US and Tech Powerplayers Welcome China & Home Depot’s Impressive 45-Year ROI

Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the best performing stock in the last 45 years will surprise you. Then, what is force majeure and why did Oracle decide it for a data center it's building? It's Friday, September 25th. Let's ride. Fall definitely announced its arrival this week. The wind is blowing, jackets are out, and the sunsets are creeping ever earlier. One of the best ways to warm up is to hang out with us at Trivia. Next Tuesday evening, we're running back our monthly Bar Trivia Night in Manhattan where Toby and I will write a bunch of questions. Yes, we actually write them ourselves to sump you and your friends. It's a ton of fun. Bring your co-workers, meet other listeners, and us. What's not to like? Let's warm the brains up then with a little trivia just as a teaser. Here's my trivia question. Only two actors. Only two actors have ever portrayed Wolverine, the X-Men character, on screen. One is Hugh Jackman. Who is the other? One more time. Only two actors have ever played the Wolverine on screen in a movie. Hugh Jackman and one other. We will let you know the answer at the end of the show. And make sure to sign up for Trivia if you want to participate. Link in the show notes. All right. Now a word from our sponsor, Roku Ads Manager. Toby, when you think of things that only take a few minutes, what comes to mind? Making a coffee, reading an article. Getting ready for a run. Well, launching an ad on Roku can be added to that list. With their self-serve platform, advertisers can go live in just minutes. And to make it even easier, Roku has a feature where you can use your brand's existing videos to create ads. So that Instagram video your brand posted last week could be used to create your streaming TV ad today. Right now, Roku is offering a $5,000 match to first-time spenders on Roku Ads Manager. Just head to advertising.roku.com.mbd and use code BREW5K. The leaders of the world's two great superpowers met in Washington, D.C. yesterday in a summit big on pageantry but small on results. The only actual deal worked out was for a transfer of pandas. Upon arriving at the White House yesterday morning, his first visit to Washington in over a decade, Chinese President Xi Jinping and his wife were received with a red carpet welcome, a military flyover, and in the evening, a state dinner that was the hottest ticket in town. Last week, Trump said, Xi and Trump had a lot of nice things to say to each other, like two pals meeting up after a long period away. After meeting Xi at the airport Wednesday, Trump wrote online, Xi, for his part, told Trump, I am ready to work with you to steer the giant ship of China-U.S. relations on a steady course toward that future. To that end, he announced he would send two pandas to the Atlanta Zoo, which is how China shows geopolitical camaraderie. But camaraderie is not how anyone would describe these two countries' relationship, where beneath the photo ops, handshakes, and compliments lies a heated rivalry. The U.S. and China are locked in an arms race to develop artificial intelligence, granting the winner not only technological superiority, but military dominance. Adding to the tensions, China has been economically supporting Iran, which the U.S. is at war with. The U.S. is selling weapons to Taiwan, which China has designs on controlling, and trade tensions continue to simmer. But of course, you wouldn't really know that from the way Trump literally rolled out the red carpet for Xi yesterday. Yeah, a lot of the word I saw thrown around was diplotainment instead of diplomacy, where it was very big on just the pomp and circumstance of the entire visit. One of the biggest quotes that was going around is during their meeting, Trump gave Xi a tour of the new helipad he constructed on the White House South Lawn. He goes, he loves a good granite. So that was like the big takeaway from the evening. Not the biggest takeaway, but it just goes to show you that they were very chummy and were just like, oh, we're going to do this. We're just kind of palling about for the most part. What actually got done, you could point to the fact that the trade war truce was extended by two months. It was previously set to expire on November 10th. Now it expires on January 10th. Besson kind of said, too, that China has been falling through on some of its previous purchases of U.S. soybeans, though they're behind in other arenas. That was probably the most tangible thing you could point to. The one big question mark was AI. Obviously, they were going to. We should talk about it. Well, we didn't get much concrete news. We didn't get much granite news when it came to AI. And it still is kind of a looming position. Trump had posted on True Social that they would discuss it. But then he said he had no interest in new regulations and then reiterated that is China's position also. So that's still a question mark kind of hanging in the air. Nowhere was AI front and center than at this dinner, which honestly seemed like every, you know, the wealth in this room was insane. Just look at who was at the table. People of Trump and she was Donald Trump, Melania Trump, his wife, President Xi, his wife. Then there were three other guys, Elon Musk, former Apple CEO Tim Cook and NVIDIA CEO Jensen Huang and his wife, Sam Altman, open the ICO was also there. So when Trump was like, sorry, guys, like, I can't let you come. I have bigger VIPs. This shows you who the real power brokers are, by who sat at his table and who was at this dinner. But maybe the biggest person who came was someone who didn't come, actually, which was. Anthropic CEO Dario Amadei, who was conspicuously absent from that dinner, which he has been one of the biggest vocal critics about AI safety. So maybe that does actually speak volumes to how China and the U.S. are going about this, that safety is probably not front and center. There's no signs of slowing down on the AI front. And what are you turn it's been for Trump? I mean, in his first term, he basically rose to his position by calling out China for unfair trade practices, launched a big trade war in 2018. And then again, in his second term, where just not too long ago, the U.S. and China were putting tariffs of like one hundred and fifty percent on each other. Then China said, actually, we're going to withhold rare earth exports. That was their ace in their hand. Then that forced the U.S. to back down. They established this fragile truce that was extended. But the fact that Trump and Xi are so chummy is really remarkable. He met Trump, met Xi at the airport on Wednesday evening, when he arrived. And I know that may not sound important, but that basically doesn't happen. The only time a president ever receives a foreign leader at the airport is literally the pope. This doesn't happen in modern presidential history for someone to go to the airport and receive a foreign leader. But it may reflect broader, broader views from the American public about how they are warming up to China. Back in 2023 in the Gallup poll, the share of Americans with a favorable view of China was 15 percent. This year, it is up. Up to 34 percent. Maybe we're seeing that reflected in how President Trump is treating China. But that is not to say these these two countries just are almost, you know, are very much rivals and are building up their militaries to potentially go to war with each other. Yes. At some point. I mean, China has economically supported Iran, which the U.S. is at war with. China is the only major buyer of Iranian oil. They also have these impending restrictions on rare earths. So these two countries. It's a little bit weird. They they're frenemies in the sense that they don't like each other, but also their two leaders are best friends. Yeah. Symbolically, they presented themselves as friends capable of managing this rivalry. Substantively, we still got a lot to work out, a lot to hash out on all along all those vectors that you just mentioned. Moving on. Oracle's one hundred and sixty five billion dollar data center project in the middle of the New Mexico desert has hit a problem. Even I can't solve permitting Project Jupiter as the data center. Is named is a key part of Stargate, the five hundred billion dollar infrastructure build out announced by President Trump in January of last year, alongside Oracle Open AI and SoftBank. Oracle's job is to help build the New Mexico data center and fill it with computing power. But a company called Energy Transfer needs to feed them natural gas through a new 17 mile pipeline in order to do that. But that pipeline is stuck in permitting purgatory construction was supposed to begin in August, but it's now been pushed to February twenty twenty seven, putting the data center's planned at twenty twenty eight opening at risk. So Oracle has invoked force majeure, a clause typically reserved for when things outside a company's control like war or weather delays plans on a legal front and aims to free Oracle from any financial obligations they are unable to fulfill. What's a little unclear is if Oracle's force majeure notice will actually work and shield it from liability. It kind of feels like Jack Sparrow invoking parlay every time he's in trouble, but the company has reiterated that they aren't abandoning Jupiter. Just trying to protect itself from potentially having to pay up if the project is delayed, you know, hundreds of billions of dollars of cutting edge computing waiting on 17 miles of pipe. Yeah, there's a bigger question here. It's whether the data center build out is basically built on a house of cards. This project in southern New Mexico is the centerpiece of this five hundred billion dollar Stargate project between Oracle Open AI and SoftBank. And it's facing a lot of the similar problems that a bunch of data centers have are facing across the country. With a bunch of local pushback, the inability to get permits. Oracle has taken on 18 billion dollars in debt tied to this data center alone. And that debt is now in stress territory, trading at 89 to 91 cents on the dollar. Oracle also has this 300 billion dollar contract with Open AI to supply it with computing computing power. So Oracle is sort of the perhaps the canary in the coal mine for the whole data center build out, which powers the artificial intelligence. Trade, which is propping up our entire economy. I mean, the house of cards is called that because Oracle can have the customer lined up, which it doesn't. it has a buyer for the compute it can have the financing lineup which it does it has the land it has the servers it has the the construction everything is fine but if one piece of that which is permitting for a pipeline falls through then the entire thing comes crumbling down so that's where the house of cards metaphor really starts to take shape the reason why project jupiter is noteworthy and newsworthy is this thing is so freaking big it is designed to handle 2.45 gigawatts of power and to put that into terms that we can understand that would power roughly 1.8 million homes at any given moment so obviously it's a massive undertaking it ran into some politics too because when the project kicked off new mexicans did not know that it was actually tied to uh stargate was did not know it was tied to oracle or open ai and so now oracle has been contending with local politics there's a uh social media account that's named project stupider instead of project jupiter got them right there and so now oracle is going into the community and trying to you know pass out pamphlets and host community days for the boys and girls club it's it's really been one of those things where it's of national importance and yet local politics is playing a big role and now the fact that oracle is declaring force majeure so shows how that you know maybe obscure legal clause is working its way into the data center build that's basically a pre-negotiated allocation of catastrophic risk you saw this happen at the beginning of the war in iran which is typically when maybe companies declare uh force majeure or there's a big natural disaster qatar's liquid natural gas infrastructure got blown to pieces so qatar energy declared force majeure on its contracts the fact that this is now becoming what lawyers say front and center and all these contracts tied to data centers show that companies are saying wow there really could be catastrophic risk here because of all the different moving pieces that go into a particular data center and all of the pushback that comes out of this and that's why i think it's important for us to think about what's going to happen in the future in terms of what's going to happen in the future in terms of what's going to for you also why go through the process of looking for the best flights on booking.com if your agent can save you the clicks the big shift here is that ai has moved from recommending things to actually doing the things for you goldman sachs says industry is built around recurring bills or any that have negotiable pricing could come under pressure as agents improve at handling customer service interactions or fighting bills specific names goldman called out were planet fitness all state netflix sirius xm intuit the new york times and etc Expedia, amongst others. That basket of companies has fallen nearly 10% over the past two weeks. We've seen a similar reaction before when basically the fear of AI replacing enterprise software created the SaaSpocalypse. Those stocks have mostly bounced back. Now we're getting a similar wave of freaking out over consumer businesses. I've been dabbling with some of these agents and the first thing, maybe the only thing that I've had them do is go through my billing and get rid of all the subscriptions that I don't use, which is exactly what Goldman Sachs expects people to use these agents for. They said this basket focuses on industries where customer stickiness is driven less by product differentiation and more by the effort required to take action, which just reminds you that there are entire industries, entire companies out there where their entire business model is to get you to sign up and then hope that you'll forget that you signed up in the first place or make it so frustrating to cancel that you won't. Perhaps these agents will be able to get you to sign up and then hope that you'll forget that you signed up in the first place or make it so frustrating to cancel that you won't. Perhaps these agents will be able to get you to sign up and then hope that you'll forget that you signed which don't get tired, aren't afraid to talk to people on the phone, aren't willing to make you have those, you know, hard conversations will do everything for you. And these companies are just going to make less money as a result. I mean, think about health insurance. Health insurance is just pulling teeth for people because you do not want to jump on the phone, spend five hours fighting a claim to try and get your coverage approved. But again, an AI agent can do that for you and they don't care because they're, they're an agent. So businesses have relied on this predictable human psychology to say, they're not going to jump through the hoops. They're not going to go through the ringer to cancel these bills. And so we have this lock in effect. The other aspect of this too, that I thought was fascinating. Some Bloomberg analysis called a muse and instinct, these AI agents toll collectors. So instead of going to the Uber app and saying, I'm going to buy, uh, get a ride right now, you'll just say, I need a ride. And the agent will route it to the platform that is cheapest or closest to you. Instead of saying, uh, I going to I need a hotel. You just text your agent. I need a hotel and it will go across all those sites. So they become the new middleman. AI agents become the new middleman, the toll collectors, and it could just completely upend these companies who rely on you opening Uber and rely on you opening booking.com. So that's the other aspect to this. I think the one word you mentioned that the most important is could, because a lot of people say this is a huge overreaction. They disagree with Goldman Sachs analysis. We had these fears of the SaaS apocalypse that we could buy code your own Salesforce earlier this year, software stocks. That sounds crazy to say, looking back, we could buy code our own. So just a word of caution that, you know, people still don't trust AI to, for an agent to do all the things that you just mentioned, you have to give them a lot of access to your personal information. And that's something that a lot of American consumers might still not do. Plus it could only lock in these brands position even more often. So, you know, we have a ton of customer data. Let's leverage that to only cement our position as leaders. So there's that side of the equation as well. Well, the final thing too, is we are seeing businesses push back already. Amazon is saying, actually, no, you cannot scrape our website. You cannot open a virtual browser and browse Amazon. I've tried this because I saw that Amazon pushed back against me. When I say like, Hey, find me toilet paper on Amazon. Muse comes back and say, sorry, I'm not allowed to access this site. So Amazon thinks it can go toe to toe with meta. It has enough inbound traffic that it doesn't need these agents coming on their behalf. So that's like the next iteration of this is when the businesses start to fight back against these toll men, against these middlemen. All right. We're going to take a quick break and come back with our stock the week right after this. Toby, what do you do with a great product, but your brand can't seem to connect with customers? Uh, beg? No, don't beg, but do check out rising stars. It's a docuseries that follows small business owners as they create their businesses, face real challenges and scale their brands with the help of Amazon ads like crowned skin. They couldn't connect with customers in men's grooming until sponsored products on Amazon ads, help them reach the right audiences. Now they're doing over 500,000 in monthly revenue. Watch now at advertising.amazon.com slash rising dash stars. That's advertising.amazon.com slash rising dash stars. Neil, you ever stay in one of those hotels where you sleep in a human size bird cage? No. Well, don't. It's real sad. Sounds like you could use business preferences from hotels.com. It helps travelers find the right hotel faster by remembering their go-to work trip requirements. Travelers set their preferences once, including fully refundable stays, wifi, breakfast, gym access, and more than future business trip searches. Automatically surface matching hotels. Sign up for their free rewards program and start earning on every workday at hotels.com slash morning brew. That's hotels.com slash morning brew loyalty members. 18 plus. Neil, you know how I do a lot more than payroll around here. You don't do payroll. Jordan does. Oh, right. I'm thinking of Intuit QuickBooks workforce. It helps businesses by bringing payroll, HR talent, and your financial data together in one place. Their auto payroll can make payday run itself. With guaranteed accurate tax calculations, owners aren't second guessing the math, just approving what's already right. Plus payroll AI can catch issues and flag changes before they become problems. When something needs a human and live payroll and HR experts are right there to help out. For more info, head to the link in the show description. For stock of the week, we're broadening the scope and awarding a stock of the half century. The company that's generated the highest return of any US stock over the last 45 years is, drum roll please, Home Depot. If you had invested $1,000 in Home Depot on the day of its IPO in 1981, you'd have about $16 million today, far more than any other member of the S&P 500 over the same time span. Yes, even big tech firms like Apple. If you had invested one grand into Apple on its IPO one year before in 1980, you'd have about $4 million now. Home Depot's record-setting growth was discovered by the boys at the Acquired podcast, which just released, a deep dive into America's favorite home improvement retailer. One of their main insights about Home Depot, and the reason for its outsized returns, is back in the 80s, no one saw hardware as a huge mass market business. Buying power tools in slats of wood, that was niche, just for the sicko handyman dads who wanted to redo their own decks. When Home Depot IPO'd. It had four stores in Atlanta, raised just $4 million at a market cap of less than $40 million, tiny even by early 80s standards. Walmart was already valued at over $1 billion at the time Home Depot went public. But fast forward to today and Home Depot turned what most considered a specialty business into one of the biggest retail operations in America. They've inspired millions of regular American homeowners to take on DIY projects, reaping the benefits in return. Today, Home Depot does annual sales of $165 billion with a market cap of $300 billion. I think one of the big insights too that Home Depot had was, yes, it seems like a niche market, home improvement. But if you can get someone in the door to buy a screwdriver, you might actually get them to undertake a much larger remodel. And their secret weapon to getting someone from screwdriver buying to redoing their entire deck was their salespeople. And their insight was, let's hire actual tradespeople who know what they're talking about to be on the floor in the store. So when you walk up to a thing of lumber, instead of just seeing a bunch of two-by-fours, a carpenter, a trained carpenter would come up next and go, hey, what are you thinking about doing? Can I help you? And that has been a big thing. And then the other thing that they did is give those salespeople, give those tradespeople equity in Home Depot growing from the beginning. So consumers get educated. They're incentivized to do well. It becomes this gorgeous, flywheel. It only works if the stock goes up, which clearly it did over time. But the result that the acquired guys found was 3,000 store floor employees became multi-millionaires because of that equity. So they just created a really smart flywheel that turned one purchase into much larger construction projects. What was their slogan for a long time? You can do it. We can help, which never really washed over me until now. And I'm like, oh yeah, that makes sense. That's pretty genius. What's Home Depot up to recently? We know he had an incredible stock market. Over the last 45 years, things are pretty stagnant. Comparable sales last quarter were up 1.7%. It's trying to get into the professional contractor businesses, buying up a bunch of the companies in that space, trying to go more B2B. The problem, as we'll get to in just a few minutes or seconds, is that the housing market has been stuck. There's just very little housing turnover. And when people aren't buying new houses, it means that they're staying in the same ones. And there's just diminishing returns on how many times you can remodel your own house. So without the housing market really getting going, Home Depot will still remain just kind of stagnant over the past few years. Yeah. The only thing that they're seeing right now is just the categories that happen no matter what, which is plumbing, electrical, hardware. These are things that aren't big renovations. They're just basic maintenance. And until they can get back into the big renovations stage, then you're not going to see their sales grow. All right. Let's finish with some final headlines about that housing market in the rent versus buy matchup. And we're going to talk a little bit about that. So let's get started. All right. So we're going to talk a little bit about that. So let's get started.