The Compound and Friends
00:35:48 · Michael Batnick, Josh Brown
[00:35:48] S1: Well, Berkshire Hathaway is at an all time high, so yes. [00:35:52] S0: Of think Mhmm. It Alright. Let me share with you. This is Tony Pasquariello writing this weekend after the tech earnings debacle week. Despite a handful of cloud businesses that are compounding huge growth rates on huge denominators, Q3 results will be remembered as a disappointment. Alongside the never ending debates on returns, capital and free cash flow, to my eye, this was the central issue for the moment anyway. At a time when hyperscaler CapEx intentions are not slowing down, a few of the big guns missed somewhere in the core of their business. Nailed it. Skipping ahead. Coming into this week [00:36:34] S1: Wait. Hang on. I'm sorry. I'm sorry. Where did Microsoft miss? Where did Amazon miss? [00:36:39] S0: I think Meta. I think you saw Meta and [00:36:42] S1: Meta and Google. [00:36:43] S0: Google. All right. So a handful, could be two. Coming into this week, my general view was the bull market should continue in 'twenty seven, but it would pack less punt. This is Tony Pasquariello's on the trading desk, Goldman Sachs. Everybody who's everybody reads his note. There's not much debate that S and P earnings have been superb. At the same time, however, it increasingly appears that earnings growth has peaked. And Adam Parker is saying the same thing. In addition, relative to the last few reporting cycles, the rate of upgrades to forward estimates has clearly slowed. This [00:37:19] S1: is That's an absolute
00:37:19 · Michael Batnick, Josh Brown
[00:37:19] S1: is That's an absolute [00:37:21] S0: Yeah. They're both saying it, and they're looking at the same data. One chart for the road, though. The past three weeks has been very tough on US mega cap tech. For example, the fourth largest company in the index had the single worst day ever as a public company. That's Google. At the same time, note the broader trend in S and P X AI. So this is a Goldman Sachs basket. This is literally Halo, but the Goldman version making a record high, the S and P X AI stocks, is The what Halo is [00:37:56] S1: money has to go somewhere, does [00:37:58] S0: it not? So is Halo back? 500,000,000,000 Pasquariello said, [00:38:02] S1: billion gets a race in the after hours in Google, and poof. It shows up in fucking Target. [00:38:08] S0: Alright. Here's the ETF that, full disclosure, I'm an adviser on. The ticker is LOHA. This is the Roundhill Halo ETF that they launched earlier this year. So I'm not cherry picking the dates. This is literally inception. The fund launched in May. There's some separation happening here, handsome. Mhmm. What do you think about that? You see the see the orange line not doing what the purple line's doing?
00:38:08 · Josh Brown, Michael Batnick
[00:38:08] S0: Alright. Here's the ETF that, full disclosure, I'm an adviser on. The ticker is LOHA. This is the Roundhill Halo ETF that they launched earlier this year. So I'm not cherry picking the dates. This is literally inception. The fund launched in May. There's some separation happening here, handsome. Mhmm. What do you think about that? You see the see the orange line not doing what the purple line's doing? [00:38:36] S1: We we have yet to really give an opinion on what's been happening. Is Halo back? I love it. I love what's happening in the stock market. I think this is so bullish. You have next twelve months earning estimates unrelenting up into the right. You have multiples coming down. You have growth rates that are pretty damn good, and you have a gigantic wall of worry. People are really, really worried, and I think it's awesome for the sustainability of a bull market. [00:39:05] S0: Anecdotally, I wanna point out, I don't agree that they're worried. I think they were worried, and now I [00:39:13] S1: What think what do you mean? You don't think people are worried about the AI trade? [00:39:17] S0: Alright. No. No. No. No. I don't mean it that way. I think people actively despise the AI investing. I did Scott Galloway's show last week with Ed Elson. It it got a thousand comments on YouTube. I swear to God, I have never seen such utter disgust disrespect, not toward me or a little bit toward me, but like just toward AI. [00:39:46] S1: Yeah. People hate it.
00:39:46 · Michael Batnick, Josh Brown
[00:39:46] S1: Yeah. People hate it. [00:39:46] S0: They fucking hate it. Like, you you wouldn't believe it. A thousand comments. Scott's a scumbag. Ed's a scumbag. Josh is scumbag because we're even talking... I'm not... We're not we're not even bullish, really. We're just talking about AI, the revulsion, and I think they have a young audience. Our audience is super upbeat for the most part. Like, it's a very different... Their audience is so furiously angry about it's a bubble that's gonna lose people money. They don't like... The the company is gonna profit off laying people off. They don't like [00:40:21] S1: what the [00:40:22] S0: data centers... Like, look at these comments. [00:40:25] S1: It's it's Hang on. Back Back up. What's your point? [00:40:29] S0: I don't think it's just worry about the stock prices. I think the AI story now has sort of become like this just lightning rod for everything that people are feeling. I think they think data centers are pushing up the price of gas. I don't even know what... I don't even fully understand what... So while earlier we were saying it's not really on the ballot, I don't think the elections are turning based on it. It is very much on people's minds twenty four seven and nobody other than Silicon Valley has anything good to say.
00:40:29 · Josh Brown, Michael Batnick
[00:40:29] S0: I don't think it's just worry about the stock prices. I think the AI story now has sort of become like this just lightning rod for everything that people are feeling. I think they think data centers are pushing up the price of gas. I don't even know what... I don't even fully understand what... So while earlier we were saying it's not really on the ballot, I don't think the elections are turning based on it. It is very much on people's minds twenty four seven and nobody other than Silicon Valley has anything good to say. [00:41:04] S1: You know why? Because it's absorbing all of people's anxieties. Like, a lot of the shit that people feel about their own lives is an easy thing to point to and be like, this is it. Like, why am I even trying anymore? I hated capitalism already, and now it's fucking... Now they're just taking everything. [00:41:18] S0: I think it's, like, worse than fracking. Like, I remember the fracking stuff. [00:41:22] S1: So much worse. I feel so much worse. [00:41:24] S0: It's so [00:41:25] S1: much worse. Alright. But but just just to bring it back to [00:41:28] S0: Hold on. Look at our look at our live comments. These are... I'm not gonna say who's saying these things, but these are, like, how people really feel. If you are a scumbag investor that is full of greed, you like AI. Okay? I get I get... What are you doing here? [00:41:47] S1: So It's the whole the whole stock [00:41:49] S0: market is AI.
00:41:49 · Josh Brown, Michael Batnick
[00:41:49] S0: market is AI. [00:41:50] S1: Listen. God forbid there's any nuance to anything. It's not all good and it's not all bad. There's going to be some incredible breakthroughs. People's lives are gonna be safe. Self driving is great. Like, the drug discovery is like, there's some awesome shit coming. And, also, a lot of the anxiety is real because it is impact... It is and will impact the labor market. People's jobs will be lost. Like, all that shit is not not true. The anxiety is real. But I just wanna say this, just zooming back out to what we talk about and where this is going. Is the bubble over? Blah blah blah. Whatever. Andy Jassy, so Amazon, the CEO of Amazon, said last week, AI is the biggest transformation of our lifetime. I know you're sick of hearing people say that, but he's talking about AWS. He said if the idea of being able to grow 39% with a 184,000,000,000 annual run rate and to grow 40% a year on top of that in each of the next two years and ultimately end up as a trillion dollar plus business, We're talking about AWS ending up as a trillion dollar plus business. So he would say like, yeah, listen. I wish I wish the build out... I wish we could spread it over twenty five years, but that's not what's happening. It's moving really fast. And, yeah, it's expensive. Okay. If AWS is getting to a trillion dollar run rate, what do you think the S and P is gonna be? A lot higher or a lot lower? [00:43:03] S0: I think it... Like, mathematically, it would have to be higher if if you assume they're gonna do that profitably.