Betting on OpenAI, SpaceX Dust Settles, Josh’s New Trade

14:30Michael Batnick:This is the part of the story that pisses people off. And I understand the sentiment. I'm not exactly thrilled about it either. There are, I don't have the schedule in front of me, but there are provisions in the waterfall, the lockup, that if there are targets met, if the stock is up 20%, the stock is up 30%, more shares are able to become unlocked early. And when, or if that happens, then I do suspect that this thing will trade way down, way fast upon index inclusion. Now, thank God the index providers or the index manufacturers are saying, we're not taking all of this. We're not doing it. We're going to put a cap.

15:10Michael Batnick:We're going to put a maximum of three times the float, whatever the rules are. So it's not going to absolutely nuke the index. It's not going in at a$2.6 trillion valuation, thank God. But nevertheless, it does kind of suck that they probably will be using retail or index funds as exit liquidity. Again, it might be 30 basis points, but whatever it is, it still doesn't sit right with a lot of people.

15:32Downtown Josh Brown:Right. In their minds, they're like doing retail a favor. Exit liquidity. They're begging us for the stock. That's the attitude. This tweet is wild. What's going on here?

15:43Michael Batnick:Here's another thing that people don't particularly care for. There's just no rules anymore. Julian Klimochko tweeted. So Elon tweeted, I think SpaceX might be able to reach approximately$1 trillion in revenue in 2030. And I would be surprised if revenue is not greater than$1 trillion in 2030.

15:59Downtown Josh Brown:Are you allowed to do that?

16:00Michael Batnick:But traditionally, this sort of thing is, I think, frowned upon. So Julian said this is the most ambitious management guidance in market history, and there's been no AK filed. By the way, somebody said this would be a 90 % CAGR between now and then. Maybe they could do it. I don't know. And I hope they do do it. It would be wonderful. It would be wonderful.

16:17Downtown Josh Brown:But put that back up. This tweet would be handcuffs. Handcuffs. Not a fine. Handcuffs in another era. You could not do a public offering and then two days later come out and put your 2030 revenue guide on Twitter in the midst of the hottest offering of the year without some sort of a filing. But Elon Musk told the SEC literally to S's D on Twitter six years ago. I don't think anything happened with that. Like I'm sure a lot of lawyers got paid, but there were no consequences to him whatsoever. Remember if he was secured when he was going to take Tesla private? And frankly, from the White House's agenda and the SEC sits beneath the president wants more of this.

17:12Downtown Josh Brown:The president of the United States sees this as America winning. And it is. So I think he could basically say whatever he wants. And I don't think any rules apply to him at all. It's the world's richest man. Who's going to do anything about it?

17:26Michael Batnick:So a good segue into something that you wrote over the weekend about what makes our country special. You said, I went into the weekend thinking about -

17:35Downtown Josh Brown:Can you read this without shedding a tear? It's so beautiful what I wrote.

17:38Michael Batnick:I cried the first time. I went into the weekend thinking about how incredible our capital markets are. Only in America can a company start itself up in a garage and within a few decades become one of the most valuable businesses on earth. It takes intrepid entrepreneurship, sure. But what's also required is you, the American investor. The Germans and the Japanese and the British and the Brazilians have their founders and their risk takers. But what those markets are missing is the tens of millions of ordinary people who are willing to back these dreams and gambles with their own investment capital.

18:07Michael Batnick:Nobody does this like we do. We are the descendants of dreamers and gamblers, many of whom left behind everything. Many of whom left everything behind and took the ultimate gamble with their very lives on the line in order to get here. This started in the 1600s, and it continues until this day. Without the American investor, there is no SpaceX. Without the city of New York, there's no transference of these risks from venture capital to the public stock markets. It's so true.

18:32Downtown Josh Brown:Yeah. So look, there are unbelievable entrepreneurs around the world. like like look at the guy from spotify daniel ek what a genius but that thing trades in new york like let's not you know what i mean like let's not forget and um you know it's it's it's not it's not anything specific about the nasdaq and the new york stock exchange although those are the two greatest exchanges in the world those exchanges could exist elsewhere if the investors were there. But the investors are here. They're in America. The type of psychopaths like us who are willing to put money into things where maybe the rocket won't explode the 10th time after it just exploded nine times in a row.

19:19Downtown Josh Brown:That doesn't exist. No one's doing that. Look at what people are doing with their money in these other places. They're holding gold jewelry under the bed. They're holding bonds at negative interest rates for 10 years in a row. We are we, all of us, and I'm saying this on the 250th anniversary of the United States and on the heels of a championship in the city of New York, we are a rare breed on this planet. And it's not that there aren't risk takers elsewhere. There aren't 100 million risk takers elsewhere. We are the only game in town for something like a SpaceX to be able to come along. So I appreciate that that struck you.

20:02Downtown Josh Brown:And I think it's super important for people to understand.

20:05Michael Batnick:We are built different. So getting to the conversation that we opened the show with about there was everything up until 2026. And now there's what happens on a go-forward basis. So Bloomberg wrote about this. They said, for the better part of two decades, a defining feature of the U.S. stock market has been scarcity. Year after year, shares disappeared from public hands with buybacks by S &P companies alone, a race in nearly$12 trillion worth. $12 trillion in corporate buybacks. And now investors are about to discover what happens when the supply suddenly comes rushing back. So check this chart out.

20:37Michael Batnick:I mean, it's...

20:40Downtown Josh Brown:I'm sorry. Is that... Wait, wait, wait, wait, wait. Wait, wait, wait. What are the numbers here? Is that$1.2 trillion in equity issuance?

20:49Michael Batnick:Yeah.

20:49Downtown Josh Brown:But is that inclusive of SpaceX? These are estimates.

20:52Michael Batnick:These are estimates. Holy shit. Like the estimated free float change. Yeah. So this is what they expect to actually come to market. And Josh, you've been talking about this for a long time. Like it's all about when investors are satiated and when we're over-served. And this is it. I mean, this is like the thing. And if we can get through this, then I don't know what the bears have left. But we're not through it yet. And I'm definitely not ready to spike the football because there's a lot in front of us.

21:22Downtown Josh Brown:Still to come, OpenAI and Anthropic, which we're going to get into in a second.

21:29Michael Batnick:And they're all, I mean, there's a lot more.

21:31Downtown Josh Brown:Yeah, well, that's probably a 27 vintage. We don't know the extent to which we'll see more of what we saw from Oracle and Alphabet. We don't know. I mean, what if Apple decides, yeah, we've spent 15 years buying back stock. We made the decision. we actually want to sell a big chunk. What like meta, very likely, you know, it's a lot of companies are reversing the flow. They were sucking up every share of stock out there that they could. And now it's a different world. And I agree with what you said. I don't think this has dawned on everyone yet. No. So probably not going to be bullish for multiples for long.

22:14Michael Batnick:This would not be bullish if, forget about Apple, they're not going to do it. But it's happening. Like Oracle is doing 20 and 20. It's happening. Google.

22:24Downtown Josh Brown:What is this rainbow chart?

22:26Michael Batnick:All right. So I want to just, I would just want to, before we get to the next topic. By the way, today, we don't really have much about the actual stock market in the show tonight. Did you see the candle in Micron? Micron opened at a new all-time high and closed down 6%.

22:45Downtown Josh Brown:Bearish engulfing? Bearish engulfing? All the way. White engulfing? All the way engulfed. We'll do it on compounded friends. So, all right.

22:53Michael Batnick:I just wanted to make the point that we're talking a lot about it's AI and everything else. And there's few stocks working. Not really true. In fact, not true. Not true at all. Mike Sicardi tweeted this chart. Throw those up, please. Look at the green line. We've got 64 % of the S &P 500 above their 200 moving average. coverage that is the highest since, what was that, March of last year?

23:21Downtown Josh Brown:So long as those companies are either involved in AI or luxury travel, we'll be okay. I don't really think there's much else.

23:30Michael Batnick:It's not just seven stocks. Not even close. All right. So Josh, how do you play OpenAI?

23:35Downtown Josh Brown:Well, so this is where we're going now. So if you watch this SpaceX thing with your jaw agape going into day three of gains, probably goes up every day for the rest of our lives. I have no idea. And you're wondering what's going to be the next one. It's probably going to be open AI. They seem to be very aggressively elbowing to the front of the queue. It seems like there is a concerted effort to get news out there, get filings out there, and get out ahead of Anthropic. I think they don't want to be the third one of the three public. And I think maybe there's even some cachet getting to get out ahead.

24:18Downtown Josh Brown:And so we are hearing increasing rumblings that this thing is going to come soon. Originally, they were saying September, but they could shock everyone. Nobody knows at this point. It just feels like everything's in flux. My friend Andres Shepard at Cantor Fitzgerald put out a note citing the OpenAI IPO filing. They filed the confidential S1 last week as a material catalyst for SoftBank, which is a huge shareholder. And so I wanted to share this idea with our audience. If you don't think you're getting allocated OpenAI and you miss SpaceX, this might be a stock, a ticker that you want to have on your screen.

25:00Downtown Josh Brown:And you definitely don't have it already. because it has five letters in its ticker. It is an ADR. SFTBY, if you want to punch it up, is SoftBank. And SoftBank is run by Masayoshi Son, who is a riverboat gambler, has taken some of the biggest swings of all time that anyone has ever seen in the stock market. Sometimes they've worked out like NVIDIA and sometimes they haven't like we work. But this is what he does. He takes huge concentrated positions borrows a lot of money to do it. And when he believes in something, he goes all in. And he has gone all in on AI, specifically OpenAI. Here's Andres.

25:45Downtown Josh Brown:OpenAI recently announced that it has filed an S1 ahead of a public listing. While the company did not provide exact timing, it stated it may now potentially accelerate its timing. We view this as the most material catalyst for SoftBank in our coverage. OpenAI comprises 25 % of SoftBank's equity value since OpenAI and Arm, which is also now in AI play, comprises 65 % combined with OpenAI of SoftBank's equity value as of March 31st. OpenAI closed its latest funding round with$122 billion in committed capital and an$852 billion post-money valuation. This latest round includes a previously announced $30 billion commitment from SoftBank to be deployed in three$10 billion tranches.

26:40Downtown Josh Brown:SoftBank has committed$65 billion so far to OpenAI. We continue to believe SoftBank benefits from direct access to rapid AI trend via its open AI stake, plus market leadership position in semiconductor IP via the stake in ARM. They own 90 % of ARM holdings, and all those royalties flow through to SoftBank for all of the way that ARM is involved in data center build-out. So he's bullish on SoftBank, and I wanted to show you guys the chart. put this up

27:20Michael Batnick:so insanely volatile oh my god

27:23Downtown Josh Brown:as you can I said riverboat gambler and this is I'm just showing you the last three years you look at a 10 year history of this it is a leverage bet now on AI not quite at the high but close and looking like it really wants to party when this open AI IPO comes along so the bulk case here is very simple It is a net asset value of 40 trillion yen or 260 billion US dollars of gains for the company's valuation over the last quarter, most of which is because of Arm and OpenAI's market valuation or in the case of OpenAI, private market. The thing that's interesting here is that this stock used to trade at a discount.

28:17Downtown Josh Brown:Like think of like a closed end fund. Investors would not actually pay what the net asset value of the holdings were because it was so volatile and people didn't fully believe in the bet that he was making. But that discount is closing. And you might think, oh, that's not bullish. Now I have to buy a smaller discount. Actually, that is when you want to buy. when the re-rate is in full effect. So over the last five years, the discount of SoftBank stock to the NAV of its holdings has been 50, 5-0%. In early 2025, it got down to 60 % discount. But as Morgan Stanley talks about this, as the AI assets have matured, The discount has fallen from 50 % to 35%, and now it's about 17%.

29:14Downtown Josh Brown:This could go to a premium. The stock could trade at a premium to its holdings if people are willing to make a big enough bet on the opening pop for OpenAI. So that's, to me, that's a really interesting story that not a lot of people are aware of. And it's an absolute gamble. people have said oh it's like the berkshire hathaway of tech no it's not it's a ton of debt it's not a ton of cash and he's all his chips are all in the middle but if you felt like you missed out on the last big ipo and you want exposure to the next one this is a pretty obvious and it trades it trades millions of dollars like it's not a it's not a problem to allocate to it in the u.s so I'm not saying go out and buy it.

30:03Downtown Josh Brown:I'm saying put this thing on your screen, start watching it. This is your proxy for what they're going to do with the OpenAI IPO. What are your thoughts?

30:11Michael Batnick:Yeah, that's interesting. I agree with most of what you said. I think this is going to trade on, I think this is going to piggyback on what SpaceX does because I would guess that OpenAI, as much as Sam Altman and Elon do not like each other. If this works and we're three days in, it's early, but it looks like so far so good. If it holds. If it holds. Then they are likely to follow a similar playbook because the bankers, they're all motivated to do the same thing, keep the price of the stock up.

30:44Downtown Josh Brown:What does the price of SoftBank do when we hear that the IPO for OpenAI is not going to be a trillion? It's going to be$1.5 trillion. This thing is going to f***ing launch.

30:56Michael Batnick:There's probably a lot of leverage in there. So yeah, no, I agree. I think to the extent that you do want to gamble on the OpenAI IPO, this is probably a smart way to gamble. Gamble.

31:08Downtown Josh Brown:Yeah. I'm crazy enough to maybe do this trade. I'm not sure yet. Maybe I would wait for some negative news flow on AI and try to catch this thing, not at the low, but lower, because it's just had a pretty substantial move from the low teens into the low 20s. But certainly worth keeping an eye on. All right, we can move on.

31:32Michael Batnick:What did you think about our conversation with Iverson yesterday?

31:35Downtown Josh Brown:Yeah, guys, we spoke to the chief investment officer at PIMCO, which is one of the largest asset managers in the world. We put that out yesterday. It all blends together. Anyway, Dan Iverson at PIMCO. And I wanted to bring this back because he said something that we didn't spend any time on. I listened to the show again. And I said, huh, that's interesting. So here he basically I don't have the exact words. He said the disruption is here, which you remember, like the time is now. It's happening now. But then he said, we're going to have a good economy, but with a lot of credit losses and a lot of issues with private equity investments into disruptive companies.

32:25Downtown Josh Brown:And at the same time that we're having these losses, that's actually going to be boosting economic growth. because those losses represent increased efficiencies and opportunities for profitability for companies. So he's talking about like, it's economic expansion, but with credit losses and with people underwater and a lot of private equity investment and probably a lot of job loss. And he said, it's going to be a very weird economic situation, which I think was his exact words. People can go back and watch that episode. It's up now. But what do you think about that concept? Because we kind of just like glossed over that.

33:07Downtown Josh Brown:But I don't think we've really spent any time on it.

33:13Michael Batnick:I think that is a likely outcome, unfortunately.

33:18Downtown Josh Brown:You think he's been right about that. We've never seen anything like it, though.

33:22Michael Batnick:Yeah. So I think the case that he was making that we would agree with is that if you are zooming out and you're purely looking at this, the economic lens, and forget about actual human beings for a second. If you are purely a robot and you're looking at the economic, through the economic lens, this is going to be a good thing. The economic pie will increase. There will be productivity gains. There will be, the pie will grow. Okay, but when you zoom into how the pie is going to be redistributed and where gains are going to be felt and losses are going to be felt, it's going to be really f***ed up.

33:54Michael Batnick:And I hope it's just like not as bad as I think a lot of people think it's going to be. And I change my mind every day on how bad I think it's going to be. But there's going to be obviously political ramifications. No, no, no, no.

34:03Downtown Josh Brown:But wait a minute. But this is the kernel of that that I want to get to. Which piece? Real quick. Let me just answer in the chat. New York Dom, why not buy Microsoft on OpenAI IPO as they are the largest single investor at 27 %?

34:18Michael Batnick:I have that later in the show.

34:21Downtown Josh Brown:OK. Microsoft and OpenAI are undergoing a slow motion divorce. And that relationship seems to not be great. Microsoft now is branching out, working with a lot of other companies in AI. Stop.

34:36Michael Batnick:I have Microsoft later in the show. What are we talking about? Get back to the Dan Iverson thing.

34:39Downtown Josh Brown:So the kernel that I want to do with this is like, we're going to have to throw a lot of things out that we used to think were meaningful to understanding the economy. Oh, yes, yes, yes, yes. So like in other words, let's say, so who are we talking to last week? Brian Levitt. I asked him like, what are the things you actually do care about? Because he's like, I don't care about that. I don't care. Okay, what do you care about? One of his things was about credit and loss. Like I forget some of the credit spreads, let's say. You might have to.

35:13Michael Batnick:You could see defaults tick up without spreads ticking up, which would be super weird.

35:18Downtown Josh Brown:But that's what I'm saying, because what those defaults ticking up represent is success for AI and all the companies employing it. So is that still a negative? Is it still a negative signal if we get a wave of disrupted company issues in the debt markets? Normally, we would say, oh, that's a bad signal for the economy. But in this case, it might actually be evidence that AI is working and taking out the trash. Well, let me give you one piece of evidence for why you're right.

35:54Michael Batnick:Doesn't that twist your brain around a little bit? Let me give you one piece of evidence for why you're right. And it's just one, but whatever. Two Fridays ago, when we got the really strong job support, I think a lot of the sell-off was, oh, shit, is AI not working? Are we overspending? We got a booming job support and the opposite happened. So I think in your scenario, it's plausible that the stock market could cheer this on, as horrible as that sounds.

36:19Downtown Josh Brown:All right. So I guess what I'm trying to get at, and then we can move on, is the layoff piece too. Ordinarily, we would look at rising unemployment claims, jobless claims, and say this could be problematic. What if we have a scenario where the unemployment claims are rising, but that is contributing in and of itself to S &P 500 earnings growth because every laid off person is a higher profit at a public company. So it is a f***ed up like, let me read this to you.

36:55Michael Batnick:That is a dangerous world that I, you know.

36:57Downtown Josh Brown:That would be a dystopian bull market, but what quite possibly a bull market, nonetheless, TechCrunch, the AI layoff wave is becoming a powder keg. Tech layoffs hit their highest single month in two years. 40 ,000 cuts. This is the tech industry laying off its own workers. Other voices have begun to weigh in, including Mark Andreessen, who recently called AI the silver bullet excuse for layoffs. Really, this is about mismanagement. Quote, essentially, every large company is overstaffed. It's at least overstaffed by 25%. I think most large companies are overstaffed by 50%. I think a lot of them are overstaffed by 75%.

37:41Downtown Josh Brown:And now they all have the silver bullet excuse. Ah, it's AI. I sort of think just 150 ,000 layoffs in tech year to date. I sort of think the truth is somewhere in the middle. I don't think most large companies are overstaffed by 75%. If AI is super effective, it might prove to be the case that they are in two years. I have a hard time believing these people, of these executives who fight tooth and nail for every penny in earnings per share are overstaffed by 75%. What do you think?

38:16Michael Batnick:It's hard to make general statements. I think that Jack Dorsey's company, Block or Square, whatever the hell it's called right now, I think they were extremely, I think they overhired and they're not alone. There's a lot of examples of companies that just got lazy and fat and bloated.

38:31Downtown Josh Brown:Let me end this. What makes this, this is back to the tech crunch, what makes this combustible is that at the very moment, tens of thousands of workers are being shown the door. A small cohort of AI insiders is becoming wealthy on a scale that's hard to comprehend. And then they do a whole thing about like, we're creating like overnight billionaires with AI IPOs and stuff. I don't know if that's the thing that makes it combustible, but it is a sort of perverse coda on a piece about that.

39:02Michael Batnick:A lot of the Elon becoming a trillionaire type stuff. I mean, it's not going away. It's just going to get worse, the rhetoric around it. So I'm worried. I don't like it. I don't think anybody wants it.

39:11Downtown Josh Brown:If we get to 6 % or 7 % unemployment and you're like an open AI day one employee who's just become an overnight billionaire, like you're probably rolling with personal security at that point. Yeah.

39:26Michael Batnick:So to be clear, I don't have a problem with Elon being a trillionaire. I mean, I understand why. Believe me, I understand why people do have a problem with it. But the thing that worries me is all of the rhetoric around it. Like that –

39:41Downtown Josh Brown:But answer that. People are crazy. Is personal security the new bull market, like the new obvious bull market? Because if you're really going to have this thing where a million people have jobs at AI companies and are worth$50 million each, and then all of a sudden gutting white-collar unemployment at the same time. And who knows what happens with autonomous for blue-collar employment. It kind of seems like it's either unsustainable or you're going to want to invest in bodyguard companies. I know that's a dark place to go, but that's sort of what it sounds like it's going to turn out to be.

40:27Michael Batnick:All right, let's talk about software. I want to move off this. Jammin' Ball tweeted, Q1 earnings season is just about done, and this quarter has been great for software. Looking at the year-over-year growth in quarterly net new AOR added, this was the best quarter by a long shot in the last five years. Now, there's like some base effects going on here. They're coming off a lower base, but whatever. This is the fact. He says this chart uses a basket of 50 public companies who report AOR or subscription rev. while the aggregate net new ARR was high, 17 % of the companies saw ARR shrink. This is the second highest percentage of companies who shrunk quarter over quarter in the last five years.

41:06Michael Batnick:So the aggregate was great, but very high dispersion. So there's a great complementary chart from A16Z showing big software moves, a three-part story. So this is hard to see, but what they're showing is on top, the companies that never sold off and are trading near their a year at data high. All cybersecurity. We're talking about Datadog, Fortinet, CrowdStrike, Palo Alto, something like that. And now, let's be clear, they did sell off. These were in bear markets. These fell 20%, but nothing like the ones that partially recovered. We're talking about stocks like Atlasian, Unity, Service Titan, Workday, ServiceNow, Oracle.

41:42Michael Batnick:These are the stocks that fell, whatever, a ton, and then bounced to varying degrees. And then the other one is the stocks that went down and stayed down. And these are the ones that are like in the absolute eye of the storm of, sorry, dude, Salesforce is going to replace you. And we're talking about Intuit, right? Like TurboTax. We're talking about DocuSign. We're talking about Adobe. And, chart off, please. We have an ops offsite. We have, I don't know, 25 people in Chicago this week. And Chris sent me a PDF of the agenda for what's going to happen. And he said, remember graphic designers. That was like an actual quote that Chris sent to me.

42:22Michael Batnick:So Adobe reported this week. And Adobe's market cap peaked at$327 billion a couple of years ago. It's now $84 billion. $84 billion. Now, Adobe is the graphic designing company. And what's interesting is they reported earnings this week. What's not really awesome is they're looking to transition The CEO, they're looking for a successor. And the CFO just left. So that's not great. But what's so wild is they said, we achieved$6.62 billion in revenue in Q2, representing 11 % year-over-year growth. Earnings are at an all-time high. Nobody cares. So nobody cares. 11 % year-over-year growth. The stock is down 47 % year-over-year.

43:06Michael Batnick:Year-over-year. Earnings per share was up 18 % year-over-year. And again, the stock is down 47 % year-over-year. They spoke about the AI innovation. They did three X year over year increase in AOR to greater than$500 million. So I mean, this is like so fascinating. I just want to fast forward five years. Is this the greatest buy of all time or is this just an obvious value trap? And the market is clearly saying the latter. This is a value trap. It doesn't matter what the earnings are today, next quarter, next quarter, next quarter, because in 10 years, in five years, in 10 years, it's not going to be today.

43:41Michael Batnick:And, you know, we'll see.

43:45Downtown Josh Brown:Situation Zero in the chat points out Canva is eating Adobe. I know that there are some market share gains and Canva came public. So now they have a stock price. I can promise you what's going on is not benefiting Canva at all. They're taking market share gains in an industry where people think it's going to disappear. Look at Figma. So Figma is eating Adobe's lunch? Oh, that's the one I met.

44:08Michael Batnick:That's the one that came public. Figma stock is terrible. Terrible.

44:17Downtown Josh Brown:Go back to that first graphic with all the companies, guys. So they really think, like just based on this, and it's not science, but they really think Intuit is the most f***ed company in the software industry. Zscaler ended up in the bottom. And that is – so what's interesting about Zscaler is that it's a cybersecurity name and they don't think that one is scaled enough to be part of like the – I guess the big four. They don't think that one is going to have enough about it that's unique that it will be able to hold customers. That might just be a competitive story. But it has never been tougher to be in a software stock investor.

45:02Michael Batnick:I don't know anything really about the fundamentals of Intuit. I don't know how much debt they have or anything like that. Let's see. Well, it's TurboTax. You don't have to know anything. Hold on. Hold on. I know what it is. It's a$77 billion market cap. All right. I don't know how much debt is on here. Debt to equity ratio looks pretty reasonable. So this is TurboTax. It's MailChimp, QuickBooks, and Credit Karma. And all of these, each of these are like AI, AI, AI.

45:31Downtown Josh Brown:Well, a do-it-yourself tax filer who would be paying a subscription to TurboTax just says to Claude, I always use TurboTax. Can you just tell me what I own taxes and help me with the filing? Oh, it's done in one second? OK. Goodbye. TurboTax subscription. Like it's not a complex situation. It's as cut and dry as you could possibly imagine.

45:56Michael Batnick:I do wonder if Intuit is the type of company that gets taken private. Problem is, is it like at half the valuation from here? Is it at$20 billion? It's still$77 billion.

46:07Downtown Josh Brown:Yeah. And that is one of the all-time, prior to this era, one of the all-time big winners in the software space. It was a home run on top of a home run for such a long period of time. And just like that, natural language questions of an LLM. and you can get the same result as you would get logging into their marquee flagship product. And they won't be the only one.

46:35Michael Batnick:Intuit was – Intuit peaked at$820 in – dude, 12 months ago. It was$820 a year ago. It's$280.

46:47Downtown Josh Brown:Sick. All right. $280 from$820. Look, either it's the saddest pitch in history or the market is right. And this is going to be a very difficult 10-year stretch for that stock. Last thing.

47:00Michael Batnick:All right. The biggest software company in the world is Microsoft. And somebody mentioned earlier in the chat, well, if you want to play OpenAI, buy Microsoft, the partnership, blah, blah, blah. The problem is that software is just not - Yeah, they're eating themselves. Right now. So look at this chart. Look at this chart. The ratio of Microsoft to the S &P and Microsoft divided by the Qs, the Qs especially, it is at multi, multi, multi-year lows. I don't know. So the Microsoft has underperformed the Qs by a lot since at least 2019. I don't know how long this chart goes back where it's a break even.

47:38Michael Batnick:But, I mean, again, Microsoft is the biggest software stock in the world.

47:44Downtown Josh Brown:But they have the cloud business and the cloud business is booming. So it's not 100 % software. In the same way, like Oracle is a software business that's building a huge network of AI data centers. So it's not that cut and dry in the way that Adobe is.

48:05Michael Batnick:The market, the market, correct, correct. But the market is treating it as such. The market is saying you're the biggest software name in the world. Yes, there's other stuff, but you're in trouble.

48:13Downtown Josh Brown:Okay. OK, so like why not buy Microsoft to play OpenAI? Because OpenAI and their products and Anthropics 2 are coming for a lot of what Microsoft does. So at best, it's a push. And I'm not saying this is how it will end up. I'm saying in the eyes of the market, that is how they're looking at it. Eric in the chat, co-pilot is a huge failure. That's a whole other narrative overhanging this thing. A lot of corporations are forcing this co-pilot down their employees' throats and their employees are going around the back and asking people, hey, I'd really rather use Claude. Is that OK? I use it at home.

48:52Downtown Josh Brown:I like it better. So there's a lot of that going on as well. And it's – look, it's a shitty time to be in the software space. I own two software stocks. Neither of them are acting well. I don't expect them to anytime soon. These companies are guilty until proven innocent. If you're a value investor, congratulations, you're in heaven. Like if you want to make the bet, you have never had a better opportunity to make the bet that we're all overestimating the impact. You can, every day, the stock is cheaper than the day before. Knock yourself out. And I hope it works. Last thing we're gonna do tonight is tech debt.

49:35Downtown Josh Brown:NVIDIA is planning to sell$25 billion of investment-grade debt on Monday. Oh, or it was yesterday. That's the first bond sale for NVIDIA since 2021 during the pandemic. They actually upsized it from$20 billion after – this is the FT – after receiving more than$85 billion in orders by early afternoon in New York. thanks to the robust demand, the 10-year portion of the bond was expected to yield 0.5 percentage points, half a percent above US Treasuries, down from 0.75 earlier in the discussions. They say they'll use net proceeds for general corporate purposes. They also are making a ton of AI investments themselves.

50:23Downtown Josh Brown:They're using the balance sheet. They're using their cash to buy stakes in a lot of customers, which people have criticized. But that's another thing NVIDIA is doing. NVIDIA's debt outstanding will go from$8.5 billion to$30 billion when this is done. They have a AA credit rating. By the way, hold on. That's like barely any debt at all for a company that size. Tiny. I mean, come on. $96 billion in cash flow. It's no big deal. No big deal. Goldman, JP Morgan, Morgan Stanley running it Our friend, friend of the show Matt Phillips wrote about this at Axios today, put up this chart This is the net debt position of a handful of AI companies, what's included in here is Amazon, Alphabet, NVIDIA, Oracle, Meta, and Microsoft So we're at$158 billion and just to put that into context in 2020 that number was minus$150 billion.

51:24Downtown Josh Brown:So on a net basis, meaning they had that much more cash than they had in debt. Debt was almost non-existent amongst the tech giants. This is the thing that we originally loved about these companies. They were not capital intensive with the exception of Amazon. And there was no need for debt because they were producing enormous cash flows. And to your point earlier in the show, that has completely gone into reverse. $770 billion in CapEx in 2026 100 % of cash flow from operations for those companies and not only are they selling more stock in some cases, now they're selling a lot of bonds and that is not a problem yet because they all have very high credit ratings the last thing on this, Tony Pasquarello from Goldman Sachs quote, for several years US mega cap tech companies have generated, returned and reinvested capital to an extent that no other cohort could touch.

52:25Downtown Josh Brown:I believe that will be the case for a while longer. But what has clearly changed is the capital requirement of AI so immense that free cash flow alone can't do all the heavy lifting. He says, put this chart up.

52:45Downtown Josh Brown:in the in the aggregate it's not yet time to worry about the inability of these companies to access capital our work suggests the core hyperscalers can add around 700 billion of more financing before their net debt load is greater than one times 2026 EBITDA so i'm of course, that's a very Goldman-friendly message from Tony at Goldman. They do want to be involved in selling more debt for these companies. Would you agree? Sure. It looks that way.

53:16Michael Batnick:Oh, but I agree that Goldman wants it. Yeah. I think they'd be interested in that. By the way, look at Goldman's stock. Yeah. Looks pretty damn good.

53:22Downtown Josh Brown:Last chart. Not all hyperscaler balance sheets are created equal, guys. So if you want to screenshot this and look at it, They're showing those names, plus they added CoreWeave and Nebius. So those are considered neoclouds, right? Like the newer data center companies. And CoreWeave is a B +, according to S &P. Oracle is now a triple B, which made a lot of news. Google is the only AA+. Meta is still a AA-, maybe not forever. Microsoft is still AAA, remarkable. Amazon AA.

54:00Michael Batnick:But look at Oracle. The market is not cool with this. They're saying we don't like it.

54:06Downtown Josh Brown:Net debt to last 12 months EBITDA at Oracle is 4X.

54:11Michael Batnick:They're going to spend 132 % of their cash flow on whatever that was, OPEX next year. It's a lot.

54:20Downtown Josh Brown:Market is saying it's too much. Is the market saying it's too much if Google and Amazon are still going up? I said for Oracle. For Oracle, it's too much. I don't know. I really don't know what it would take for Oracle to get back to its high.

54:36Michael Batnick:Oracle looks nothing like the other two.

54:38Downtown Josh Brown:It looks more like four-weave than it looks like the others. You're 100 % right. Yeah. And S &P has already reflected that in its rating. There's no A in that rating. So, all right. We're going to make the case. And then Michael has a mystery chart for me. And we'll get out of here. I bought a stock today. I am now long Robinhood. What are your thoughts?

54:59Michael Batnick:Can I tell you something? I swear to God, I was going to make the case for Robinhood next week. Well, too late. I told the boys yesterday. Hold on. I'll give you the mic for a sec. But my thesis was going to be, if you are, and you wrote, buy the robots a long time ago. If you are in the financial services industry and you're worried about being displaced by the robots, this is the robot to buy. Now, public hour sponsors are publicly traded. Robinhood is. But they're coming.

55:27Downtown Josh Brown:37 % drawdown for the stock. is where I pulled the trigger. Not like me. I don't even look at stocks in 37 % drawdowns normally, for a trade at least. But I like the way this thing is recovering. The RSI is now back above 60. The rebound looks real. Today, they announced a 10 % workforce reduction in a filing, and they did not use the word AI. They did not even hint at it. Here's what they said. The company is taking this action from a position of business strength, including June month to date average daily trading volumes at record levels across equities, options and prediction markets. You know what I think they want to do?

56:14Downtown Josh Brown:I think they want to right size the workforce now. They're having an incredible quarter to come out of the quarter and be able to give really good guidance for the second half. I think they looked at their stock below 100 and they said, f*** that. Now is the time to get back in the game. We met Vlad when we spent two hours with him. I'm just like trying to mind meld with him from afar. That's what I think the mentality is. I think he wants a triple digit stock price. What was I going to say? Oh, this helps. Give me the chart. Bitcoin is picking itself up. And for whatever, for good reason, Robinhood stock price is still fairly correlated, not perfectly, but fairly correlated to Bitcoin.

57:05Downtown Josh Brown:Obviously, it's a lot of crypto trading on the platform. And when Bitcoin is in a free fall, as it has been, less people want to f*** around with other tokens and coins.

57:15Michael Batnick:It's a huge part of their business.

57:18Downtown Josh Brown:Huge. Huge. Here's another growing part of the business. Our friend Dan Dolev at Mizuho wrote about prediction markets. He's got a note out saying prediction markets reach all-time high in May. And in addition to equities and options and all the things that are going well at Robinhood, this is now becoming 9 % of total revenue. So this is what Dan said. Prediction markets are the key positive. We now model prediction market contracts rising from$8.8 billion in Q1 to$13 billion by Q4 or$44.8 billion for the year and$57 billion for fiscal year 2027. Revenue from prediction markets is modeled at$464 million in fiscal 26,$570 million next year.

58:11Downtown Josh Brown:that would be 9 % of total revenue, but 19 to 20 % of transaction revenue, meaning it's not like earning money on cash or something stupid like margin loans. This is like actual action. So Dan says that is no longer immaterial. In our view, investors should see prediction markets as a new engagement layer. Do you think the NBA playoffs and finals were a big boost to prediction markets, not just at Robinhood, but everywhere? So two things.

58:42Michael Batnick:Number one, I have to take the loss here because I was pretty public to Vlad's face that I thought they were drunk on this stuff. Now that I was bearish on prediction markets, but the way that they were leaning in, I thought that they were overestimating the amount of interest there. And obviously I was wrong. So guilty on that. It might be early. We'll see. Yeah, but no. People could lose interest. So far, I'm obviously wrong. When I was in Texas, I wanted to bet on the Knicks winning the game. The Knicks were five and a half point underdogs. And I said, I want the money line. I couldn't do that because the sports books are not legal in Texas.

59:21Michael Batnick:So I went on Kalshi and I bet on Jalen to win the MVP. I figured if they were going to win tonight, Jalen would be the MVP. The odds were better. But the state stuff, the state specific stuff is really interesting.

59:36Downtown Josh Brown:It's a huge arbitrage right now.

59:39Michael Batnick:That's what's going on. So I don't know how long that lasts. And that would have a material impact on these markets.

59:46Downtown Josh Brown:Because the states do not like it. I was in Las Vegas. I was at the Wynn Encore or the regular Wynn, maybe the regular Wynn sportsbook for game one. I was in Vegas. I had to go to the airport. But I caught most of game one before I left. I walked up to the window in the sportsbook to place a bet on the Knicks to win. and they said the game started five minutes ago. I'm like, all right, that's great information. Thank you for that. I'm aware. She's like, no, no, no, you don't understand. There's no in-game bet in the sports book. She's like, it's not like your phone. I'm like, oh, all right. I just pull out my phone and do the bet.

1:00:25Downtown Josh Brown:She's like, yeah, I guess everyone else is. So it's an arbitrage. It's crazy arbitrage when you think about it. Maybe that's the bull case.

1:00:34Michael Batnick:The states make money hand over fist from DraftKings and FanDuel and they make shit from these companies.

1:00:40Downtown Josh Brown:Well, I promise you that ain't going to be for long. Can I put up the technicals on Robinhood? So this is what I'm seeing. I'm seeing a stock challenging a falling 200-day, which is not bullish by any means, but bouncing off of a now rising 50-day. And I don't really see a lot of resistance until like 125, let's say, which this is a$96 stock. I bought it at$95 and change today. There's a lot of room between here and that cliff from December. What do you think about my trade? Do you like it? Are you blessing it? Look at the RSI confirming 61. A lot of momentum here. What are your thoughts? Yeah, it looks good.

1:01:28Downtown Josh Brown:Can I interest you in some shares?

1:01:30Michael Batnick:Yeah, listen, I've been looking at it. I've been staring at it. It was my make the case for next week. Well, don't just look at it. Trade it. All right. No, I like it. I like it. All right. Here's my mystery chart. This is, I'll start here and then we can go deeper. Obviously, you saw the stock got pummeled. There were macro headwinds in 2022, 23, 24. And unlike the rest of this industry, and it's a large one, this is violating the narratives because this industry is supposed to be doing really poorly right now. And this is a stock that I do want to buy. I want to buy this more than Bravo.

1:02:15Downtown Josh Brown:Okay. I want to say it's housing or mortgage related. Right, right, right. Housing related. Stay on that. Yep. It's violating the narratives. I mean, look at that stock.

1:02:27Michael Batnick:Look at that stock, dude. It's breaking out.

1:02:30Downtown Josh Brown:So is this Lowe's?

1:02:33Michael Batnick:um no Lowe's and Home Depot don't look like this but this is trying to think of what housing stock what housing stock could possibly look like this it's a luxury brand it's a luxury brand in how in homes I mean I suppose I think it's a luxury brand oh this has got to be some sort of furniture

1:02:52Downtown Josh Brown:shit yeah restoration is it RH no that one doesn't look good that's the other one looks like death. All right. I don't have it. William Sonoma.

1:03:02Michael Batnick:There you go.

1:03:03Downtown Josh Brown:Jay Min through in the chat gave it to me. I did not guess it. Okay.

1:03:06Michael Batnick:Dude, look at this chart. Thank you guys in the chat. Look at this chart. So what the story is, the story is they're buying back a ton of stock, like a ton of stock. EPS has inflected higher. And so I own Florin Decor. I think that people that are on the sidelines, rightfully so, because they can't afford a house or they can't mentally get there because it's too much. I think after three years of this, the fact that there are still 75 million people that are like 37 years old, I think housing might be turning a corner. I think people are just coming to the realization that, all right, I guess this is just what houses cost now.

1:03:41Downtown Josh Brown:All right. I don't think so. And I'm going to correct something. This is not a bet on housing in any way, shape, or form. This is the top of the top of the K. That's who's shopping at Williams-Sonoma on a regular basis. And then regular civilians pop in there once in a while when they need a new pot or pan. This has nothing to do with housing. Also, the longer you're stuck in a house, the higher your propensity to want to redecorate because what else are you going to do? Can't buy something new? Can't build something? All right, I'll redo my kitchen. That's what Williams-Sonoma is about.

1:04:20Michael Batnick:You're 100 % right. However, look at Florin Decor, which I do own. Look at Home Depot. Look at Lowe's. like a Sherwin-Williams, they have bounced pretty strongly. Now, it might just be a jackhead bounce.

1:04:30Downtown Josh Brown:I'll give you another. Shark Ninja made a record high. And shout out to the Baracus family. I don't even know what it is. They're from Long Island. Shark Ninja is the shark is the blender and the ninja is the vacuum. No. Oh. It's the shark vacuum and the ninja blender.

1:04:50Michael Batnick:Yeah, I have one of those.

1:04:51Downtown Josh Brown:Okay. So is that a housing play?

1:04:54Michael Batnick:Not really. Not really.

1:04:56Downtown Josh Brown:It's appliances. Well, I guess maybe, sort of. It's appliances, and appliances go in a house, but nobody would say that's a housing play. Here's my point on housing.

1:05:05Michael Batnick:It's not getting worse. The housing situation is not getting worse. It's not like rates are going to 7.5%. I think people are digesting the fact that housing is about as bad as it's going to be. And I think if you get any sort of lift, any sort of lift, there's a ton of leverage in Williams-Sonoma, which I want to buy. What's so funny?

1:05:22Downtown Josh Brown:Matt Stavik said William Sonoma is not for the salt of the earth no I don't know if he's joking about me not yes

1:05:29Michael Batnick:yes no Josh is a potter and bone chopper obviously no Shari is yeah

1:05:37Downtown Josh Brown:guys I want to say thank you so much for coming by for the live chat this is a major show we covered so much ground Michael you did great Duncan and John fantastic as always Nicole everybody just all around thank you guys for rocking with us We appreciate it. I want to remind you, first of all, we have the new compound hats in the store. We very rarely remember to send people to the store. Idontshop.com. Obviously, no apostrophe. Idontshop.com. There's a dad hat version that we did for the summer in green. And then there's, I guess you'd call it a trucker hat version. Black with pink writing, and it is sick.

1:06:21Downtown Josh Brown:so go to idontshop.com and get your official compound gear today tomorrow is Animal Spirits with Michael and Ben do ask the compound this week of course and then we'll end the week with the compound and friends with a first time guest somebody we've never talked to before we're super excited about it thanks so much for watching thank you for listening see you soon

1:07:18Michael Batnick:Thank you.

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