00:49:15 · Ed Elson
I I mean, I just don't see how the boom and bust cycle doesn't play out as it always does in this case, but none of those companies are gonna go bankrupt. They're not gonna go bust. They're gonna have their multiples reduced probably. I don't think it'll be dramatic, but I think I think it'll happen. The people who are gonna get screwed are the are the companies whose only business is data centers and AI, I. E, the neo clouds. And I think we're already starting to see that. Like, if there's an AI bubble, it's already popping for CoreWeave, for Iren, for Nebius, for all of these random data center names that people only started to to hear about over the past one, two, or three years. And we're already seeing that in the credit default swaps, which are skyrocketing, the stock prices, which are plummeting. So, I mean, I think those names are gonna get gonna get caught, especially as they become more and more reliant on sentiment in the capital markets because of their need to raise more capital. But it's it's a really interesting time to be a tech company.
00:50:19 · Scott Galloway, Ed Elson
[00:50:19] S0: If you try to distinguish between the winners and the losers in the markets right now or how the market is behaving in terms of parsing winners from losers, is the d word. It's discipline. We referenced Apple. They're like, fine. Have at it, guys. Kill each other. We'll come in, and we'll be the second mouse. We're a licensed... We'll pick a preferred AI provider, and we'll do what we did with search. Just get 98% gross margin licensing fee or whatever. The other company that's been rewarded lately is is Microsoft. Of the five hyperscalers, Microsoft is the only one that has remained cash flow positive. [00:50:51] S4: They're doing it right, I think. [00:50:53] S0: Yeah. Well, they've thread the needle. Right? Whereas whereas Google or Alphabet appears to be on the wrong side of the needle. But, basically, the markets have already priced in except an expectation of exceptional growth from these businesses, and they're all delivering against that exceptional growth. Where it's parsing the winners from the losers is is... Does there appear to be an adult with both hands on the CapEx wheel here or not driving down this highway all... At all? But the two companies right now that the market likes the most are the one that's not playing in traffic, has said, I'm out. And two, the other one that appears to... It's the only one that's CapEx was lower than projected. Right? The markets seem to like that right now. The markets need to say, we need to see the r on the eye here. And part of that is not only about top line growth, but managing cost discipline.
00:51:45 · Ed Elson
[00:51:45] S4: And I think on this one, the markets are right. Like, you know, I I always love when I think the markets are wrong because it means I can have a very hot contrarian take on things. But I think that they're... I mean, I don't think they're right about Apple personally, but with with Microsoft and the way that... The things that they're prioritizing about CapEx and about discipline, I think is I think is the right thing to be caring about. I think Microsoft is a good example of that. I think Microsoft has done a good job here, in terms of managing playing in the game, but also not betting the farm on this game. And I think investors are rewarding them for that, and I think that's what should be happening. I mean, what'll be interesting to see is how they respond to Anthropic because jury's still out on that one.
00:52:33 · Scott Galloway
[00:52:33] S0: I wanna put some numbers. The research team put together a great chart, we'll put it up here. The average annual infrastructure spending as a percentage of GDP for some other kind of transformative technologies, canals were a transformative technology, and point 7% of GDP was allocated to those... To that innovation over a five year period on average. Railroads is the one we always talk about, 1870 to 1890, twenty year period on average every year, 2.2% of GDP. Electrification, twenty year period, nineteen o five to 1925, a half a percent of GDP. Highways, from '56 to 73, 1.13%. Telecom and fiber, Latin for the Internet, from 1996 to 2003, 1.1%. AI, so far, the AI era, so to speak, 3.6% of GDP. So this just feels like It's big. I mean, the railroads did transform the world. They really did. But along the way, there was a ton of bankruptcies. Now the good news is... Or asking yourself what could go right. Are we in for a crash or what I'd call a measured decline that gives everyone... In other words, the v looks like a slope, not not a severe down. I mean, are we starting... Is some error in a healthy way starting to come out of the bubble a little bit as opposed to a pop?
00:53:57 · Ed Elson
[00:53:57] S4: If you were to look at just the, you know, extremely levered AI names, like, you were looking at the NeoClouds, like, the bubbles popped. Those names are crashing. Like, the the... That's what a crash looks like. But the difference is that with this AI build out, it's not just these new names that are participating in this whole thing. It's the big names, which might sound like, oh my god. That's really dangerous. But at the same time, it's like, actually, it's less dangerous because those big names already have extremely strong preexisting businesses. So, you know, we're not seeing this gigantic crash that you might see as people start to get very worried about the bubble because you have this this sort of support mechanism where you've got a giant search business and you got a giant giant ad business. I mean, it's it's an interesting... It's an... The dynamics are very interesting because it's almost as if there is more downside protection on this boom bust cycle than in previous ones, which is less dramatic and exciting and sensational, but ultimately better because it means less pain if things go wrong. I know I'm gonna get a lot of shit for that... For saying that, but it is what I believe.
00:55:16 · Scott Galloway, Ed Elson
[00:55:16] S0: There are two scary things here that the media, I think, is is mostly missing. The first is that... So we didn't even mention it. The most... I thought the most interesting number, and what what would have been the headline number from the Microsoft earnings call, any guesses? It... We're not even talking about it. And it was a staggering number. Any guesses? Compute growth? [00:55:45] S4: Cloud revenue growth? [00:55:46] S0: I'll give you a hint. 60,000. [00:55:48] S4: I don't know. [00:55:48] S0: That's the number of buyouts that people are [00:55:50] S4: offering Yeah. Buyouts [00:55:52] S0: Yeah. I mean, this is Yep. This is the fear. I've never, again, going back to trying to sound more important than I'm on, I've never been on a board where it's like, oh, our revenues are up 20% or 12%, and we just offered buyouts to 60,000 people. You've never heard that before. This is this is the frightening part about AI, is you can massively grow your top line, beats on top and bottom, and the CEO says, oh, and try and reduce our headcount by 60,000 people? I mean, if you have any doubt that we have become shareholder nation, that the only thing that matters is earnings per share and year to date stock performance, thirty or forty years ago, it would have been frontline news. Microsoft to to to offer buyouts to 60,000 people? [00:56:47] S4: Nearly a third of the workforce.