The Compound and Friends
00:39:43 · Alex Altmann, Josh Brown
[00:39:43] S1: Yep. [00:39:43] S0: And it sort of remind... I taught I taught my my daughter... My daughter had a a unit, I remember, in elementary school. They were learning about Greek mythology. So she's, like, sitting reading this book. She's like, she can't make heads heads... Why are they giving us fairy tales to read? I said, you don't understand. This was science. Like, why does the sun rise in the East and set in the West? Oh, it's because Apollo on his chariot is being pulled across the sky, and he's glowing, and so that's the sun. Why is there an earthquake? The gods are mad. You did this. Why is there a volcano? Like, this is what humans do. They need... Even if it's absurd [00:40:24] S1: We have to [00:40:24] S0: explain they have to explain it. So in the media, they're looking at the net result of all this stat arb and everything that's happening. That's not a satisfying explanation. Why did the market change its mind about AI today is yes, and because, and then they find a headline that explains why it changed its mind. [00:40:44] S1: I mean, this is the shameless plug to to to, like, the team. You know? Like, the the whole point of why we exist is to kind of... We The bet... [00:40:52] S0: The bets [00:40:52] S1: team. Yeah. The bets team at Barclays. Like [00:40:54] S0: How many of of you are there? [00:40:56] S1: Globally, now we're 11. [00:40:57] S0: Okay. [00:40:58] S1: So we've got three in New York. We've got three in in London, and we've just hired additionally in Asia. So we've now [00:41:06] S0: got five So 11 people on the bets team?
00:41:06 · Josh Brown, Alex Altmann, Michael Batnick
[00:41:06] S0: got five So 11 people on the bets team? [00:41:08] S1: So for now. [00:41:09] S0: Yeah. Now is it true you guys are allowed to kill? [00:41:12] S1: We we are we are Okay. Kill only. Okay. Yeah. Capture only. Yeah. Kill. Yeah. Okay. We're not we're not in the capture business. [00:41:18] S0: Okay. [00:41:18] S2: What do you do about earning season? So, like, for example, today, ServiceNow is down 27%. Is there, like, a blackout period where you're like, alright. We're just... What we do on the tactical side does not work when there are these major announcements? [00:41:32] S1: It's a really good question. So, this is why maybe one day bets will be 12 or 13 because we wanna get more involved in the single stock business. I mean, Barclays has phenomenal spec sales that cover specific, you know, sectors and so on and so forth. That's that's their business, and we partner with them. But from a kind of macro thematic perspective, we tend to stay out of way. So for for me, earning season is an environment where [00:41:56] S0: It's landmines. [00:41:57] S1: Yeah. There. That was the word I was trying [00:41:59] S0: to There's almost no Tactical. There's no structure there's no structure to it until you put one on it. Like, you can't... The traditional way of thinking about how stocks are trading, then a company comes out and a random con... Comment in a conference call could, like, take a stock from being up 10% to down 10%. [00:42:17] S1: Totally. Look. [00:42:18] S0: Can't model that.
00:42:18 · Alex Altmann
[00:42:18] S1: The the only the only time where we really get involved in any season is the fact that equities... I mean, to the benefit of my career, equities have become more macro. Right? AI is a macro theme. Yeah. Right? Hyperscalers are no longer just institutional securities for the, you know, for moms and pops. They are they are... They have eyeballs on them from every single corner of the investment community, whether you're a credit guy, macro guy, retail, whatever. Right? So the the... Those businesses during earning season, I will I will scrutinize just as much as as as the next man. I'll listen to the conference calls. We are... We will we will, you know, put them through natural language processing. We'll talk to, obviously, our spec sales, and we'll talk to research. We'll talk to all the great teams that we can within Barclays to sort of be as informed as an equity investor. We are equity investors, but be informed at a micro level. Luckily for me, I started my career as a single stock analyst in 2004 at JPMorgan. So, like, my DNA is kind of there already, and I pivoted to macro in 2012. So I've got kind of, like, a bit of that legacy, muscle memory to be able to go... Sort of go into that during only season if we need to. And we kind of need to now because, you know, the Google Google results were all about that. Microsoft results were all about that. We're obviously gonna get... I think we're getting Amazon tonight. Right? So, you know, these do matter. And and whilst AI is the theme, and, you know, we can talk about that whether it's gonna be a theme for the future.
00:43:42 · Josh Brown, Alex Altmann, Michael Batnick
[00:43:42] S0: What's driving, like, two thirds of the economic growth are coming from some CapEx related spending that has to do with AI? [00:43:50] S1: It's like You know you know wild stat? Yeah. Yeah. So next year next year, 2027, consensus S and P earnings, 75% of that is expected to come from semiconductors and hyperscalers. [00:44:03] S2: Great. Love it. Right? [00:44:04] S0: God, let's hope there's not a financing that extends into next year. [00:44:09] S1: Like, it's it's wild. So, I mean, I took... I mean, we kind of joke around it. It's like the S and P has just become the KOSPI. [00:44:16] S2: Right? Yeah. Almost. Meta is spending 70% of their top line on CapX. Of their top line, of their fucking revenue just on capex. It's unbelievable. Dan, you could throw up chart eight. So I'm curious to get your take, Alex, on how much the equity issuance is impacting the stock market. So we're looking at Microsoft cloud revenue growth. Think it [00:44:40] S0: needs like ten minutes to digest right. So what's
00:44:40 · Josh Brown, Michael Batnick, Alex Altmann
[00:44:40] S0: needs like ten minutes to digest right. So what's [00:44:42] S2: going on is what's So going on the chart on the right the chart on the right is year over year revenue growth. And as you could see, it's accelerating. Okay? Obviously, because of the AI trade, cloud is the beneficiary. So it's growing at 30%. It hasn't grown at this rapid of a rate since the third quarter of twenty twenty two. At that time, it was doing $23,000,000,000 in revenue. The fact that it is accelerating when it is literally almost three times the size is unmodelable, unfathomable. Unpredictable. Unprecedented. And yet, today, the $25,000,000,000 debt offering and the stock is down. I mean, they they cannot have done... They cannot be doing any better. Could not have had a better quarter. Stock is down. [00:45:28] S1: Yeah. So shouldn't we just be asking the question of if you're spending that much money, and right now, yeah, you're... You've got phenomenal revenue growth, what's it gonna come at the cost of? Right? Last time I shared, I think Microsoft's still still operating cash flow positive right now. [00:45:47] S2: It is. Yeah. So it's I [00:45:48] S1: think it's the only one. [00:45:48] S2: Also, the stock had a monster run. Alright? So, like, it... It's near... It's at an altmann high, basically. But there... The the bar is high.
00:45:48 · Michael Batnick, Josh Brown, Alex Altmann
[00:45:48] S2: Also, the stock had a monster run. Alright? So, like, it... It's near... It's at an altmann high, basically. But there... The the bar is high. [00:45:56] S0: The... The shock that we were in a fifteen year period of massive buybacks, and now that's gone into reverse. Now we're looking at stock issuance from not every company, but from these gigantic companies that are super meaningful to the index. [00:46:13] S1: Yeah. Yeah. We we It's a different environment. We we talked about this. So we, yeah, we did a lot of work around this, and it... It's... Okay. So you you can't just look at equities in isolation. That's the first thing. Right? So you're right. So 2026 on our modeling numbers will be a positive net issuance year. Which is basically gonna be from what we can tell essentially the [00:46:32] S2: first time. [00:46:33] S1: Barely. Okay. But goes back to that discussion earlier when if you're if you typically were retiring net negative issuance of $4.05, $600,000,000,000 a year, and now you've had a multi $100,000,000,000 swing. [00:46:47] S2: It's different. [00:46:48] S1: It's different. It's different. Right? And then the second thing is the competition of capital. Right? Because 2026 net IG and high yield issuance is gonna be $1,200,000,000,000. Right? And then, obviously, the government needs to go cap in hand as well. [00:47:04] S2: But it's all being absorbed still. It is. For the most part. [00:47:08] S1: But but risk premium has widened as a function of [00:47:10] S2: it. Right?