Bubble bursts in 2027, Nvidia earnings preview, Materials sector set-up, AirBnB takes flight

15:56Downtown Josh Brown:But this is his point. Real and nominal long-term rates have increased significantly this year. Yields on 30-year treasury bonds are at the highest level since 07. The rise in yields puts increased strain on equity market valuations. the risks are tilted toward a further rise in yields given the lack of political will and progress to address the debt trajectory. Here's a chart. Here's the too much risk point. He's showing you the earnings yield in stocks, basically the earnings of the stocks, but like in the form of a yield relative to price, like you would look at a dividend that's in black. and he's showing you the tips yield almost on its way toward meeting or possibly eclipsing that level.

16:45Downtown Josh Brown:Last thing on this, and then I'll take your full comment. We'll give Bill Dudley the last word. In its early stages, the bubble's growth is self-reinforcing. The demand from the boom supports rapid profit growth, wider margins, and higher valuations. But on the downside, the feedback loop runs powerfully in reverse. Collapse in demand leads to a drop in cash flow and a reevaluation of the risks of lending to support the bubble's further expansion. I expect AI will follow the broad trajectory of the other great technology booms and busts like the railroad and the internet. AI will have a significant impact on productivity and growth.

17:30Downtown Josh Brown:There will also be an inevitable glut of overcapacity that will weigh on profits and stocks. And this is the final chart.

17:39Michael Batnick:What he's showing here is interesting.

17:41Downtown Josh Brown:This is the Wilshire 5000 index market cap. So let's just say this is the complete stock market, every category, unmoored from reality versus gross domestic product. It's not that – I guess the point here is we have never seen these two things this divorced from each other. It is a tremendous distance between the growth in the market cap in dollar terms, which you see approaching$80 trillion, versus GDP, the overall economy, closer to$30 trillion. And all right, who cares? Blah, blah, blah. It will all work out in the end. Maybe I just thought it was remarkable to hear this from a former Fed chair.

18:27Downtown Josh Brown:What are your thoughts?

18:28Michael Batnick:Since when do you take stock market advice from an economist? Are you kidding? What happened to Josh Brown? Where'd he go?

18:33Downtown Josh Brown:I'm not taking his advice.

18:35Michael Batnick:It's not that interesting, dude. All due respect to Bill Dudley. This is very, very consensus. I don't think anything says -

18:43Downtown Josh Brown:Consensus is that the bubble will burst by the end of 2027?

18:46Michael Batnick:This is the consensus bear case, and it's very basic. So let me return to this in a second. The macro environment will get harder. This has been an easy macro year. Really? The war, inflation, interest rates going up, the straight being closed forever. This has not been an easy macro year.

19:04Downtown Josh Brown:He didn't cite any of those things. Macro conditions. He's talking about the bond yield.

19:08Michael Batnick:He said macro conditions will get harder. Okay.

19:11Downtown Josh Brown:So here's my point. Here's my point.

19:13Michael Batnick:If you're going to shoot your shot, and listen, maybe he's right. I don't know what 2027 is going to hold. Would I be surprised if 2027 is a tough year for the stock market? No, who the hell would? But this is my point. If you're going to call your shot, tell me something I don't know. Respectfully, there's nothing in there that's interesting.

19:30Downtown Josh Brown:So he can't do that because he's, to your point, he's looking at economic data. He doesn't have any insights into whether or not next year will be a continued year of AI-related spending and the associated earnings growth that comes from that. He cannot. He obviously cannot do that, nor can anyone else. Even the people that are expected to do the spending, they don't know for sure what they'll be doing because market conditions might change their minds. They may decide, you know what? These CapEx plans we laid out, we exceeded them in 25. We exceeded them in 26. Maybe 27 is the year where we don't exceed them because we're looking at a share price that's 40 % from a tie, and we're taking a market signal.

20:16Downtown Josh Brown:I love a good bear case

20:17Michael Batnick:I really do

20:19Downtown Josh Brown:You don't think that's a good bear case?

20:21Michael Batnick:No, it's not interesting I like reading something I haven't thought about And I say, oh shit, that's pretty compelling That was basic, respectful

20:27Downtown Josh Brown:We can move on by saying, screw you Bill Dudley No, no, no, I'm just, come on

20:32Michael Batnick:I'm not screw Bill Dudley

20:33Downtown Josh Brown:Do you think it's remarkable, though, who it's coming from?

20:38Michael Batnick:No

20:40Downtown Josh Brown:You don't? No Do we normally see recently retired former Fed officials actively predicting a bubble bursting within a year? Is that a thing that we normally see?

20:54Michael Batnick:Everybody is a podcaster, blogger now. Okay.

20:58Downtown Josh Brown:So he's like the prince and princess from England that they're doing content now? Yeah, sure. I mean – Wait. Is it William? Who's the one? Harry. Harry and Meghan Markle.

21:15Michael Batnick:Dude, I'm just saying. You shared – he gave us a CAPE ratio, the earnings yield and the tips yield, and the Buffett indicator. All right. I mean old. Okay. All right. Let's talk – oh, you want to do some NVIDIA stuff? Why does NVIDIA report so late? It's so anticlimactic.

21:33Downtown Josh Brown:Well, we have this OpenAI stuff. Let's hit that first.

21:36Michael Batnick:All right. So OpenA reported that its revenue grew to$6.7 billion. I don't think it reported anything, but this came out. Its revenue grew to$6.7 billion in the three months ended in June, up from$5.7 billion in the first quarter. That's not awesome. Meanwhile, its operating margin sank further into the red. Anthropic, meanwhile, more than doubled its revenue to$11.6 billion in the same period.

22:03Downtown Josh Brown:The Anthropic guys said they could do$30 trillion in revenue someday? Is that all the years added up combined or in one shot?

22:11Michael Batnick:Did he give a time frame on that?

22:14Downtown Josh Brown:Thank God, no.

22:15Michael Batnick:Because by 2021-26, anything is possible. Inflation keeps going up 3 % a year.

22:21Downtown Josh Brown:I think he was – I guess he was making the point like the same way that SpaceX talks about its TAM. And I don't know if that's a revenue projection or like how big could this company get kind of thing. I didn't actually hear. I just saw the headlines. It's a lot of money either way.

22:42Michael Batnick:I do think that to not overthink a bear case, it's just our ability to be less surprised at good news. Just look at NVIDIA as a classic example of this. The stock has traded nowhere for months and months and months. The earnings numbers are astounding, but the market's over it. Like, show me something else. What else you got?

22:59Downtown Josh Brown:All right. Earnings tomorrow after the close. The valuation's been compressing all year for multiple years, actually. and we have a great chart of that. So if there is a bubble, it's not an NVIDIA. Now, people have said, okay, there's no bubble in the valuation, but the actual bubble is in the earnings. And I understand that argument and I don't laugh at it because I don't want this to age badly. They're going to report a quarter tomorrow night where the street is expecting them to report 98 % earnings growth. So – and that's not like they had 5 % earnings growth last quarter and they all of a sudden released a new product.

23:43Downtown Josh Brown:They've been putting up quarters like this for years already. So if it is an earnings bubble, it's sure taken a long time for something to come undone.

23:55Michael Batnick:Do you think it's an earnings bubble?

23:57Downtown Josh Brown:I think there's a higher likelihood that it's a pull forward earnings bubble than it's everybody was stupid for buying all this stuff and it's just going to evaporate. So a pull forward earnings bubble to me is like everyone's worried about compute. Everyone's worried about are they going to get their slice of compute? Are they going to be able to deliver the services that they're contracting with their customers? And so they're stockpiling as many chips as they can. they are building data centers you can't build a data center with no chips in it so you have to order as much as you can to make sure that you'll have access to the supply and that's more pull forwardy to me than it is like this massive error of like buying things that no one's going to need question i have a question that's where the if there's if there's an earnings bubble it's it's the most innocent type of earnings bubble because the demand really is there okay so you you know

24:55Michael Batnick:a lot more about this stuff than I do. Let's just say that there's a demand pull forward. Isn't the CUDA operating system a major part of the story that even if the demand for the chips fall, there's still demand to operate these things on their platform? Maybe is it sort of similar to CrowdStrike or am I making a really stupid comparison?

25:13Downtown Josh Brown:It's not a stupid comparison. That's like orthogonal to the main point. The main point is if you build a steel mill, which is the way people think about like in heavy industry, if you build a steel mill, it's very likely you'll still be using a lot of the same equipment 20 years later. If you build an oil refinery, which we haven't done since the 1970s, it's very likely that most of what you've built is still in operation and you're making repairs and substituting parts here and there. And that's just like the regular maintenance cost of running a heavy industrial site. Data centers are different.

25:57Downtown Josh Brown:Do you know, it's estimated 50 % of the cost of a data center is the chips? Do you know that? You know how astounding that is? And the thing is, these chips may have a useful life of five years, but it's unlikely. These chips may still be in use in 10 years, but given the speed of the advance of what this technology can do, it's highly unlikely. And so NVIDIA's portion of this data center spend is such that even if there's a slowdown in new data centers being built, the amount of maintenance and replacement of the GPUs that are being installed today is so astounding that I think NVIDIA is probably in the safest position of all of these data supplier stocks.

26:53Downtown Josh Brown:You are not likely to see a situation where they're using 2024 and 2025 era GPUs in 2029. You're very unlikely. So even if the data center construction is cut in half because people get spooked, you're still going to need chips to supply what you've already built. What are you going to do? Not buy the replacements and all this inferencing burns out the chips not as fast as training, but pretty fast. And they're talking about this explosion in inference because of all the new things we're doing with AI. You're going to have to replace GPUs and NVIDIA will be supplying these data centers for as far as the eye can see.

27:36Downtown Josh Brown:Not for years, for decades.

27:39Michael Batnick:for decades so why do you think why do you think it's trading at 16 times forward earnings is it the most obvious long hiding in plain sight marvell is coming on very strong broadcom is

27:49Downtown Josh Brown:coming on very strong he's comp let's take marvel marvel is building custom asics for customer amazon's their biggest customer so amazon's building tranium chips which are application specific integrated circuits. They do not have as broad of a use as a GPU. They're not as powerful. They're not clustered the same way. You know, you take a cluster of 10 ,000 chips and put them in a facility. It's not the way that's being done. But Amazon, its Trinium line of chips, Alphabet's making chips, Microsoft is making chips, Meta, Apple is making its own chips. they're they're utilizing application specific integrated circuits and that custom chip making for the hyperscalers is coming out of marvell this doesn't mean amazon's not buying gpus doesn't mean uh gemini is running without gpus but it is new competition for the build out of compute why would they want to use asics well if they build them themselves they can customize them for exactly the uses within their data centers that they see as being important.

28:59Downtown Josh Brown:Okay, so that's what Marvell is doing. Broadcom is in there as well. Obviously, AMD is always nipping at somebody's heels. It's not gonna be an 86 % market share story for NVIDIA forever. And so I think competition from 3 ,000 different players, including their own customers, is part of why we're seeing that multiple shrink. I also think there's fatigue. There's boredom. This is already 7 % of the S &P. How much more can investors buy? Like if you're not an index, do you want to be 9 % NVIDIA? Do you want to be 10? So there's some element of that. It's a$5 trillion company. We've never seen a company get the$5 trillion.

29:43Downtown Josh Brown:One day we'll have 50 companies at$5 trillion and somebody will look back and do a study and they'll say, this is the threshold beyond which stocks can no longer trade at 20 times earnings.

29:53Michael Batnick:So that's my answer. Charkin and I made a chart earlier in the year showed that the reason why NVIDIA is trading at below market multiple, it has a size problem. If it were trading at 18 times forward, 20 or 25, 30, whatever it was, whatever the best growth stocks in the market have historically traded at, it would just be too big. And the market can't digest a stock of that size.

30:16Downtown Josh Brown:Last thing. I don't give a shit what anyone thinks. These stocks are going to be cyclical in the end. And this derating of the multiple over the last three years, I believe, is an acknowledgement on the part of the investing public that 99 % earnings growth quarters are awesome. Their products are awesome. Their competitive position is awesome, etc., etc., etc. But these are cyclical companies. They are selling a – semiconductors are cyclical. Maybe I'll end up wrong. Maybe this will go on for 20 years uninterrupted. But the history, if you read Chip Wars or if you have been on Wall Street for 20, 30 years, you know that what goes up must come down in this space.

31:11Downtown Josh Brown:Funnily enough – is it funnily? Either way. Laughably enough, ironically enough, one of the reasons software stocks have historically had such a higher multiple than semiconductors up until two years ago when the semis just went wild is that investors know that software is less cyclical than hardware. And investors know that historically software can outgrow a cycle in a way that semiconductors never have. that may prove to be not true this time but historically software company growth software companies have gotten higher multiples than growth semiconductor companies for precisely that reason and a lot of people either aren't doing this long enough to have learned that or forgot about it but i do think there's a gravity that is pushing down on the multiples of marvell of nvidia of Broadcom, they understand that these companies are going to go into a phase where they rip each other's throats out for the next upgrade cycle and not everybody can win.

32:18Downtown Josh Brown:And that is why they're not selling at 30 or 40 times earnings the way that they were three years ago.

32:24Michael Batnick:Anything to say about NVIDIA tomorrow?

32:27Downtown Josh Brown:I'll give you the storylines. These are the things that the people that care about the stock and care of at the AI trade are watching the most closely. Let's start by saying the Wall Street consensus price target for NVIDIA is now$305. Where is it right now? $212. That is almost 50 % higher than where the stock is. So you're not going to get bailed out by upgrade price target lifts. You could get a lot of reiterations if Jensen kicks ass on the conference call. But what are they going to do? Take the target to$320,$330? So that's number one. That's its own story. Here are the seven storylines.

33:08Downtown Josh Brown:Number one, the revenue bar is staggering. Consensus is$95 billion in quarterly revenue. Data center is going to be$85 to$87 billion, or almost all of that. For context, NVIDIA did$26 billion for this quarter a year ago. Wow. I want you to think about that. That's your point.

33:27Michael Batnick:That's over. Investors are no longer a warning of that. We know.

33:31Downtown Josh Brown:Right. So Jensen's guidance is 91. So the 93 to 95 is the street. Storyline two, the Blackwell ramp and chip yields. The Blackwell is the new central product. If you call up NVIDIA, I want the newest, hottest shit. That's what it is. Investors want to hear about production scaling. That's obviously Taiwan Semi is who's making these things on the three nanometer chips. They want to hear about supply constraints. They want to – yield is like how many chips go bad in the manufacturing process? Like how many do we get out of each turn? So they're listening very granularly for any sign of a slip-up in execution.

34:16Michael Batnick:What about customers broadening out? Last quarter, they broke out the number of the hyperscaler revenue, right?

34:23Downtown Josh Brown:In May, for the first time, they categorized what they sell to the hyperscalers versus everybody else. and obviously the hyperscalers is most of the business. So yes, it would be nice if there were demand coming from somewhere other than Amazon and Alphabet. So stay tuned for that. The Vera Rubin architecture, that's what's coming. That's gonna be the next thing. Jensen has already said he has a trillion dollars in revenue visibility through calendar 2027 for the Vera Rubin upgrade. So let's take him at his word. So not an earnings bubble? He can reaffirm that. It's going up. Not an earnings bubble?

35:07Downtown Josh Brown:Well, it seems like he thinks he's got that in the bag. Three is the launch timeline for Vera Rubin. So a delay would be very problematic for the stock because a delay would force people to change their near-term quarter outlooks. So we want to hear that that's on schedule. Four, China export restrictions. so during the course of this quarter they did get approval and allegedly started selling in china it's i don't think that's in the numbers but again it's a storyline that people are listening to the commentary on five is the hyperscaler custom silicon threat which you and i just spent 10 minutes on i won't go terribly further google's tpus amazon's tranium which again, that's Marvell, Microsoft and Meta are building custom accelerators or XPUs.

36:02Downtown Josh Brown:People are going to want to hear Jensen answer the question about that competition. That'll be asked, of course. Six is gross margin trajectory.

36:17Downtown Josh Brown:Margins, this pressure would be the wrong way to say it, but margins had come in a bit as they were developing new products. they want to see 75 % plus again. And so when we talk about yields, yields will be a part of that. Number seven, I don't know if this comes up on the call or if analysts are too prissy to ask. 28 insider sells in the lead up to earnings. This could be part of why the stock is down 12 straight days. I don't know, but I think the insider selling has to stop at a certain threshold before we get to the earnings, so maybe not. It's not a huge dollar amount relative to the market cap, but it's also not like the greatest vote of confidence at the levels that those insider sales.

37:03Downtown Josh Brown:I made this point with Sean today on TV. So those are the storylines. Do you have any thoughts on those or are we missing anything?

37:11Michael Batnick:No. First of all, credit to you. You did a fantastic job laying out the story. So that was very well done. The stock has not been treated well after earnings recently.

37:22Downtown Josh Brown:recently well let's try so that's yeah that's that's really i think that's a really key point

37:26Michael Batnick:tell people what they're looking at here so the last four times it reported and the fiscal year is a little bit weird that's why you see 27 in here uh the market has not liked it josh you and i were on what are your thoughts i believe during one of these or i can't remember what show it was

37:41Downtown Josh Brown:but the uh stock got smoked yes this is a terrible post earnings reaction stock that could change and And it hasn't always been that way, as you can see on this chart. But it really – you have to go back a while to find a quarter that people were super enthusiastic about the next day. All you're looking at is next day returns on this chart.

38:02Michael Batnick:You know what? The market – so I don't know what he could say for the stock to go up 8%. What hasn't he already said? But sometimes investors just change their minds. Okay. Well, SpaceX did say that they're all in on NVIDIA.

38:18Downtown Josh Brown:If I were in the investor relations suite at NVIDIA, what I would be telling them is, listen, if you don't care about the stock price reaction, no problem. Of course I do. Okay. But let's assume you're wearing a fucking leather jacket. You do care what people think. Okay? All right. Talk about space. You don't have to be specific. Talk about robots. Because if there's a new leg to the NVIDIA story, not that it needs one with 99 % earnings growth, but if there's going to be an expansion of the TAM or a change the subject from ASIC competition, it's going to be automation and self-driving cars and rockets and data centers in orbit and robots.

39:03Downtown Josh Brown:robots, let's talk about robots because that could be a whole new TAM that's not in the stock or not meaningfully in the multiple. I don't know if they'll do that. So I would just tell people who are in the name going into this quarter, of course, anything can happen. And Michael and I don't know. But over the last 26 quarters, they've reported. So that's back to Q1 2020. So half of those quarters in the AI era. 12 times the stock has moved up or down by 5%. That's remarkable, which means it almost never does a thing. If you look at the average next day return, it's plus 2 % after an earnings call over the last six years.

39:48Downtown Josh Brown:But there were two massive reactions skewing that. In May of 2023, the stock exploded 24%. And then in February of 24, plus 16. If you pull those out, the stock is typically flat on average the next day. So let me set the table for you. $92 billion in revenue is the midpoint of that guidance. That's 97 % year-over-year growth. Earnings,$2.09. That would be 99 % growth. EBIT,$61 billion. That would be 102 % year-over-year. And the final point to make here, and I think this is applicable for everybody listening and watching for as long as they live, just because you identify the stock with the most insane growth rate, that does not guarantee you a reaction in the stock to earnings or other news that's going to make you money.

40:46Downtown Josh Brown:If it were that simple, we would just automatically buy NVIDIA, let them report 102 % growth in EBIT, and sail off into the sunset with unlimited wealth. That is not how things have gone for shareholders in this stock for a very long time. So knowing the numbers, fetishizing the growth rates, these are interesting things. They do not guarantee you upside in the share price because the market is smart. It is way ahead of this. Back to the Dudley conversation. When we talk about anticipatory, nobody gives a shit that NVIDIA grew earnings by 99 % over the last 90 days. They're worried about 27 and 28.

41:28Downtown Josh Brown:And that's what the stock is trading on.

41:30Michael Batnick:Amen, sister. All right, we just did 40 minutes, 42 minutes on topic one. So we're going to have to move the rest of the show along.

41:37Downtown Josh Brown:This is the most important thing, though. This is what's going on. Yeah? It's important. It's important.

41:47Michael Batnick:Okay. Okay.

41:48Downtown Josh Brown:What do you got?

41:49Michael Batnick:All right. Let's talk. There was a milestone reached. Shout out to Invesco. The equal weight RSP ETF crossed$100 billion in assets. And just a couple of years ago in 2020, granted after the fall, even pre-fall, it was like $15 billion. It was$10 billion in 2020. This thing is 10X off the lows.

42:12Downtown Josh Brown:Holy shit.

42:12Michael Batnick:It's a lot of money.

42:13Downtown Josh Brown:Who is all this new money in this? Is this institutions? Couldn't tell. I mean, yeah. Retail doesn't buy equal weight S &P. Is this people that want to be allocated to the stock market but don't want to face the full brunt of an AI issue? That's what I think it is. Sure.

42:31Michael Batnick:So it got me thinking about the different type of instruments that we have available to us. And you juxtapose that against something that I saw in my Robinhood app. And I'm a big fan of Robinhood. Use it every day. but I saw this and I just shook my head, Josh. That's what I did. We've got 15-minute markets. You are able to gamble on what the price of various cryptocurrencies will do over the next 15 minutes because this is America, damn it. And so then also later in the day or week, I saw Jeffrey Patak tweet that Defiance has registered 16 single-stock ETFs that will reset their leverage on an hourly basis because who the hell could trade daily leveraged stocks?

43:26Michael Batnick:That is so boring. Stop.

43:28Downtown Josh Brown:What is this? Single-stock ETF, what is it resetting? So, chart off for a second. I don't understand. What is it resetting?

43:38Michael Batnick:All right. So the reason why you are able to see a stock go up 50 % over a year and the double X, the two times levered version of that stock go up 55 % is because it does not guarantee you 2X the outcome over an extended period of time.

43:58Downtown Josh Brown:Yeah, I understand that.

43:59Michael Batnick:So I know you understand. I'm talking to the audience. So on a day-by-day basis, you will get two times the exposure. But volatility is a tax on returns. So if you're up 1%, down 1%, up 1%, down 1%, you're not flat. Eventually, the volatility, and if you dial it up to two plus three, it eats into the returns. All right. So if you are now doing that not on a daily basis, is that your blue steel face? You look like Zoolander with that hair. I love it.

44:25Downtown Josh Brown:What? What do they do?

44:27Michael Batnick:A made of face? Yeah.

44:28Downtown Josh Brown:It's blue steel. But I'm trying to understand. So this is for a day trader that wants to be – is it 5X?

44:38Michael Batnick:It's – No. I don't know how much leverage there is. But I'm just telling you. It's intraday shit on steroids. It resets hourly. So I don't know the mechanics exactly of how it works. But the broader point is – go ahead. Who is it for? Trainers. What trader is doing this? We will find out. We will find out. Listen, we were talking to Todd Sohn. This is the spaghetti cannon. If it doesn't work, shut it down. Who cares? It doesn't cost much. Shut it down. So anyway, I had Claude put together a capital cooker, in your words.

45:18Downtown Josh Brown:I can't wait to do this.

45:19Michael Batnick:A capital cooker in order of the most basic boring shit investment to intraday. and everything in between so here we go this is our capital cooker this is so good number one just cash t-bills money market very very boring then you've got the ben carlson's number two the set it and forget it targeted funds then a little bit further out on the risk spectrum you've got beta just plain market beta whether it's the s p or the total bond whatever it is you just you get market exposure then you go a little bit further you want to get a little bit cute we've got some factors in some sectors, whether it's the equal weight that we just mentioned, sprinkle some smart beta in there, you want some sector exposure, okay, everything's fine.

46:03Michael Batnick:And then you've got recently coming to market, very, very, very popular are the engineered outcomes. Talking about the buffer ETFs, some of the option overlays, shout out to Jepi, and a lot of the structured products. And then we start to spice it up a little bit. We've got crypto and we've got crypto treasuries and then we've got the yield max uh the yield max uh i don't

46:29Downtown Josh Brown:know what no it's like call call selling option and basically basically 140 uh distributions yeah

46:35Michael Batnick:okay sure um you've got the levered etfs whether it's uh individual stocks or uh or on indexes and now we get to the fun stuff. We've got gambling ETFs coming out. We spoke with Todd Sohn about event contract funds and a couple of companies just filed for NHL Team Futures. I have no idea why. I have no idea why the NHL was first. Maybe there's a league reason. I have no freaking idea. And then finally, and don't think this is the end, Josh. We have not reached the final boss. We've got intraday, I mean, zero data expiration. Boring. intraday intraday levered ETFs.

47:19Downtown Josh Brown:I love it. First of all, bravo. I love that thing. Let's do more with that. Two points. Do you remember National Lampoon's Vegas vacation? I didn't see it. Okay. It's an absolute classic. It's a bad movie, but such a great bad movie. It's right up your alley. It's the last Griswolds with Chevy Chase. takes the family to Vegas. He's with his idiot cousin Eddie, you know, the white trailer trash guy. Okay, so he like has to make a lot of money really quick. And like the regular casino, like he can't do it.

48:01Michael Batnick:Is that Randy Quaid or somebody else? I know he was in the first one.

48:04Downtown Josh Brown:Randy Quaid, who's amazing in the movie as usual. So they go to Vegas downtown and they go into like the seediest casino in Vegas. and it's like there's no blackjack, there's no roulette, there's no baccarat. They're playing flip a coin, pick a number from 1 to 10. I forget some of the other games that they're playing. We are at the Vegas vacation phase of the current market environment. And I agree with you. We're not at the end, but my God, my God. And we talked about this last week. These are lawless times. You can fucking launch anything. And the message to the people watching and listening to us, I'm not going to trash people, entrepreneurs who are putting these things out into the universe and seeing if there's a market for it.

49:03Downtown Josh Brown:But I will say to the listeners, to the viewers, to our fans, listen to me. these people are not sitting in think tanks asking themselves, will this help investors? That's not the question. They're not in white lab coats, okay? What they're actually asking in their board meetings, will people buy this shit? That's the only thing that matters. Not, is this good for people? Will most people use it profitably? Will it help someone retire? will it help someone some people are thinking that way the buffer ETFs are probably a great example of that most people the only question is will these animals buy this thing will they that's the question and if the answer is no they don't bother if the answer is we're not sure these days well cheap enough to give it a shot let's see and if the answer is yes they're gonna launch it and the only thing stopping that are regulators and the regulatory pendulum swings back and forth.

50:12Downtown Josh Brown:They get too strict. Then they get too loose and then lots of people lose money and it swings all the way back. It never stops in the middle. So the backlash to whatever the fuck is going on right now, it's going to go all the way back the other way where it's the no fun league and nobody can launch anything and I don't know when that happens But right now, we know what's going on. And if you know how to fill out the paperwork, you could probably get something launched. Like, we're going to give you intraday leverage and reset every two hours or every 15 minutes, whatever it is. Sure. Let's see.

50:49Downtown Josh Brown:Let's experiment. It's a free market. It's capitalism. Let's see how people use it. So I'm not against it. It's fine by me. I just want the people to hear me say, these things are not going through an FDA phase three trial before they get into your hands. All right. So we know. I think in 2018 - I don't know that everybody knows. No, no, no.

51:11Michael Batnick:Yes, we do. Yes, we do. You and me? No, no, no. Our listeners are very smart. The average investor today knows a lot more than they did, a lot more than they used to. In 2018, in those days, we were screaming about these things and saying people don't understand what they're doing. They think it's one for one, 2X over a year. They don't understand. It's 2026. People understand. Investors are very smart. They know.

51:36Downtown Josh Brown:All right. You want to do this? Yeah, let's do some stocks. Okay, I thought this was interesting. The travel trade has been on fire this year. And we have talked a lot about Hilton. And we've talked about Marriott and Expedia. and Booking.com, the airlines. There's just been money made. And this is not one year. This is going on multiple years. One of the big laggards all this time finally caught a bid. And it is Airbnb. And this is a company whose product I will never use. I will not stay in someone's home. I don't judge anyone for wanting to do that. I will never let someone stay in my home.

52:22Michael Batnick:Yes, you do, you coward. You judge. No, I don't. No, I don't. No, I don't.

52:25Downtown Josh Brown:I get it. I totally get it. There are people. Listen, people are like, oh, so you'd rather go to a hotel where 9 million people slept in the bed than stay in a house where maybe 20 people a year? They have a point. They have a point. I don't care. I don't do this. And no one is ever living in my house. I will starve and die. I will starve and die before that. Anyway, Airbnb is kind of killing it right now. So let's put this chart up. Huge upgrade from Bernstein after their latest earnings report, which was earlier in August. And I want to show people the technicals here first. This is what we call a runaway gap.

53:08Downtown Josh Brown:Runaway gap. Not a breakaway gap. A runaway gap happens in the middle of a move. And this is like Edwards and McGee stuff. But basically, you would take the amount of the move that preceded it and then on the other side, that's how far you should expect this to be able to keep running before it runs out of steam. So these are very bullish. This thing gapped up and never even looked back at that gap level. Michael, would you agree that's a pretty bullish formation in the chart? Insanely. Okay. Management is now guiding to a fifth consecutive quarter of 10 % or higher growth in usage. So Bernstein came out and put a$217 target on the stock.

53:54Downtown Josh Brown:They're looking at double-digit revenue growth, margin expansion, ongoing buybacks, and they think they're going to get 20 % annual earnings per share growth going forward. They're also talking that this is an AI stock, which I thought was interesting. So this is, so you know my antennas are up because I love this idea of the S &P 493 being the next leg of the bull market because they're the users of AI. Airbnb is using a ton of AI. They have an awesome CEO, Brian Chesky. He knows what he's doing. And here are some of the ways that they're using AI to grow earnings. rebuilding its search and discovery layer to better match guests to listings they're likely to book rather than just returning results based on proximity which is how this thing used to work surfacing the right home for the right traveler at the right time increasing conversion rates dynamic pricing tools are they charging the right amount probably not nobody is ai helps you get to the highest price somebody will pay without abandoning their shopping cart.

55:01Downtown Josh Brown:We've seen them do this in the concert business. We've seen the airlines do this. Sponsored listings. An emerging advertising product where hosts can pay to appear in search results. High margin revenue stream that sits on top of the core take rate. AI is central to making the auction and placement logic work. And last, the loyalty program expanding. AI personalization to make more loyalty offers and rewards and target them better. This is what Meta does. They're the best in the world at it. But seeing Airbnb utilizing AI to start putting up 20 % growth, these are the types of stocks that I personally am most interested in.

55:42Downtown Josh Brown:This is a pretty boring business. It's lodging, but supercharging the existing business with AI, I think, is how the S &P could have multiple bull market years ahead of it. We'll do one more.

55:55Michael Batnick:Here's - Wait, wait, I have something to say about Airbnb. The biggest problem for Airbnb, the biggest problem was when it came public. Airbnb came public in December, 2020. It was unprofitable. Right at the top. It was trading at 40 times sales, and that is it. It took six years to grow its way out of that hole. John, throw this tweet up. So this tweet comes from – I want to give attribution. This tweet comes from Ben Schmark, at the Ben Schmark.

56:37Downtown Josh Brown:Oh, that's clever.

56:38Michael Batnick:That's clever. What we're looking at is this. He says it's hard to overcome a high starting multiple even when future growth is robust. So here's what we're looking at.

56:52Downtown Josh Brown:SpaceX stands.

56:53Michael Batnick:Pay attention. Right. So when you're trading above 50 times, and what is this? Earnings? Okay. When you're trading above 50 times, look at the five-year CAGR. even when you're growing between 15 to 20%, the average is negative 2%. And this is very tricky. This is very, very tricky. And it goes to the point that Josh was making earlier. Try it off, please. The reason why those companies get rewarded with such a high multiple is precisely because the earnings growth is so explosive. And so expectations get ahead of itself, and it takes Airbnb six freaking years to burn that excess off.

57:35Downtown Josh Brown:Yeah, and we've told stories like this before. We talked about Microsoft growing earnings double digits in the 2000s decade and the stock price being flat because it went into that period at like 70 times earnings.

57:48Michael Batnick:Cisco really did grow 20 % a year.

57:51Downtown Josh Brown:Right. It really did. Right. You were right on the fundamentals, but you paid too much and this is very apropos of the current moment. Let's look at Delta. I see a double bottom at 80. I bought some more today. I do have a stop in. I think this is the best airline in the world. Not just the experience as a user, but the way the company is run. Ed Bastian is phenomenal. He said AI – so this is the same theme. He said this week, AI could lift Delta's profitability by as much as 50%. He frames that moving the margins from roughly 10 % to 15%. But that's worth billions on a revenue base. Billions.

58:40Downtown Josh Brown:Okay. Delta is working with Fetcher on AI fare setting. As of July 2025, AI was only influencing 3 % of fares. The stated goal is for 20 % of all Delta flights to have this AI lens on the pricing. It's going to work. So long as the economy holds up, it's going to work. Delta also implemented AI-driven baggage technology during the July 2026 quarter. And I don't know what that means, but I like it. I was about to say, I don't know. I don't know. Maybe they put a data center in the baggage claim? Yeah.

59:27Downtown Josh Brown:Listen to me. But I want people to understand the takeaway. This is the way the bull market, which is already into its fourth year, this is the way the bull market can make it through 2027. If the S &P 493 continue to use AI to surprise investors with better than expected earnings outlooks, that's how it works.

59:50Michael Batnick:Can I take that a step farther? I think it's the only way 2027 continues the bull market. If the 493, if we don't see margin expansion, 2027 is going to be tough.

1:00:02Downtown Josh Brown:Now, what's remarkable about what you just said is that I said it and you said it a year ago. We were so early. We were so early to this concept where the only way these hyperscaler investments make sense is if you see small and mid-cap companies beating earnings. Therefore, the market has to broaden or it has to crash. There was no way these hyperscaler investments could continue on without seeing the rest of the stock market react positively to their AI investments. Because who's the customer? At a certain point, you're building compute for people that aren't making money using it. AI baggage.

1:00:44Downtown Josh Brown:We could have said this a year and a half ago. I don't remember, but we were so early. Okay.

1:00:51Michael Batnick:What do you say the rest of the topics we could say for another day? Is there anything on fire that you want to discuss?

1:00:57Downtown Josh Brown:No. Let's kick – let's do Roundtail to close out because I like those guys.

1:01:05Michael Batnick:All right. So this is my topic. I hijacked it. I gave Roundtail the ETF issuer of the year award. That is the What Are Your Thoughts. It's official. It's the What Are Your Thoughts ETF Issue of the Year Award. And yes, Josh has a business relationship with them. But here's what they did. Full disclosure. All fully disclosed.

1:01:26Downtown Josh Brown:The most disclosed. Extreme. If you're listening and not watching, I have removed my clothing. Extreme disclosure.

1:01:35Michael Batnick:So here's what these guys did. Shout out to Will and the team. They launched DRAM in April and got to$10 billion outside of Bitcoin. It's nuts. It's the fastest ETF to get. I mean, I think it did it. Did it do it in 10 days? I mean, I don't know what the details are, but off the charts. And then, and then if that wasn't enough, they did halo. They capitalized on Josh Brown's genius way to describe the market.

1:02:05Downtown Josh Brown:It is$52 million in assets, Michael. Did you know that?

1:02:09Michael Batnick:Dude, I mean,$52 million is a lot of money.

1:02:11Downtown Josh Brown:With no promotion at all. $52 million.

1:02:13Michael Batnick:But here's the other one. Photonics. John Chardon or Tweeton or whatever on, something on. Photonics. Look at this. Okay, Lite, L-Y-T-E, has crossed$300 million in AUM in only nine days of trading. I know that might be lost in some people how insane that is. Yeah. It used to take like an indie issuer years for the entire firm to cross$300 million. And they're just out here just slinging it.

1:02:45Downtown Josh Brown:And they had to like go hat in hand to Merrill Lynch, Morgan Stanley, like begging to get on the platform. Then they get on the platform. They have to beg to get into the asset allocation, like put us in one of your model portfolios. these guys, and by the way, the degree of difficulty in that DRAM ETF should not be understated. You file and the ETF, if it doesn't get blocked or delayed, the effective date is like 75 days later, which means you can't just identify a trend and launch an ETF that day. You have to be two and a half months ahead of the curve to see what people might be into to get a product launched with as perfect timing as that DRAM ETF.

1:03:38Downtown Josh Brown:And Will Hershey is fine. He's just a regular guy. Dave Mazza is the real – I'm just teasing. I like both those guys. Congratulations.

1:03:50Michael Batnick:Before we get to make the case, just real quick. John, throw up the plenty of stocks working. I just want to put this on people's radar. Josh, do you know how on fire materials are?

1:04:00Downtown Josh Brown:Not until you put this on my radar. No, I don't follow any of these names.

1:04:03Michael Batnick:The XLB ETF, and maybe we'll do more on this next week, looks incredible. And these are just some names that we selected. There are so many things in here working that are completely off anybody's radar. Something copper is not in XLB, by the way. But there are so many things working. Chart off. Freeport.

1:04:20Downtown Josh Brown:I follow Freeport, and I follow Newmont.

1:04:22Michael Batnick:Josh, it's the type of market where you feel like you want to short cash, meaning you want to go on margin because there are so many stocks you want to buy. and you just can't buy everything. And if that puts your antennas up, good, right? If you're like, holy shit, Michael wants to buy every stock, that makes me nervous, good. It's that type of market. It's not gonna be this good for them.

1:04:44Downtown Josh Brown:I saw the crazy, so first of all, the best stocks in the market list, the quantity of names on our list has exploded.

1:04:51Michael Batnick:It's gotta be at a multi-month high.

1:04:54Downtown Josh Brown:That's one. Two, I saw Atlassian hit the list this week. Team. I think it doubled off the lows. This was the epicenter of the SaaSpocalypse. It's at a 52-week high, and it's on the best stocks in the market list. How holy cow is this market hot? I love this game. Holy cow. Holy cow. All right. We're going to make the case. We'll do this quickly because Netflix and Spotify. Put up Netflix. Credit to me, and I think you. You still in this?

1:05:31Michael Batnick:I bought it the day after earnings. That's 67. I'm now only down 9%.

1:05:35Downtown Josh Brown:Great point. I am now above water with all my average downs. I stuck it out. I am not walking away. I think that this is the most misunderstood stock in its sector. Preach. Tell me more. They just don't understand. They don't understand. They don't understand, but they will. They will. Catch me in triple digits, and I'll explain it. Spotify trades very similarly to Netflix. You and I both bullish on this name. I bought an added. I bought an added. But more or less we can add it yesterday. So I bought it last week. I think I nailed the timing beautifully. I do have a stop in on Spotify, not Netflix, but Spotify.

1:06:16Downtown Josh Brown:I don't want to marry this thing, but I have to tell you, I think it's one of the best businesses in media. I know we did this whole conversation last week, so I won't repeat it. But just a shout out because these stocks are grinding back. They're not ripping. They're not on the best stocks in the market list. Nobody's talking about them, but they are literally grinding off those lows, and I like to see it.

1:06:37Michael Batnick:Spotify will enter the best stocks in the market list. All right. I've got a mystery chart. I just made a comment. I love this game. It's just the best. The way that stories change so fast and make us all look like complete schmucks all of the time, if you're not entertained, I mean, I don't know. I don't know what to tell you. So mystery chart. John, please. These are two stocks, well, not obviously. These are two stocks, okay? And these are very much considered head-to-head competitors. Now, there are differences in their business models. They don't do exactly the same things, but whatever. Any casual shopper, oops, I just gave it away.

1:07:20Michael Batnick:Any casual shopper would say that I go to this place, go to that place. This is from April 2024 to November 2025. One stock was up 78%. One stock was down 53%. And then since that time, John, please, the stock that was getting killed has now doubled and the stock that was killing it has flatlined. And as we said earlier about Airbnb be and really throughout the entirety of the show, expectations are everything. John, last chart. The top one is the forward PE for the stock that's outperformed. Oh, I got it. And everybody loved one and everybody hated the other. All right, please. I'm sure you do have it.

1:08:08Downtown Josh Brown:I'd like to solve the puzzle.

1:08:09Michael Batnick:Go ahead.

1:08:11Downtown Josh Brown:Walmart and Target.

1:08:12Michael Batnick:Nailed it.

1:08:13Downtown Josh Brown:Yeah. I mean, you gave me a lot of hints along the way. But isn't that amazing? So, you know, this is the thing with technicals and charts. I have a bias about every company I hear about, especially if it's a consumer-facing company. Like, in other words, I have no bias about, let's say we're talking about Micron and Western Digital, because I don't interact with their products. Like, so those are easy for me. I just, it's charts only, right? I look at the earnings growth, I read the analyst comments, and then I look at the price. Those are easy to not have a bias. Walmart and Target, I mean, McDonald's, Coca-Cola, Anheuser-Busch, Disney, Netflix, Spotify, impossible not to have a bias.

1:09:04Downtown Josh Brown:You have got to use charts and technicals to tell you when your stupid bias is being left at by the people who are actually putting their own money on the line with trades. And so this is why I've my almost my entire career, I have just been like a chart and fundamentals person, not one or the other. Because what you saw in that target chart when it started to outperform Walmart, you might have looked at the stock price and said, Target, what a piece of shit. Because that's how we all we're all predisposed to make snap judgments. Do you know why that's the case? Not to belabor this. because it's survival.

1:09:47Downtown Josh Brown:You see a group of people that look dangerous, you turn around and walk the other way and you live on to pass your genes to the next generation. So these snap judgments that we make in one second where we decide this looks like it's safe to eat, this looks like it might kill me, that's necessary for human life. It works against you in investing. Humanity did not develop its survival instincts alongside financial markets. We have 100 ,000 years of human evolution. We have 400 years of stocks back to Amsterdam, right? So we don't have these built-in mechanisms for no reason. It keeps us alive, right?

1:10:34Downtown Josh Brown:But it doesn't help when we're thinking about stocks. Oh, I love this company. I hate this product. I like that CEO. What are you, an idiot? How could that possibly work? So that's why we use technicals. And with that, we will sign off. Guys, once again, thank you so much for coming to the live. Sorry we ran long. We had a lot that we wanted to do. And we really appreciate everybody sticking with us. Please go ahead and smash that like button on your way out the door if you haven't done that yet. Super helpful for us. once again make sure to go to the compound news.com become a compound insider and subscribe new animal spirits tomorrow have a great night

1:11:34Thank you.