Anthropic is gearing up for what could be the biggest IPO in history, but a new note from Seaport Research estimates nearly $800 billion in infrastructure commitments through 2033, which raises questions about long-term profitability. Joining us now is the author of that note, Jay Goldberg, senior analyst at Seaport Research Partners. Jay, thank you for being here. You've worked on more than 20 IPOs, literally wrote the book on them, yet you're not going to rate this one. Why not? >> So, the company hasn't gone public yet. We have a policy where we have a price target. We base our ratings on the price targets relative value to the stock price, and there's no stock price yet. >> Fair enough. >> Um so, it's kind of a a technical dodge, uh but also there's not we don't have complete information yet, right? The S-1 is a preliminary filing. We don't have There are a lot of blanks in there, and some of them are pretty significant. And so, I'm I'm still I want to I want to hear what they have to say on the road show. I want to look them in the eye. >> I hear that. I'd love to look them in the eye, too. Uh I'm going to pull up a chart here. I want to talk about operating profit, because on that metric, they have just turned green. In fact, uh almost a billion dollars there. This goes back to 20 uh quarter one, Q1 of 2025, but uh does that extend into the future? You know, what does your crystal ball say there, or do you just not have enough information? >> Well, we we have some inkling. They've actually explicitly warned that the model is going to shift, and they will be profitable probably in the next quarter or two, but then they're going to start going back into losses, because they're changing the way that they approach acquiring computing resources. And that's really the story here is they used to just lease computers by the hour, basically, from Amazon, the way that anybody else with cloud computing does. And that's going to shift. Anthropic sees having a having their own compute as a competitive uh important competitive tool. And so, they're going to spend a lot of money to make that happen. >> Yeah, and I got to talk about some of the the routes we've seen in the stock market this week. I mean, you take a look at Amazon, well, Alphabet just having its worst day ever. And I think 1/5 of cloud 1/5 of the cloud backlog on Google's Azure and also AWS is because of Anthropic. So, how does this all fit together there? AI is a big piece of the puzzle and yet, you know, the markets are not like liking what they're seeing right now. >> All right, well, there's a lot of there's a lot of things going on at well at once. I would say that um you you know, at at its its most basic, you could argue that we don't know how the value of AI is going to spread across the industry. Right? Some people would argue that the frontier labs are going to capture all the value and it it's kind of zero-sum and they're going to get all the value and everyone else is going to lose. I think that's too simplistic. Um I don't think we can necessarily draw conclusions from what's happening this week in tech to Anthropic. There's, you know, there's interest rates and a war going on. Uh I think people are going to look at Anthropic We have a lot to learn about the company itself and I I hopefully it'll get measured against those, but certainly it's it's a pretty challenging uh setup for their IPO. >> Yeah, and Anthropic has locked in about $430 billion worth of AI computing. We got a chart of this on the Wi-Fi interactive. Broadcom kind of surprised me here. Broadcom was the biggest uh entity company that they're leasing from, $161 billion. Then you got Alphabet and Amazon over 100 billion, Microsoft about 45 billion. That's a lot of That's a lot of commitment. And at the same time, here's another chart. Their computing bill is falling uh it's just falling uh pretty quickly. And so, that's, you know, good news for the company. How do you see these numbers fitting together in your outlook? >> So, that second chart of the falling percentage of compute cost is going to reverse. It's going to start getting more expensive for them as they start buying themselves. Um I think there's a a complexity that's taking place here, which is Anthropic needs a lot of compute. They've been leasing it and they've been propping up a lot of the cloud service providers. So, a lot of times, a lot of Amazon's AI revenue comes from Anthropic. And it's a it's a little bit circular. Uh in the in the S-1, it actually says, uh our relationship with the cloud service providers is multifaceted and complex, which is quite an understatement. Um Anthropic is both a a big customer of of Amazon, but also theoretically a competitor as well. Certainly with the case with Google, with GCP, Google Cloud. Uh it's so they're going to have to walk this very fine line where right now they really need the compute infrastructure that Amazon and Google have built over the years. Uh but I think they're going to start to move move away from that and get their own source of compute. But at the same time, those those companies are also important uh partners in the sense that a lot of a lot of large enterprises in particular will purchase their Anthropic usage through a cloud service provider. Right? So, you're you know, your big company, you buy a whole bunch of Amazon instances and storage and networking, but you also buy the AI component and that goes that gets billed to Anthropic. And that's an important part of Anthropic's go-to-market. It's how they get customers. And they've done a really good job of like using those cloud service providers to get sales and to build their awareness and their presence uh while at the same time theoretically down the road they could be competitors. >> Yeah, I want to continue to talk to you about that relationship. Multifaceted and complex, that sounds like a hinge profile I just want to stay away from, but Anthropic's biggest partners here also their big biggest competitors. Like we're kind of touching on that, but how risky is that? How much should investors discount the revenue number because of how those partner sales are counted? >> I would almost look at it the risk being more on the the cloud service provider side. How are they going to compete as AI becomes a more important, more strategic part of the enterprise spend? Uh there's a risk that the large enterprises are going to pick their cloud service provider not based on sort of availability metrics or SLAs that they used to in the past. They're going to say, "Well, which one's going to get me the best deal on Anthropic?" Uh cuz that's really where my my value's is coming from. And so I think the risk goes both ways. And Anthropic is is done a great job of going through the partners, but increasingly I think direct is is is is you know be preferred.
This looks a little different from the usual Diplo crowd. The outfits are more athletic. The drinks include electrolytes and the party, well, it starts with a five-kilometer run. I don't want to spend the rest of my career playing into the night until four in the morning, five in the morning sun, sunrise until 2 p.m. the next day. About 12,000 people paid as much as $250 to take part in Diplo's Run Club in Queens in late October. After the race, cold plunges, product samples, music and a festival that still includes some guilty pleasures like cocktails and beer. I'm Alex Harring and I cover economics at CNBC. I looked at the companies benefiting as young adults look for new ways to connect and build community. And I'm Brandan Gomez. I cover consumer health and wellness. I dug into the growing demand for organized sports among young adults. Now Diplo's push into the daytime party is part of a broader shift, young adults are increasingly finding ways to socialize through running or strength races and recreational sports leagues, activities that put fitness and wellness at the center, with a built in community around them. I definitely don't think there's a death to drinking. I think people are just doing it in a different way, which is important. The numbers show the interest reaching beyond one event. About 7 in 10 adults under the age of 30 say they expected to be in a recreational sports league in the coming six months, and young adults are showing up in greater numbers at major endurance events around the US, too. At Ironman, a quarter of half and full-distance triathlon participants are under 30, up from 13% just a decade ago. And Strava, a running app, found Gen Z was more likely than Gen X to use fitness to meet people with shared interests. It's deeper than the running, and that's where I started it. I didn't start it just so every Tuesday I could run three miles with somebody I didn't know. I did it because I wanted to meet friends. Short founded a run club in Washington state after struggling to get friends to trade late nights out for early weekend runs. Now, she says the club has led to close friendships and a place in the wedding parties of people she met there. This different way of socializing and getting together isn't just drawing in customers, it's drawing investors too. One sign is Volo Sports, which runs recreational leagues and sports, including volleyball, kickball and soccer. The company is on track for about 950,000 player registrations this year. That's about 34% growth from last year and nearly five times the 2019 level. Volo has acquired smaller competitors and brought in private equity investment, but its founder and CEO told us most of its growth has come from expanding organically. I would say the growth in Volo is is I mean, it's probably like 25% of acquisition and the other is organic. There's probably thousands, maybe hundreds of thousands of roommates and friends that are that meet through Volo constantly. That's the number one thing that I'm told is this is how I made all my friends in the city. This is how I met my boyfriend or girlfriend. And for me, like, that's how I met my wife. The spending trend is showing up beyond leagues, too. Bank of America found Gen Z and millennials increased spending on fitness-related categories faster than on bars in the period it tracked. For Gen X and older generations, bar spending grew faster. That shift creates opportunities for league operators, race organizers and businesses looking to serve people before and after the event, and companies are building social connections into the experience itself. Look at Hyrox, the buzzy competition combining running and functional fitness. Hyrox partnered with Surf Dating on a blind first date feature for its doubles competition. Surf also gives singles special wristbands at Hyrox events and hosts post-race parties. Organizers aren't writing off alcohol entirely. Volo partners with bars and Diplo's post-race festival had stands where attendees could buy cocktails. The change may be as much about when and how people socialize as whether they drink. The draw may start with a run, a league or a race. For many of these young adults, though, the bigger payoff is having a reason to show up and people to come back for interactions with. People matter. And that's why something like the Run Club, a community when you're there with people, At the run club of course, I'm gunna to get people yelling at me, but they're so happy. They're happy to be there with me. They're happy to run with me, and I'm happy to motivate them. I think there's a big generational shift right now.
>> BLOOMBERG TECH IS LIVE FROM THE HEART OF SILICON VALLEY, WITH ED LUDLOW IN SAN FRANCISCO. ED: COMING UP, INTEL SHARES PLUNGE, SET FOR THE BIGGEST DROP ON RECORD, AS A BLEAK OUTLOOK EXPOSES THE CHIPMAKER'S STRUGGLE WITH A DEEPENING PC SLUMP AND INABILITY TO MEET CPU DEMAND. AND WE SPEAK WITH THE AWS CEO ABOUT ACCELERATING AI BUILDOUT. BITCOIN DIPS AS A RECORD $600 BILLION BINANCE HACK ROCKS THE CRYPTO WORLD. INTEL SHARES DOWN 28%, 20 9%, PUTTING THEM ON TRACK FOR THE BIGGEST ONE-DAY DROP SINCE RECORDS BEGAN IN 1980 TWO. I AM GIVING YOU A FIVE DAY CHART FOR TWO REASONS -- THE SEVERITY OF THE DROP RIGHT NOW AFTER EARNINGS, BUT ALSO THIS IS A STOCK THAT POSTED THE GAINS FRIDAY THROUGH WEDNESDAY BECAUSE OF ENTHUSIASM ABOUT WHAT THEY MIGHT ACHIEVE. THE FOURTH QUARTER WAS WEAK. LET'S START WITH THE FOURTH QUARTER OUTLOOK. EXPLAIN IT TO ME, HOW IT MISSES RELATIVE TO ESTIMATES. >> THE FORECAST WAS THAT IT WOULD BE UP 16% FROM A YEAR AGO. THE PROBLEM WAS, THE EXPECTATIONS WERE GREATER THAN THAT. $3 MILLION MORE THAN THEY SAID THEY WERE GOING TO POST. THAT IS THE PROBLEM. THIS IS THE TIME WHEN THEY SHOULD BE CASHING IN ON THE BIG DATA CENTER SPENDING BOOM. UNFORTUNATELY, THEY ARE NOT ABLE TO DO THAT IS MUCH AS PEOPLE WANT THEM TO. ED: THE WEAKNESSES IN THE CLIENT SEGMENT, WHICH IS PC'S. WE GOT OFF THE PHONE WITH THE CEO OF INTEL. THE WEAKNESS IS CLEAR. WHAT IS IT? >> THIS IS NOT A SURPRISE. THERE WAS THIS HORRIBLE TRIP AND COMING DOWN THE TRACKS. ALL OF THAT MEMORY THAT IS GOING INTO DATA CENTERS FOR AI IS NOT GOING INTO PC GROWTH. IF YOU WANT TO BUY A LAPTOP RIGHT NOW, IT IS GOING TO COST YOU A LOT OF MONEY IF YOU WANT MEMORY. THE PC MAKERS THEMSELVES, EITHER THEY CANNOT GET THE MEMORY OR THEY HAVE TO PASS THAT TO THE CONSUMER, WHICH IS AFFECTING DEMAND. INTEL SAYS THEY DO NOT KNOW WHEN IT IS GOING TO GET BETTER. AND THAT IS A HUGE VOLUME MARKET. ED: ON THE PHONE, THEY SAID THIS WAS GOING TO CONTINUE INTO THE FIRST HALF OF NEXT YEAR. WHAT IS CONFUSING IS THAT INTEL IS SAYING THAT DEMAND FOR CPUS FOR DATA CENTERS BECAUSE OF AGENTIC WORKLOADS IS VERY HIGH. THEY ARE NOT ABLE TO MEET THAT DEMAND. SOMETHING IS GOING WRONG. HOW DO YOU EXPLAIN THAT? >> THE CEO WAS CLEARLY DISAPPOINTED. THAT CAME ACROSS ON THE CALL. BASICALLY, THEY ARE ACCIDENT-PRONE, UNFORTUNATELY. THEY HAD A REALLY UNFORTUNATE LITERAL ACCIDENTAL EXPLOSION AT A PLANT IN ISRAEL. THEY CANNOT GET ENOUGH OF THE SUBSTRATE, WHICH IS HOW IT IS PACKAGED BEFORE IT GOES INTO THE COMPUTER. AND THE FACTORY IN IRELAND IS GETTING BETTER AT OUTPUT, BUT NOT AS FAST AS THEY WANT THEM TO. THE WORST THING FOR A COMPANY IS TO HAVE ALL OF THIS. THEY CANNOT REALLY GO ELSEWHERE. ED: THANK YOU VERY MUCH INDEED. LET'S STAY ON INTEL WITH A PORTFOLIO MANAGER. SOMEONE WHO DOES NOT HAVE A POSITION WITH INTEL, BUT HAS A LONG HISTORY COVERING THE CHIP SECTOR, AND KNOWS INTEL INSIDE AND OUT. THIS IS THE THIRD STRAIGHT QUARTER I HAVE GOTTEN ON THE PHONE WITH EDWARD TAM AND HE HAS EXPLAINED TO ME THAT THE COMPANY HAS NOT BEEN ABLE TO EXECUTE TO MEET DEMAND. HOW WOULD YOU INTERPRET THAT? >> THEY ARE TRYING TO RESURRECT INTEL, BOTH ON THE RESEARCH AND THE MANUFACTURING SIDE. WE ARE ALL FAMILIAR WITH THE CHALLENGES THEY HAVE HAD, AND ED BOUTON TRYING TO FIX THOSE THINGS. WE HAVE STAYED AWAY FROM THE STOCK FOR OUR CLIENTS. THE OPPORTUNITIES IN THIS LITTLE INTEL DISASTER -- IT IS PROBABLY FOR AMD, AND YET THE MARKET DOES NOT SEEM TO BE TREATING THE NEWS THAT WAY. IN FACT, AMD SHARES ARE DOWN PRETTY SIGNIFICANTLY. IT IS A STOCK WE OWN. ED: THE CONCLUSION I AM TRYING TO GET TO IS, WHERE IS THE MARKET SHARE GOING? IS INTEL REGAINING LEADERSHIP IN CPU? IS AMD RUNNING AWAY WITH IT? >> I THINK THERE ARE TWO THINGS GOING ON. I THINK THE PC MARKET IS IN REAL TROUBLE. IT IS GOING TO SQUELCH DEMAND, AND I THINK THAT IS WHY AMD IS DOWN. THEY WILL BE HURT BY THAT AS MUCH AS INTEL. AIM HAS BEEN TAKING A SHARE. THE OPPORTUNITY MIGHT BE ON THE SERVER SIDE. IF YOU ARE ORDERING A BUNCH OF INTEL CHIPS, YOU ARE NOT GOING TO BE ABLE TO JUST FLIP OVER TO AMD CHIPS. BUT IF INTEL IS HAVING EXECUTION PROBLEMS, YOU HAVE TO WORRY THAT CUSTOMERS WILL SAY I CANNOT RELY ON INTEL TO DELIVER. I HAVE TO RECONFIGURE TO AMD. WE KNOW THEIR SERVER CHIPS, THE WAY THEY ARE ABLE TO COMBINE HIGH-END CPUS WITH GPU USE WITH AI ACCELERATORS MAKES AMD A MORE COMPELLING OPPORTUNITY. ED: YOU DON'T HOLD THE STOCK ON BEHALF OF CLIENTS. I WOULD POINT OUT THE UNITED STATES OF AMERICA HAS 5.2 PERCENT OF INTEL. THAT IS SOMETHING I REFLECT ON, PARTICULARLY DURING THIS PROGRAM. THERE IS AN IRONY HERE. AI IS MAKING MEMORY PRICE IS EXPENSIVE, WHICH IS PUTTING THE CONSUMER OFF LAPTOPS AND PC, AND IT IS BECAUSE OF ALL THE MEMORY DEMAND THAT IS GOING INTO THE DATA CENTER. WITH INTEL, THAT IS OPPOSING BUSINESSES GOING IN DIFFERENT DIRECTIONS. WHY NOT GIVE THEM THE BENEFIT OF THE DOUBT ON THAT? >> I THINK THERE IS THAT BROADER IMPACT, AND I THINK THE AI BUILDOUT IS CREATING MORE EXPENSES IN A LOT OF PLACES -- NOT JUST MEMORY, BUT RAW MATERIALS, INTEREST RATES, THE MASSIVE DEMAND FOR BORROWING. AND THIS IS CAUSING PROBLEMS ACROSS THE ECONOMY. INTEL COULD HAVE BEEN ABLE TO TAKE ADVANTAGE OF THE MASSIVE DEMAND FOR CPUS, AS EVERYBODY HAS REMARKED, PARTICULARLY INTEL AND AMD. THERE WOULD BE A SHIFT IN THE MIX. THE CPU/GPU RATIO WAS GOING TO FAVOR INTEL AND AMD. BUT IF YOU CANNOT EXECUTE TO THAT DEMAND, YOU ARE LEAVING A LOT OF MONEY ON THE TABLE. ED: AT THE INDEX LEVEL, IT IS PRETTY UGLY THIS FRIDAY. THE NASDAQ 100 ON THE WEEK HAS BEEN CHOPPY. WE ENDED FRIDAY WITH PRETTY SEVERE PRESSURE ON THE TECHNOLOGY STOCKS, THE AI TRADE. THE STORY CHANGED REALLY QUICKLY. COMING OUT OF MICROSOFT IN PARTICULAR, THERE WAS SO MUCH POSITIVITY. NOW, WE ARE BACK TO THE SAME CALCULUS, SPENDING AND PAY OFF. IT IS HARD TO DRAW A CONCLUSION. IF WE HAD A GOOD WEEK AND EARNINGS, WHAT WAS THEN RESULT? >> IT IS REALLY MIXED. IF YOU JUST LOOK AT THE AI SIDE OF THINGS AND THE REVENUE -- LOOK AT AWS. YOU LOOK AT GOOGLE CLOUD, AND YOU LOOK AT MICROSOFT AZURE. ALL OF THOSE BUSINESSES SAW ACCELERATING REVENUE GROWTH. SO THAT IS A REALLY POSITIVE SIGN FOR WHAT IS GOING ON IN AI. ON THE FLIPSIDE, THERE ARE OTHER BUSINESSES SAW WEAKNESS, WHETHER IT WAS ADVERTISING FOR GOOGLE, FOR AMAZON. MICROSOFT IS PRETTY CLEAN AND THEY ARE KEEPING SPENDING UNDER CONTROL, SO A LOT OF PEOPLE ARE ENCOURAGED BY THAT. THE BROADER QUESTION REMAINS. IS THERE IN A FUTURE REVENUE GROWTH TO COVER ALL THESE CAPITAL SPENDING OPPORTUNITIES? AND THEN YOU HAVE THIS SORT OF CREATIVE FINANCIAL SOLUTION TO WHAT WOULD OTHERWISE BE A REALLY STICKY PROBLEM IN FINANCING A VERY LARGE BUILDOUT INVOLVING SOME RELATIVELY NEW COMPANIES LIKE ANTHROPIC AND OPENAI. I PERSONALLY SEE THIS SO CALLED CIRCULAR FINANCING IS A VERY POSITIVE DEVELOPMENT BECAUSE IT SOLVES A MASSIVE CAPITAL MARKETS PROBLEM, GETTING INFORMATION. YOU NEED TO FUND RELATIVELY NEW COMPANIES. SO YOU HAVE GUYS WITH BIG BALANCE SHEETS COMING IN AND HELPING TO SMOOTH THE WAY, SOLVING SOME OF THESE INFORMATION PROBLEMS. I SEE THE UNDERLYING NUMBERS AS A POSITIVE, SEEING ACCELERATING GROWTH AS A GOOD THING. INVESTORS ARE A LITTLE BIT TENTATIVE, MAYBE BECAUSE THEY ARE OVEREXPOSED AND NEED TO BALANCE THEIR STRATEGIES. WHAT WE ARE DOING HERE IS MAKING SURE NOT TO BE OVERWEIGHT THESE THINGS. HAVE GOOD EXPOSURE. DON'T JUST OWN AI. IT IS GOING TO BE A GOOD GROWTH DRIVER CONTINUING FOR MANY QUARTERS, BUT YOU ALSO WANT TO OWN SOMETHING IN, SAY, THAT IS -- THE DEFENSE SPACE, SOMETHING IN CONSUMER, SOMETHING IN INDUSTRIALS, AND PARTICULARLY HEALTH CARE. MAYBE INVESTORS NEED TO REBALANCE THEIR STRATEGIES BEFORE THEY MOVE INTO THE NEXT YEAR. ED: THE NASDAQ 100 IS OFF SESSION LOWS, BUT STILL AT ITS LOWEST SINCE JUNE. GREAT TO HAVE YOU BACK ON THE SHOW. THE OTHER BIG STORY UP THERE TODAY IS AMAZON. THERE IS AMAZON AWS, WHICH BEAT EXPECTATIONS AND WOULD GROW 40% NEXT YEAR AND THE YEAR AFTER. AND THEN THERE IS THE BIT THAT PEOPLE TALK ABOUT LESS, THE RETAIL BUSINESS, WHICH FRANKLY WAS ALSO ASTONISHING. MUCH MORE PROFITABLE AT ENO ...[Transcript truncated for size]...
Google stock just reported earnings and the stock today is down 12% as a result. That's around $500 billion of market cap wiped away from this company. A massive amount of value loss. In fact, that is a $39 decline in the stock price, bringing it well below $300 per share. And up until now, Google has been one of the best stocks in the market. Their earnings report quarter after quarter have been great. So, what happened in yesterday's report that's causing this big sell-off? Well, we have renewed fears. Remember when everybody was concerned about chatbt destroying Google search? Well, those same fears are starting to renew. Alphabet's earnings miss reflect the first real sign that AI is taking a bite out of search. We also have Gene Monster going on to television saying that this is not good. >> They're saying that AI search queries had an impact on search revenue. So, how you >> So, that's not good. >> Yeah, exactly. That's their core business and it is back to that narrative that their core business is being cannibalized by AI. >> Google search is now being cannibalized by AI. It's not good. Now, is that true? How much of this is really because of AI? Is the search business going down? We had a sharp deceleration quarter over quarter and that's really what investors are concerned about today. And I want to go over this and give some clarity because I feel like a lot of the things that people are saying online, a lot of the posts, a lot of the Discord conversations are just not accurate. They're they're not accurate. What I hope to do in this episode is clarify the real situation of Google. what's actually going on with this company, not just with the search and cannibalization situation, but also with the valuation of the stock, with Google's financial situation, with them having their earnings go up while their free cash flow goes down, while their capex is explosive. It makes the whole situation more difficult to understand, and I think it's important to go over and clarify what's really happening with Google. So, we're going to be diving into it deep. We'll be going over the entire situation and trying to make sense of it. Now, we also have Microsoft that reported earnings. Mastercard, huge holding of mine, reported earnings, and Door Dash reported earnings and said that they're going to try to buy Instacart. So, we'll be going over those as well. Now, to start things off, I want to first look at some charts about Google's situation. For example, we'll just start with the price chart. Google stock dropped almost $40 per share down to $283 a share. Even after this drop, Google still has a 14% kagger since 2021, meaning that it's widely outperformed the QQQ and the S&P 500 over the past 5 years. That is including with the recent drop just today. Now, Google historically got up to $399 per shares. So, basically, it got up to $400. The lowest that it's got over the past 5 years is $83 and the median is $156. So right now Google is still a good performing stock even with this drop. It brings it down and it takes away a lot of the excess performance but the median over the past 5 years being 156 shows that this thing has really surged up over the past 2 years. Now we can look at how this price change affects my portfolio because Google was one of my largest positions and it did hit it hard. The impact of Google's drop on my portfolio was equivalent to 1.5%. Now, when I look at the one day, I'm actually only down6%. But that's because Google's gone down a lot, while a lot of other companies have gone up. We look at Google and it's down 12%. That's $23,400. But then we have Meta that's up $5,000 today. We have Mastercard up 4%. It's my largest holding, so it's up $8,700. Amazon is down today, adding to the losses. But other companies like Texas Roadhouse, Moody's, Door Dash, Uber, they're up slightly. So overall, my portfolio is down a little less than the market today. Not so bad considering one of my largest holdings just got crushed. But one thing worth repeating is that investing in individual stocks brings along a lot of volatility. These companies go up a lot. They drop quickly. Investors repric them with any additional narrative or news. I've seen it with Google. I've seen it with Netflix. I saw S&P Global go from a low to a big high over the past month. Mastercard mid this year was super low. Now, it's at an all-time high. Stocks trade around like crazy. The important thing is to buy into great companies at good deals and hold them long-term. Now, let's go ahead and take a look at Google's financial picture here. We can start off with the revenue of the company. Now, it's important to highlight that this is the revenue rate of growth year-over-year on a trailing 12-month basis. So, this isn't their total revenue. It's not like it's going to be flat and then decline. This is the rate of growth. The revenue has been growing on a trailing 12-month basis above 20%. That's super fast. Google's still a super fast growing company and it's going to continue to grow faster in the future even with search deceleration. That's because the cloud business is so massive and the cloud business is growing above 100% year-over-year. But we look at it and it's going to get up to around 25% revenue growth. That's the estimates. And then it will taper off and go down to 23%. What I see here is very encouraging. This is one of the best revenue growth lines I've seen for a large company. So I don't see any concerns here. In fact, if I flip over and look at the total revenue growth, this is what it looks like. This is the TTM revenue over time, you can see it's growing around 14.5% keer. In Q3 of 2028, Google's expected to have $727 billion of revenue by analyst estimates. This is massive continued growth in revenue. And this is also growth in revenue in a really good product line. Cloud is not some unprofitable business. It has high operating margins. That's the reason that they're investing in it so aggressively. This is what that continued revenue growth at a fast pace looks like over time. It actually is going to be accelerating from where it is today. We're going to get to around $730 billion in revenue in 2028, which is just incredible. Google already said that they're at a half trillion run rate in revenue. These are staggering numbers and this is not what an unhealthy company looks like. Now, as we look at these metrics, before getting to the debate of whether or not AI is disrupting Google's search, I want to take a look at the earnings per share because this is probably the most confusing part of Google's financials. If you're just looking at the EPS growth over time, or even if you're looking at the PE ratios, that doesn't really show you what's going on. And it also doesn't even show you the valuation of Google clearly. It's one of these cases where the numbers are technically accurate, but without proper context, they're incredibly misleading. And that's what we see here. This chart shows the earnings per share rate of growth year-over-year on a trailing 12-month basis. So, every one of these bars is a quarter going back 12 months in the earnings per share growth. Now, did Google really grow their earnings per share by 120%. No, they didn't. They just invested in SpaceX. SpaceX IPOed. Google made like a hundred billion and that was counted as net income, which is counted as earnings per share. So, the huge majority of this big EPS spike is just from SpaceX investment. So, with that big SpaceX sale, that also means that the forward-looking earnings per share growth is also misleading. Google's not going to actually shrink in earnings per share over time. It's still going to continue growing at a fast pace. It just isn't represented here. So, if you're looking on a stock analysis website like Qualrrim or any others, you typically don't want to use the trailing 12 months PE ratio for Google because that includes the SpaceX investment and any other investme ...[Transcript truncated for size]...
Good day fellow investors. There is a lot to talk about. Let's start by saying that this is nothing. This is just two days down, 2.3% down for the week. It doesn't mean anything. But we have to discuss the potential of the AI bubble bursting. And in my opinion, and I'll elaborate on it, the sooner it happens, the better for the markets and in general retirement funds and everything. AI is a transformative technology. No question about it. It will disrupt a lot of things. Some might be surprising. And what might be going on is something necessary, especially after a 4-year crazy bull market is just a reality check between exuberance about the technology and what investing really is. Before we start, just to present myself for the new viewers, I have been value investing since 2002. I've done well and that's why I keep value investing. If you want to check what I do, you have my research platform where we have a library of stocks and then we buy when those hit the value requirements. If you want to first learn more about value investing, my new book, the value investing handbook is out. The links in description. So let's immediately start with the AI bubble whether it will burst or not and what are the implications because everything still looks good especially on this chart it's just a small dip that happened the last two days the NASDAQ is still up 9% for the year which is something good and then if we look over the last 5 years from the bottom that happened four years ago the stock market is still up 143% which are staggering returns. There have been two dips, the liberation day war in Iran, but nothing has stopped this market. Maybe it will be the case now, but probably not. We'll see. The first cracks are showing. Google missed on some expectations. Search slowing down, still profitable, and the stock goes down 12%. Why does this matter? Not because Google will go bankrupt. It's just when it comes to investing the keys, what is priced in the expectations compared to the reality. And if there is this discrepancy, then you have these sort of things happening. Meta is down 15% for the month because they keep on investing in the AI in their vision of AI and the market doesn't really like it. Another important sign here is with delusion with raising equity. You raise equity when equity is expensive. So that is another indication of how they are seeing their chips. So the best chips to use now to invest is issuing equity not taking on debt. Why? Because equity is more expensive than that or other if you revert it from an issuer perspective. And that's why a lot of the hypers scalers are issuing equity on top of the debt of course. And the question here is how do they know that equity is expensive and therefore it is smart to issue it? Well, depending on where the stock is and the exuberance related to it because this shows how exuberant expectations can push up stock prices far from fundamentals. In this case, Oracle and this shows the cracks in the AI bubble is down already. 50% for the last year. 50% in a year down is a lot. Intel is down 25% over the past 5 days. Some points down 30% in one day. That's also a lot. But as there is a reality check to the expectations and fundamentals, this is what happens. Another small bubble bursting is the Neoclouds. Coreweave also 58% down for the year. On top of everything, we have interest rates going higher. Corewave now borrowing at 14% that is not sustainable. And my argument is that a reality check now with all these small AI bubbles bursting is much better than a reality check happening in a few years. Why? Because if we look at the capex the expected spent going forward no matter what on insatiable demand and then this just increases the risks of what happens if this doesn't happen then that's money wasted. The sooner the reality check comes, the better for the market, for the businesses, for your retirement fund, which is unfortunately mostly AI now. Amazon didn't raise capex. Google, Microsoft put off raising capex. Meta, of course, Mark is always going for it. But up till now, it was all about the land grab, the unsatiable demand. Just spend, spend, buy chips, buy everything, do whatever. and the market loved it in the exuberance in the greed and now perhaps we are in a reality check. The top beneficiaries of all this land grab were of course the Nvidias, later the microns. But the situation there also hasn't been that great over the last few months. And we have to understand that we are in a 4year insane bull market. 146% for the NASDAQ in just four years. That's crazy. And now we need to find the financials, the numbers because it cannot be just about spending. It has to show results. These billions, trillions spent need to lead to profits to higher cash flows. And for now that is out of the questions. We are going into negative cash flows for the hyperscalers. On top of everything, we have higher interest rates. We have high competition from capital, governments borrowing, hyperscalers borrowing, neoclouds, everybody wants money for that land grab. But that leads to questions. Okay, will those businesses be able to repay that? As long as there is exuberance and greed, you can find the money. But the soon the expectations are not missed. the next round of financing is not above the previous, the whole pyramid starts shaking. And the sooner the house of cards normalizes, the better. Because with everybody on AI, the more they go into it without the results, the worse it will be later. And the situation is that not everything in AI will work. And therefore we see Oracle, we see Intel as we mentioned the Neoclouds and also in these big hyperscaler businesses not everything will work and now we have entropic and will entropic work that's another big question mark and perhaps a way of answering this question is this do you remember open AI now everything entropic IPO SpaceX this or that and poor Sam Alman is not doing his IPO prioritize safety. They are not prioritizing safety. The demand for open AI stocks is gone. Open AAI raises less than half of 30 billion target in latest round. Wall Street Journal October 30. This is perhaps the most important piece of news that everyone missed. values were 1.5 two trillion and if you cannot hit the required funding that means that the value is much lower and probably they raised 15 billion from the previous owners just to keep the appearance that the valuation is going higher. If the valuation is not going higher all the equity goes down because everybody is investing just to see the stocks go higher. If the stocks is not going higher, there is no funding. Funding retreats and that is when the bubble bursts. And despite some numbers showing that OpenAI is gaining back market share, okay, but market share, pricing more, lowering prices to get market share. And then if I look just a little bit, there is so much going on, so much changes in six months. this that model there left or right that is insane and if you look at demand there over these tokens yes the growth is there but it is so easy to switch and that's the problem many call it the land grab 200 years when you grabbed your land you built a fence on it and that was your land now you cannot grab anything because it's so easy to switch. If you can program it, model it so that it gives you the same results for less money, you're going to switch. My book is on Amazon because it's so easy. If there is a direct customer, I know it's there. I know it's global shipping, fulfilling, printing, everything. And in Canada, some people order it in the morning, they got the book in the evening. That's insane. That's a mode, and that's a hardly replicable mode. this you can switch through models and if you can get the same results you will go to the cheaper one which means it can be just a commodity is it a race to the bottom that's not something good for investing great for the technology for us users not good for investing ...[Transcript truncated for size]...
The Federal Reserve had their meeting this past Wednesday, and they decided to not raise interest rates, which I already covered in my previous video. So, in today's video, I want to show you the highlights of the Federal Reserve press conference so that you're up to date with the current situation. The first highlight is that the Federal Reserve wants to change their meeting schedule. So, here's what you need to know. The Federal Reserve meets eight times a year, and at each one of those eight meetings, they make policy decisions such as, you know, are they going to change the interest rates? Are they going to print more money? If they're going to print more money, you know, at what speed are they going to print more money, etc. Okay, so they want to change, well, they are going to change it. So, now they still want eight meetings a year, but in 2027, they want to make decisions at just seven of those eight meetings. And in 2028, they want to make decisions at only six of those eight meetings. And that's important because, well, when they make decisions or change things, then if it affects the stock market. It moves the stock market. So, please take a look. >> And at every turn, good or bad, our job is to get monetary policy right. And that's exactly what we're doing. Now, with this objective in mind, we've decided on a change in our FOMC schedule starting next fall. We believe eight meetings per year is the right number for the FOMC. But in 2027, one meeting will focus exclusively on broad monetary policy strategy with neither a vote on the federal funds rate nor policy statement anticipated. The rest will be regular FOMC policy-setting meetings. And I expect that in 2028, we'll have two meetings dedicated discussions of strategy and six for setting policy. >> Okay, now let's move on to the Q&A. The Federal Reserve did not raise interest rates at this meeting, even though the rate of inflation is elevated. And the reporter asks, "There's been no progress on bringing down inflation, then why didn't you interest rates today? So, I want to first show you the question and then I'm going to say something. >> Thank you. I'm Colby Smith with The New York Times. There's been essentially no progress toward the 2% inflation target. The labor market remains stable, as you suggested in your opening statement, and most of your colleagues seem to be on board with raising rates in December. So, why not just raise rates today? >> Okay, so you heard the question. It's a very straightforward question. And I kid you not, the Fed chair Walsh took more than 2 minutes to not answer the question. Like if you believe me, then just I'd say skip ahead like in this video 2 minutes ahead, save yourself the time. If you don't believe me, you want to confirm what I'm saying, then you know, be my guest and just watch how he dances around the question. >> Um ensuring price stability, Colby, quashing inflation, is not about some fixed individual date on a calendar. Same way it's not about some isolated data point. If it were about those two things, this job would be easier, and we wouldn't be suffering from nearly 6 years of inflation above target. So, what's this about? It's about ensuring we have clear objectives, and it's about a monetary policy strategy, which might sound to your ear and others like a change from the last several years. So, let me step back. Uh in the 5 months or so that I've been around, we've put in place what I'd describe as new monetary medicine. Well, what's been in that package of medicine? First thing we did when we showed up with my colleagues, is we doubled down on the 2% inflation target. We said, "We own it. We're taking responsibility for it. And if you think that we're tolerating some inflation target somewhere in the twos, let us disabuse you of it." That was the first part of this new monetary medicine. Second part is we took responsibility. No anguish of central banking here, no blaming others. It's the third thing that we've done. We laid out for you and the world our framework. I did it in Jackson Hole. Was part of the discussion last couple days of the framework that many of my colleagues here, too, as well. This is how we think about how monetary policy should work. These are the transmission mechanisms and this is how we're going to deliver. Then what we do? We interrogate reality. We do that periodically. That's a very useful thing to do. But we don't just talk, we act. And so in September when we last met, we acted. We removed a dose of accommodation. So what are the signposts about how this new strategy is going? Inflation compensation as measured by swaps prices, many other measures, inflation compensation is going in the right way. Uh inflation expectations, the world is quite unsettled. Um if you'd say absent the Fed what would have happened expectations, they might have gone the wrong way. They've gone the right way, too. So I feel good about those signposts. The period right in front of us is information rich. There is a lot that's happening uh in the world. My colleagues and I are keen to take notice of it. So in this coming period, what do I think we're going to be able to do? We're going to be able to figure out what's the appropriate protocol as part of this package that we started deliver 5 months ago to deliver price stability. Uh I'm encouraged by the progress we've made in a short period of time, but if the crux of your question is you haven't delivered yet, you haven't achieved price stability, you're right about that, uh but we're working on it. >> Okay, now moving on, a reporter asks, "Did you keep interest rates the same because the midterm elections are in 6 days?" And this is importance because the Federal Reserve is not a part of the government and should be making decisions independently of what's going on with the government. So please take a look. >> Thanks so much. Elizabeth Schulze with ABC News. As you know, the midterm elections are in 6 days. Did the midterms factor into the Fed's decision to stay on hold? And if not, how can you assure the American public that politics were not at play here? >> So, um politics played no role in the decision. I just spent 2 days with my colleagues upstairs. I didn't hear an utterance about politics. I didn't hear a reference to uh politics, elections, what's happening in the next week or so. I didn't hear anything about it. Um and I don't believe it had any role in the decision, not just for me, but my colleagues around the room. But, I will say it's a information-rich interval in the coming period, having nothing to do with politics. >> Okay, moving on to the next highlights. The next Federal Reserve meeting is on December 9th, and that's going to be the last meeting for the year. In the Federal Reserve's most recent projections, they forecasted another interest rate increase in 2026. So, the question is, will you raise interest rates in December? Please take a look. >> I know you don't like the statement of economic projections, but last month they did your colleagues penciled in another rate hike for this year. And so, could you give us your sense from this meeting whether you still see widespread support for another hike this year around the table. Thank you. >> So, the blackout period for them ends, I think, on Friday or at some point over the weekend. So, they they might they might indulge you in that discussion. Um I don't believe in forward guidance. >> Okay, since we can't get a straight answer out of this guy, a different reporter asks, basically, in a different way. So, the question is, is the current interest rate appropriate? And Worsch basically responds with I don't know yet. Please take a look. >> Thank you, Chair Worsch. Uh So, if I could the statement says that the accumulation of more information will help the committee determine the policy stance appropriate to ensure a timely return of inflation to the 2% goal. Does that mean that the current level of t ...[Transcript truncated for size]...