The Compound and Friends
00:51:55 · Michael Batnick, Alex Altmann, Josh Brown
[00:51:55] S2: So this is intuitive. If you need to borrow money, money's expensive. You're in much bigger trouble than the companies that have a stronger balance sheet. [00:52:01] S1: Exactly. It's it's it's actually a very straightforward concept, which is the market is is efficiently starting to basically tell you that if you're a lower quality balance sheet business, yeah, the equity is gonna start getting hurt because the chances are you might need to tap that equity channel to start raising money because the debt channel's not available [00:52:19] S0: to you. Is there a world where the neo clouds that seem to be challenged to continue raising money at the weight that they have? Is there a world where they flame out and this never ends up touching the the traditional hyperscaler stocks and they sort of just sail past it. Is there a world in which this is actually a new, comparative advantage for the traditional hyperscalers and it actually helps their stocks for there to be chaos amongst the neviuses of the world? Like, what... How do you [00:52:48] S1: think about that? You you... So you know what I call that? I call that the trade after the trade. Yeah. [00:52:54] S0: So I call it that too, but let's explain to Michael what what what we mean. [00:52:58] S1: The... In in the in the sense that [00:53:01] S0: Trade after the trade. Like, just... Like, I I mean, I could explain it, but I wanna hear [00:53:05] S2: CoreWeave's only $33,000,000,000 market cap. When is it... Like, could Nvidia... If it goes low enough, would Nvidia just buy it and just put this to bed?
00:53:05 · Michael Batnick, Alex Altmann, Josh Brown
[00:53:05] S2: CoreWeave's only $33,000,000,000 market cap. When is it... Like, could Nvidia... If it goes low enough, would Nvidia just buy it and just put this to bed? [00:53:12] S1: So if I... Listen. I don't know exactly what Jensen's thinking. He said other... Obviously, last week, he told basically in in corporate parlance, you know, told CoreWeave to kinda go pound sand. Right? He basically said, I have no interest in helping you guys out at all. Why would he? It's trading above the IPO price. So so that that move lower needs to be a lot lower before I think he'd even consider, from an equity perspective. But why would you even do that? [00:53:36] S0: Mean, he He doesn't want the equity. He wants the assets. [00:53:37] S2: But isn't there a [00:53:38] S1: So so buys the bonds. [00:53:39] S2: But is there a Jensen put? Like, if things get bad enough, he could just say one thing and and chill everybody out? Maybe it's much lower. [00:53:45] S1: But My my suspicion is given how central in... NVIDIA have become to the entire ecosystem, and we've all seen some version of that chart with the [00:53:55] S0: codependency. The sun. Yeah. Yeah. It's like a Greek
00:53:55 · Josh Brown, Alex Altmann
[00:53:55] S0: codependency. The sun. Yeah. Yeah. It's like a Greek [00:53:58] S1: mythology analogy. And so the... I I don't wanna sort of speak and say, yes, there would definitely be a point where where where Jensen would do something like that. But it would be logical that he would... If there was a proper shakeout, that someone like him who's already got vested interest would would look to sort of of hoover up assets. But, also, you gotta remember that could come at the expense of his own share price too. Right? So everyone assumes that a hyperscaler is completely immune from this. And the way I think about it is... And it's not the right analogy, but it's the only one I can think of, is subprime and G SIBs. Right? Right? The... Just because you assume that these businesses have got fantastic operating cash flow that they're gonna be completely immune from any AI unwind, and I think that's a very unrealistic proposition. [00:54:46] S0: Well, immune now? They almost... They basically went to zero. You're talking about, like, Fannie, Freddie.
00:54:46 · Josh Brown, Alex Altmann
[00:54:46] S0: Well, immune now? They almost... They basically went to zero. You're talking about, like, Fannie, Freddie. [00:54:51] S1: Right. But, again, I don't wanna draw too too strong a parallel to the GFC. I just mean in terms of, you know, there were guys who, like, who really saw the subprime thing coming, and they're like, I'm gonna short the equity tranche. I'm gonna go along the triple a's, and they both went to zero. Right? I'm not saying that hyperscalers came to zero. What I am saying is is that to... That there is... The AI is touching everything. Like, we talked about factors in this in this in this conversation. There is no way to correctly map the AI factor from what I am aware. I've tried. My team has tried, and we can't do it. It keeps moving too quickly. The beaters keep changing. Right? So you're either long AI or you're short AI. Goes without saying the hyperscalers are long AI. So if there is a prolonged or protracted unwind of the AI trade or the AI factor [00:55:32] S0: Nothing is immune. [00:55:33] S1: Nothing's
00:55:33 · Alex Altmann, Michael Batnick, Josh Brown
[00:55:33] S1: Nothing's [00:55:34] S2: immune. But until until then I agree with that. But of course. But immune is very strong of a word, but they have shown to be resistant, resilient, whatever you wanna call it. Daniel, chart 14. So similar concept as what you were just showing. The spread between... This is from The Daily Chart book. The spread between B and triple C credit has reached nearly 8%. Something seen only four other times since 1996, and on every other occasion, the S and P 500 was already at least... Down at least 12% below its fifty two week high. And, of course, we're we're right near all time highs right now. It's just an an unusual environment, and they have proven to be resistant. [00:56:11] S1: Yeah. They really have because they've got this phenomenal earnings delivery, and you showed that Microsoft chart as an illustration of that. Helps. It it helps enormously, but what we have seen is the market derated spectacularly, including those hyperscalers themselves. Right? And and a lot of that is driven by memory stocks. [00:56:26] S2: When you say derated, do you mean on the forward multiple? Do you mean on the [00:56:29] S0: Yeah. [00:56:29] S1: On the forward multiple. [00:56:30] S2: So Nvidia is 15 times. Nobody wants it. [00:56:33] S1: I mean, I think there's also holding constraints. Isn't it? Represents... It's 8% or 9% of the S and P now. So, yeah, like, a lot of these mutual funds, they only have... They can only buy up to 5% of their portfolio in it. Right? [00:56:44] S2: And then a size problem.
00:56:44 · Michael Batnick, Alex Altmann, Josh Brown
[00:56:44] S2: And then a size problem. [00:56:46] S1: I think part of it's a size problem. Part of it is also that sort of co... Codependency in terms of the whole AI ecosystem. There's that problem [00:56:52] S2: Thank god they're not trading at 40 times forward earnings. It'd be $13,000,000,000,000. [00:56:56] S0: Well, the [00:56:58] S1: S and P would be at probably 12,000. So that that would be a high quality problem certainly from a American wealth effect perspective. [00:57:05] S0: I want... I wanna double I wanna double double click on the the net issuance because I really think that that is game changing just in terms of changing the mentality of the market. I really think that people just felt like no matter how bad a company's results, S and P 100 company, you know, they're buying back stock, and I can just ride it out. And now that's no longer the case. Chart 16, guys. You're showing us net US equity issuance. I guess you've got you've got four colors here. So give us, like, the story of the markets because this this is a lot of years. This is thirty years of data, and this is a really big change now [00:57:47] S1: Yeah. [00:57:47] S0: Versus the environment that most of us have grown up in. So tell us what you think is... What's going on here? What's the implications?