US and Tech Powerplayers Welcome China & Home Depot’s Impressive 45-Year ROI

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0:31Good morning Brew Daily Show. I'm Neal Freiman. And I'm Toby Howell. Today, the best performing stock in the last 45 years will surprise you.

0:39Neal Freyman:Then what is force majeure and why did Oracle just sign it for a data center it's building? It's Friday, September 25th. Let's ride.

0:53Fall definitely announced its arrival this week. The wind is blowing. Jackets are out and the sunsets are creeping ever earlier. One of the best ways to warm up is to hang out with us at trivia. Next Tuesday evening, we're running back our monthly bar trivia night in Manhattan, where Toby and I will write a bunch of questions. Yes, we actually write them ourselves to sump you and your friends. It's a ton of fun. Bring your coworkers, meet other listeners and us. What's not to like?

1:19Neal Freyman:Let's warm the brains up then with a little trivia, just as a teaser. Here's my trivia question. Only two actors have ever portrayed Wolverine, the X-Men character, on screen. One is Hugh Jackman. Who is the other? One more time, only two actors have ever played the Wolverine on screen in a movie, Hugh Jackman and one other. We will let you know the answer at the end of the show and make sure to sign up for trivia if you want to participate. Link in the show notes. All right. Now a word from our sponsor, Roku Ads Manager. Toby, when you think of things that only take a few minutes, what comes to mind?

1:54Neal Freyman:Making a coffee, reading an article, getting ready for a run. Well, launching an ad on Roku can be added to that list. With their self-serve platform, advertisers can go live in just minutes. And to make it even easier, Roku has a feature where you can use your brand's existing videos to create ads. So that Instagram video your brand posted last week could be used to create your streaming TV ad today. Right now, Roku is offering a$5 ,000 match to first-time spenders on Roku Ads Manager. Just head to advertising.roku.com slash MBD and use code BREW5K. The leaders of the world's two great superpowers met in Washington, D.C.

2:33yesterday in a summit big on pageantry but small on results. The only actual deal worked out was for a transfer of pandas. Upon arriving at the White House yesterday morning, his first visit to Washington in over a decade, Chinese President Xi Jinping and his wife were received with a red carpet welcome, a military flyover, and in the evening, a state dinner that was the hottest ticket in town. Last week, Trump said he told a lot of very good friends that, quote, you just can't come because it was so in demand. Xi and Trump had a lot of nice things to say to each other, like two pals meeting up after a long period away.

3:05After meeting Xi at the airport Wednesday, Trump wrote online, he looks strong, vibrant, and fit, better than ever. Xi, for his part, told Trump, I am ready to work with you to steer the giant ship of China-U.S. relations on a steady course toward that future. To that end, he announced he would send two pandas to the Atlanta Zoo, which is how China shows geopolitical camaraderie. But camaraderie is not how anyone would describe these two countries' relationship, where beneath the photo ops, handshakes, and compliments lies a heated rivalry. The U.S. and China are locked in an arms race to develop artificial intelligence, granting the winner not only technological superiority, but military dominance.

3:40Adding to the tensions, China has been economically supporting Iran, which the U.S. is at war with. The U.S. is selling weapons to Taiwan, which China has designs on controlling, and trade tensions continue to simmer. But of course, you wouldn't really know that from the way Trump literally rolled out the red carpet for Xi yesterday.

3:57Neal Freyman:Yeah, a lot of the word I saw thrown around was diplomatainment instead of diplomacy, where it was very big on just the pomp and circumstance of the entire visit. One of the biggest quotes that was going around is during their meeting, Trump gave Xi a tour of the new helipad. he constructed on the White House South Lawn. He goes, he loves a good granite. So that was the big takeaway from the evening. Not the biggest takeaway, but it just goes to show you that they were very chummy and were just kind of palling about for the most part. What actually got done, you could point to the fact that the trade war truce was extended by two months.

4:34Neal Freyman:It was previously set to expire on November 10th. Now it expires on January 10th. Besant kind of said too that China has been falling through on some of its previous purchases of U.S. soybeans, though they're behind in other arenas. That was probably the most tangible thing you could point to. The one big question mark was AI. Obviously, they were going to talk about it, but we didn't get much concrete news. We didn't get much granite news when it came to AI, and it still is kind of a looming position. Trump had posted on TrueSocial that they would discuss it, but then he said he had no interest in new regulations and then reiterated that is China's position also.

5:12Neal Freyman:So that's still a question mark kind of hanging in the air. Nowhere was AI front and center than at this dinner, which honestly seemed like every, you know, the wealth in this room was insane. Just look at who was at the table of Trump. And she was Donald Trump, Melania Trump, his wife, President Xi, his wife. Then there were three other guys, Elon Musk, former Apple CEO, Tim Cook, and NVIDIA CEO, Jensen Huang, and his wife, Sam Altman, OpenAI CEO, was also there. So when Trump was like, sorry, guys, like, I can't let you come. I have bigger VIPs. This shows you who the real power brokers are by who sat at his table and who was at this dinner.

5:50Neal Freyman:But maybe the biggest person who came was someone who didn't come, actually, which was Anthropics CEO Dario Amadei, who was conspicuously absent from that dinner, which he has been one of the biggest vocal critics about AI safety. So maybe that does actually speak volumes to how China and the U.S. are going about this, that safety is probably not front and center. There's no signs of slowing down on the AI front. And what are U-turn it's been for Trump? I mean, in his first term, he basically rose to his position by calling out China for unfair trade practices, launched a big trade war in 2018.

6:26And then again, in his second term, where just not too long ago, the US and China were putting tariffs of like 150 % on each other. Then China said, actually, we're going to withhold rare Earth exports. That was their ace in their hand. Then that forced the U.S. to back down. They established this fragile truce that was extended. But the fact that Trump and Xi are so chummy is really remarkable. He met Trump, met Xi at the airport on Wednesday evening when he arrived. And I know that may not sound important, but that basically doesn't happen. The only time a president ever receives a foreign leader at the airport is literally the pope.

7:03This doesn't happen in modern presidential history for someone to go to the airport and receive a foreign leader. But it may reflect broader views from the American public about how they are warming up to China. Back in 2023, in the Gallup poll, the share of Americans with a favorable view of China was 15 percent. This year, it is up to 34 percent. Maybe we're seeing that reflected in how President Trump is treating China. But that is not to say these these two countries just almost, you know, are very much rivals and are building up their militaries to potentially go to war with each other. Yes.

7:40At some point. I mean, China has economically supported Iran, which the U.S. is at war with. China is the only major buyer of Iranian oil. They also have these impending restrictions on rare earth. So these two countries, it's a little bit weird. They they're frenemies in the sense that they don't like each other, but also their two leaders are best friends.

7:59Neal Freyman:Yeah, symbolically, they presented themselves as friends capable of managing this rivalry. Substantively, we still got a lot to work out, a lot to hash out on all along all those vectors that you just mentioned. Moving on, Oracle's one hundred and sixty five billion dollar data center project in the middle of the New Mexico desert has hit a problem. Even AI can't solve permitting. Project Jupiter, as the data center is named, is a key part of Stargate, the$500 billion AI infrastructure buildout announced by President Trump in January of last year, alongside Oracle OpenAI and SoftBank. Oracle's job is to help build the New Mexico data center and fill it with computing power.

8:38Neal Freyman:But a company called Energy Transfer needs to feed them natural gas through a new 17-mile pipeline in order to do that. But that pipeline is stuck in permitting purgatory. Construction was supposed to begin in August, but it's now been pushed to February 2027, putting the data center's planned at 2028 opening at risk. So Oracle has invoked force majeure, a clause typically reserved for when things outside a company's control, like war or weather delays, plans. On a legal front, it aims to free Oracle from any financial obligations they are unable to fulfill. What's a little unclear is if Oracle's force majeure notice will actually work and shield it from liability.

9:14Neal Freyman:It kind of feels like Jack Sparrow invoking parlay every time he's in trouble. But the company has reiterated that they aren't abandoning Jupiter, just trying to protect itself from potentially having to pay up if the project is delayed. Neil, hundreds of billions of dollars of cutting edge computing waiting on 17 miles of pipe. Yeah, there's a bigger question here. It's whether the data center build out is basically built on a house of cards. This project in southern New Mexico is the centerpiece of this$500 billion Stargate project between Oracle, OpenAI, and SoftBank. And it's facing a lot of the similar problems that a bunch of data centers are facing across the country with a bunch of local pushback, the inability to get permits.

9:56Oracle has taken on$18 billion in debt tied to this data center alone, and that debt is now in stress territory, trading at 89 to 91 cents on the dollar. Oracle also has this$300 billion contract with OpenAI to supply it with computing power. So Oracle is sort of perhaps the canary in the coal mine for the whole data center buildout, which powers the artificial intelligence trade, which is propping up our entire economy.

10:24Neal Freyman:I mean, the house of cards is called that because Oracle can have the customer lined up, which it does. It has a buyer for the compute. It can have the financing lineup, which it does. It has the land. It has the servers. It has the construction. Everything is fine. But if one piece of that, which is permitting for a pipeline, falls through, then the entire thing comes crumbling down. So that's where the house of cards metaphor really starts to take shape. The reason why Project Jupiter is noteworthy and newsworthy is this thing is so freaking big. It is designed to handle 2.45 gigawatts of power.

11:00Neal Freyman:And to put that into terms that we can understand, that would power roughly 1.8 million homes at any given moment. So obviously, it's a massive undertaking. It ran into some politics, too, because when the project kicked off, New Mexicans did not know that it was actually tied to Stargate. did not know it was tied to Oracle or OpenAI. And so now Oracle has been contending with local politics. There's a social media account that's named Project Stupider instead of Project Jupiter. Got him right there. And so now Oracle is going into the community and trying to pass out pamphlets and host community days for the Boys and Girls Club.

11:39Neal Freyman:It's really been one of those things where it's of national importance, and yet local politics is playing a big role. And now the fact that Oracle is declaring force majeure shows how that maybe obscure legal clause is working its way into the data center build-out. It's basically a pre-negotiated allocation of catastrophic risk. You saw this happen at the beginning of the war in Iran, which is typically when maybe companies declare force majeure or there's a big natural disaster. Qatar's liquid natural gas infrastructure got blown to pieces. So Qatar Energy declared force majeure on its contracts.

12:12The fact that this is now becoming what lawyers say front and center and all of these contracts tied to data centers show that companies are saying, wow, there really could be catastrophic risk here because of all the different moving pieces that go into a particular data center and all of the pushback saying, okay, we need to actually cover our butts in case these things go south, which potentially and increasingly they are.

12:34Neal Freyman:Moving on, it's Stock of the Week, Dog of the Week time, the segment where we pick one stock that is rounding into marathon shape and one stock that has been tapering for the past three months straight. I won the pre-show game of stone skipping, so I'm up first. And my dog of the week is any company that benefits from consumers being lazy. A basket of companies who rely on consumer inertia, as analysts have branded it, are getting crushed. Banks, insurers, travel companies, and subscription-based businesses have all been selling off in recent days as Wall Street warms up to the fact that AI agents could strip away a lot of the friction that kept people locked into payment plans.

13:10Neal Freyman:That Planet Fitness membership you signed up for in January that you haven't gotten around to canceling, an agent can tackle it for you. Also, why go through the process of looking for the best flights on booking.com if your agent can save you the clicks? The big shift here is that AI has moved from recommending things to actually doing the things for you. Goldman Sachs says industries built around recurring bills or any that have negotiable pricing could come under pressure as agents improve at handling customer service interactions or fighting bills. Specific names Goldman called out were Planet Fitness, Allstate, Netflix, SiriusXM, Intuit, The New York Times, and Expedia, amongst others.

13:47Neal Freyman:That basket of companies has fallen nearly 10 % over the past two weeks. We've seen a similar reaction before when basically the fear of AI replacing enterprise software created the SaaSpocalypse. Those stocks have mostly bounced back. Now we're getting a similar wave of freaking out over consumer businesses. I've been dabbling with some of these agents. And the first thing, maybe the only thing that I've had them do is go through my billing and get rid of all the subscriptions that I don't use, which is exactly what Goldman Sachs expects people to use these agents for. They said this basket focuses on industries where customer stickiness is driven less by product differentiation and more by the effort required to take action, which just reminds you that there are entire industries, entire companies out there where their entire business model is to get you to sign up and then hope that you'll forget that you signed up in the first place or make it so frustrating to cancel that you won't.

14:39Perhaps these agents, which don't get tired, aren't afraid to talk to people on the phone, aren't willing to make you have those, you know, hard conversations will do everything for you. And these companies are just going to make less money as a result.

14:51Neal Freyman:I mean, think about health insurance. Health insurance is just pulling teeth for people because you do not want to jump on the phone, spend five hours fighting a claim to try and get your coverage approved. But again, an AI agent can do that for you and they don't care because they're they're an agent so businesses have relied on this predictable human psychology to say they're not going to jump through the hoops they're not going to go through the ringer to cancel these bills and so we have this lock-in effect the other aspect of this too that i thought was fascinating some bloomberg analysis called uh muse and instinct these ai agents toll collectors so instead of going to the uber app and saying i'm going to buy get a ride right now you'll just say i need a ride and the agent will route it to the platform that is cheapest or closest to you.

15:37Neal Freyman:Instead of saying, going to booking.com and saying, I need a hotel, you just text your agent, I need a hotel, and it will go across all those sites. So they become the new middleman. AI agents become the new middleman, the toll collectors. And it could just completely upend these companies who rely on you opening Uber and rely on you opening booking.com. So that's the other aspect to this. I think the one word you mentioned that the most important is could, because a lot of people say this is a huge overreaction. they disagree with Goldman Sachs' analysis. We had these fears of the SaaS-pocalypse that you could vibe-code your own sales force earlier this year, software stocks.

16:14Neal Freyman:That sounds crazy to say, looking back, that we could vibe-code our own sales force. That's what people think. I know, exactly. So just a word of caution that people still don't trust AI. For an agent to do all the things that you just mentioned, you have to give them a lot of access to your personal information, and that's something that a lot of American consumers might still not do. Plus, it could only lock in these brands' position even more when it comes to financial firms like Charles Schwab or Raymond James. They have a ton of your data. They're absolutely looking at this and saying, okay, how can we use AI agents to our benefit?

16:50We have a ton of customer data. Let's leverage that to only cement our position as leaders. So there's that side of the equation as well.

16:57Neal Freyman:Well, the final thing too is you're seeing businesses push back already. Amazon is saying, actually, no, you cannot scrape our website. You cannot open a virtual browser and browse Amazon. I've tried this because I saw that Amazon push back against Muse. When I say like, hey, find me toilet paper on Amazon, Muse comes back and say, sorry, I'm not allowed to access this site. So Amazon thinks it can go toe to toe with meta. It has enough inbound traffic that it doesn't need these agents coming on their behalf. So that's like the next iteration of this is when the businesses start to fight back against these toll men, against these middlemen.

17:32Neal Freyman:All right, we're going to take a quick break and come back with our Stock of the Week right after this. Toby, what do you do with a great product, but your brand can't seem to connect with customers? Uh, beg? No, don't beg, but do check out Rising Stars. It's a docuseries that follows small business owners as they create their businesses, face real challenges, and scale their brands with the help of Amazon ads. Like Crown Skin, they couldn't connect with customers in men's grooming until sponsored products on Amazon ads helped them reach the right audiences. Now they're doing over$500 ,000 in monthly revenue.

18:06Watch now at advertising.amazon.com slash rising dash stars. That's advertising.amazon.com slash rising dash stars.

18:15Neal Freyman:Neil, you ever stay in one of those hotels where you sleep in a human-sized birdcage? No. Well, don't. It's real sad. Sounds like you could use business preferences from Hotels.com. It helps travelers find the right hotel faster by remembering their go-to work trip requirements. Travelers set their preferences once, including fully refundable stays, Wi-Fi, breakfast, gym access, and more. Then future business trip searches automatically surface matching hotels. Sign up for their free rewards program and start earning on every work stay at Hotels.com slash Morning Brew. That's Hotels.com slash Morning Brew.

18:51Loyalty members 18 plus.

18:55Neal Freyman:Neil, you know how I do a lot more than payroll around here? You don't do payroll. Jordan does. Oh, right. I'm thinking of Intuit QuickBooks Workforce. It helps businesses by bringing payroll, HR, talent, and your financial data together in one place. Their auto payroll can make payday run itself. With guaranteed accurate tax calculations, owners aren't second guessing the math, just approving what's already right. Plus, payroll AI can catch issues and flag changes before they become problems. When something needs a human and live, payroll and HR experts are right there to help out. For more info, head to the link in the show description.

19:30For Stock of the Week, we're broadening the scope and awarding a stock of the half century. The company that's generated the highest return of any U.S. stock over the last 45 years is, drumroll please, Home Depot. If you had invested$1 ,000 in Home Depot on the day of its IPO in 1981, you'd have about$16 million today, far more than any other member of the S &P 500 over the same time span. Yes, even big tech firms like Apple. If you had invested one grand into Apple on its IPO one year before in 1980, you'd have about$4 million now. Home Depot's record-setting growth was discovered by the boys at the Acquired podcast, which just released a deep dive into America's favorite home improvement retailer.

20:13One of their main insights about Home Depot and the reason for its outsized returns is back in the 80s, no one saw hardware as a huge mass market business. Buying power tools in slats of wood, that was niche just for the sicko handyman dads who wanted to redo their own decks. When Home Depot IPO'd, it had four stores in Atlanta, raised just$4 million at a market cap of less than$40 million, tiny even by early 80s standards. Walmart was already valued at over$1 billion at the time Home Depot went public. But fast forward to today, and Home Depot turned what most considered a specialty business into one of the biggest retail operations in America.