Best Stock of the Year, Holy Amazon!, JPM and BlackRock Report, Semis Explode

13:12Michael Batnick:I mean, just monster numbers. Of course, they were asked about private assets. They are making the push of all... You can take this off, please. They're making the push of all pushes. They bought Prequin. They bought GIP. They can't turn back. They bought HBS.

13:28Downtown Josh Brown:Yeah, no way.

13:29Michael Batnick:They're all the way in. They saw, they've seen already in April, we're two weeks into the month, so halfway through the month. This really shocked me because I would have assumed, and I would have been wrong, that money into HLEND, which is the Interval Fund for Advisors, I would have assumed that flow is just turned off. $150 million in April.

13:52Downtown Josh Brown:Well, not to brag. my insight was these large RIAs, wealth management firms, that are centrally managing the investments, meaning you talk to an advisor, the advisor is doing mostly financial planning work with you, and then they're bringing your financial plan to a centralized CIO of some sort, and they're getting an asset allocation instruction. And these centralized CIOs, and especially at the wire houses, they're not like yanking this stuff out of their asset allocation. So when you see these flows, a lot of this is just on autopilot.

14:34Michael Batnick:You're right. And these are, the flows come from the gigantic mega REs and they're not on a whim or even in a period of stress changing their asset allocation overnight. They can't. Because it looks stupid.

14:49Downtown Josh Brown:It looks stupid. So they said last year, our core asset allocation for clients is 50 % stocks, 30 % bonds, or maybe 40 % bonds. And then there's this 10 % sleeve that's going to alts. And$7 of that$10 is allocated to private equity and$3 to private credit. And so if you raise$10 billion in the course of a year at one of these RIAs, which which is not crazy given all the acquisitions, 300 million of that is going to go to the same private equity fund that they've already been allocating to unless there's some sort of mega scandal. The money's going.

15:37Michael Batnick:Yes. And also, I don't know that HLEND represents the entirety of the industry. I think BlackRock is BlackRock. I would suspect - I would suspect that flows into Blue Owl, given all of the smoke, are probably being misdirected. We'll find out. But I think you were absolutely right. Let's throw this table on. This is their current – you have anything else? So you're saying it is – I think this is right.

16:04Downtown Josh Brown:An RIA that maybe was directing money to Cliffwater and Blue Owl has gotten nervous and the beneficiary is HLend. They won't back away from the asset class, but they will upgrade the size of the counterparty that they're using to get access to it. I think there could be something to that.

16:21Michael Batnick:But I definitely do not think that Blue Owl and Cliffwater are equivalent at all. I think Cliffwater is the beta. Not I think. Cliffwater is the beta.

16:30Downtown Josh Brown:Yes, but Cliffwater is not BlackRock.

16:32Michael Batnick:Correct.

16:33Downtown Josh Brown:Okay. I think there could be something to that.

16:36Michael Batnick:All right. So anyway, current quarter component changes by private markets. Check this out. So private credit was$145 billion in December at the end of the year. Net inflows of 6.6 bill. Outflows of 3.9 bill. Market change. So some write downs. The end of the quarter. So up a little bit from 145 to 146. I think it'll be just fine. Yeah.

17:03Downtown Josh Brown:And again, to your point, they're all in. You can't do billions of dollars worth of acquisitions and then decide, oh, that was just a fad. You have to power through.

17:13Michael Batnick:So Larry said, Larry Fink said, the Department of Labor's proposed rule is a major development towards a framework to include private assets and target date funds. BlackRock will be at the forefront of this opportunity. This is in the prepared remarks. And of course, they were asked about it. We have a$600 billion LifePath target date franchise. I mean, the scale of these products are just unbelievable. Where we saw$15 billion of net inflows in the quarter, that included$4 billion into LifePath Dynamic, our active solution. And you better believe that private assets are going into those targeted funds.

17:46Michael Batnick:They just are. It's coming. Yeah.

17:49Downtown Josh Brown:I feel bad for people that are just getting auto allocated into this stuff. It's not that I don't think they can make any money. It's just that you better understand the time horizon and the trade-off of liquidity. And it's not going to be appropriate for everyone. These are targeted funds. Well, I think for 401ks, it's actually, right. That's money that's going to be decades sitting in these funds, it'll be fine.

18:10Michael Batnick:Listen, on the one hand, I understand why people are hemming and hawing. Nobody is choosing to go into these products. They are higher fee. They are great for the bank. They're great for BlackRock, obviously. So I understand the cynic, skeptic, knee-jerk reaction is nobody asked for this. And also, another thing could be true. It doesn't mean that somebody's retirement is going to blow up because they have a 4 % sleep to private credit. So I think we need to pump the brakes there. All right. They spoke a lot about the Wealth Channel, obviously. And this is very much our day job. They spoke about$13 billion coming into Appirio.

18:45Michael Batnick:$13 billion.

18:47Downtown Josh Brown:That's the direct indexing platform that BlackRock owns.

18:50Michael Batnick:So I believe they said that there's$15 billion coming to their SMAs and 13 of it was into Appirio. They said, I'd call out that's nine consecutive quarters of retail net inflows. Let me comment on just two areas that I think are worth highlighting. The first is that growth in this channel is being driven by demand for a whole portfolio of services. The move from brokerage to advisory, two places where BlackRock is an industry leader. It's also put a big focus on after-tax investing. This is important. I think for a long time, the language of the industry was sort of pre-tax returns or asset class level returns.

19:25Michael Batnick:The fact is our clients pay for college. They pay for healthcare. They pay for mortgages. They ultimately pay with those things with after-tax dollars. So they said Appirio net inflows.

19:34Downtown Josh Brown:I'm sorry, question from the comments. Biff Grebel's, what is Appirio? So BlackRock bought Appirio. It is their custom indexing platform. So at Ritholtz Wealth, we use a different one. We work with Canvas is the name of the product. O'Shaughnessy Asset Management developed it. And Franklin Templeton acquired that. There are probably five or six major custom indexing platforms serving wealth. BlackRock's Appirio is obviously one of the larger ones.

20:02Michael Batnick:Parametric is the other gigantic one. That was brought from Morgan Stanley.

20:05Downtown Josh Brown:Morgan Stanley owns that.

20:06Michael Batnick:All right, so Perio net inflows were record for a fifth straight year. They said, okay, here it is. In that$13 billion of direct indexing flows, about$9 billion was long only. $4 billion was in long short. That has continued to grow rapidly. And he said, this is important. We continue to believe that long short direct indexing with option overlays, they have a company called Spider Rock, is going to be a great growth area. and we hope to double, triple that business over the near term.

20:35Downtown Josh Brown:Everyone's going to triple that business except for Fidelity, who seems to not want it. I mean, so guys, for those of you who do not have a financial advisor or know anything about what's going on in wealth management, this is one of the hottest categories in asset allocations because these are the 130-30 funds and there are obviously other versions. And then being able to do this on a custom index level and having basically a product that helps you harvest your losses. Because again, the focus is now on post-tax returns. This is what wealthy people are most concerned with. And as a result, the industry has reacted to it.

21:15Michael Batnick:So yeah, direct indexing is a huge category. And part of the problem to the extent that one exists with just a straight up direct index, if you own the S &P 500, for example, at some point in time, there's no more losses. You've run out of losses. Or you harvest 90 % of them in the first four years, whatever it is. So these 130-30 things or 150-50, whatever it is. So you give the manager a dollar. They buy$1.30 worth of stock. They short$30 worth of stock. So you're left with a beta or a market neutral – not market neutral. A market beta of one. The longs and the shorts more or less cancel each other out.

21:48Michael Batnick:And they are just hovering, hovering up assets. So all right.

21:54Downtown Josh Brown:Hoovering. Hovering. I know. It's like a vacuum.

21:57Michael Batnick:I know. I know.

21:58Downtown Josh Brown:They are hovering over us and hoovering up the assets.

22:02Michael Batnick:You won't change my mind, even though you're 100 % right. You can trust me. Okay. So I put this in the doc, I guess, late last week, what bottoms look like. And we're still going to go through it, but a lot has changed since then. Okay. So I was going to start by -

22:21Downtown Josh Brown:Same direction, though. Same direction, though.

22:23Michael Batnick:Well, yes. But I was going to start by acknowledging that the weird market environment that we have seen in 2027-6 has continued since the lows, where you saw this like tons of dispersion. So throw up this chart from Duality Research. And he asked, was Monday the peak? And this was a week ago. Look at that dispersion for technology stocks.

22:48Downtown Josh Brown:The spread of winners versus losers even within the same sector. Holy shit. That's the hardware versus software divide for people that aren't following that closely.

23:00Michael Batnick:And more to come in a second on that. So this was interesting, probably stale at this point, but still. This is from applying the breakaway. This is from Turning Point Market Research. Applying the breakaway momentum indicator, popularized by Walter Deamer, we isolate periods when the index gained at least 7.25 % over eight sessions, while the 10-day advanced decline ratio remains subdued. So it wasn't like it was a full-blown breadth thrust where 90 % of stocks were up. That didn't happen. And he shows that, and this is still relevant, show this chart. It really only happens in bear markets, like all the way on the way down in washouts, obviously the Great Depression, forget about it, but it happens in bear markets or or at market bottoms.

23:50Michael Batnick:So it's sort of like this weird binary thing. And this looks like a bottom. So I never really, until recently, I never really heard people talk about dispersion

24:04Downtown Josh Brown:as a way of measuring when a market gets washed out. Now, and what your chart showed me is that I was right to not think of it that way, unless it's like a real bottom. But I guess that's not the thing anymore because we get like so oversold so fast and we have such fast freakouts that you don't need to be at the bottom of a 10 % correction. You could be at the bottom of a 3 % correction if enough stocks beneath the surface are down way, way, way, way more. And that's what really happened this year. So the rotations are crazy. Yesterday was nuts. They're like 24-hour phenomena, these rotations, where you'll have a sector, a software sector, a great example, bleed money for 10 days and then go up.

24:56Downtown Josh Brown:Every single stock in the sector go up 4 % or 5 % in one shot.

25:00Michael Batnick:Yesterday was everybody like, all right, guys, it's time to cover your software shorts. Just boom.

25:04Downtown Josh Brown:I mean, this is not for the faint of heart. I wanted to add something to the contrarian signal list of whether or not we have a bottom. I'm not sure how to take this, so I wanted to get your take on it. Chart on. This is Deutsche Bank. Equity positioning is bracing for a sharp earnings slowdown, but recent data are undermining that story. If the gloom fades, risk appetite may rebound fast and lift stocks. So this is my favorite word, positioning versus consensus earnings expectations. And so normally these two lines track each other very nicely. As earnings growth expectations fall, so too does positioning.

25:51Downtown Josh Brown:Of course. In stock, like obviously, right? This time, the consensus estimates just kept on going up for S &P 500 earnings growth and positioning fell off a cliff. What the hell is that about? This was the setup. Yeah. Right?

26:08Michael Batnick:We were talking about - Offside.

26:11Downtown Josh Brown:They call this offsides, but this is a very extreme variation of that.

26:16Michael Batnick:Once the tailwinds of higher crude, the war in the Middle East, once that abated, bulls came back real fast. Yeah. So, all right. Anyway, what's at the bottom? It was the bottom. You know how I know? Because it was the bottom. Not for every stock. Chart on, please. So the Nasdaq 100, what an unbelievable rip. Down less than 1.5 % of the year. S &P 500, basically new all-time highs. And I had ChartKids show us what really worked off of the March 30 flows. This is nuts. Semiconductors are up 24%. Wait, stop. This is in two weeks? That's it.

27:01Downtown Josh Brown:What the f***? semiconductors are up 24 % as a sector in two weeks, and they weren't even down. In other words, these are not SaaS software stocks. These didn't even go down. That is a face ripper of a move.

27:21Michael Batnick:Media entertainment, Google's up 22%. Meta's up 24%. Netflix up 14%. Netflix is up from 70 to 100%. Paramount up 24%. Just wild stuff. What's next? Consumer discretionary. I mean, Amazon, holy shit. What else is in here? Carvana's up 30%. I didn't realize that. eBay up 14. Williams-Nome up 10. Decker's up 14. Garmin up 17. Yeah.

27:49Downtown Josh Brown:How mad are you? Chart back on. How mad are you if you're in these consumer staples in size?

27:55Michael Batnick:Ooh, what's going on there? You got nothing. What's at the bottom?

27:58Downtown Josh Brown:You got nothing.

28:00Michael Batnick:You got nothing! Yeah, but they did well earlier in the season. They went risk off, and they got the real risk. All right, so let me ask you this. So what happens from here, nobody knows, but the wartime bottom is in. Yeah.

28:19Downtown Josh Brown:Okay?

28:19Michael Batnick:It's over. But the next phase of this is, are we so back? Chart on. DGEN DAO. Oh, boy. We had a 16 % rip.

28:32Downtown Josh Brown:Introduce what this is for the people that are -

28:35Michael Batnick:The DG &DAO is the names that the meme traders know and love. What's in here? Archer, AMC, Apple Lovin. Junk. Coinbase, Carvana, DraftKings, Flutter, GameStop.

28:48Downtown Josh Brown:Riot, RocketBot.

28:49Michael Batnick:SoundCloud, like a lot of - There's some obviously legitimate companies here, Robinhood, for example, but there's a lot of dog shit in here.

28:56Downtown Josh Brown:Opendoor, Oclo, exactly what you think is in the - the DGEN DAO is in it.

29:00Michael Batnick:But we had, so it's been a minute, honestly, since these stocks participated in any full weight upside. And Ionic was up 20 % today. Rigatoni was up 12%. It's not a sell signal.

29:15Downtown Josh Brown:Isn't that a sell signal?

29:17Michael Batnick:Why? I don't know. Dude, we're at all time highs. What do you expect? We keep on having the same conversation. At all time highs, the shit goes up.

29:25Downtown Josh Brown:I should have, I should have bought Robinhood in the hole. Can I tell you something better? I almost did and I didn't.

29:31Michael Batnick:This is a true story. I bought Robin Hood on Friday. No, I bought it on Thursday. I sold it on Friday. I swear to God.

29:38Downtown Josh Brown:How'd you do? You made a couple of shekels?

29:41Michael Batnick:No, dude. What? What? I bought Robin Hood on Thursday and I sold it on Friday for a tiny loss. Why did you do that? Because I said, yeah, it's not working. I'm going to buy something else.

29:50Downtown Josh Brown:Not working in 24 hours? Is that what we're doing now?

29:54Michael Batnick:Don't worry about what I'm doing.

29:56Downtown Josh Brown:We need to talk about your holding periods.

29:57Michael Batnick:Don't worry about what I'm doing.

29:59Downtown Josh Brown:All right. Give me my chart. Surviving the Sasspocalypse is up next. IGV, here's one year. What a year. My God. Even with these short, sharp rallies, this thing still sucks. It got up above 80 today, and I think it faded out a little bit toward the close. Still below its 50-day. It's still crashing. and people that get, I said on TV today, it's one day every week is IGV day. And I hope you bought it the day before and I hope you sell it that afternoon. And I'm gonna stand on that. We're gonna get one day every week where these names rip out of nowhere and you have five minutes to get out. And I've seen this so many times before with these types of controversial sectors.

30:52Downtown Josh Brown:You always think, all right, this is the most frustrating part of investing. All of these stocks have gotten cheaper, right? Like statistically, not my opinion. All of them have gotten cheaper. All of them are quote unquote due. None of them could put together two days in a row of a rally. So it's just, it's getting worse and worse and worse. And I do not think it's over. show me this SPY ripping with the IGV getting crushed. Oh, this is wild. Here's the good news. Nobody gives a shit.

31:27Michael Batnick:This was Wednesday, Thursday, Friday. Yeah. Off the charts. So the S &P was up 3%. Software was down 7 % of the same time. And yeah, to Josh's point, it ripped, it ripped. But let me just, let me just not take the other side, but just provide a little bit more context. So from the low, chart off please. From the lowest, and by the way, I sold Robin and I bought Nvidia. All right, so not so bad. I said, I want to be a new winner.

31:51Downtown Josh Brown:Video's breaking out.

31:55Michael Batnick:So software puked and bottomed in February. And it had a very mild bounce. It had a dead cat bounce of 15 % or so. Gave it all back, undercut the lows of the February lows, and then absolutely ripped in people's faces. So if you shorted the stock in the hole, holy cow, did you get punished. Now - For a day. For a day. However, this is kind of how bottoms happen. And I'm not saying that these are now like going to retrace anything, okay? However, however, dude, if you didn't sell, if you did not sell the false breakdown last Friday - Sell today. No, no, no, no. Anybody who wanted to sell, who was going to sell, panicked on Friday.

32:37Michael Batnick:There's no more sellers. So I'm not suggesting that like these are going to all of a sudden come back to where they were. This could be an L-shaped bottom, right? There could be no more sellers. I'm on the other side.

32:49Downtown Josh Brown:I'm on the other side. Of what? We have not seen the ultimate low in the index and in a lot of these stocks. We have not.

32:57Michael Batnick:To be clear, I am not pounding the table that there is a low.

33:00Downtown Josh Brown:I know, but you said this is how bottoms happen.

33:02Michael Batnick:Well, it kind of is. But I am also suggesting that this can be an L-shaped bottom. And listen, there will be tradable rips in here for people that like to get tactical. But this could be an L-shaped bottom where these names just languish.

33:14Downtown Josh Brown:Okay. Right. UBS came out with a call on Monday morning. They said, no, not a bottom. Oh, well, well, if UBS said so. Well, I like their argument better than yours. So to be honest with you, I think they put more thought into it than you did. All right. They might be wrong, but I agree with every single thing they said. So the analysts covering, the analysts do a regular survey with a group of 12 CIOs who are at big Fortune 500 companies. These are the customers for all the SaaS stuff that's under pressure right now. They said on half the calls, they heard this term containment, cost containment.

33:54Downtown Josh Brown:So what that means is the CFOs are pushing back on budgets or the CTOs are pushing back on budgets for SaaS because they're redirecting their spend. They're not stopping spending on tech. They're redirecting their spend elsewhere. So here are four things that they heard. Software spend rationalization, a more concerted rationalization means why are we spending this much? This is irrational. It's been less. More concerted rationalization of software spend, especially at the SaaS layer in reaction to, quote, excessive price increases and following an overinvestment phase. Two, AI crowding out. AI is beginning to crowd out other software spend in terms of the need to free up dollars, as well as hesitation slash deprioritization as CIOs and CTOs consider AI impacts.

34:47Downtown Josh Brown:You know what that is? That is, hold off. Let's see if we can get Claude to do this. Okay. Three, a mixed shift within budgets with certain SaaS projects being deprioritized and budget dollars shifting to cloud infrastructure, cybersecurity, and even to open source solutions. In other words, why are we, okay, we'll spend the$10 billion, but why are we spending it on service now? Four, cyclical macro. While further down the list than many might expect, CIOs and CTOs did highlight that macro uncertainty rates, consumer spend weakness may have caused some incremental weakness that cascaded into software spending budgets.

35:31Downtown Josh Brown:If over half of their calls are people that have the power of these budgets saying we're gonna contain costs, the problem there is none of these SaaS stocks we're talking about can raise prices next year. And you would be amazed at how much of the earnings growth for these companies over the last 10 years has come from the fact that they were the system of record. You couldn't say no to them. Your data was trapped. They say up 5 % this year, like clockwork, you're paying up 5%. And 5 % you got off easy. So it's a huge problem. They're calling this enterprise software optimization. That's code for we don't need all 10 of these providers.

36:15Downtown Josh Brown:Let's do eight. And by the way, we're never paying a budget increase again. We're never paying a price increase again. Listen to this. Following discussions with two leading SaaS ops vendors, analysts reported that 21 % of organizations cut their SaaS spend last year. A staggering 30 % of existing licenses are sitting unused. The other thing that this AI stuff does to SaaS is it pulls its pants down and humiliates it because the way that they are billing for enterprise AI is usage, tokens. And the way SaaS is billing is headcount. Yeah, it sucks. And that is all going to change now. And everybody is susceptible.

37:04Downtown Josh Brown:Zoom, Teams, Slack, Salesforce, Adobe. They live in this world of pre-AI where it's per head and companies are pushing back and saying, no, I don't think so. Talk to me about usage-based pricing. You can't tell me that's in these stocks.

37:21Michael Batnick:Let me ask. Oh, really? You don't think that companies down – stocks down 60 % are – that the fundamentals are deteriorating? No, because they're kicking and screaming.

37:29Downtown Josh Brown:They're not going – they're not doing this per usage thing yet.

37:32Michael Batnick:Snowflake went from 280 to 120. You're telling me it's risky? no f***ing shit dude

37:38Downtown Josh Brown:bad example

37:39Michael Batnick:it went from 280 to 120 in 5 months

37:42Downtown Josh Brown:that doesn't work that doesn't serve me throw that example out dude hold on

37:45Michael Batnick:so I'm not yeah no shit dude these names are in trouble obviously all I'm suggesting is that there might be it might be an L I don't think we're disagreeing I'm a pounder for the bottom

37:55Downtown Josh Brown:who would you say is the most savvy software investor in the world

38:00Michael Batnick:the most savvy software investor in the world

38:03Downtown Josh Brown:investor in software companies

38:07Michael Batnick:why don't you just tell me

38:10Downtown Josh Brown:I'll give you a little bit of time on that and I'll just get right to the answer Toma Bravo hands down it may be Constellation which is publicly traded which is Canadian and odd Toma Bravo is the best widely acknowledged private equity firm they buy the whole company and they operate the company this is this week Toma Bravo is winding down its growth equity business less than five years after the software-focused investing firm debuted it. Instead, it's focusing more on its core buyout strategy, which owns controlling interests in established firms. What happened to the old Josh Brown? Time. Mr.

38:49Downtown Josh Brown:Creator of Halo? Time. The money manager debuted growth equity in 2021 to take minority stakes in public and private software firms. These were constellation-esque businesses Tax and accounting automation Enterprise data intelligence Like car dealer software Toma Bravo determined it could not bring its expertise As a majority owner to its growth equity investments Because it has little say in their strategy or operations That's the cover story This is a$183 billion firm, by the way And they basically are now they're going out of their way to say, oh, no, it's not about anthropic. Sorry, bullshit.

39:36Downtown Josh Brown:Bullshit. I don't believe it. I don't believe it. So it's very difficult for me to look at things like what I'm pointing out, surveys of CTOs, some of the savviest players in the software investment game, basically throwing in the towel here or demanding containment of costs and say that all of that is in these stocks. I'm not saying none of it. Okay. I agree with you. There's a lot of damage here. I just don't think we've seen the bottom. Okay. It's very hard for me to think that. Yeah, no.

40:08Michael Batnick:Listen, you're probably right. So the reason why I -

40:12Downtown Josh Brown:Wait, wait. So what's the takeaway for somebody that agrees with me? I'll tell you. Here's what I'm going to stop doing.

40:18Michael Batnick:No more average downs. Stop. No, no, no. That should have been - Listen, the reason why I sold Robin so fast, I have no tolerance for losses when stocks are broken. Okay? All of these stocks are broken and busted. And these should either be, either know that you're playing a trade or that you are buying and bearing the pain. Because this is going to be a very, when stocks are down 60%, they don't go straight back.

40:42Downtown Josh Brown:Stop averaging down in SaaS software. I'm not saying get completely out or don't look to initiate new positions at some point. Like to me, in this environment, don't do that.

40:58Michael Batnick:The charts are broken. I cannot agree more. They're done. All right. So this is from Transcript. Enterprises are finding it challenging to connect AI agents to existing databases. There was a survey done with a few CIOs last month where you'll see on the – okay.

41:14Downtown Josh Brown:We missed the chart though. This one's important. This one's a semis are now Todd's chart. Semis are nearly six. We didn't get to this yet.

41:25Michael Batnick:All right, but go ahead.

41:26Downtown Josh Brown:Keep going. Keep going. This is crazy. Crazy. Great chart. Shout out to Todd. Semis are nearly 16 % of the S &P 500. Actually, no, I'm sorry.

41:36Michael Batnick:Just we'll get there in a sec. Just I'm almost done.

41:38Downtown Josh Brown:Okay.

41:38Michael Batnick:We'll get there in a sec. All right. So the other side of this and 90, I agree with almost everything you said is that the number one barrier for transformation, agentic transformation and automated transformation is the integrations. Nearly 50 % of the CIOs say that connecting AI agents to existing systems like their databases, their CRMs is in a challenge and it's compounded by all kinds of data quality issues. So for example, I have tickets for the next playoffs. The tickets are outrageously expensive. So I said, you know what? What can I get for one of these games? I asked Claude to find me what the lowest price is for the lower bowl for these tickets on StubHub or Techmaster or whatever.

42:22Michael Batnick:And here's what it said. Unfortunately, I can't. The ticket sites load their inventory dynamically via JavaScript. So when I fetch the page, I just get the shell HTML without any actual ticket listings or prices. It's the same reason I can't scrape livestock prices from brokerage sites. Now, I don't want to get over my skills with the technical stuff, but I know that this is an issue. It's not that easy to just rip out something and replace with AI. It doesn't work that way.

42:47Downtown Josh Brown:That is true. And that's why we're not saying software is going to zero. What we're saying is no more earnings growth via raising prices on customers.

42:58Michael Batnick:Yeah, the net retention ratio is not going to be 120%. And by the way, these names aren't even that cheap. Like on a gap basis, which we'll get to in a second, they're not like eight times at all. Not even close. They're still like 20.

43:09Downtown Josh Brown:Yeah. The next thing and the next problem is, and that's just this year's problem. The next problem in 2027 is we get a wave of CFOs and CTOs bragging about how great their AI investments are paying off. You think that's a positive or a negative for the SaaS software space? who can say, we cut our software costs by 15 % by implementing all of this enterprise AI stuff that we've been spending money on. They almost have to do that because they have to prove that their AI spend is leading to ROI. How are they going to do it? Telling the world that they gave a middle finger to Workday. That's how they're going to do it.

43:57Michael Batnick:When ServiceNow goes from 240 to 87, I think everybody knows there's risk. Their businesses are going to be disrupted. 240 to 87.

44:07Downtown Josh Brown:So I want to go back to this S &P 500 weight because this is, to me, this is the most fascinating thing about this year. Semis are 16 % of the S &P 500 now, which by the way, as an aside, holy shit. But the role reversal with software, people don't understand this. software, I think at its peak was like 12 or 13 % of the S &P 500. A lot of that was Microsoft and recently Palantir. We understand that. But like this role reversal, it, wait, one more time chart on. Look how long these things moved in concert with each other. That's one. They're, they're sized relative to the overall index. But number two, does this look to you like something that's long in the tooth or something that's just getting started?

44:58Michael Batnick:Now, I'm not saying put the trade.

45:00Downtown Josh Brown:I'm not saying go long SMH, go short IGV, and that's the trade. But just conceptually, does this look like something that's over? I don't know. Chat, tell us what you think about that while we move on. Intel, this is the stock of the year. I know it's April. Things could change. at given present trends, if this were to continue, this is the stock. This is one of the craziest, most breakneck turnarounds I've seen in a long time. Intel is the epitome of a fallen angel tech stock. They kicked it out of the Dow. It was left for dead. The Intel versus NVIDIA market cap charts that we were doing last year were insane.

45:48Downtown Josh Brown:But they went through a few CEOs. One guy was sleeping with the girls that work for him. Another guy was an idiot, blah, blah, blah, blah, blah. They finally have like a visionary guy that everyone around the world and in Silicon Valley and in the White House respects. And they are figuring it out. They're doing all the right things. I wanna just take people quickly through this turnaround. We have this guy, Lip Boutan, who took the job in March of 2025. He's been there for a year and two weeks. the stock was$20 the foundry business remember they built their own mini TSMC on US soil nobody thought that was a good idea when they did it was hemorrhaging cash and Wall Street was asking is this like going to go out of business like literally they had they lost money last year so just so people understand the extent of how bad things were but they brought in this guy who built Cadence Design Systems which became a powerhouse and he had a ton of credibility with engineers.

46:50Downtown Josh Brown:And that was the first step. Before you get the investors back, you gotta get the industry back. He did some surgical shit. He slashed operating costs from 11 billion to four and a half billion in the first quarter he got there. He kitchen synced it, Mike. He cut head count like crazy and he made two bets. He focused the whole company on two bets. One of them was restoring the foundry. The White House loved it. Trump heard we're going to make chips here in Arizona. Do it. The next thing he did was say, we are going to be relevant in AI. We're not yet, but we will be. Started doing deals. He did an NVIDIA CPU deal, a CPU combining NVIDIA and Intel technology.

47:37Downtown Josh Brown:A year before, Gelsinger never could have done it, the former CEO. That was big. Total loser. Yeah. Then they launched Panther Lake. This is a process note. It's not worth explaining what that is, but it was important. Then they did a multi-billion dollar foundry deal with AWS, who are becoming a chip powerhouse, Amazon. Then they did a Google data center partnership deal. Then they bought back a fab that they had in Ireland from Apollo, which was shocking people. The stock is up 70 % year to date going into today. It is up 240 % from the lows, which was April 2025, right after this guy took over.

48:22Downtown Josh Brown:That is a huge comeback. The analysts can't even catch up. The average analyst price target is 30 % below where the stock is now. So we haven't even seen like Wall Street getting enthusiastic enough. Give me the five-year performance. Backstreet's back. Look at where this price action has taken us. We are at the 2021 local highs. Give me Intel versus NVIDIA. Holy shit. Smoking NVIDIA up 217 % over the last year. Outperforming NVIDIA by 141%. NVIDIA is only up 76 % only. Up 76%. And it is not often we see a former blue chip stock fall to$20 a share, lose money for a full fiscal year and then make a comeback like this especially in tech where they take out the trash um this thing is this thing is in the game what are your thoughts i mean you just laid it out you want to buy it uh no i can't buy it that's how i know it's going higher yeah because i can't buy it either and that's exactly how you know that is exactly how you know it's going up Yeah, probably double.

49:41Downtown Josh Brown:It has to double because neither one of us, we look at this chart, neither one of us has any interest in pulling the trigger here. It was red today. This is your opportunity. This is your dip.

49:53Michael Batnick:Now, we own a lot of these other sister names in our other, in the P-House. We own a lot of these names. Thank God. That's a little teaser. All right. P-House was a great way to do it. Well done. Okay. one last thing on this topic, not chip, but the memory stuff. All right. So Roundhill launched an ETF called DRAM. Great ticker. I'm surprised that it was available. This is brand new. Okay. I think it launched like two, three weeks ago. DRAM from Balthunas, 11th in flows yesterday among all ETFs with$265 million, now 680 million on the week, which is also top 20. and if we compare it to the 250 theme ETFs on market, it is already third in year-to-date flows.

50:39Michael Batnick:Unprecedented stuff for a newborn theme and the top holdings are SK Hynix, Micron, and this is concentrated. SK Hynix is 25 % of the portfolio. Micron is 24%. Samsung is 23 % and the rest is filler. Sandisk, Seagate, Western, Dig. Look at the chart. Oh, by the way, Micron, next chart. Micron fell 30 % in three weeks and I asked after reporting a blowout earnings quarter and I asked two weeks ago was this a fat pitch and I didn't buy it but it's up uh it fell 30 dude like straight yeah so micron is a great

51:17Downtown Josh Brown:example even if you get the fundamentals right if you want to write a stock that goes up 2000 100%, you need balls of steel. It's Zvang in the chat saying, when people talk about a stock moving before their fundamentals, INTC. Yeah. 100%. If you're waiting for Intel to have a full year of profitability, you could be watching a 500 % move. Another great lesson. All right, hold on. Last thing before we move on.

51:49Michael Batnick:Last thing, Daniel, throw that mic on back one more time. Like Mr. Miyagi said, Whack off, whack on.

51:55Downtown Josh Brown:Oh, they whacked it on hard.

51:57Michael Batnick:Unbelievable. They whacked it good.

51:58Downtown Josh Brown:All right, next. All right. Amazon. We have to do Amazon. This could be, it's early. It hasn't done shit yet, but this could be the stock of the year, if I'm right about what I think we're witnessing. I think this could be this year's Google. Just a total narrative shift? Total narrative shift. Last year's narrative is, oh my God, we're in the age of AI and you want me to allocate to a f***ing online grocery store with slowing cloud growth and open AI kicking their ass and blah, blah, blah, blah, blah. Throw all that out because this year the story is very different. They are in bed with Anthropic, deeply in bed, deeply in bed with Anthropic, the most important player in AI to be in bed with that's not named Gemini.

52:49Downtown Josh Brown:Anthropic is crushing it right now in every sense of the word. Give me the year-to-date performance. So I didn't have them make the candlesticks. And I, oh yeah, I did. Wait, we'll get back to that in a second. So just, it's only up 8 % year-to-date, but that's very deceptive. It's been paying its dues in this consolidation, but it takes a lot to move a stock of this size and I think it's going to break out and make a new record high finally. Give me Amazon versus the Mag 7. Best performing of the Mag 7 by far. Yep, yep. And not to mention arguably the most halo of the Mag 7 that's not Nvidia.

53:40Downtown Josh Brown:So maybe Apple's the most halo. So island reversal pattern in the chart. Give me this. I could have done this in Y charts, but I didn't. You see this. All right. I want everybody. I want everyone to just look at 2026. Do you see this island that's been created by these isolated candles on either side of the gaps? I do. You have the gaps down, and then you have this island that's between$200 to$215. right? The sellers who sold in that cluster are trapped sellers if they were short, wrong sellers if they were just straight up selling stock. The sellers are trapped between 200 and 214. They don't know what to do.

54:29Downtown Josh Brown:You got the corresponding gap higher. This is what we call, and I zoomed in on it. Give me the zoom in. This is what we call an island reversal, bullish island reversal, and the speed with which this company reclaimed its 50-day and then its 200-day instantly. So an island chart of an island reversal represents a regime shift attempt. We don't know if it'll hold, but what we do know is that there was an almost overnight dramatic change in the supply and demand picture for shares of Amazon. Buyers want to own it way more than sellers want to let them have it. That's all we're talking about. It's not witchcraft.

55:11Downtown Josh Brown:One of the big reasons behind this is mythos. What are your thoughts on the whole mythos phenomenon over the last week or so? I read Michael Semblis' post, and it is wild.

55:25Michael Batnick:Terrifying? Terrifying. It's wild. This thing is self-aware. It's out thinking of the humans. They're trying to put guardrails on it, and it's sneaking out. It's a sociopath. Sneaking out of the window.

55:38Downtown Josh Brown:All right, this is one of the most terrifying reads I've come across yet. Assemblist wrote a really great piece on this for JP Morgan. The only reason we know about Mythos in the first place is that there was a leak from Anthropics CMS, like the content management system. Like they wrote Mythos on a few things that nobody was supposed to see because they weren't ready to launch it yet. And so now they basically had to explain what it is and what it is is terrifying. It is roughly twice as likely to lie, cheat, steal, act unethically, manipulate people, brag about defeating its controls, cut corners, conspire with human actors who are deliberately misusing it and let it pursue its goals or pursue its own goals and override safety guardrails.

56:35Downtown Josh Brown:In an act of beneficence, Anthropic informed a pretty important handful of systemically important companies like JP Morgan and the Linux Foundation. and I think Microsoft is on that list, that they were extremely vulnerable to hackers because they basically turned this thing loose, this mythos thing loose on all these company systems. And they found, quote, thousands of vulnerabilities. This is the software that's powering airlines and banks and government concerns and everywhere where privacy is important. And they basically were like, this is so dangerous. We actually are going to do this thing called Project Glass Wing and we're going to crowd strike.

57:32Downtown Josh Brown:We're going to bring these companies in and show them all of these security flaws and let them fix it and hurry up before China is able to catch up to what we were just able to do. This is not a model that they're releasing three years after the last version of what they've launched. Like this is like rapid fire advancement.

57:57Michael Batnick:The last update was not years ago. This is like starting to feel like Terminator 2. Put the charts up.

58:04Downtown Josh Brown:Here's a timeline, model release date. Like Claude Opus 4.6 was in February. this mythos preview is so much further advanced and it's literally right after on the right you're seeing factuality and hallucination this is uh an a omniscience benchmark where they measure all of the anthropic models and you want to pay attention to the gold bar which is claude mythos preview on how correct it is, its level of being unsure, and how incorrect it can be. And here's a quote. I pulled this. Anthropic reports that Mythos has detected thousands of high-severity cyber vulnerabilities, some of them created by chaining together multiple obscure software weaknesses.

58:56Downtown Josh Brown:This is from Semblist. The remarkable part is that Mythos' cyber hacking skills are emergent, meaning they're the byproduct of other goals. They didn't set out to do this. It's terrifying. AI security expert, Nicholas Carlini, who joined Anthropic a year ago, stated, quote, I found more bugs in the last couple of weeks than I found in the rest of my life combined. And then there's a whole list of the shit that it was able to find, which we don't have time for. But suffice it to say, the rate of acceleration of these models and the things that these models are doing. If it doesn't have your attention yet, I don't know what you're paying attention to.

59:41Michael Batnick:Not only was the model hiding some of the nefarious activities that it was doing. It was covering its tracks. It was covering its tracks. Sick. So yeah, it's scary stuff. So we talk all the time about if OpenAI were a stock, Let's just say it's a combination of Microsoft and Oracle. Did you know that there's a public proxy for open AI? I mean for Anthropic?

1:00:06Downtown Josh Brown:Zoom.

1:00:07Michael Batnick:No. What? Zoom. Pull up your -

1:00:09Downtown Josh Brown:Zoom has a huge chunk of Anthropic.

1:00:12Michael Batnick:I'll tell you what it is. It's a company called SK Telecom. I don't own this. This is not investment advice at all. The ticker is SKM. Pull this up.

1:00:20Downtown Josh Brown:South Korean. It's like South Korean Verizon. Have you seen this chart? Show me. I can't. Give it. Oh, all right. No, I'm going to say it's - Oh, you want me to pull it up secretly? No, yeah, yeah.

1:00:31Michael Batnick:It's gone vertical. It looks exactly what you would expect a chart of Anthropoc to look like if it were publicly traded. It's the opposite of open AI, right? Look at this thing. Oh, yeah, yeah. So just, yeah, wild scary stuff. And of course, a lot more to say about that in the coming weeks. All right, let's skip everything else. Let's just go to make the case.

1:00:49Downtown Josh Brown:Yeah, so I do want to do my last topic, but we'll do it on Thursday with our guest on The Compound of Friends. Oh, I love it, I love it. I love it. Yeah. All right. Let's go to make the case. I'm going to pitch Netflix tonight. I'm sure I've done this before. I doubled my position in the stock this last, I want to say last week. Maybe I did it on Monday. Earnings are tomorrow. So let me give you a rundown of the expectations. Revenue of$12.2 billion, which would be up 15.5 % year over year. EBIT of$4.1 billion, that's cash flow, up 17.9 % year over year. Not bad. earnings per share of 77 cents, which would be up 16 % year over year.

1:01:31Downtown Josh Brown:They're expecting to, ad revenue grew last year two and a half times versus 2024 to over 1.5 billion. That is not a gigantic ad revenue number, which tells me there's a lot of room for growth there and for it to really become meaningful to the Netflix story. I think this is the year that happens for the full year of 2026. Management is saying it'll double to$3 billion. Netflix has guided to full year 2026 revenue of$50.7 to$51.7 billion, which would be 14 % year-over-year growth, operating margin target of 31.5%, and they think they'll generate$11 billion of free cash flow. That's not really the story on the stock's comeback from 70 to 100.

1:02:20Downtown Josh Brown:That story is about the Warner Brothers deal going away, which would have been a debt bomb and would have taken three years to integrate and would have made every earnings call for the next three years super messy. The fact that that's off the table, I feel like this stock should be back in the 120s. I doubled my position. I do think it's breaking out technically. Give me that chart. You see this stock now challenging its 200-day moving average, which is downwardly sloping, so less important. You also see the level it was trading at before they announced their surprise deal to buy Warner Brothers.

1:02:56Downtown Josh Brown:And if anything, this business has gotten better in the interim. And I think it's super defensive in an AI world. Nobody is talking about Sora or user-generated content being a real competitor. The big threat to Netflix is, has been, and will always be YouTube. It's not a threat. They're competitors. Well, the competitive threat to Netflix, not the existential threat, but like the company that you have to watch out for is YouTube buying up a lot of programming that sucks eyeballs away from Netflix. But last thing, Netflix raised prices last week. Yeah. You know, blinked? Nobody.

1:03:37Michael Batnick:I thought I tried back on. So I did buy the bottom of the stock, not to brag, and I sold it on the rip and I re-bought it. I re-bought it, Josh, when it held that gap. so I bought it two weeks ago and I think it's going back to all time highs

1:03:49Downtown Josh Brown:oh I like that you bought the retest at 95 I bought the retest I really like that you did that I just look I have no edge on what they're going to report tomorrow I just read you the consensus estimates I don't know anything else I do think the combination of all the live programming they've added all the sports all the one off like can't miss events combined with their international presence and how sticky the service is. It's almost like a utility. People don't cancel it.

1:04:20Michael Batnick:The stock will be back at all-time highs later in this year or next year, which is why you know it's going to fall 14 % tomorrow and we're going to play the Curb Your Enthusiasm music.

1:04:28Downtown Josh Brown:We are going to look so dumb if this is 95 tomorrow.

1:04:32Michael Batnick:Will not be the first time. I'm willing to risk it. Won't be the last time. All right, real quick. Chardam, this is a huge story in the market. This is going to not make or break. That's an exaggeration, but it's certainly meaningful. It moves markets. We're looking at a ratio chart.

1:04:49Downtown Josh Brown:It's one thing versus another thing.

1:04:51Michael Batnick:It's one thing versus another. Would you buy this? No.

1:04:55Downtown Josh Brown:No. It's still in a downtrend. I want to see two consecutive, three consecutive weeks of higher closes when you have a downtrend this pronounced.

1:05:03Michael Batnick:All right. So it is -

1:05:05Downtown Josh Brown:It's a dollar versus something.

1:05:07Michael Batnick:It is a very broad group in one market cap realm

1:05:15Michael Batnick:versus the other. Tech versus the S &P 500? You know what? You basically nailed it. I gave you the wrong clue, my bad, but you nailed it anyway. It's the Qs versus the 493, I believe is what I grabbed. Yeah, there it is.

1:05:30Downtown Josh Brown:I would not. This is a bet against Netflix, which just broke out, Amazon, which is about to make a new high, and Apple getting its mojo back. I wouldn't want to make that bet.

1:05:42Michael Batnick:i really wouldn't wait so this is the so this is the max 7 versus the 493 you don't think the max 7 is is going back oh no i wait i don't know what's priced and what it's it's the max 7 is on top and the 493 is in the bottom so if you think there's a downtrend no no because yeah you know

1:05:58Downtown Josh Brown:what though the problem is like the problem is half the max 7 is problematic i don't know what business tesla is in in the second half of this year i know the cars don't matter but i also know the robots and the taxis are two years away. So you, so you, but that's in the, it's in the index. You can't forget about it. Well, it's, it's one of seven.

1:06:17Michael Batnick:But what, um, does Microsoft bounce this year? I don't know. And I think, I think the tech stories is back. I think it's all in video, which, which I also do. What do I do with meta?

1:06:26Downtown Josh Brown:What do I do with meta? Hold. Okay. Hold on one sec from the chat. Wake the barbarian four or five, seven, seven. Netflix is not a utility. JB is full of it. Okay. Okay, tell me what, you tell me what percentage of Netflix users you think are going to cancel this year. Yeah, zero.

1:06:46Michael Batnick:It is a utility. Zero. It absolutely is utility-like.

1:06:48Downtown Josh Brown:Okay.

1:06:49Michael Batnick:Now, its stock is not a utility, obviously. It's very, you know, it's a high beta stock or it can be a high beta stock. It's a utility. Net positive subscriber additions every year in every country around the world. The business is a utility. Okay. I mean, no offense. Anyway, the final point. If NVIDIA is really going and it sure looks like it's going, it's the highest. This thing has gone sideways since July of 2025. If NVIDIA makes new all-time highs and it sure looks like it's going that way, the rest of tech is going to come with it.

1:07:17Downtown Josh Brown:Okay. Listen, I think I'm not as sure in what I said just looking at the chart now that you told me what it is. So you might have won me over. All right, guys, that's it from us. Tomorrow is Wednesday, which means an all-new edition of Animal Spirits with Ben Carlson and Michael Batnick. we'll do Ask the Compound later that day live on YouTube same format as this it's Ben and Duncan they're asking your questions and you can get one in by sending an email to askthecompoundshow at gmail.com if you want compound merch visit idontshop.com all new stuff in there for summer 2026 and we'll be back at the end of the week with an all new edition of the Compound and Friends thank you so much God bless good night

1:08:04Michael Batnick:Thank you. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.