Investors Are Turning Against Data Centers (Here's Why)

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Today's number 40, that's the percentage of global container exports that come from China. Ed, this morning I decided to play Frisbee with my youngest and it kept hitting bigger and bigger and I couldn't figure out why and then it hit me. It's kind of cute, right? It's kind of cute. Dad jokes 101. Is it making one of kids? Absolutely. I can see it now. Frisbee in the backyard, playing catch, I'm already very excited. Yeah, I'm screaming I hate you and not coming home when you're up late worried. Yeah, that's part of it too, just so you know. Richie. Yeah, so you know. Oh, damn. Okay. It's not what they advertised. I'm having such a nice time. My son, as you've probably heard, is a freshman at college and I call him every day to relive college. I'm having such a. I'm back at college. You're gulling him every day? Let's ease up on that. I speak to both my sons every day. Wow. Maybe I didn't speak to my parents enough or didn't speak to my parents enough. So I think what you're saying is your parents didn't give you enough love. No. No. It's kind of my, I think of it as my, I do it a couple of work, I'm purchasing it right now but it's good. I think it's more for me. My blood pressure to hear my boy's voice is, but I think that, yeah, I think it's good for both of us. You're probably right. I'm probably being quiet. I'm fat. And it's not like a long drawn out conversation where I give them a lesson about interpreting Odyssey for their life. It's, it's, hey, what'd you do today? How'd you do on the biology test? Bitch, you're not working on paying for everything and you need to do better. And then, you know, who, who are they playing this weekend? What's going on? All right. I love you. As long as it's quick and crisp. Yeah, you're right. Because actually, I think one of my problems with my conversations with my parents is we don't talk for a while and then each phone call, you know, it's going to be like a 30 to 45 minute thing because you, there's so much context that you got to catch, catch them up on. So yeah, maybe that's the solution, just sort of like a one minute check in daily. It sounds like a lot though, but maybe it's good. Well, it's such a good hack. It's pick up the phone. What's going on? What are you doing? I'm serious. It's like an anchor for me emotionally, mentally, just tearing their voice quickly and occasionally they don't answer. So I just call back like an obsessive girlfriend and I'm like, there's no hiding from the dog. There's no hiding from the dog. And then I start texting them and I'm like, you know, I haven't paid you tuition yet. Pick up the phone. Do you schedule the phone calls or you just spontaneous? I try and do it around the same time so I know that they're free. I find, I try and do it kind of like a little bit before bedtime, sort of as a, I like the idea that our conversation or the last thing is a, they do, but you know, my dad had a similar practice with me here on the dot every winter Olympics, he would check in. That's good. He was consistent every four years. And how are you, how are you doing your oatmeal sandwich? Well I was judging at the beginning, but I think you've turned, man, I think you're right on this. I think every day is good. I think it's healthy. Quick, brief check-ins. I like it. If you wanted to do something, especially if you're a mom, just call her every day for 30 days and freak her out if you won't know what's going on. Hey, just checking in, hey, just checking in. Everything good? Yup. I'm at that Asian arm. So anxious. When my friends call me, I'm literally like, they pick up and I'm like, who's that? It's, it's, but no, just, I would love, actually, this would be a great experiment to, hopefully, imagine, your parents sound like really bright and interesting and discerning. So I doubt they'll listen to this podcast, but I would love an experiment. Call your mom seven days straight and don't, you know, don't, not, what's up? Oh, nothing. I just wanted to check in. Do that seven days straight and then report back. Yeah. I think it's a good idea. Now I'm feeling bad about how if I call my parents, but that's probably a good thing. Something to reflect on. Well, it's not like they gave you life. I totally flip. Now that I'm the parent, I find it guilt trips. I think it's good. A little bit of guilt is probably, probably pretty healthy. All right. Let's talk about data centers. Let's do it. We've got a lot to get into here. The data center build out is starting to make Wall Street anxious. Last week, Oracle sent a force measure notice to the developer, I've its data center project. The company wants the option to delay payments if the data center is not operational by 2028. That new sent Oracle stock down 5%. Meanwhile, several other companies tied to the data center industry have delayed their planned IPOs. One of them is SB energy, which was supposed to go public this month. But according to the New York Times, its bankers couldn't find enough buyers at the company's targeted valuation of 50 billion dollars. The company is reportedly waiting to go public until investor sentiment towards data centers improves. It's not alone. Whole tech nuclear is also postponing its IPO indefinitely. I agree. I think I'm pronouncing that correctly. Is delaying its own timeline. So it's got a lot of issues in data center land. We have a SB energy, which is quite literally a data center company by definition was supposed to go public. It's now delaying that. Into that in a moment, whole tech, this nuclear services company that also delayed and according to the CEO, it's because the business is, quote, viewed as connected to data centers. I agree, which is this generation company, also services data centers, also delaying. And then the big news, Oracle sending a notice to the developers of project Jupiter. One of its biggest data center projects, and they cited what is known as this force measure, which is essentially this legal maneuver that is designed to relieve you from any liability, any obligation. If some event happens that would prevent you from fulfilling your agreement, and a lot of people I think are correctly interpreting that as Oracle isn't sure that this whole data center build out is actually going to work out. So what happened Oracle stock falls 5% blue owl, and those are the guys that are financing the development of this data center, that stock fell 7%. So a lot of risks to the data centers, a lot of delays, a lot of red flags, what do you make of this? The only edit I would have is I think force measure is like force of God, something like an earthquake or a war, right? Where you have a legitimate reason to say, okay, this is just not normal business standard operating procedure, and I should have an out here. So the framing here or the question is, is SB energy, the canary and the coal mine? And I would argue that it's the canary asking for a 50 billion dollar valuation on a mine that hasn't even dug yet. And if anthropic and open AI are having to delay their IPOs, there's just a ton of second tier septic tank, AI.com. AI, you know, pretending jazz hands AI companies that are not going to get out, and this company had no business going public. Let's just talk about the numbers here. 214 million revenue, down 8%. So that's, I'm sorry, 50 billion. They wanted to go out at 234 sales for a company that's the revenues are declining. Zero operating AI data centers. This is just fucking ridiculous. This is, and I love that the markets are just just gag on this thing. Only about 9% of contracted capacity is under construction. Essentially what they're trying to do here is they're trying to get a $50 billion valuation on a PowerPoint with a soft bank logo. And if you compare it to, I think the closest comp would be solar, it's worth about 1.2 billion. So credit to them for Adam Newman like salesmanship, trying to elevate the world's consciousness or or decrease it enough such that they could fool people into paying 234 times sales for a company that's declining. The kind of the bigger story in the more important story is this kind of quote unquote oracles forced measure. That's, that's an active God clause. And when Oracle invokes force to measure what they're really saying is that the God is credit markets. This isn't an existential event. This is the market saying you're out over your skis. And that is, this might be the dark fiber of the cycle in the dot com build out telecoms laid, laid tens of millions of miles of fiber. You and around, but this is generally what happened. B to C pets dot com. Oh, wait, that's not working. Oh, wait, B to B internet capital. Well, I believe in the internet, so just invest in the infrastructure, invest in the steel on the ground and all this money piled into global crossing and Cisco. And those things lost if they didn't go bankrupt lost 90% of its value. And it wasn't that the fiber wasn't wrong. It was just early. And it's, it's the definition of wrong when it goes on a balance sheet. The physical world is the real friction risk here. And that is 45 projects were 68 billion dollars were blocked or delayed in three months. And 30 to 50% of this year's capacity is facing delays. One of the most powerful entities in this AI story right now is a senior citizen who's angry and doesn't have a lot has a lot of time showing up at a town hall. So the IP window is to tell private markets lie and public markets don't private markets can have stupid marks public markets have granular marks. And we'll say no, we're not, we're not buying this. We're not going to let you wave your hand AI hands over this and turn this chicken chin into chicken salad. And when the bankers can't find a book, it means the smart money has stopped buying the story and, you know, wants to see actual progress that the case shaped economy is a decent metaphor for AI right now or the AI trade. And that is one has cash flow like Nvidia and the hyperscalers. And the other has a quote unquote potential like SB energy, whole tech, the neoclouds. And the second group is about to get very familiar with the term cost of capital. Yeah, it's kind of haltening that investors aren't buying this BS agree? I like this. It is BS. I think SB energy is like the perfect example. Here is this sort of declining solar business that decided now we're going to get into data centers. They say that they have all these data centers except they don't have any data centers. They have zero data centers that are operating. As you said, 9% are under construction. The other more than 90% haven't even broken ground. They keep on talking about this multi hundred billion dollar revenue backlog, but then you kind of dig in and you realize hold on. None of this is actually going to materialize within the next two, five, even 10 years. And then you start to realize this thing doesn't make any sense, especially at 50 billion dollars. And that is the problem. It's like, okay, your business is a nascent business. It's very speculative. There's a lot of risk. Let's see that reflected in your price. But they're refused to do that. They say, no, we're worth 50 billion dollars. We're worth more than 230 times sales. We're going to go out and we're going to do this thing. And you hope that people look at it and go, no, thank you. This doesn't make any sense. That is exactly what happened. They were rejected clearly when they tried to shut this thing around on Wall Street. And it seems like investors are kind of understanding what the BS here actually is and what to look for. And we're seeing it across the board here. We're seeing it with all of these other companies. It might be what we're seeing in terms of the opening eye delay. I mean, it's not totally clear why they're delaying. We know that Sam Altman said that he didn't think that it was the right time. But I think probably what he's realized is we're in an era where investors are actually quite discerning at this point. They're not just going to gobble up your BS no matter what. And I think there are multiple dynamics here that are playing into this data center build out risk. One of them is more of a technical risk, which is I would say that constructing these things is actually quite difficult and financing these things is quite difficult because the input prices are very volatile. You have the price of memory and the price of energy and the price of GPUs and liquid natural gas. And these are all multi-year projects that can basically be terminated if they're late by even a year. So that's already a difficult thing to deal with. And it seems like a lot of data center companies are just pretending that that risk doesn't exist. Then you also have, as you point out, this demand supply problem, which is that similar to 1999, we actually don't know what the demand will look like. A lot of people are just saying stuff that putting their PowerPoint decks together, they say, "Demon's going to go like this. We're going to have huge cager. It's going to be incredible." But of course, no one actually knows and there is a high likelihood, a high probability that we will overbuild, we'll have too much supply, and suddenly you won't be able to charge the lease rates that they're charging today, and suddenly the economics don't make sense. That needs to be recognized. And then the third thing, I think is the most important, which you mentioned, is that America hates this stuff. Just flat out. 70% of Americans oppose a data center in their neighborhood. This is becoming the issue. It's becoming almost like the midterms are a referendum on AI. Every politician needs to have an AI strategy, and it seems like most of them are just going in a direction of, "It's bad. I'm going to be against it." I think that, I mean, maybe exception would be the president. He's been a very pro AI. But clearly, this is going to be a problem, and I just want to point you to a quote from the CEO of CoreWeave, which is another one of these neocloud companies. And to me, this really encapsulates me, I found this quote. It's really encapsulates the problem here. He said on the Q2 earnings call, he said, quote, we feel like moratoriums are not going to impact the demand for this infrastructure, which to me is like a massive vote of no confidence. Because clearly, this has become a problem that is too large to ignore. And yet, a lot of these leaders of these data center companies are ignoring it. They're saying it's not a problem. AI is going to be great. The moratoriums won't be a problem. Clearly, this is something that needs to be actually addressed. And if you want to inspire the confidence of Wall Street, then you need to acknowledge the elephant in the room and explain and lay out exactly how you're going to address it. I don't think these companies are doing that. And I think that is why they're getting punished when they try to go to Wall Street and they try to take these things public. The question is, is this the beginning of the correction or just a bump in the road? This company trying to get public and not being able to get public, which is a good thing. And then people just highlighting how ridiculous some of this shit is, is it feels very 99 to me. It feels very, when we looked at some of this stuff and said, okay, this just doesn't make sense. That felt like a key component of pre-stage crash that finally the market says, no, no, this is, you know, even we aren't this stupid. Yeah, part of me wonders, though, is that a bearish signal or is it perhaps even a bullish signal because it might say that we're in a healthy market where the skepticism is now being priced in. And I, I'm actually not sure where I stand on this, but one thing that I've been looking at, which I think is quite interesting, is Nvidia's valuation right now. And Bloomberg just read a whole lot's gone this, which I thought was very good, pointing out that on a forward earnings basis, Nvidia's trading at 17 times earnings, which is its lowest level in more than a decade, down from 32 in 2025. That's as wild. So I can't tell, I mean, I think there are a lot of things in that, in that price. I think that what we're seeing priced in is the fact that Nvidia has been the largest player in terms of GPUs. And now they have a lot of competition and Google's building chips and Amazon's building chips and all these companies are also competing with them. And so it seems as though their modes are beginning to narrow. But I also wonder if we're starting to see the skepticism priced in to the broader market. And I'm not sure, I keep going back and forth on this because I kind of want to see it come down a little bit more. I mean, if we look at the trailing PE, it's a little bit of a different story. But, you know, it's still similar. The trailing PE is down to 28 times earnings is, I mean, it's down from 50 long. last year. But that's still higher than the S&P average, which you'd expect for a company like Nvidia. But I think that there is a question here of to what extent our investors pricing is into the most important and systemic stocks in the AI trade. And Nvidia, to me, is the metaphor for the AI trade. And on a multiple basis, it's trading down. And the earnings are rising way fast in the stock itself. So I don't know, do you have any views on that? I'm personally a little torn. I always think maybe this is a buy, but I'm not, I don't know if I'm there yet. Josh Brown is, you know, he said Nvidia's, I think Nvidia has been the best thing that happened to Ritual 12 management. And to Josh's credit, I think it was in it really early. And it's, you know, yeah, I was one of his big calls. He's up like 10,000 percent on it. You know, the PE ratio looks, it makes this talk look cheap. The problem is is certainty around those earnings. Yes. Because you have a company that seems to be engaging in a lot of kind of seller financing and circular deals. And it feels like the first place as people, if, if the unbelievable expectations around the business required to justify this catbacks, doesn't keep, you know, doubling every 60 or 90 days. It's logical to think that people scale back their catbacks and that the tip of the spear that really feels that that pullback would be Nvidia at the same time. If you were going to do a play in the AI space, I'm not even sure I would do a basket of AI because I feel like there's so much crap in it right now. It's like when, when I talk about buying a basket of Chinese stocks and asewa says, don't do that because there's so much crap. You do need to be a stock picker. It does feel like Nvidia's Manhattan real estate and that is in good times, it goes up 20% and bad times it goes down eight. It's just not, it feels like Nvidia is a safer play and to your point. I mean, is Nvidia like Facebook or meta where it has all these existential risks, but we all wish we bought in when it was trading at these multiples of earnings, right? So in the honest answers, I don't know, but to your point, if I were going to put money into the AI trade, and I haven't, and I'm just furious because I'm one of these guys who missed the whole thing and kept saying it's too expensive. It's a bubble and then it triples. That feels like going to Malibu beachfront real estate, which is, you know, they're the class of the whole thing. They're the ground zero of this. And it's well run. Jensen is a great promoter. He comes across is somewhat earnest as he tries to convince us that it's in our best interest to sell China our most advanced GPUs, which my opinion makes absolutely no sense, but I'm sympathetic to the notion that there might be, you can see Nvidia doubling from a P perspective. The question is, can you imagine an eight or $10 trillion company, right? So it's, but I agree with your sentiments that if you were going to, if you probably were going to put fresh capital into the public markets because you don't have access to the private markets, it does feel, I don't want to call it cheap, but less insane than some of this other crap. Yeah. I mean, if you were trying to get into the AI trade and you had a choice between investing it at Nvidia here, or investing in like the anthropic IPO at two trillion, or whatever the number is going to be for the open AI IPO, to me, I'd say this is your pick hands down because it has gotten somewhat punished. I mean, I think this goes to what we've been saying about where the bubble actually is. This is not a comprehensive bubble that is, that is, afflicting the entirety of the market. The bubble seems to be that it's seen to be multiple bubbles in little pockets of the market, including, I would say the private markets, especially open AI, granted we'll see when they go out to the public markets. And as we've, as you've said, the public markets are a lot more discerning the private markets. In a lot of ways, you'd say that the public markets are the smart money compared to the private markets, which might be the dumb money, which will just eat anything up, but I do think that that's going to be the dynamic to watch. And you also brought up the durability of forward earnings, the credibility of forward earnings. That to me is a really big question. I feel like we take forward earnings as a given. We just assume that it just, it always happens and that we should trust it. But I think with numbers this large, and when you do have Oracle going to its largest developer and saying, like, hey, if something happens, just count us out, please. And what actually is the definition of an extraordinary exogenous event? Yeah, it could be like an earthquake, could be a pandemic. Or as you say, it could be related to their credit rating. It could be something that actually is not that extraordinary given the circumstances that we're seeing financially with the company. When you have all of that, that really calls into the question, the credibility of the earnings that we're supposed to see in the future. And so I think that there's a lot of uncertainty with this right now, a lot of risk, but it might be priced in. The investors might, that might be why the multiples come down. So significant to me. But it's definitely a toss up and it's really interesting. We'll be right back off of the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts. Import for the show comes from BCX, the public ticker for private tech. 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There has always been one company that seemed destined to win the streaming wars, and that company is Netflix. But this year, that certainty has faded. Netflix stock is down more than 40% over the past year, and the company just received two analysts downgrades within a week. Both analysts said growing competition from YouTube and declining engagement were weighing on the stock. Meanwhile, Disney+ and Hulu are raising their prices for the four-time in four years. The biggest increase will be to the ad free tiers, which will cost 13% more than they did last year. The latest example of what people are calling streamflation as streaming services continue to raise prices while consumers have more options than ever. So Scott, Netflix has gone crazy. pushed down more than 40% in the past year, down more than 20% year to date. It just received two downgrades on Wall Street in the span of a week. Wells Fargo cut its price target to 57. It's at 71 right now. HSBC cut it to 76. So actually, that's a hold, but they still cut. This has been a disastrous 2026 for Netflix. And of course, this is happening while Paramount has just settled and essentially has gotten the green light to go ahead and acquire Warner Brothers Discovery, which Netflix wanted at one point. And they seems to be in that auction. Now they're out for sure. What do you make of Netflix getting punished? I got this wrong when I saw, I saw Ted Sarandas and the head of, oh gosh, I'm blank on last name, Bella, a super impressive woman who oversees a $17 billion content budget. And I said to them, you, you know, you dodged a bullet here. You've now got $120 billion to go acquire Disney or massively increase your content creation calendar. And the stock is just plummeted, which is, which caught me off guard. I think that essentially this isn't about Netflix's underperformance. It's about that this indicates what I believe is just a structural shift in the way we consume content. And the subsequent shareholder value that's able to be captured specifically, their problems can be summarized in two words. The first is you and the second is tube. YouTube is now the most important media company in the world doesn't make any content. It commands 14% of USDV usage. Think about what YouTube's done. They've built the world's largest studio, but managed to outsource the payroll to 20 million creators. I mean, this business model is just, it's very hard to compete with. And you want to talk about decline in fortunes. Netflix has lost more market capitalization from its high. Then Paramount is paying for all of Warner Brothers discovery twice over the market. Well, we're all obsessed with the Ellison's and Warner Brothers discovery. And Rob Bonta announcing is running for governor with this purestupid regulatory theater of trying to like block them or all that distraction. The market just erased two Hollywood studios from Netflix's market capitalization. And hours are up 2%, but content is up, spend is up 10%. So that's a negative arbitrage. When you spend 10% more to get 2% more attention, your attention arbitrage is negative, right? And then what you have is 58, with Gen Z, 58% spend more time on social video than streaming. So the competitor here isn't Disney plus. It's a 19 year old with a ring light. And streamflation, you mentioned that word. It's kind of like bundle recidivism. We cut the, we cut the cord to avoid, I mean, for some reason, I ended up paying $300 for my cable bill in New York. But we've, we've rebuilt the bundle one app at a time with worse user interface and force for price hikes in a year. And it seems to have hit, hit a wall. I've always believed these guys have pricing power. But what it may be is that it's like a restaurant raising prices as the, as the room empties. And I still think Netflix has probably the strongest management team in what I call traditional media. But there is a structural shift that they can't, I don't care if they come up with the next K-pop demon hunters or whatever the, whatever the, you know, the next hit is the way we consume media is moving towards a model of shorter form content with a host, with millions of creators who all have their own trailer, their own production values. It's just such, it's just such an unbelievable model to figure out a way to get other people to pay for your content. And you just put a thick layer of innovation on top of it. And again, my idea, and I pitched it to Tetsarondo three years ago with something called Ned Vibes. And I said, take the 98% of your content that gets 2% of the watch time. You know, it's, it's a hit driven business and make it open source and let creators slice and dice at different music, create different storylines and then repost it. But they need to do something that feels more YouTube and TikTok because I think going to the hits of trying to come up with the next game of thrones, I, I think that's going to be a tough one. I have long felt that traditional streaming is just a terrible investment for a lot of the reasons that you describe. And you know this about me, I've sat on the podcast. I mean, I've been bullish on YouTube for years now because it has this very different identity. It's genetics are very different from Netflix in that it, it, it benefits from network effects. It is in a lot of ways a user forward social media platform where they, as you say, they're not paying to create all of the original content. The users are doing all of the original content for free. And you, all YouTube has to do is sit there, make sure that their algorithm works. And by the way, that algorithm is excellent. And I think that is a big reason for why a lot of people are watching on YouTube. And it, we're users or creators on the platform. It works for us. I mean, we have invested significantly in YouTube and it pays off for us. We're, we're, we're increasing our downloads, we're increasing our views. We're still able to monetize that. And so the YouTube model works for us. And yeah, we pay a, a pretty significant cut on the ad sense revenue, but it still works for us because we're monetizing in video ads at the same time. So to me, I think YouTube has just crushed it on every level. And the way I think about streaming, I, I, I don't see any modes in traditional streaming aside from having better, more original content. And to me, that is an almost impossible mode to operationalize. So I've long felt we should only be investing in these companies and evaluations that reflect that, that lack of moat, I think that we should be demanding significantly lower multiples. And I, I'm, I'm going to take a semi victory lap here because last year I officially realized like Netflix was overvalued. I don't know if you remember this, but there was that, that obstacle that came out that Netflix was internally talking about how they wanted a trillion dollar evaluation. And I don't know if you remember what happened after that, but the stock ripped because suddenly investors like, Oh, my God, look how ambitious the management at Netflix is. They want to go for a trillion. What does that mean? What does that say? I was looking at the stock at $120 per share in July of 2025. Here is what I said about it. Netflix is now valued at roughly the same multiple as in video and a higher multiple than Apple and Google and meta. But Netflix, unlike those companies, isn't diversified. It doesn't have a hardware business or an ad empire or a cloud platform. It has one product streaming. And in that world, it's even being outcompeted where it matters most time spent in the past year. YouTube has increased its total share of US streaming views by roughly three percentage points. Meanwhile, Netflix has actually declined slightly. And now we're trading at $70 per share. So it's come down basically 40% since we put that episode out. I think the question now is like, has it been punished enough? I mean, we're looking at 22 times trailing earnings. There are other banks that are actually overweight. Netflix, Avacore, their price target is 110. BMO's price target is 135. Average on Wall Street now is 94. So that would imply more than 30% upside from here. So maybe now's the time. My personal view is, I think, that it still has room to come down. I'm not excited by this business. And I just think it's such a tough business to be in. The churn rates, the fact that you have to spend all of this money on original content, the fact that they're not benefiting from the network effects that YouTube clearly is, I just don't see them in a structurally sound position to grow in the way that Wall Street wants them to. So what I sense in your comments is what I suffer from. And one of my biggest flaws as an investor is no matter how cheap something gets, I think it's going to get cheaper. I look at it, it sucks to get cheap because they're facing structural or cyclical headwinds. And you think, wow, it's going to get cheaper. I didn't want to buy a house in Delray Beach because I'm like, oh, a recession is coming. And my partner forced me to buy it and it's tripled. You know, it's just, it is very hard to pick the bottom. The reason why I'm actually looking at Netflix stock is that you always got to look at valuation. You basically made this, made the case of like, look, it's a great business and it's overvalued. It's trading like a growth software company and it's not and it's more vulnerable than the valuation would imply and you were right, the stock's almost been cut in half since then. The multiple has compressed from 12 to 6 time sales. And it's essentially one of the best media companies in the world. Or arguably the best media company in the world if you think of media companies actually creating content, and it's trading like a cable company. And in more broadly, I think of Netflix as the best run company that is essentially the operating system for entertainment. And that is, it is the home screen for so many TVs now that they just have so much influence. When I heard they were getting the podcasting business, I thought, "Okay, how's that going to impact us?" Because effectively, anyone, any podcast they put on their home screen becomes one of the 10 biggest podcasts companies in the world. And similar to Apple or Instagrams who come in operating system, they are kind of the starting point or the home page for entertainment. They have an incredible management team and an incredible content machine. They're going to have to do something, they're going to have to come up with some sort of product innovation around the clippable economy or clipp economy, what you call it. Their ad sales business has been stronger than I think I'd anticipated, and is now I think responsible for a large portion of their sign-ups at a lower cost. Yeah, that was a good move. I just don't think you want to bet against this management team and those 350 million households that start their relaxation time on their home screen. I actually am quite bullish. I think on Netflix right now. Okay, I like it. We disagree, but I see your point. You think it's got further to go down? I'm not super confident, but what I know is that I don't want to buy it. There you go. I just, I don't like the long-term prospects of the company. I could see, but you know, I don't think that it's got much more. I don't think it's going to increase significantly this year. I'll say that. Maybe we can check it at the end of the year. But the more interesting conversation is, can you link your bare sentiments on Netflix to the fact that your parents don't love you? I've been waiting for several minutes for an opening there. There are always internal biases that I need to figure out before I start assigning my stock. Oh, trust me boss. You're going to need a bigger boat. When I try to sus out like all the dysfunction in my life from the bad decisions I make, that is, that is, that is a long walk through a crowded forest. Maybe I need to go to therapy before I start talking about stocks again. Maybe that's what the. I went out to dinner, that's not I'm an aspen, and I'm walking home and there's a bear. And I honestly had to ask myself, have I finally lost it? Am I hallucinating? Is this like, is this that moment where they take away my driver's license? It's even scarier than thinking it's a real bear. That's, that's a terrifying thought. That's what I thought. I thought, okay, is that really a bear or am I finally just fucking lost it? That's amazing. And it wasn't a real bear. Good, that's dangerous everywhere. I'm so glad it wasn't an illusion. Just the final comments here were about to see a different world in media because Paramount is going to buy one of brothers' discovery here because we saw this Paramount settlement. Essentially, David Ellison won. I'm just. Yeah, define won. Talk about the dog catching the car. Anyways, go ahead. That might mean something for Netflix. I think you made an interesting point, which is your point to Netflix was like, okay, now you have like a hundred billion dollars to spend on something else. I think that one of the reasons they've been punished so much is because investors hated what seemed like a lack of ideas from Netflix and the fact that they lost in a battle that they wanted to pursue. I think investors said, why are you doing that? We thought that you were so confident that you're going to become a trillion dollar company and now you want to go spend a hundred billion dollars trying to buy one of brothers' discovery. Does that say about your vision for the future? Probably nothing good. But these things are all related. Paramount, they're going to merge. So how does that change things for you, if at all? I don't think Netflix's competition is a Warner Bros. Paramount. I think it's a YouTube. If, first off, Rob Bonta trying to block this thing is ridiculous. All of a sudden he's decided he's lean a con and he should be evaluating. And my favorite was the settlement. Did we talk about this? They have to put together an editorial board? You and I did not talk about it, but talk about it because it's fucking ridiculous. Well, I want to announce that Prof. Jim Media is putting together an editorial board of Leia, my great Dan, who will have more impact and influence on my editorial decisions in this board. He said you can't sell your two lots. That's fucking socialism. Owners get to decide and come. He's got to decide whether they buy and sell. There was no reason to block this merger. If they he had blocked this merger. Paramount would become a distressed asset, probably sold for parts. CBS News has no future as an independent company. It's just producing quality journalism, which CBS mostly does, is a terrible value proposition. It doesn't matter how good Landman is. This is now a business scale. Warner Bros. Discovery is a great company with incredible IP that would have been fine, but it didn't have much of a future. These guys need to bulk up against an already bulky Netflix and a bulkiest of the bulky YouTube. So that was ridiculous, regulatory theater trying to get in the way of this merger and asking them. My favorite was we want you to make more movies guaranteed to make more movies. Well, that's like the JP Morgan and Goldman merge. Do you force him to have more ATMs? Maybe they shouldn't make more movies. Also, they're allowed to fire people. That's part of capitalism. So I think that was total, total BS. I totally agree. I would have been, I would have been okay with it if he'd actually achieved a decent outcome, but the fact that he goes out there, he says this can't happen and then gets basically nothing and then parades around as if he won something. It's like, oh, great. We're going to get editorial oversight and who's going to be in charge of the editorial oversight. David Ellison and Redbird Capital, the two entities that already control the company. So no, we're not getting any editorial insight. That's not a brag. You didn't win anything for free speech or democracy in any dimension. And then yeah, then they just bring up this kind of BS stuff about, oh, now we're going to make sure that you spend more in California. As if that's something that ever mattered to Paramount in the first place, like none of that mattered. It was just such a such a dismal failure on the part of Bonta and the AG's trying to act big, trying to act tough, losing and then pretending that they still won at the end of it. So I tell you really, I think governor News and play the role here. I would imagine the governor stepped in and said, boss, California just can't be an AI story. We need our media ecosystem as healthy as possible. And Ellison started making noises about moving to Nashville, which I thought was was probably also bullshit, but no billionaire son is going to hang a Nashville. Nobody can live large or that else in a shame or go or go to or go to San Vicente bungalows in LA. Anyway, it's good. This was I'm glad the merger went through my you glad it went through. There's no reason I believe in capitalism. These companies need to bulk up to compete against YouTube and meta. They're not they don't work as independent companies. So I don't like media consolidation, but I'm also a realist and a capitalist. They get to buy this this combined company did not trigger monopoly law. They get to buy shit and the faster the only way to get people to hire is you let them fire if they want. So and this was pure pure theater. I hope that I hope that they can compete against YouTube and Netflix. We want a robust third player. And so I don't I wonder how they also I don't know if you saw but my other sister wife podcast co has Kara swisher is all over the news because she's like I'm out of here. She's like I'm leaving. I hate the elephant. I think she always announces that she's about to leave. When is she going to actually leave? I'm leaving. I'm like wait, wait, she's back. I'm leaving again. I'm like she's leaving. I love cars. It's just leave. Stop talking about it. I'm unsure. Yeah. She knows she knows that it's a great story. That's probably what's going on. Well, I can't get over how much media coverage. It's received anyway. It's a fun story. But I want to see her actually leave Kara leave. Let's see leave. What I said to her is the elephants. My fuck was 60 minutes because quite frankly 60 minutes doesn't. I mean journalists who I think the really precious think that 60 minutes of some iconic asset. Not really 60 minutes to go away and it doesn't really matter. It's a small business. It's 60 million dollars. It doesn't make I don't think it makes a lot of money. It's certainly making less money now with Ross and charge, but yeah, they can't fuck with CNN. CNN does 1.8 billion in revenue and 600 million in EBITDA. And when dad has 50 billion is on the hook for 50 billion and dad. You got to leave for read and Anderson and Smirconish and Danabat. Do you think that'll happen? Will you lock in that prediction that they will not be a massive shake up in personnel? Oh, no way. CNN is going to look surprisingly. He did it with CBS and he was down. You think CBS is less iconic and therefore he won't touch CNN. My guess is he gets he offers Mark Thompson a lot of money to up his contract and says to everybody. Call me if you need me, but I'm hands off here. If he starts fucking with CNN, I mean, the thing is a cash is difficult a business as CNN has been, and it has gone down, it is still a cash gusher. And if they move away from that center left positioning, someone else will fill the void and just take those ad dollars. The elephants, I'm almost entirely convinced, like money more than they do GOP politics. I don't know. There are much less expensive ways. With $50 billion, they spent $120 billion in the thing. With a billion dollars, they could swing three Senate seats in the midterms and have a lot more impact on politics. I think they're capitalists at the end of the day. I don't. And now I have the kid. I just don't think that he's necessarily a very good one. I agree with you that I don't think this is his grand plan to take over the political conversation and spend things in his direction, but I do think that he thinks that traditional media is bad in its current iteration and is willing to do dramatic things to shake things up. That's different. And I think that that's what we saw at CBS. I think he is going to do something dramatic at CNN. I don't think it's going to be necessarily cynical or pernicious. I'm sure it will be reported that way. But I think that he'll probably go in there and say, "We don't need Anderson people. We don't need this." Not Anderson, I'm going to take back Anderson, but I would imagine that he would because he's too iconic, but I would imagine that he does shake things up in the name of not political reasons, but in the name of innovation and a new frontier, and I would bet that it doesn't go down well. There's two things. There's product innovation. If he comes in and says, you know, we need to spend more capital on increasing the subscription model, I don't think he's going to mess with the content. My prediction is the Ups, Mark Thompson's contract and tries to say, "Look, you know, I'm going to go make superhero films and go to Oscar parties with hot women." I think that the kid is center left. I don't think he's. Yeah. He's donated to the Democrats. He's not. Again, we live in such a politically charged time that we see everything through the lens of politics, journalists think they're sacred. They want the upside. They want private market economics with government or non-profit prestige and protection. This is a business. The elephants have massively levered up. They overpaid. They cannot. They cannot fuck with for read. I mean, that's the bottom line. They've got to. They've got to hit. In my opinion, they're going to be hands off because they need that cash flow. Let's make it a bet. Should we say, within six months of the close, I would bet. I don't know who, but I would say that there would be a significant shake-up in the CNN talent pool. Should we make that bet? Well, describe significant. A couple of dream team superstars, I would say. Not by their doing. Those people might leave of their own volition, but I don't. I'll make that bet. The elephants aren't going to fire any of those people, in my view. No way. Okay. All right. I think they will. Let's lock it in. Let's lock it in. Six months from the close. I'm leaving. I've had it. Wait, she's here again. I'm leaving again. And I'm not saying anything I didn't say two hours ago I'm pivoted. Talk about it, Deva. Just leave. Okay, we get it. You're out. You don't like us. Do it. You don't like us. I respect it, but do it. We'll be right back. And for even more markets' content, sign up for our newsletter at ProfGMarkets.com. Imagine setting your makeup, then forgetting it's even theirs. Meet new groupie setting mist from Mabelie, New York. Gel to mist technology locks in your look for up to 24 hours, with flexible all-day-gum v-group, no tightness, no stickiness, no residue. Just plump, dewy, hydrated skin that still feels like your skin. Try new groupie setting mist from Mabelie, New York. Maybe it's Mabelie. So like any good millennial, I have a love-hate relationship with Gen Z. It's the phenomenon rattling millennials. They just look at you. They want something bigger themselves, lifestyles of priority. Motivation is being inspired. But regardless of how you feel about Gen Z, it's undeniable that they're changing national politics. Generation Z is increasingly showing less loyalty to traditional political parties. Many now more likely to identify as independent. So what is going on with the kids? I think the biggest misconception about Gen Z's politics right now is that all of a sudden they're all socialists. That is just not the case. Yeah. They are embracing candidates who are offering new bold ideas in the absence of those ideas from establishment Democrats. This week on America actually, Gen Z researcher Rachel Jamfaza joins us to separate Gen Z fact versus fiction. It's not rocket science and this is, you know, I keep saying like young voters aren't that complicated after all. It's pretty simple. Catch us every Saturday on YouTube or wherever you get your podcasts. AI panic is everywhere. We do not want a data center in this county. AI models are becoming super human in their ability to break in and out of computer systems. The clock, damn Roswell, I hate those things. But where is that panic really coming from? According to a poll from the New York Times and Sienna, less than 1% of voters listed artificial intelligence or data centers as their top priority in this year's midterms. I'm an old school person. I don't care about AI. I say that doesn't right stuff for you. And sometimes I wonder, do they care about AI in so-called real America? What people in my district are saying is we think the risks outweigh the benefits. This week on America actually, I'm talking the Michigan congressional candidate Will Lawrence. On why he shaped his entire campaign around confronting the AI revolution. Really it's about control, I think above all. Who decides? Because people feel like they just are not really given any say so in the whole matter. Just every Saturday on YouTube or wherever you get your podcasts. aura. The maker of the popular smart ring is planning to go public this week at a $15.6 billion valuation. The company is looking to raise $2.2 billion and the offering will be an important test. For the broader IPO market, a weak debut could signal that investor sentiment is turning. If aura succeeds, it could be a bell-weather for another trend, growing consumer interest in health and fitness data tracking. The CEO of Woop, the maker of the fitness tracking bracelet, recently said that his company is also targeting an IPO within the next 18 months. Meanwhile, Apple is reportedly developing a fitness wearable that could compete directly with Woop. So, Scott, aura is going public. I know that you have been looking into this company a lot. What are you making this? Well, do as I do not as I say, I'm desperately trying to find shares in the IPO. I think this will be my prediction. I think this is going to be really well received in the marketplace. I went to dinner last night. Everyone around the table for half an hour talked about how much money we are spending on quote-unquote wellness, whether it's red light therapy or the Wolverine stack or Saunas. People are spending so much money on fractal lasers and athletic greens and probiotics. Even people at your age, young people rank mental and physical health above marriage and kids as goals by 35. If you think about wellness being a new luxury and just a booming industry, how do you play wellness as a retail stock investor? There's this very few ways to play it. And aura, in my view, is doing it correctly. It's, whereas meta is trying to put a computer on your face and pretend it's jewelry or is jewelry and its customers are mostly women, three quarters are women, and two thirds earn over $100,000. Women who are over $100,000 are the premier cohort, or they're the most valuable consumer cohort on earth, and the one that makes all the household purchasing decisions. 40% of subscribers come from word-of-mouth, which leads to really reasonable attractive customer acquisition costs. Its valuation is fair, it's not cheap, but it's basically going out at about eight times revenue, somewhere between Garmin and Apple. But you're paying a multiple, a Garmin or Apple multiple, for a company that's growing 123%, and has 83% renewal on its monthly subscription business, which is $6 a month. So in addition, and I wrote this up in No Mercy, No Malice, there is no company in the world that I can think of that has the fluidity of what I'll call first-party data. The most valuable companies in the world have first-party data. YouTube gets first-party data from you, Netflix gets first-party, Instagram gets direct first-party data. What other company in the world gets first-party data from its customers 23 hours a day? I imagine a thinner, a thick layer of innovation of AI on top that says, "Okay, Scott, we've detected a 14% chance you develop pre-diabetes in the next five years here, the following health. Yeah. It's. It's really interesting, the Apple Watch. I didn't know this, but a ring on your finger is a much more robust collection mechanism of health data than a wristwatch. And this is anecdotal evidence, and I'm curious if you feel the same way, but the people I know who own an aura are obsessed with it. Absolutely obsessed with it. So what do you have? You have renewal rates that are like software. You have a company doubling its revenue. You have what I would argue is one of the few hardware companies in history that have first party data 23 hours a day, feels like a reasonable valuation that is tapped into their killer app is fertility tracking for women. So I love this company. I think hardware is really difficult. There's a small number of handful of companies that have been able to build a really solid hardware company. I love the growth. I think it's going out at a reasonable valuation. So see above, I'm trying to find shares. Yeah, I think I agree with all of that. I think I agree with a lot of the bull case here. I'm going to try to get access to the IPO myself. We'll see what happens when it actually goes out public, but if we can get in, that would be great. 'Cause I do think that the wellness trend is a big deal. And you pointed to some of the statistics, they're about Gen Z and millennials and young people being so obsessed with this stuff. They are so obsessed with mental health, with physical health. This is tapping into that. The financials are pretty strong. I do think what happens in the long run is a different story, because I think that there are some significant risks here that they do really need to focus on and think about. One will be the competition. You've got Woop, you've got Garmin, you've got Fitbit, which is cheaper, you've got Apple, which is reportedly developing a health tracker that is similar to Woop. And while I would acknowledge that aura is kind of has a luxury positioning, I think because they've really dialed into it being fashionable and it looking good, which I think is really important in the wearables industry. And you've talked about this a lot. This is the thing that Meta did not recognize when they were going all in on the headset, is that you look like a fool when you wear it. You don't look stupid when you wear an aura, you look kind of cool, you look kind of health conscious, it is a style statement as far as wearables go. But I think Apple is just as able to do that as aura is. And I think that there is a significant question about can the carbon protection beat aura? There is another question of efficacy. And the reason I bring this up is because there is a lawsuit that is accusing aura and their sleep tracking features of not being accurate. They say that what the claims that aura makes about the sleep health that it's not possible with the current technology, aura says no it is, I have no idea, I'm not a tech expert, but that's something to think about because that's an ongoing lawsuit and that'll be a problem if they win that. Final thing I think is the most important, is this a fad? Because fads happen, especially in style, especially in wellness. I mean, we all thought that Peloton was going to be ubiquitous across the world back in 2020 and 2021. They got absolutely pilloried in the markets. The stock has come down like 99% since then. There are health fads, this is what happens and can aura protect itself from being just a thing that was cool for a few years and become something that is actually systemic to the health world and can it actually live the test of time? I'm not so sure right now, which is why I'm a little hesitant but that's what I want to hear from them. I want to hear how they're addressing that problem. Do you have any thoughts on that? - Yeah, I'll go from what I think are the least valid concerns to the most. I think the lawsuit itself is pretty weak sauce. I've read it and I don't think it presents much of a risk. I think it probably gets settled. I think it was mostly a nuisance lawsuit taking advantage of the fact that trying to go public, thinking they could extract a pound of flesh. The elephant in the room is Peloton, right? A hardware device, huge IPO, huge valuation, crashes. I would describe Peloton as a COVID stock and when people were stuck at home and couldn't go to the gym, you know, this is different. This is on your person 23 hours a day. Peloton was three, four, five times a week maybe for an hour a day and a much larger initial price point. This can be grown every year for 10 years. I don't think it's a fat, it could be. I think it, I think this is inextricably tied to wellness, not as a fat itself. And to your point, when detect guys get wrong, is that people won't put anything on a visible part of themselves, their hands or their face. Unless they think it makes them more attractive to potential mates. And I think the aura ring, that's true. Look how handsome I look at this. I always laugh at the way you phrase it. I agree with you. Handsome, I look amazing. You wear the mixed reality headset and it's like you're basically deciding to end the DNA branch that is your company. I'm always caught off guard by two potential mates as a phrase. And I shouldn't be because I hear it all the time. That's what it's all about, Ed. The answer's in each other. Partner with someone, have kids, that's everything. I agree. I agree. And then, you know, and then call them every day at school. Anyways, the, I don't think, I don't think it's a fattish. I mean, everyone has that drawer of fuel bands, you know, jaw bones. This has between 83 and 80% renewal rates, meaning after 12 months, eight to nine out of 10 people still have it in the side, not only to keep wearing it, but to sign them for another year of $6 a month recurring revenue. Which is higher retention rates, by the way, than Netflix, which is crazy, right? The things that I think, the things I don't like about this, the majority of the proceeds are buying, are going out to secondary, are buying out existing shareholders. Yeah, not a great sign. That's not a good sign. And a lot of people, a lot of people say, well, it's VCs who went earlier or cashing out, fine, okay, maybe. I personally would like to see that capital going into the company for growth. That's not, that's not a good sign. Anytime Apple is near you and anything, it's an existential threat. Supposedly Apple isn't thinking about a ring. I was shocked. My prediction was when that company filed, that Apple or Samsung was going to buy them. He just don't buy anything. I mean, never do it. Yeah, they're not, that's not their culture. Having said that, I do think this is an existential threat to the watch. In my sense, this has better data and greater loyalty, greater renewal than the watch itself. But anytime, anytime Apple gets near, it is potentially like one reach away from your business, that is a real risk. But yeah, there's definite risks here, but looking at the potential upside versus the risk, I really like this one. The ring itself is unique. Other companies are not building rings. Apple's building a watch type thing or a wrist band, same with Woop. I think that's a good point of differentiation. The financial growth is pretty strong. I think the thing that we want to hear from Aura is what actually is the growth story. Like we can talk about how are you going to deal with the risks? But how are you going to double in the next couple of years in terms of your evaluation? How are you going to significantly increase your footprint? You're at 5 million subscribers. How are you going to get that up? Are you going to expand into new products? Do you have a plan for new products? What will those products look like? Do you have a plan for expanding the subscription business, which, as it stands, is weak compared to the hardware business? I don't think that's a bad thing, but is that the place where you're going to see the growth? Those are the questions that I want to see them really tackling, because I do think that there's a lot of promise here. It's rare for hardware wearables to break through. It's really, really hard. Some of the biggest, most profitable, most well-capitalized companies in the world have tried to do it, and very few have figured out how to do it in the way that aura has. And to make it, by the way, profitable. They are profitable right now, which is a lot more than you can say about any of these AI companies, which are burning billions of dollars a year. So there's a lot of potential here, but I can see a lot of worlds in which they screw it up. And I want to see them show us how they're going to make sure that that doesn't happen. I'll give you one example. There are GOP1 companies. I think Eli Lilly are sending out aura rings with certain programs. It's being attached to GLP1, fitness and sleep. I mean, so I think for the next few years, I mean, the company doubled this year. What are their non-AI companies are doubling? Anyway, point taken. My piece of advice in terms of, I want to hear what you would think about this in terms of new products. This is something that we were all debating as a research team, which is that there is a growing sector of baby wellness tech products. For example, there is a company called Outlet that has sort of producing a $300 oximetry tracker, who knows what that is, that is attached to the baby sock. There is Huckleberry, which is a $120 membership program for, quote, "optimized net predictions." There is a company called Cuba AI, which is a smart baby monitor with, quote, "AI scheduled lullabies." I think all of this stuff is a little bit ridiculous, but I also think that we are a generation that is neurotic when it comes to health. And we're especially neurotic when it probably comes to health. to our children. So I could see that, for example, as a potential pathway, maybe you get into different markets, maybe you look at wellness products for babies, maybe you look at trying to expand your footprint with men. As you mentioned, three quarters of the customers are women. If you had to recommend a new product or a new product line for aura, what would it be? Something that is the third leg of the stool around GLP once, what I've been reading about GLP once, which, as you know, is my favorite technology. The success is not about the GLP one, it's about pairing it with fitness and nutrition. And I think that a GLP one success is dependent upon support around the actual medication. And I think the aura ring will be seen as part of the support or success of GLP ones. And some of the stuff you're talking about with babies, I think is, I think there's all kinds of product ideas. I think you can get maybe with the Apple Watch, with AI and aura to a point where it's going to say, Scott, your risk of stroke has gone way up. You need to talk to your doctor about this. I think we're obsessed with our health, women are obsessed as they should be with their fertility. I see, and it's only 2% of the wearable market right now. So it has a lot of room to grow. I don't, if I were on that board, I would be the discipline we need. It's not what to do, but what not to do. Because I think that current business model has a lot of juice left to squeeze. Or a head up, Scott Goway. Give him some shares. There you go. Okay, let's take a look at the week ahead. We'll see earnings from micron and Nike. We'll also see inflation data from the personal consumption expenditures index for August. And finally, we'll see consumer confidence and the employment report for September. Scott, do you have any predictions? micron beats. Memory is the AI trade. Nobody talks about, because every GPU needs high bandwidth memory. So I think that in video, it gets all the headlines, but micron kind of caches a lot of the checks. So I think micron's going to beat aura prices, first trade, 30 plus percent on the first trade from the IPO pricing. And I get the sense, they're just going off the tech stuff. I think Nike is still in turn around purgatory. And they're still paying the price for such an interesting stock for opting for DTC over being in touch chronicle with their retail athletes and brands or I'm sorry, the retail stores and brands. So I think micron and aura to the upside, Nike to the downside. But yeah, that's those are my predictions. All right. My prediction in light of what we're seeing in treasure yields, which keep going up, the 10 year and the 30 year, this entire administration is a complete shut show. I made the prediction earlier on in the year that I hope the midterms would be a sweep. I just want to double down on that. I think the Democrats are going to take the house and the Senate, which people thought was not possible earlier in the year. But I think it is possible now. I think we're seeing it in the markets. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti of Research Team is Daniela and Cristino Donahue and Mia Sivaria. Jake McPherson is our social producer, Drew Burroughs is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to "Profty Markets" from "Profty Media". If you liked what you heard, give us a follow and tune in tomorrow for a "Fresh Take" on the markets. "Profty Media" Running a business shouldn't feel like surviving a software group project, one after accounting, another for inventory, another for sales, and somehow, none of them talk to each other. That's where Oto comes in, and all-in-one business management software that brings every part of your business together. From sales and accounting to inventory and marketing, all-in-one powerful platform, no messy integrations, no bouncing between tabs, and best of all, no spreadsheets. Try for free today at odo.com/vox. That's odo.com/vox.