we will have doctors on site performing the platelet-rich plasma procedure. You should do it on stage, that'd be great. Well, I don't need too many more 'cause what I have going on. All right, so anyway, guys, super excited about this event later this year. I can't say more, I'm not at Liberty, but go to thecompoundnews.com and subscribe, become a compound insider. We regularly send you guys the heads up on stuff before everybody else knows about it. So this is your opportunity. We have a sponsor tonight. Mike is gonna tell us all about it. - We do, the sponsor is FM Invest. And I just wanna say a big, big congratulations to the entire FM Invest team, Alex Morris and Squad. They just got bought by Tira Price, a little asset management company. Maybe you heard of them and it's been a pleasure work with them just a great people over there. All right, so, this podcast, as I said, is sponsored by FM Investments. And SGVA, the FM Accumulator, ultra-short treasury ETF. Most ultra-short treasury ETFs pay out monthly cash distributions that investors don't need and don't want. Those distributions come as taxable income that must be reinvested after taxes. Well, here's an ETF built to solve that problem. CFM Accumulator, ultra-short treasury ETF ticker SGVA. SGVA is structured to avoid unwanted taxable distributions and harness the power of compounding inside the ETF. So instead of monthly distributions, you stay invested in ultra-short treasuries and you choose when to redeem based on your personal cash needs. SGVA built to grow, not distribute, to learn more about SGVA, visit FMInvest.com/SGVA. - What a great story. We like this guy, Alex Morris. - Thank you, dude. - Good dude. - And I like when good things happen to good people. So I'm really happy to hear that. And thank you guys for sponsoring the show, of course. All right, I think we're starting with peak AI spent. And the message that I wanted to get across here is one of the most important things to understand about stock markets are that they are anticipatory. Bonds are different. I mean, there is an anticipatory component to bonds and how they trade, but the investors in bonds are mostly there to get their money back plus interest. And they're not looking for surprises, upside surprises. They're not looking to substantially grow their investment. It's more about return of capital. And equities are about return on capital. And so stocks behave based on the outlook, more so than bonds. And the current conditions are not as important as we all think. So we're all looking at economic reports and we're all listening to earnings reports that are talking about 90 days ago. And we're all looking at what's going on right now and how do you play it? How do you invest based on it? But the reality is the preponderance of people in the market and the dollars at play are invested based on how things might be going six months from now, a year from now. It's depending on the stock. Do you think what I'm saying is accurate so far? Facts only. Where are you going with this? OK. Where I'm going with this is, this year is an absolutely incredible year for CapEx and technology and spending and investment. And it's like it's almost-- I don't want to say it's never been better, but in our lifetimes, it might not ever have been better than it is right now. But the stock market doesn't care about how good things are right now. They have already started to price in how good things would be today, in January, in February. So that what the stock market is principally concerned with at this stage in the game is the coming winter and the coming spring. That is what-- and that's why you have gigantic chip companies like Broadcom, for example, in deep drawdowns off of a tie. You have Marvell in a drawdown. Both of those companies have just been reporting some of the greatest news and contracts and earnings any of us will ever see. But that was already priced in six months prior. Now those stocks are looking to the future. And people that don't understand this, they would intuitively look at the share price and conclude either the stock market is wrong or I don't understand what's happening. And neither of those has to be true. Stock market could be right. And you could perfectly understand what's happening. But it's the future that matters to the share price today, not today's current conditions. And I bring that up because there was a really shocking op-ed at Bloomberg by Bill Dudley. And Bill Dudley was the chairman of the New York family believe? Yeah. All right, so it's not often that you will get a former chairman of any of the Federal Reserve banks come out and literally call his shot point to the point to the bleachers like Babe Ruth and tell you where the ball's going. But he has an op-ed last week. Basically five reasons the bubble will burst by the end of 2027. So he's not just saying it's a bubble. He's saying it's going to burst. And he's not just saying it's going to burst. He's telling you the time horizon. And I thought it was really interesting, and the timing was interesting. So he is now a Bloomberg columnist in his private life, no longer at the Fed, but still was at the Fed recently. And this is a remarkable piece. So I wanted to go through it with you. Just to set the table, put up the first chart. So I'll quote him. He's setting the table by telling you that stocks are expensive, which I think we all sort of understand. He's citing three things. The Schiller, cyclically adjusted price earnings ratio or a cape, which has not been helpful, obviously, for short-term market timing. But a lot of the old heads really do care about this. It's a multiple on 10 years worth of earnings, which is meant to smooth out the business cycle, which I don't think we have one of those anymore. But he's saying the long run average is 17. Now it's 41. In December of 1999, very close to the peak for stocks, it was 44. - Dude, I'm sorry. - What? - Come on. - He's not using this to time the burst of the bubble. He's just giving us the landscape. He's also citing the equity risk premium, which will get one second. - Well, I'm sorry, hold on. Number one, that's an erroneous landscape. What does, I understand the concept of the Cape ratio. You smooth out earnings to extend the business cycle to look over a longer period of time, you inflation adjusted, and you compare it to history. I understand what it's doing. But, and I'm not saying the stocks are cheap, so that's not what I'm saying. But when you are looking at today's earnings, and they're being bundled with earnings from 2017, it's a different world. - Okay, agreeing and, but can we also say, if there were to be some sort of a bubbling technology bursting, but it happened from a substantially lower evaluation, probably the damage would be less. - If there was lower evaluations, we wouldn't even be using the B word. And I know you're going to get to NVIDIA, but that's trading at what? 20 something times forward earnings. Meta is trading at 15 times forward earnings. So I reject that. - Are the earnings, are the earnings definitely coming. So that's what he's asking. So he throws in the real equity risk premium, which is the expected pickup of return, holding stocks, versus inflation index treasury bonds. We're going to get to that one second. Any throws in the Buffett indicator, which is no longer really in use by anyone, probably not even by Buffett, but that's market cap. - Come on, Bill Dovel, you got to do better, sir. - I would point out though, it's not a little bit high, it's 240%. US market cap of all stocks versus GDP, the stock market is selling 240% of the GDP, the annual GDP of the country. So he's just setting the table that we're in a position right now where stocks are historically at a high valuation. And so I'm not saying he's not saying sell because of that. He's just giving you the backdrop. Here's the meat. - Okay, good. - And he walks us through. Number one, the favorable impact of the AI investment boom on economic activity and earnings will likely diminish significantly in 2027. That's because what's relevant for growth is how much the investment is increasing, not its level. He is not saying the level of investment will fall apart. He's saying the increase in 26 over 25 is a much faster increase than what we're going to have next year. And I think that gets back to what I was saying about the anticipatory nature of how we price stocks. Can I ask you a quick, hold on, can I ask you a question about this part of it? So I think everybody knows that the percentage growth rate that we're seeing across the board is not sustainable. Earnings are not going to grow 20% every single year. It's just not going to happen. So therefore, I think that that is not going to shock the market. I think that is very well baked into the pie at this point. OK, what do you think? Not everybody has to agree with that. No, I'm asking your opinion. What do you think? I think that people get disappointed when growth rates slow down. Even if they see it coming while it's actually happening, they don't enjoy it. That's my personal opinion. Two, as the growth of investment spending slows, the growth in earnings of the hyperscaler suppliers will falter. Profit expectations will diminish. And as a result, PE ratios will shrink. See, this is the problem. The growth rate slows, the earnings growth slows, and then simultaneously the multiple compresses. So you get hit twice. And that's without the bubble bursting. That's not earnings falling. That's just like earnings aren't as good. And also, because people are less enthusiastic, they will pay less for those earnings. Not to nip at every point that he's making. Everything you've said so far, I think, is very much consensus. And which is why we've repeatedly spoken about the forward PE coming way in, even as earning search. Everybody is expecting this to happen. So what happens next? I don't know. I can't wait to find out. So his opinion is, it's not good what happens next. So this is number three. As the investment cycle matures, the focus shifts, and now it becomes about the returns that the hyperscalers are expected to earn on their massive investments. Everybody's getting the benefit of the doubt. And not almost everybody's getting the benefit of the doubt right now, with a few notable exceptions, Meta Oracle. OK, he says, quote, "I suspect it will be difficult for the hyperscalers to generate sufficient revenue, which he defines as $2 trillion or more per year to generate the returns needed to justify an AI capital base that is likely to reach $5 trillion." Reasonable? Not reasonable? I agree with everything he's saying. My point-- --will $2 trillion be good enough on $5 trillion. Josh, the max seven are up 2% this year. OK, he's talking about the suppliers more so than just the hyperscalers, but your point is well taken. Fourth, the supply of US equities will increase due to the sharp rise in IPOs and the sale of equities by corporate insiders as lock-up periods end. This should weigh on valuations. OK, you could say it's consensus, but also it's true. Fifth, last point. The macroeconomic environment is likely to become more challenging. Yeah. This is a four-per-fed chair. So we'll just-- we'll take his word that he's saying this-- that he's saying this honestly in his opinion, but he can't know this for sure. But this is his point. Real and nominal long-term rates have increased significantly this year. Yields on 30-year treasury bonds are at the highest level since '07. The rise in yields puts increased strain on equity market valuations. The risks are tilted toward a further rise in yields, given the lack of political will and progress to address the debt trajectory. Here's the chart. Here's the too much risk point. He's showing you the earnings yield in stocks-- basically, the earnings of the stocks, but in the form of a yield relative to price like you would look at a dividend that's in black. And he's showing you the tips yield almost on its way toward meeting or possibly eclipsing that level. Last thing on this, and then I'll take your full comment. We'll give Bill Douglas the last word. In its early stages, the bubble's growth is self-reinforcing. The demand from the boom supports rapid profit growth, wider margins, and higher valuations. But on the downside, the feedback loop runs powerfully in reverse. Collapse in demand leads to a drop in cash flow and a re-evaluation of the risks of lending to support the bubble's further expansion. I expect AI will follow the broad trajectory of the other great technology booms and busts. Like the railroad and the internet, AI will have a significant impact on productivity and growth. There will also be an inevitable glut of overcapacity that will weigh on profits and stocks. And this is the final chart. What he's showing here is interesting. This is the Wilshire 5,000 index market cap. So let's just say this is the complete stock market every category, unmoored from reality versus gross domestic product. It's not that-- I guess the point here is we have never seen these two things this divorced from each other. It is a tremendous distance between the growth in the market cap and dollar terms, which you see approaching $80 trillion versus GDP, the overall economy, closer to $30 trillion. And all right, who cares? It's blah, blah, blah. It'll all work out in the end. Maybe I just thought it was remarkable to hear this from a former Fed chair. What are your thoughts? Since when do you take stock market advice from an economist? Are you kidding? What happened to Josh Brown? Where'd he go? I'm not taking his advice. It's not that interesting, dude. All due respect to Bill Dudley. This is very, very consensus. I don't think-- consensus is that the bubble will burst at the end of 20/27. This is the consensus bear case, and it's very basic. So let me return to this in a second. The macro environment will get harder. This has been an easy macro year, really. The war, inflation, interest rates going up, the straight being closed forever. This has not been an easy macro year. It's been an inside it. He didn't cite any of those things. The macro conditions. You said macro conditions will get harder. OK. So here's my point. Here's my point. If you're going to shoot your shot, unless it maybe is right, I don't know what 20/27 is going to hold. Would I be surprised if 20/27 is the tough year for the stock market? No, who the hell would? But this is my point. If you're going to call your shot, tell me something I don't know. Respectfully, there's nothing in there that's interesting. So he can't do that. Because he's looking at economic data. He doesn't have any insights into whether or not next year will be a continued year of AI-related spending and the associated earning school. OK, so he cannot do that. Nor can anyone else, even the people that are expected to do this spending, they don't know for sure what they'll be doing. Because market conditions might change their minds. They may decide, you know what? these capex plans we laid out we exceeded them in 25 we exceeded them in 26 maybe 27 is the year where we don't exceed them because we're looking at a share price that's 40% from a tie and we're taking a market signal I love I love a good bear case I really do I like reading you don't think that's a good bear case no it's not interesting I like reading something that I haven't thought about and I say oh shit that's that's pretty compelling okay we can move on by saying screw you Bill Dudley no no no I was come on I'm not screw Bill Dudley do you think it's do you think it's remarkable though who it's coming from no you don't no do we normally do we normally see recently retired former fed officials actively predicting a bubble bursting within a year is everybody everybody's a sub a podcast or blogger now this is so he's doing he's like he's like the print the Kate he's like the prince and princess from England that they're doing content now yeah sure I mean wait is it William who's the one Harry Harry and Megan Markle dude I'm just saying you shared you shared he gave us a caper ratio the earnings yield and the tips yield and the Buffett indicator all right I mean old okay all right let's talk oh you want to do some video stuff why why doesn't video report so late it's so anti-climatic oh we have this opening eye stuff let's hit that first all right so open a reported that it's revenue grew to 6.7 billion I don't think reported anything but this came out it's revenue grew to 6.7 billion and three months ended in June up from 5.7 billion in the first quarter um that's not awesome meanwhile it's operating margin sank further into the red uh anthropic meanwhile more than double its revenue to 11.6 billion in the same period the anthropic guy said they could do 30 trillion in revenue someday is that all the years added up combined did he did he in one shot did he give a did he did he give the time print on that thank god no because by 20 20 by 21 26 it's anything it's possible inflation keeps going up 3% a year I think he was I guess he was making the point like the same way that SpaceX talks about it's tam and I don't know if that's a revenue projection or like how big could this company get kind of thing I didn't I didn't actually hear I just I just saw the headlines I do think it's a lot of money either way I do think that of to not overthink a bear case it's just our ability to be less surprised at good news just looking in videos a classic example of this yeah the stock has traded nowhere for months and months and months the earning the earnings numbers are astounding but the market's over it like show me something else what else you got all right get uh earnings tomorrow after the close the valuations been compressing all year uh for multiple years actually and um we have great chart of that so if there is a bubble it's not an Nvidia now people have said okay there's no bubble in evaluation but the actual bubble is in the earnings and I understand that argument and I don't I don't laugh at it because I don't want this to age badly um they're going to report a quarter tomorrow night where the street is expecting them to report 98% earnings growth so and and that's not like they had 5% earnings growth last quarter and they all of a sudden released a new uh product they've been putting up quarters like this for years already so if it is an earnings bubble it's sure taken a long time do you think it's an earnings bubble something to come on done do you think it's an earnings bubble I think there's a higher likelihood that it's a pull forward earnings bubble then it's uh everybody was stupid for buying all this stuff and it's just going to evaporate so I a pull forward earnings bubble to me is like everyone's worried about compute everyone's worried about are they going to get their slice of compute are they going to be able to deliver the services that they're contracting with their customers and so they're stockpiling as much as many chips as they can they are building data centers you can't build a data center with no chips in it so you have to order as much as you can to make sure that you'll have access to the supply and that's more pull forward to me than it is like this massive error of like buying things that no one's going to need question I have a question that's where the if there's if there's an earnings bubble it's it's the most innocent type of earnings bubble because the demand really is there okay so you you know a lot more about the stuff than I do if let's just say that the that there's a demand pull forward isn't the kuda operating system a major part of the story that even if the demand for the chips fall they're still demand to operate these things on their platform maybe is it sort of similar to crash strike or am I making a really stupid comparison it's not a stupid comparison it's just it's that's like orthogonal to the main point the main point is if you build a steel mill which is the way people think about like in heavy industry if you build a steel mill it's very likely you'll still be using a lot of the same equipment 20 years later if you build an oil refinery which we haven't done since the 1970s it's very likely that most of what you've built is still an operation and you're making repairs and substituting parts here and there and that's just like the regular maintenance cost of running a heavy industrial site data centers are different do you know it's an it's estimated 50% of the cost of a data center is the chips do you know that you know it's sounding that is and the thing is these chips may have a useful life of five years but it's unlikely these chips may still be in use in 10 years but given the speed of the advance of what this technology can do it's highly unlikely and so in videos portion of this data center center spend is such that even if there's a slowdown in new data centers being built the amount of maintenance and replacement of the GPUs that are being installed today is so astounding that I think Nvidia is probably in the safest position of all of these data supplier stocks you you you are not likely to see a situation where they're using 2024 and 2025 era GPUs in 2029 you're very unlikely so even if the data center construction is cut in half because people get spooked you're still going to need chips to supply what you've already built what are you going to do not buy the replacements and all this inferencing burns out the chips not as fast as training but pretty fast and they're talking about this explosion in inference because of all the new things we're doing with AI you're going to have to replace GPUs and Nvidia will be supplying these data centers for as far as the eye could say not for years for decades for decades so why do you think why do you think it's trading at 16 times forward earnings does it the most obvious long hiding in plain sight marvel is coming on very strong broad comm is coming on very strong these companies let's take marvel marvel is building custom a six for customer amazon's their biggest customer so amazon's building 20m chips which are application specific integrated circuits they do not have as broad of a use as a GPU they're not as powerful they're not clustered the same way you know you take take a take a cluster of 10,000 chips and put them in it's not the way that's being done but amazon it's training in line of chips alphabets making chips microsoft is making chips meta apple is making its own chips they're they're utilizing application specific integrated circuits and that custom chip making for the hyperscalers is coming out of marvel this doesn't mean amazon's not buying GPUs doesn't mean Gemini is running without GPUs but it is new competition for the build out of compute why would they want to use a six well if they build them themselves they can customize them for exactly the uses within their data centers that they see as being important okay so that's what marvel is doing broad comm is is in there as well obviously AMD is always nipping at somebody's heels it's it's not going to be an eighty six percent market share story for Nvidia forever and so i think competition from three thousand different players including their own customers is part of why we're seeing that multiple shrink i also think there's fatigue there's boredom this is already seven percent of the s and p how much more can investors buy like like if you're not an index how do you want to be nine percent in video you want to be ten so there's some element of that it's five trillion dollar company we've never seen a company get five trillion we don't one day will have fifty companies at five trillion and somebody will look back and do a study and they'll say this is the threshold beyond which stocks can no longer trade at 20 times earnings so that's my answer charkin and i made a chart uh earlier in the year showed that reason Nvidia's trading at a below market multiple, it has a size problem. If it were training at 18 times forward, 20 or 25, what 30, whatever it was, whatever the best growth stocks in the market have historically traded at, it would just be too big. And the market can't digest the stock that for that size. - Last thing, I don't give a shit what anyone thinks these stocks are gonna be cyclical in the end. And this derating of the multiple of the last three years, I believe is an acknowledgement on the part of the investing public that 99% earning school of quarters are awesome. Their products are awesome, their competitive position is awesome, et cetera, et cetera, but these are cyclical companies. They are selling semi-conductors are cyclical. Maybe I'll end up wrong. Maybe this'll go on for 20 years uninterrupted, but the history, if you read Chip Wars, or if you have been on Wall Street for 20, 30 years, you know that what goes up must come down in this space. Funnily enough, funnily enough, is it funnily? - By the way, laughably enough, ironically enough, one of the reasons software stocks have historically had such a higher multiple than semi-conductors up until two years ago when the semis just went wild, is that investors know that software is less cyclical in hardware, and investors know that historically, software can outgrow a cycle in a way that semi-conductors never have. That may prove to be not true this time, but historically, growth software companies have gotten higher multiples than growth semi-conductor companies, or precisely that reason, and a lot of people either aren't doing this long enough to have learned that or forgot about it, but I do think there's a gravity that is pushing down on the multiples of Marvel, of Nvidia, of Broadcom. They understand that these companies are gonna go into a phase where they rip each other's throats out for the next upgrade cycle, and not everybody can win, and that is why they're not selling at 30 or 40 times earnings the way that they were three years ago. - Anything to say about Nvidia tomorrow? - I'll give you the storylines. These are the things that the people that care about the stock and care about the AI trade are watching the most closely. Let's start by saying, the Wall Street consensus price target for Nvidia is now 305. - Where is it right now? - 212, that is almost 50% higher than where the stock is. So you're not gonna get bailed out by an upgrade, price target lifts, you could get a lot of reiterations if Jensen kicks ass on the conference call, but what are they gonna do, take the target to 320, 330? So that's number one, that's its own story. Here are the seven storylines. Number one, the revenue bar is staggering. Consensus is $95 billion in quarterly revenue. Data center is gonna be $85 to $87 billion, or almost all of that. For context, Nvidia did 26 billion for this quarter a year ago. - Wow. - I want you to think about that. - That's your point, that's over. Like investors are no longer a winner that we know. - Right, so Jensen's guidance is 91. So the 93 to 95 is the street. Storyline two, the Blackwell ramp and chip yields. The Blackwell is the new central product. If you call up Nvidia, I want the newest hottest shit, that's what it is. Investors wanna hear about production scaling. That's obviously Taiwan semi is who's making these things on the three nanometer chips. They wanna hear about supply constraints. They wanna yield as like how many chips go bad in the manufacturing process? Like how many do we get out of each turn? So they're listening very granularly for any sign of a slip up in execution. What about customers broadening out last quarter they broke out the number, the hyperscaler revenue, right? - In May, for the first time, they categorized what they sell to the hyperscalers versus everybody else. And obviously the hyperscalers is most of the business. So yes, it would be nice if there were demand coming from somewhere other than Amazon and Alphabet. So stay tuned for that. The Vera Rubin architecture, that's what's coming, that's gonna be the next thing. Jensen has already said he has a trillion dollars in revenue visibility through calendar 2027 for the Vera Rubin upgrade. So let's take him at his word. - So he can refer that is going up? - Not in the next bubble. - Well, it seems like he thinks he's got that in the bag. Three is the launch timeline for Vera Rubin. Vera Rubin. So a delay would be very problematic for the stock because if the lay would force people to change their near term quarter outlooks. So we wanna hear that that's on schedule. Four, China export restrictions. So during the course of this quarter, they did get approval and allegedly started selling in China. I don't think that's in the numbers, but again, it's a storyline that people are listening to the commentary on. Five is the hyperscaler custom silicon threat, which you and I just spent 10 minutes on. I won't go terribly further. Google's TPUs, Amazon's Trainiam, which again, that's Marvel. Microsoft and Meta are building custom accelerators or XPUs. People are going to want to hear Jensen answer the question about that competition. That'll be us of course. Six is Gross Margin trajectory. They, margins at this pressure would be the wrong way to say it, but margins had come in a bit as they were developing new products. They wanna see 75% plus again. And so when we talk about yields, yields will be a part of that. Number seven, I don't know if this comes up on the call or a fan list or two or too pricey to ask. 28 insider sales and the lead up to earnings. This could be part of why the stock is down 12 straight days. I don't know, but I think the insider selling has to stop at a certain threshold before we get to the earnings. So maybe not. It's not a huge dollar amount relative to the market cap, but it's also not like the greatest vote of confidence at the levels that those insider sales. I made this point was shown today on TV. So those are the story lines, do you have any thoughts on those or are we missing anything? - No, no, first of all, credit to you, you did a fantastic job laying out the story. So that was very well done. The stock has not been treated well after earnings recently. - Well, so that's, yeah, that's really, I think that's a really key point. Tell people what they're looking at here. - So the last four times they've reported and the fiscal year's a little bit weird. That's why you see 27 in here. The market does not like it. Josh, you and I were on what are your thoughts? I believe during one of these, or I can't remember what show it was, but stock got smoked. - Yes, this is a terrible post earnings reaction stock. That could change and it hasn't always been that way as you can see on this chart. But it really, you have to go back a while to find the quarter that people were super enthusiastic about the next day. Or you're looking at is next day returns on this chart. - You know what, the market, so I don't know what he could say for the stock to go up 8%, what hasn't he already said? But sometimes investors just change their minds. Okay, well, SpaceX did say that they're all in on Nvidia. - If I were in the investor relations suite at Nvidia, I would, what I would be telling them is, listen, if you don't care about the stock price reaction, no problem. - Of course they do. - Okay, but let's assume you're wearing a fucking leather jacket, you do care what people think. Okay, all right, talk about space. You don't have to be specific, talk about robots because if there's a new leg to the Nvidia story, not that it needs one with 99% earnings growth, but if there's going to be an expansion of the TAM or a change the subject from ASIC competition, it's gonna be automation and self-driving cars and rockets and data centers and orbit and robots. Let's talk about robots 'cause that could be a whole new TAM that's not in the stock or not meaningfully in the multiple. I don't know if they'll do that. So I would just tell people who are in the name going into this quarter, of course anything can happen and Michael and I don't know, but over the last 26 quarters they've reported. So that's back to Q1 2020. So half of those quarters in the AI era, 12 times the stock has moved up or down by 5%. That's remarkable, which means it almost never does a thing. If you look at the average next day return, it's plus 2% after an earnings call over the last six years. But there were two massive reactions skewing that in May of 2023, the stock exploded 24%. and then in February of 24, plus 16. If you pull those out, the stock is typically flat on average the next day. So here's the, let me set the table for you. 92 billion in revenue is the midpoint of that guidance that's 97% year-over-year growth. Earnings $2.09, that would be 99% growth. EBIT, 61 billion, that would be 102% year-over-year. And the final point to make here, and I think this is applicable for everybody listening and watching for as long as they live. Just because you identify the stock with the most insane growth rate, that does not guarantee you a reaction in the stock to earnings or other news that's going to make you money. If it were that simple, we would just automatically buy and video, let them report 102% growth in EBIT, and sail off into the sunset with unlimited wealth. That is not how things have gone for shareholders in this stock for a very long time. So knowing the numbers, fetishizing the growth rates, these are interesting things. They do not guarantee you upside in the share price because the market is smart. It is way ahead of this, back to the Dudley conversation. When we talk about anticipatory, nobody gives a shit that Nvidia grew earnings by 99% over the last 90 days. They're worried about 27 and 28. And that's what the stock is trading on. - Amen, sister. All right, we just did 42 minutes on topic one. So we're gonna have to move the rest of the show along. - This is the most important thing though. This is what's going on. Yeah? - It's important. - It's important. - Okay. - Okay. - What do you got? - All right, let's talk. There was a milestone reached. Shout out to Invesco, the equal weight RSP ETF crossed a hundred billion dollars in assets. And just a couple of years ago in 2020, granted after the fall. Not even pre-fall. It was like 15 billion. It was 10 billion in 2020. This thing is 10xed off the lose. It's a lot of money. - Who is the obvious new money in this? Is this institutions? - It can't be. - I mean, we tell. We tell doesn't buy equal weight, S&P. Is this people that want to be allocated to the stock market, but don't want to face the full brunt of an AI issue? That's what I think it is. - Sure. So it got me thinking about the different type of instruments that we have available to us. And you juxtaposed that again, something that I saw in my Robinhood app. And I'm a big fan of Robinhood. Use it every day. But I saw this and I just shook my head, Josh. That's what I did. We've got 15 minute markets. You are able to gamble on what the price of various cryptocurrencies will do over the next 15 minutes because this is America, dammit. And so then also later in the day or week, I saw Jeffrey Patak tweet that defiance has registered 16 single stock ETFs that will reset their leverage on an hourly basis because who the hell could trade daily leveraged stocks? That is so boring. - Stop. - What is this? - Single stock ETF, what is it resetting? - So try it off for a second. - I don't understand what it's, what is it resetting? - All right, so the reason why you are able to see a stock go up 50% over a year and the double X, the two times the levered version of that stock, go up 55% is because it does not guarantee you two X the outcome over an extended period of time. - Yeah, I understand that. - So I know you understand that I'm talking to the audience. So on a day by day basis, you will get two times the exposure but volatility is a tax on returns. So if you're up 1% down 1% up 1% down%, you're not flat eventually, the volatility. And if you dive up to two plus three, like it just, it eats into the returns. All right, so if you are now doing that, not on a daily basis, is that your blue steel face? You look like Zoolander with that hair, I love it. - What, what do they do? - You're the main base? - Yeah, that is blue steel. - But I'm trying to understand, so this is for a day trader that wants to be, wants, is it five X? It's, now, I don't know how much leverage it is, but I'm just telling you, it's intraday shit on steroids. It resets hourly. So I don't know the mechanics. I don't have how it works, but the broader point is, what, go ahead. Who is it for? Trainers. - What trader is doing this? - We will find out, we will find out. Listen, we were talking to Todd Sohn, this is the spaghetti cannon. If it doesn't work, shut it down, who cares? Doesn't, doesn't cost much, shut it down. So anyway, I had Claude put together a capital cooker in your words. - I can't wait to do this. - A capital cooker. In order of the most basic boring shit investment to intraday and everything in between. So here we go, this is our capital cooker. - This is so good. - Number one, just cash, T-Bills, money market, very, very boring shit. Then you've got the Ben Carlson's number two, the set it and forget it, target it funds. Then a little bit further out on the risk spectrum, you've got beta, just plain market beta, whether it's the S&P or the total bond, whatever it is, you just, you get market exposure. Then you go a little bit further, you want to get a little bit cute, we've got some factors and some sectors, whether it's the equal weight that we just mentioned, sprinkle some smart beta in there, you want some sector exposure, okay, everything's fine. And then you've got recently coming to market, very, very, very popular are the engineered outcomes. Talking about the buffer ETFs, some of the option overlay, shout out the Jepi, and a lot of the structured products. And then we start to spice it up a little bit. We've got crypto and we've got crypto treasuries. And then we've got the Yieldmax, the Yieldmax, I don't know what the word is. - What's the call selling option in crypto? - Basically, basically 140% distributions, yeah, okay, sure. You've got the leverity ETFs, whether it's individual stocks or on indexes. And now we get to the fun stuff. We've got gambling ETFs coming out, we spoke with Todd Zone about event contract funds. And a couple of companies just filed for NHL team futures. I have no idea why, I have no idea why the NHL was first. Maybe there's a league reason I have no freaking idea. And then finally, and don't think this is the end, Josh. This is, we have not reached the final boss. We've got intraday, I mean zero day to expiration. Boring, intraday, intraday leverity ETFs. I love it. - First of all, Bravo, I love that thing. Let's do more with that. Two points. Do you remember National Lampoon's Vegas vacation? - I didn't say it. - Okay, it's an absolute classic. But it's a bad movie, but such a great bad movie. It's right up your alley. It's the last Griswolds with Chevy Chase. Takes a family to Vegas. He's with his idiot cousin Eddie, the trailer trash guy. Okay, so he has to make a lot of money really quick. And like the regular casino, like he can't do it. - Is that Randy Quaid or somebody else? I don't know if he was in the movie. - Randy Quaid, who's amazing in the movie as usual. So they go to Vegas downtown. And they go into like the seediest casino in Vegas. And it's like there's no blackjack, there's no roulette, there's no backerat. They're playing flip a coin. Pick a number from one to 10. I forgot some of the other games that they're playing. (laughing) We are at the Vegas vacation phase of the current market environment. And I agree with you, we're not at the end, but my God. My God, and we talked about this last week. These are lawless times. You can fucking launch anything. And the message to the people watching and listening to us, I'm not gonna like trash people, entrepreneurs, who are putting these things out to the universe and seeing if there's a market for it. But I will say to the listeners, to the viewers, to our fans, listen to me. These people are not sitting in think tanks, asking themselves, will this help investors? That's not the question. They're not in white lab coats, okay? What they're actually asking in their board meetings will people buy this shit? That's the only thing that matters. Not is this good for people? Will most people use it profitably? Will it help someone retire? Will it help someone? Some people are thinking that way. The Buffer ETFs are probably a great example of that. Most people, the only question is, will these animals buy this thing? Will they? That's the question. And if the answer is no, they don't bother. If the answer is we're not sure, these days, It's cheap enough to give it a shot. Let's see. And if the answer's yes, they're gonna launch it. With it, and the only thing stopping that are regulators and the regulatory pendulum swings back and forth. They get too strict, then they get too loose and then lots of people lose money and it swings all the way back and never stops in the middle. So the backlash to whatever the fuck is going on right now, it's gonna go all the way back the other way where it's the no fun league and nobody can launch anything. And I don't know when that happens, but right now we know what's going on. And if you know how to fill out the paperwork, you could probably get something launched. Like we're gonna give you intraday leverage and reset every two hours. Or every 15, but whatever it is, sure. Let's see, let's experiment, it's a free market, it's capitalism, let's see how people use it. So I'm not against it, it's fine by me. I just want the people to hear me say, these things are not going to an FDA phase three trial before they get into your hands. - All right, so we know. I think in 2018-- - I don't know that everybody knows. - No, no, yes we do, yes we do. Our listeners are very smart. The average investor today knows a lot more than they did, a lot more than they used to. In 2018, in those days, we were screaming about these things and saying people don't understand what they're doing. They think it's one for one, two acts over a year, they don't understand, it's 2026, people understand. Investors are very smart, they know. - All right, you want to do this? - Yeah, let's do some stocks. Okay, I thought this was interesting. The travel trade has been on fire this year. And we have talked a lot about Hilton and we've talked about Marriott and Expedia and booking.com, the airlines. This has been money made and this is not one year. This is going on multiple years. One of the big lagers, all this time, finally caught a bid. And it is Airbnb. And this is a company whose product I will never use. I will not stay in someone's home. I don't judge anyone for wanting to do that. I will never let someone stay in my home. - Yes, you do, you coward, you joke. - No, I don't, yes, no I don't, no I don't. I get it, I totally get it. There are people, listen, people, people like, oh, so you'd rather go to a hotel where nine million people slept in the bed than stay in a house where maybe 20 people a year, they have a point, they have a point. I don't care, I don't do this. And no one is ever living in my house. I will starve and die. I will starve and die before that. Anyway, Airbnb is kind of killing it right now. So let's put this chart up. Huge upgrade from Bernstein after their latest earnings report, which was earlier in August. And I want to show people the technical, the technicals here first. This is what we call a runaway gap, runaway gap. Not a breakaway gap. A runaway gap happens in the middle of a move. And this is like Edwards and McGee stuff. But basically, you would take the amount of the move that preceded it and then on the other side, that's how far you should expect this to be able to keep running before it runs out of steam. So these are very bullish. This thing gapped up and never even looked back at that gap level. Michael, would you agree that's a pretty bullish formation in the chart? - Insanely. - Okay. Management is now guiding to a fifth consecutive quarter of 10% or higher growth in usage. So Bernstein came out and put a $217 target on the stock. They're looking at double digit revenue growth, margin expansion, ongoing buybacks, and they think they're gonna get 20% annual earnings per share growth going forward. They're also talking about this as an AI stock, which I thought was interesting. So this is, so, you know, my antennas are up, 'cause I love this idea of the S&P 493, being the next leg of the bull market because they're the users of AI. Airbnb is using a ton of AI. They have an awesome CEO, Brian Cheskey, he knows what he's doing, and here are some of the ways that they're using AI to grow earnings. We building its search and discovery layer to better match guests to listings they're likely to book, rather than just returning results based on proximity, which is how this thing used to work. Surfacing the right home for the right traveler, the right time increase in conversion rates, dynamic pricing tools. Are they charging the right amount? Probably not, nobody is. AI helps you get to the highest price somebody will pay without abandoning their shopping cart. We've seen them do this in the concert business, we've seen the airlines do this, okay. Sponsored listings and emerging advertising products where hosts can pay to appear in search results. High margin revenue stream that sits on top of the court take rate, AI is central to making the auction and placement logic work, and last, the loyalty program expanding. AI personalization to make more loyalty offers and rewards and target them better. This is what Meta does. They're the best in the world at it. But seeing Airbnb utilizing AI to start putting up 20% growth, these are the types of stocks that I personally and most interested in. This is a pretty boring business. It's lodging, but super charging the existing business with AI, I think, is how the S&P could have multiple bull market years ahead of it. We'll do one more here. - Wait, wait, I have something to say about Airbnb. The biggest problem for Airbnb, the biggest problem was when it came public. Airbnb came public in December, 2020. It was unprofitable. - Right at the top. - It was training at 40 times sales, and that is it. It took six years to grow its way out of that hole. John, throw this tweet up. So this tweet comes from, I wanna give attribution. This tweet comes from Ben Schmark at the Ben Schmark. - What did they say? - Oh, that's clever. What we're looking at is this. He says it's hard to overcome a high starting multiple, even when future growth is robust. So here's what we're looking at. - SpaceX stands, pay attention. - Right. So when you're trading above 50 times, and what is this, earnings, okay. When you're trading above 50 times, look at the five year cager. Even when you're grown between 15 to 20%, the average is negative 2%. And this is very tricky. This is very, very tricky. And it goes to the point that Josh was making earlier. Try it off, please. The reason why those companies get rewarded with such a high multiple is precisely because the earnings growth is so explosive. And so expectations get ahead of itself. And it takes Airbnb six freaking years to burn that excess off. - Yeah, and we've told stories like this before. We talked about Microsoft growing earnings double digits in the 2000s decade and the stock price being flat because it went into that period at like 70 times earnings. Cisco really did grow 20% a year. - Right. - It really did. - Right, you were right on the fundamentals, but you paid too much. And this is very apropos of the current moment. - Let's look at Delta. I see a double bottom at 80. I bought some more today. I do have a stop in. I think this is the best airline in the world. It's not just the experience as a user, but the way the company is run at Bastion is phenomenal. He said AI, so this is the same theme. He said this week, AI could lift Delta's profitability by as much as 50%. He frames that moving the margins from roughly 10% to 15%. But that's worth billions on a revenue base, billions. Okay, Delta is working with Fetcher on AI fair setting. As of July 2025, AI was only influencing 3% of fairs. The stated goal is for 20% of all Delta flights to have this AI lens on the pricing. It's gonna work. So long as the economy holds up, it's gonna work. Delta also implemented AI driven baggage technology during the July 2026 quarter. And I don't know what that means. But I was about to say, I can't, I don't know. I don't know. Maybe they put a data center in the bank claim. Listen to me. But I want people to understand the takeaway. This is the way the bull market, which is already into its fourth year. This is the way the bull market can make it through 2027. If the S&P 493 continue to use AI to surprise investors with better than expected earnings at Outlooks, that's how it works. Can I take that a step farther? I think it's the only way, 2027 continues the bull market. If the 493, if we don't see margin expanded, I mentioned, 2027 is going to be tough. Now what's remarkable about what you just said is that I said it. And you said it a year ago. We were so early, we were so early to this concept where the only way these hyper-scaler investments make sense is if you see small and mid-cap companies beat in earnings. Therefore the market has to broaden or it has to crash. There was no way these hyper-scaler investments could continue on without seeing the rest of the stock market react positively to their AI investments. Because who's the customer? At a certain point you're building compute for people that aren't making money using it. AI begotten. We could have said this a year and a half ago. I don't remember, but we were so early. Okay. What do you say the rest of the topics we could say for another day, is there anything on fire that you want to discuss? No. Let's do Roundtale to close out because I like those guys. All right. So this is my topic. I gave Roundtale the ETF issuer of the year award. That is the what are your thoughts? It's official. It's the what are your thoughts ETF of the ETF issuer of the year award. And yes, Josh has a business relationship with them. But here's what they did. Full disclosure. All fully disclosed. The most disclosed. Extremely unconstrained. If you're listening and out watching, I've removed my clothing. Extrude disclosure. So here's what these guys did. Shout to well in the team. They launched DRAM in April and got to $10 billion outside of Bitcoin. It's not. It's the fastest ETF to get, I mean, I think it did it, did it do it in 10 days? I mean, I don't know what the, what the details are, but off the charts. And then, and then if that wasn't enough, they did Halo. They capitalized on Josh Brown's genius way to describe the market. It is 52 million in assets, Michael. Did you know that? Dude, I mean, 52 million dollars is a lot of money. No promotion. 52 million dollars. But here's the other one. Photonics. John Chardonn or Tweeton or whatever on something on photonics. Look at this. Okay. Like, L-Y-T-E has crossed $300 million in AUM in only nine days of trading. I know that might be lost in some people, how insane that is. It used to take like an indie issuer years for the entire firm to cross $300 million. And they're just out here, just slinging it. So. And they had to like, they had to like go hat and hand to Merrill Lynch, Morgan Stanley, like begging to get on the platform. Then they get on the platform. They have to beg to get into the asset allocation, like, put us in one of your model portfolios. These guys, they just, and by the way, the degree of difficulty in that D-R-M ETF should not be understated. You file and the ETF, if they doesn't get blocked or delayed, the effective date is like 75 days later. Which means you can't just identify a trend and launch an ETF that day. You have to, you have to be two and a half months ahead of the curve to see like what people might be into, to get a product launched with as perfect timing as that D-R-M ETF. And it's sick. And Will Hershey is fine. He's just, he's just a regular guy. Dave Mazza is the real, I'm just teasing, I like both of those guys. Congratulations. Before we get to make the case, I just, just real quick, John, throw up the plenty of stocks working. I just want to put this on people's radar. Josh, do you know how on fire materials are? Not until you put this on my radar. So the XLB ETF, and maybe we'll do more in this next week, looks incredible. And these are just some names that we selected. There's so many things in here working that are completely off anybody's radar, something copper is not in XLB, by the way. But it's, there's so many things working, chart off. It's free port. It's free port. I follow free port. And I follow new ones. Josh, it's the type of market where you feel like you want a short cash, meaning you want to go on margin because there's so many stocks you want to buy, and you just can't buy everything. And if that puts your antennas up, good, right? If you're like, holy shit, Michael wants to buy every stock, that makes me nervous. Good. It's that type of market. It's not good. So, first of all, the best stocks in the market list, the quantity of names on our list is exploded. It's got to be at a multi, multi, multi, that's one, too. I saw at Lassian hit the list this week, team, I think it doubled off the lows. This was the epicenter of the SaaS apocalypse, it's at a 52 week high, and it's on the best stocks in the market list. How holy cow is this market hot? I love this game. How? Holy cow. All right, we're going to make the case, we'll do this quickly because, because Netflix and Spotify put up Netflix, credit to me, and I think you, you're still in this? I bought it the day after earnings, that's 67. I'm not only down 9%, great print. I am now above water with all my average downs, I stuck it out, I am not walking away. I think that this is the most misunderstood stock in its sector. Pritch! Tell me more. They just don't understand. They don't understand. They don't understand, but they will. They will catch me in triple digits, and I'll explain it. Spotify trades very similarly to Netflix. You and I both bullish on this name. I bought an added, I bought an added, but more or less we can add it yesterday. So I bought it last week, I think I nailed the timing beautifully. I do have a stop in on Spotify, not Netflix, but Spotify. I don't want to marry this thing, but I have to tell you, I think it's one of the best businesses in media. I know we did this whole conversation last week, so I won't repeat it. But just to shout out, because these stocks are grinding back, they're not ripping, they're not on the best stocks in the market list, nobody's talking about them, but they are literally grinding off those lows, and I like to see it. Spotify will enter the best stocks in the market list. I've got a mystery chart. I just made a comment, I love this game, it's just the best, the way that stories change so fast and make us all look like complete schmucks, all of the time. If you're not entertained, I mean, I don't know, I don't know, I don't know, tell you. So mystery chart, John, please, these are two stocks, obviously, these are two stocks, and these are very much considered head-to-head competitors. Now, there are differences in their business models, they don't do exactly the same things, but whatever, any casual shopper, oops, I just gave it away, any casual shopper would say that I go to this place, go to that place. This is from April 2024 to November 2025. One stock was up 78%, one stock was down 53%. And then, since that time, John, please, the stock that was getting killed has now doubled, and the stock that was killing it has flatlined. And as we said earlier about Airbnb, and really throughout the entirety of the show, expectations are everything. John, last chart. The top one is the Forward PE for the stock that's outperformed. Oh, I got it. And everybody loved one, and everybody hated the other. All right, please, I'm sure you do have it. I'd like to solve the puzzle. Go ahead. Walmart and Target. Nailed it. Yeah. I mean, you gave me a lot of hints along the way, but isn't that amazing? So, you know, this is the thing with, this is the thing with technicals and charts. I have a bias about every company I hear about, especially if it's a consumer-facing company, like in other words, I have no, I have no bias about, let's say we're talking about Micron and, um, and Western Digital, because I don't interact with their products. I like, so those are easy for me. I just, it's charts only, right? I look at the earnings growth. I read the analyst comments, and then I look at the price. Those are easy to not have a bias. Walmart and Target, I mean, McDonald's, Coca-Cola, Anhyzer Bush, Disney, Netflix, Spotify, impossible not to have a bias. You have, you have got to use charts and technicals to tell you when your stupid bias is being left at by the people who are actually putting their own money on the line with trades. And so, this is why I've, my, almost my entire career, I have just been like a, a chart and fundamentals person, not one or the other. Because what you saw in that Target chart when it started to outperform Walmart, you might have looked, you might have looked at the stock price and said Target, what a piece of shit. Because that's how we all, we're all predisposed to make snap judgments. Do you know why that's what, that's the case? Not to belabor this. Because it's survival. You see a group of people that look dangerous, you turn around and walk the other way. And you live on to pass your genes to the next generation. So these snap judgments that we make in one second where we decide "This looks like it's safe to eat. "This looks like it might kill me." That's necessary for human life. It works against you in investing. Humanity did not develop its survival instincts alongside financial markets. We have 100,000 years of human evolution. We have 400 years of stocks back to Amsterdam, right? So we don't have these built-in mechanisms for no reason. It keeps us alive, right? But it doesn't help when we're thinking about stocks. Oh, I love this company. I hate this product. I like that CEO. What are you an idiot? How could that possibly work? So that's why we use technicals. And with that, we will sign off. Guys, once again, thank you so much for coming to the live. Sorry we ran long. We had a lot that we wanted to do. And we really appreciate everybody sticking with us. Please go ahead and smash that like button on your way out the door if you haven't done that yet. Super helpful for us. Once again, make sure to go to the compoundnews.com. Become a compound insider and subscribe. New animal spirits tomorrow have a great night. (upbeat music) Tammy regularly hauled stuff to her kids at college. That's why she shops at BJ's wholesale club saving up to 25% off grocery store prices. Beef jerky, microwave meals, laundry pods, even they can't screw up. Have you met my kid? And with BJ's gas, she gets there for less. - They call me the road warrior. - This is your home road warrior mom, home of the save. Join for just $20 at BJ's.com/maskete and save 10 cents per gallon for six months. Open soon, limited time offer new members only. BJ's home of the save.