Chill baby chill: Modi-Trump relations dip

0:00Global payroll is a headache when you're juggling multiple vendors. We get it. Companies like Shopify and Revolut are scaling effortlessly across borders with Deal. Revolut manages over 450 employment contracts across 26 countries without setting up separate local entities. And KLM pays 189 employees across 12 countries, all from one system. Build your global team with Deal. Visit deel.com slash intelligence and start expanding your business today. This intelligence podcast is sponsored by Backmarket, the leading global marketplace for refurbished tech. When the kids need phones, laptops or tablets for school, buying refurbished tech makes sense for families trying to save money without sacrificing quality.

0:46At Backmarket, tech costs up to 50 percent less compared to new. All devices have been professionally refurbished and come with a one year warranty and 30 day return policy. Start saving money. Visit Backmarket.com or the Backmarket app to shop now.

1:05The Economist

1:12Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer. And I'm Rosie Bloor. Every weekday, we provide a fresh perspective on the event shaping your world.

1:27Palantir is a company with a long pedigree of crunching data for big money clients, including governments. It's seized the era of AI and its valuation has gone on an almighty climb. Our correspondent says too far. It's grossly overvalued. And we really do live in a strange world. On the one hand, we're letting artificial intelligence choose our restaurants and write our school essays. On the other, we're buying ever more items from the ARC, like photographic film, vinyl, and even print media.

2:05But first...

2:12Six months ago, Donald Trump and Narendra Modi shared a warm hug at the White House. Now, India's Prime Minister stands humiliated. After Trump doubled India's tariffs yesterday, the duties on Indian imports to America stand at 50%, among the highest in the world. Trump said the additional levy was to punish India for buying Russian oil, which the White House says has helped fund Vladimir Putin's war in Ukraine. Last night, Peter Navarro, a White House advisor, went further, labelling the conflict in Ukraine Modi's war. The road to peace runs in part through New Delhi, he said. How will Modi respond?

2:53That isn't yet clear. What is clear, though, is that for now, more hugs between the two leaders are definitely off the agenda. America has decided to score an own goal. Kira Huyu is our Asia correspondent. It's basically spent two decades courting India. This has been a long, detracted trust-building exercise. And now Trump has decided to go harder on India, which is a partner, than China, which is supposed to be a rival. And so it seems that the most dangerous position in the world is to be Mr. Trump's friend. And by losing India's trust, Trump has upended more than two decades of very delicate diplomacy and talked to any career diplomat on either side and they are in a very bad mood.

3:39Kira, before we get to the recent events, you talked there about this delicate diplomacy between India and America for two decades. Just give us a whistle-stop tour of that history. India has spent most of its existence as an independent country since 1947 being just supremely suspicious of America as this great imperial bully. And it's traditionally pursued a policy of strategic autonomy. That is a fancy way of saying we will not pursue formal alliances because we do not want to be subjected to great power dictates. But then in the last two decades, you see this remarkable painstaking reset as India realizes that it will need America to check China's rise.

4:20India and America signed a landmark nuclear deal in 2008, which recognizes India as a nuclear power. Ten years ago, America makes India a major defense partner. And all of these steps have had detractors at every step of the way on both sides. But until a few months ago, it looked like many in Delhi might have finally been persuaded that America was not a threat, that in fact it was a friendly underwriter of India's rise. So you say things have changed in the last couple of months. What's actually changed? Trump's gone wild on two fronts, on Pakistan and on tariffs. So in Pakistan, what happened is in May, India and Pakistan fought a short conflict after India accused Pakistan of backing a terrorist attack in India and administered Kashmir.

5:05Trump came out and said both sides should seize hostilities. India was quite offended because in the statement, there's a sort of both-sidism, as though India hadn't been the victim and Pakistan the aggressor. Mr. Trump then made it far worse by starting to claim credit for the ceasefire. India is extremely allergic to outsiders interfering in its affairs with Pakistan. But Trump has since more than 40 times publicly claimed credit for the ceasefire, despite a call from Prime Minister Modi himself to please stop doing this. Trump has also befriended Pakistani Army Chief General Asim Muneer. He's offered him lunch at the White House.

5:43He's offered Pakistan much better tariff terms and all of this is very confusing to India. And how exactly has India also ended up with such high tariffs? This is a great question. India's gone from being one of the countries in Asia least affected by tariffs to being the most affected. America slapped these two tariffs on top of each other, getting the rate to 50%. I was in Delhi on July 9th when India and America set themselves the deadline to reach a mini trade agreement. And that obviously didn't happen. India refused to budge on its red lines on agriculture and dairy in particular. And it seems to me that those conversations became hostage to Trump's negotiations with Putin.

6:25India is the one lever that Trump has on Russia. Kira, we spoke a few months ago and that was when Modi and Trump were meeting and you were full of the bromance between these two men. Is it over now? The bromance is dead. The question is when it died. You could have thought maybe July 9th when this mini deal didn't come through. But it seems like that bromance may have ended quite a lot longer ago. Last time we spoke, Modi had just completed what looked like a very successful visit to the White House in February. Since then, I've spoken to some Delhi insiders who tell me that actually Indian diplomats already then were absolutely furious at the lack of respect that Trump had shown the Indian prime minister in DC.

7:07And you've talked about the way that India doesn't want to make formal alliances, but obviously it's trailed this balancing act between India and China. And we know that Modi is going to China on Sunday for the first time in a long time. So where does its relationship with China fit into all of this? India is doing what it does best, which is hedging its bets. And so Modi is going to China this weekend as a reminder that India has other options. Although I should point out that this visit has been in the making for quite a while and isn't just an affront to Trump's sensibilities. India and China have said they will work to boost trade and investment.

7:45But without American packing, India also looks weaker next to its giant Asian neighbour. And don't forget that there were deadly border clashes between the two in 2020. Okay, so both China and the US are tricky allies. Where does that leave India? Well, really, this is India's moment to do something that foreign policy nerds call internal balancing. So making yourself stronger so as to balance against rivals abroad, whatever your partners and foes are doing. So this really would be the time to carry out some long-awaited economic reforms at home to boost the Indian economy. and then also to push forward India's own defence capabilities because, of course, it is currently quite reliant on defence kit from Russia, which is another problem right now.

8:30So really, whatever happens with Trump, India needs to become the kind of power that nobody can mess with. Kira, thank you very much. Thank you for having me.

8:51This Economist podcast is sponsored by Bill, the intelligent finance platform that helps businesses and accounting firms scale with proven results. With AI-powered automation, Bill isn't just moving money. They're simplifying financial operations for nearly half a million customers. Bill has securely processed over a trillion dollars in transactions. That's proven infrastructure. Ready to talk with an expert? Visit bill.com slash proven and get a$150 gift That's bill.com slash proven. Terms and conditions apply. See offer page for details.

9:49All from one system. Build your global team with Deal. Visit deel.com slash intelligence and start expanding your business today.

10:07For those given to watching stock tickers scroll by, big tech company valuations are old hat. Gone are some of the internet's early money machines. Now the steep curves seem to be for chip makers, cloud providers, young firms doing clever stuff with AI. Yet there is one old name that's on a new tear. Palantir is one of the most powerful AI companies on the planet because they make... Historic revenue milestone from Palantir. Palantir. Palantir. Palantir. Palantir. It's sort of an AI company now, but really, Palantir is a world-class data crunching firm. one with serious government contracts and access alongside its more workaday clients.

10:50And oh boy, is it making the stock tickers bulge. Pound has had an incredibly successful year. In fact, it's had an incredibly successful several years. Josh Roberts is our capital markets correspondent. What's happened at the same time is that its market value has absolutely soared because its share price has gone up so much. its market value has multiplied by six and a half times over the past year. And astonishingly, that means that Palantir is valued by the market at more than 600 times the profits it made over the past year. That sounds like an enormous number. Do those numbers add up for you?

11:30Well, they add up in one way in that that really is what shareholders are paying to own a slice of Palantir. The question is whether when it's valued so highly to begin with, shareholders can actually make a profit. So on the one hand, Palantir has had astonishing growth. Over the past year, its revenue has grown by nearly 50%. And over the past five years, its revenue has multiplied by four. So that's excellent. The CEO, Alex Karp, who I should say used to be on the board of The Economist's parent company, he called their most recent numbers bombastic numbers on his second quarter earnings call earlier this month.

12:07Well, as usual, I've been caution to be a little modest about our bombastic numbers, but it's honestly, there's no authentic way to be anything but have enormous pride and gratefulness about these extraordinary numbers. So there's no doubt that it's a great company. But when you look at firms that are valued as highly as Palantir is, they don't tend to generate brilliant returns for shareholders. Adam Parker of Trivariate Research, which is an equity analysis outfit, did some analysis of this. Very few firms have ever been valued as highly as Palantir, but he's a slightly different measure to earnings.

12:47He looked at firms that have been valued as a high multiple of their underlying sales. So Palantir's valuation is at the moment about 100 times its underlying sales. Adam Parker looked at firms that had hit less than that but had hit 70 times their underlying sales he only found 14 of those firms since the turn of the millennium this is very rare for firms to hit valuations that high and when he lowered the bar even more when he looked at firms that had hit a valuation of 30 times their sales and he looked at their subsequent performance what he found was that they don't tend to do very well a year later after they first hit that valuation on average they had fallen by about 20%.

13:30So the message is that even when you've got an excellent company, if it's valued very highly, it tends to lead to losses to shareholders rather than gains. Maybe we should wind back here and talk about why it is there's been this explosive growth at Palantir. Talk me through what it is they do and why it's expanding so much. So Palantir is, let's loosely call it a data analysis firm. What they do is they go into large organizations, they look at their data, they pull out patterns, and they give them information about the patterns that helps them drive operational improvements. And they do that for an enormous range of firms.

14:10Actually, their history is in doing that for intelligence and defense agencies. But now they work for loads of large corporations as well. for example, Wendy's, a fast food chain. Now, they've been doing that for about 20 years. What's happening now is the enthusiasm over adopting artificial intelligence for this sort of use is turbocharging their growth. So Palantir has an AI platform that it uses to analyze data even better. And firms are really keen to reap the rewards of AI at the moment. So both its history and the current enthusiasm for AI is driving pretty fast growth. And the fact that they've worked with all of these intelligence and defense agencies in the past means that they have something pretty rare for a firm, which is a high level of security clearance that allows them to process classified information.

15:01That is what investors call a moat. It's something Palantir has that other companies would find it very difficult to get. And that helps them fend off competition. So even with all those advantages and the froth around AI and the extensive experience and the security clearance, you still reckon on the basis of these numbers, this analysis, that it's massively overvalued? I really can't overstate how insane Palantir's valuation is. If you look at, for example, let's put another number on it. Let's look at the ratio of the sales they made over the past year to their price. That's 120. Their price is 120 times the sales they made over the past year.

15:36Compare that to another astonishingly successful firm, Google. Google's price to sales ratio peaked in 2005. That was the year before the Oxford English Dictionary added the verb to Google. And Google's price to sales ratio peaked at 22. Palantir's is 120. So to get to a valuation that is only where Google's was at its peak, Palantir would need to multiply its revenue by six times. That's about the growth rate they had over the past year, sustained over the next five years. But the astonishing thing is that's what they need to allow shareholders to break even. If they had that incredible pace of growth over the next five years, shareholders still wouldn't make a profit.

16:18They would only break even. So if anything happens to disappoint their current expectations, shareholders could lose a lot of money. And when you have a valuation that high, it can fall an incredibly long way. Now, Alex Karp uses quite colourful language. He mentions the company's haters on a lot of his earnings calls. And I guess my skepticism would make me one of the haters. This is a once in a generation, truly anomalous quarter. And we're very proud and we're sorry that our haters are disappointed. But there are many more quarters to be disappointed and we're working on that too. The bottom line here is Palantir is an excellent firm, but being an excellent firm is not enough for investors to make a profit.

17:02They need to buy into an excellent firm at an attractive price. and it's really hard to see Palantir's current price as attractive. Josh, thanks very much for your time. Thank you for having me, Jason.

17:27We were in Cincinnati, Ohio for 10 years before that. Right. Walking to Tone Life Records on Milwaukee Avenue. kind of feels like you're walking into something from 30 years ago. Daniel Knowles is our Midwest correspondent. There was what I think was African jazz pootling out of the stereo system. They had on the back wall a copy of Remain in Light by Talking Heads. Wonderful kind of place to look into. Having people being really interested in physical media again has been great. We love it. It's why we do this. being able to have a connection to an object is so much stronger and lasting as opposed to having access to anything you could possibly want on your phone.

18:16Daniel Buckley is the co-owner of Tornlight Records. It opened last year, but it's one of only half a dozen record stores on the street. The vinyl revival has been underway for almost two decades now. Record sales have hit the level that they were last at in the late 1980s. And what some people thought would be a pandemic-era bubble has yet to burst. Last year, sales in the United States rose by another 7%, to$1.4 billion, and that was 44 million LPs. Taylor Swift alone sold 2.2 million copies of her latest album. Vinyl is flying off the shelves, but cassette tapes and CDs are back in fashion too.

19:05In fact, the vinyl boom is only one part of a broader resurgence of analog media. If you walk around the corner from Torn Light, you'll find the Bellows Film Lab, a film shop and processing lab which opened in 2022. Yeah, definitely in this last year, I feel like a lot of people are returning more to like analog media, just a lot more nice to have something tangible than like an Instagram feed that's just like flat and like sterile in a weird way. Camilla Cario, the manager, says that film photography is also hip again. Yeah, it's just like nice to slow down the process with film rather than like taking out your iPhone and taking a picture of it.

19:46You just take like one photo with film and you call it a day. Yeah. Consumer demand for 35 millimeter film has doubled in the past five years, despite the fact that the price of film has risen by 50 % since 2019. And it's not only for photographers that film's coming back. Multiplex cinemas are bading away to streaming services like Netflix. But the sorts of hit places that show old 35mm movies on vintage projectors, such as the Music Box in Chicago or the Metrograph in New York City, are thriving. some of their screenings can sell out for weeks in advance.

20:31Amazingly, even some print media is recovering. In 2023, NME, the weekly British music magazine, which had originally gone out for prints in 2018, relaunched as a bimutfully. The Onion relaunched last year, having stopped printing in 2013. And then a whole bunch of other smaller art house kind of magazines, like Mountain Gazette, a large format magazine from Colorado, which relaunched in 2020. At all, like Records, even Mr. Buckley says he's launching a new magazine. It's going to be called the Brain Feed Archive. It'll be sold in his shop. So what's driving this resurgence of old-fashioned media?

21:12Some of it's obviously nostalgia, but I think a lot of it is rage against the algorithm. Spotify's algorithm is pretty convenient but it leads people to listen lazily to unmemorable music whereas picking up an LP means making an intentional choice and this is really going into overdrive at the moment because of the surge of AI art A song that's recently thrived on Spotify is Dust on the Wind by The Velvet Sundown which sounds a little bit like something from the 60s, you know, a bit like The Eagles, but with quite weird lyrics. And its creators revealed recently that it's entirely AI made.

22:09As for photography, not everybody realizes, but phone cameras already use AI to get over the physical limits of a tiny sensor seen through a lens of plastic by merging lots of photos into one. And now more obvious AI tools are rolling out. On Apple or Android phones, users can delete unwanted people or get rid of features from a photograph, make somebody slimmer or have smoother hair. It's a bit like having your own style and this propaganda in your pocket, but for ex-boyfriends. Compared to that, film feels more authentic. analog aficionados are trendsetters and the digital market has to adapt Fuji is one of many camera makers now selling digital cameras that look like analog cameras with dials and even film simulation modes Coburts which is a French rival to Spotify employs humans to write recommendations and doesn't have algorithmic recommendations Food's often been labelled no artificial ingredients.

23:17Expect to see that on an album cover soon.

23:34That's it for this episode of The Intelligence. We'll see you back here tomorrow.

23:42Thank you.

24:12without setting up separate local entities. And KLM pays 189 employees across 12 countries, all from one system. Build your global team with Deal. Visit deel.com slash intelligence and start expanding your business today. With no fees or minimums on checking accounts, it's no wonder the Capital One bank guy is so passionate about banking with Capital One. If he were here, he wouldn't just tell you about no fees or minimums. He'd also talk about how most Capital One cafes are open seven days a week to assist with your banking needs. Yep, even on weekends, it's pretty much all he talks about, in a good way.