00:36:32 · Ed Elson
If you look at their cash and cash equivalents and their short term investments, you got Amazon with more than a $120,000,000,000. You got Google with more than $250,000,000,000. If you add all the hyperscalers together, it's nearly $600,000,000,000, which is great. But then you look at how much CapEx is going to rise next year and the year after that. And if you add it all up among the hyperscalers, the five of them, Oracle, Microsoft, Meta, Amazon, Google, over the next two years, it's estimated to be more than $2,000,000,000,000. So, basically, what you have is is is like a $1,500,000,000,000 gap between how much money they're going to spend and how much money they actually have. Because remember, they can't use the profits anymore because... Or the cash flows because those cash flows are negative. So they have to get the money from somewhere else. And so then you think, okay. Where is that money gonna come from? And the answer is they have to go to the capital markets and raise money. And that's why I was really... Like, yeah, it felt really powerful that literally the day after Microsoft reports their earnings, they also announce a $25,000,000,000, bond sale. And that's just a week after Meta said, we're gonna go raise $95,000,000,000 in the equity markets. So what it was so great about these companies is how independent they were for so long. They were so strong, so profitable. They could do whatever they want. Who gives a shit about the market conditions? They don't need our money. But that has now completely changed. They need money from the capital markets. They need money from us, the investors. And if we decide that we don't wanna give them that money, then they're screwed. They're just in a systemically more vulnerable position. And that to me is the real shift in what's happened here for big tech. There used to be these dependent... Or, excuse me, independent companies do whatever they want, but now they have to go out there and they have to please investors and they have to convince them, don't worry. Give us the money. We'll pay it back. We can we can raise it through the bonds. We can raise it through the equity, but just play the game with us. They're dependent on the capital markets now.
00:38:50 · Scott Galloway
[00:38:50] S0: I think of an historical analogy here around the AI arms race is impacting everyone. And I think of... So, basically, we were in an arms race, an actual arms race with the Soviet Union. And we had the economy and the growth and the capital to win. And we basically... The Soviet Union employed it on itself because it couldn't keep up with this type of military or defense spending and and poor leadership and an autocracy, etcetera. And it collapsed on itself, and that resulted in kind of a forty year run as the world, you know, of of hegemony where basically The US was the only game in town. Everyone is in an arms race right now. And, yeah, the the companies are starting to say, alright. Who... Who's gonna survive? Who has the underlying capital to survive? Now to your earlier point about Alphabet, every time in Alphabet's history, you've had this sort of check back, it's been a buying opportunity. And kind of pregnant with your comments is a really interesting question, and that is, is this a buying opportunity? Because if you look at Alphabet's PE right now, it's 14.6 versus the S and P at 19.5. Take your average S and P company, Caterpillar or P and G. These are great companies, Monza, whatever it is. You know, they're not Alphabet. YouTube is on fire. Google search, every time we keep... You know, rumors of its death have always been greatly exaggerated. I don't know what it was up. It's always up double digits. They have a booming cloud business. They have... If there's an agentic layer that emerges, they have relationships with millions of businesses and billions of consumers to start bridging the gap and start eating OpenAI or Anthropic launch, and it's trading at a lower PE multiple than your average S and P company. And, obviously, when you look at how robust this business is, how diversified it is, how well run it is, the concentration of IQ there, I don't know. This to me feels like a buying opportunity. Your thoughts?
00:40:54 · Ed Elson, Scott Galloway
[00:40:54] S4: One thing that I would just point out about the PE is that now that now that Alphabet has invested all this money in Anthropic, those markups on its on its private stakes are being reflected in their income. So you have to take those PEs with a grain of salt. [00:41:11] S0: That's a great point.
00:41:12 · Ed Elson
[00:41:12] S4: But still, it has... It... I mean, I... After the adjustment, my expectation is that it would be maybe, like, in line with with the S and P, which still isn't expensive. So I think that I'm I'm not fully sold. I'd wanna look more into into Google as a buying opportunity at these prices, but I I don't think it's a sell. Like, I I don't think that the way that the the market is treating it, especially when it comes to the search revenue, is necessarily warranted. But, like, you make a important point about big tech stocks and the hyperscalers right now, which is like these stocks, despite being systemic to the economy, have been unbelievably volatile this year. And, you know, as I've told you before, as we've talked about on on the show, like, I bought Meta this year and I bought Microsoft this year, and both of those, investments have done extremely well. But if you were to look at those stocks on over the past year, they look kind of lackluster. And it's because they've been going up and down so erratically throughout the course of the year because the reality is that there is so much uncertainty when it comes to tech right now because of the amount that they're spending on the AI data centers that, like, investors are completely polarized as to what the actual reality is. And that wasn't the case for a very long time. It used to be that you could have a pretty strong understanding of what these businesses would look like this year and the next year and even five years out. And that's what Wall Street loved about it, is it was so reliable. It was so dependable. You knew exactly what the businesses are. But those days are over. And what that means now is that the most valuable companies in the world are incredibly volatile, which means that if you are invested heavily in these companies, which you are because everyone is because they're systemic to to the S and P. You're riding out quite a lot of volatility specifically in those names. But it also means that if you wanna be a bit of a trader and get out there and get active and start doing some stock picking, there are some serious opportunities. Like, you can go in and buy these dips, and you can get paid really handsomely for doing so. And that that... Which is exactly what happened for me with those two names, Meta and Microsoft. Could be... I mean, Meta's down this week.
00:43:36 · Ed Elson
Investors are very worried about that equity sale, which I think is completely reasonable. The fact that they need to keep on raising more money is concerning. You would think that because they're the most... One of the most profitable businesses ever that they don't have to do that, but they do now. But these are really... These are jumpy names. Investors do not feel confident. There is very, very low levels of conviction. And when that happens, that usually means that there is both great opportunity to lose a lot of money, but also to make a lot of money too. So I think it's a good time to be a stock picker of tech names is what I would say, or at least it's a fun time to be a stock picker.
00:44:19 · Scott Galloway, Ed Elson
[00:44:19] S0: I've spent a lot of time on boards. And, basically, you kinda have two jobs on a board. I mean, three. If you're on the audit committee, just make sure there's not fraud. So let's assume you're able to do that. But the two primary roles of a director are one, if and when to sell the company. But most importantly, your job is to make sure you have the right guy or gal. And I always said there's always two board meetings. There's the actual board meeting, and then there's a board meeting in the parking lot when you're worried about the CEO and the two or three most powerful people on the board, which is usually the largest shareholder, and two voices that everyone kind of nods because they've been on the board or they're very smart. And those people meet in the parking lot and say, I'm worried about Bob. And should we be talking about if Bob is the right guy and if we need to make a change? And I've spent a lot of time trying to suss out what are the attributes and behaviors of great CEOs. And one of the most underrated attributes, and I think core to a great CEO and a great leadership team is the following. It's not only what they decide to do. It's what they decide not to do. Do they have the discipline to say, this is a great idea. It's a great market. It's not the right idea, the right market for us at this moment. And of the max seven, to this point, of the max seven, who has decided not to engage in the AI arms race? [00:45:36] S4: Apple. [00:45:37] S0: And who has the strongest year to date stock performance? [00:45:40] S4: I think it's Apple.