Socialist Mayors, AI vs Labor With Callie Cox, Falling Knife Stocks

25:45are talking about freezing prices, controlling rents, starting municipal supermarkets, which is kind of like a throwback to Moscow and Soviet Russia.

26:02Garrett Baldwin:Can I just say one thing about that? Because, look, the one thing I will say, if you have friends who are from Europe or you have anyone who comes to the United States for the very first time, take them to a grocery store and watch their eyes. My friend from Switzerland just came over and he said, we went to a Wegmans. He's like, I've never seen anything like this. There's just the abundance of food. It's one of the things that people who come here for the first time in the United States notice right away. And the ballet of a supermarket is unlike anything. You walk through a supermarket, all the boxes are taken care of.

26:37Garrett Baldwin:You have all these reps who go around who are taking care of their little space. And it's a very slim margin business. And it's a 1 % business. Right, right. So then, all right, well, let me tell you. I mean, I've spent enough time in Buenos Aires to have been in an environment where the government is heavily involved in the food. It's not good. There's shortages of everything. And I have a very hard time believing that you're gonna have that type of ballet. It's just gonna be, it's unfortunate. And it'll be great for the first six weeks as all of these programs are. and then all of a sudden it will have decay because there won't be any profit incentive whatsoever to improve it to play devil's advocate what's the big what is my is actually i'm not playing devil's advocate this is my actual opinion who gives a shit right let them let them let them open let them open some some lower cost lower price supermarkets in areas that um the people living there need them quote unquote need them and let's see what happens why is it like like of all the of all the crazy shit we spend money on in new york city is that really the biggest risk we're going to take we're not what we're not saying is that all the whole foods have to convert right we're saying i think they said there are 16 uh neighborhoods that are screaming out for affordable food right it do it i don't care sure sure but but there has to be there has to be a mechanism in place to make it to make it sustainable i think that that's the key thing like no doubt about it i mean you have food deserts all around the country and i live in I live north of Baltimore and people rely on the dollar general for food.

28:13Garrett Baldwin:That's a problem. But at the end of the day, it's not going to be – my thesis is, yes, it would be a big announcement. And then at the end of the day, it's just going to be – there's not going to be a motive in place to keep this thing sustainable and working. I think the extreme right, the performative Twitter active right is rooting for these supermarkets to be robbed. that's really like that's what what they really want to see is uh the supermarkets get looted so they can say see told you so these places are food deserts for a reason they don't deserve to have nice things taxpayer support all right so that's that's some ugliness that i just want to get out of the way no no i i firmly agree with you i mean i you can see that already i'm just viewing it from the perspective of you know the sustainability of the concept so um no you're Right.

29:02Okay. It's wild that the same city that contains Wall Street could also contain so many people who think the best thing that could happen is for all of that money and financial activity to be driven to Florida. When people pull the lever for somebody espousing the policies that Mamdani espouses, what are they thinking? They can't actually believe that we should abolish all of this financial activity that has made New York City in many respects, not all respects, the envy of the world. They can't actually think that that's going to make things more affordable or give them cheaper apartments or a better quality of life.

29:45Can they actually, is it not drive it out, but just tax it enough that it stays, but that there's more money to distribute? Like, what do you think is going through these people's minds?

29:56Garrett Baldwin:I honestly think that at the end of the day, it's an ugly world in terms of how things have shifted. And I don't think it's just financial. And I'm not saying that all Mondami supporters think this way. But you've seen the rise of like the cheering of what happened with UnitedHealthcare and now most recently, you know, the murder in New York, Blackstone, where people are legitimately saying like, well, this is a company that exploits people and housing and things along those lines. I think those people are still – I know that those events get amplified on social media. Sure. I think that's still fringe.

30:31Sure. It is. I don't think those are commonly held beliefs that the UnitedHealth CEO had it coming.

30:36Garrett Baldwin:But it certainly has trickled into the world of the mainstream party. Elizabeth Warren said something along the lines of, you know, violence is never the answer, but, and then said something along the lines of people can only be pushed so far. And this is where you get into these bigger and broader conversations that are uncomfortable. But the reality is that people look around. They see the economic policies that are in play. They see that they're not getting ahead. And they view it through the lens of there's got to be something different. Let's just try something different. I agree with that.

31:16Garrett Baldwin:And there were people in there. They were interviewing a woman in New York. And they said to her, do you think that these are good ideas? Do you think the government run grocery stores are ideas? She goes, no. And then she said, do you think that socialism would work in New York? And she said, no. And then they said, well, why did you vote for him? And she said, I just wanted to try something different. Which, you know, and that's just a human reaction of just, hey, let's try something different, even in the event that it ends up being worse. It's just, you know, people are throwing their hands up.

31:50Garrett, part of me feels like this isn't, this is, it's a new version, but it's nothing new. So the advent of the suburbs during the Cold War in the 50s and 60s, the age of Eisenhower, there were very deliberate policy choices that were meant to push people, middle-class people, out of the cities into the suburbs. They built the suburbs. They built the interstate highway system. And one of the big ideas behind all of that investment and policy was that once you own property, you're less susceptible to becoming a pinko. They wanted people to be property owners because renters are more susceptible to the message that capitalism is bad.

32:40I mean, this is like – this is well-documented. It's not my theory. and they largely accomplished this and unfortunately they did this along racial lines which is a whole other conversation that we don't have time for but important but the cities having young people who are not owners of anything that as a result have Marxist leanings this is not like a 2025 phenomenon sure it's just come roaring back I think because of the inflation and so I want to get back to the Fed's culpability here. I think missing the moment in 2020 and 2021 and dismissing the rising costs of goods and services as being transitory is one of the all-time gaffes.

33:24And the Fed's had many. And it's not 100 % on Powell, but he's the guy in the seat. I really think that I really think that that's the proximate cause of the Mamdani phenomenon now. It's not that long ago that we had the highest rates of inflation in 50 years. I think you'd agree with that.

33:49Garrett Baldwin:No, I certainly agree. I think something fundamentally changed. Look, we had post-2008. You had QE. You had the strong relationship between the influence of quantitative easing and the performance of the S &P 500. from 2008 to 2020. I think the social contract drastically changed after 2020. And once again, the idea that you have massive levels of inflation that once again, like, you know, do you necessarily believe that, you know, that CPI, the CPI calculation, there's something called the Chapwood index, for example, which is a private inflation measurement. I don't know if they do it anymore, but they were measuring it post COVID.

34:30Garrett Baldwin:And basically all the Chapwood index does is they went into, they go into major cities and they look at the price of the top 250 things that people buy. And the Chapwood index shows that in the city of New York, the things that people buy have been increasing and compounding by at least 12 % since 2017. I actually believe, I believe it. Right. So, so, you know, this is exactly the point is that you hear people saying, Hey, you know, inflation's not as bad as, as it is, or it's the result of supply chains, or it's, You know, whatever the excuse is, there is no ownership for what the Fed does. And the other thing that I think is really critical, there was a survey done.

35:09Garrett Baldwin:Only 6 % of Americans actually understand what the Fed's job is. They actually understand the dual mandate. And then I would say that there's probably an even smaller percentage that would include you and I that know that the Fed is also responsible for providing a backstop to global markets with liquidity swaps and things along those lines to ensure the stability of the US dollar internationally. So people don't know what the underlying thing is. They don't understand monetary policy because monetary policy is one, boring, and two, complicated. And as a result of that, they're gonna look around and they're gonna blame their neighbor.

35:48Garrett Baldwin:They're gonna blame somebody else. They're gonna listen to somebody say, hey, this is corporate greed. It's only corporate greed. It's not. I think the Fed does not have control over things like the availability of how many apartments are being built in a city. I think the Fed can't do anything about the housing supply or lack thereof in 2022 and 2023 when everybody wanted to buy a home. I do think that there are huge components to the cost of living that fall outside of the purview of monetary policy, at least directly. So there's one dimension of that that I think we should at least mention.

36:24I also think New York and Miami are extremely unique given to the financialization of the societies of those places. And when you put overnight interest rates at 5.5%, you actually introduce a new wealth effect into these upper, let's say, the top 20 % of households. Now their cash is earning them more cash. Right. So now they have cash bound that they're the cash they're holding in the bank or in money market funds in a brokerage account. It's like a geyser spitting out more cash. And that's the risk off portion. Correct. Let alone what their stock portfolios are doing. And the middle class owns houses and cars.

37:08That's their that's that's where their wealth is concentrated. The the upper class owns the stock market and has a lot of cash. So higher rates from the Fed actually were counterproductive in Miami, in New York. You're worried about the cost of – you're worried about housing affordability. You're giving people who have millions of dollars in cash millions more dollars. 100%. So I don't even know if higher rates or the Fed being more aggressive is actually the answer to these price increases in the cost of living.

37:43Garrett Baldwin:Two things to your point. One, there was a study that was done, I believe, by Freddie Mac. Maybe it was Fannie, and it was a couple of years ago. There are 25 ,000 regulatory bodies in the United States that oversee the zoning of housing. So municipal, local, state, county, federal, all the way up, 25 ,000. So there's your first issue. Secondly, I completely agree with you. There are things outside the Fed's control. And I've talked about executive order 128866, which basically Al Gore got put in charge of anything that was significant in the United States. You have to run through this lens of like whether or not it was environmentally viable.

38:24Garrett Baldwin:And then when Obama got into it, then became it about like, you know, is this is this roadway or is this new big refinery, this big project? Is it equitable? Like it's it kind of got a little a little silly. But then you have, you know, the elements like passive investing. How many stocks, how many ETFs is Tesla in? Like 500? And, you know, that provides a little, a floor of support for a lot of these equities. So, you know, price discovery has long been out the window for me since at least 2008, but definitely post 2020. And if we look at this kind of broader environment, you know, it just, it goes back to the fact that a lot of this, a lot of capital has been pushed into the financial system.

39:08Garrett Baldwin:over the last 15 years. And there is a direct relationship between the amount of quantitative support and easing that the Fed has done and the assets of the top 1%. Or the intentional policy-driven quelling of volatility. Correct. It's just, yeah. So here we are at 22 times earnings on the S &P 500. every sell-off is a v-shaped recovery an opportunity for the rich to get richer and insiders to capitalize on the fears of um lesser aware people and uh do that over the course of 15 years and you end up where we are and uh we'll have a uh we'll have a communist running uh the city that contains wall street all right gary we've uh we've gone long you you've got a gigantic brain and i love to pick it i'd love to have you back sometime i want to tell people where they can get your insights on a, you're writing at a furious pace, by the way.

40:07What are you, what are you daily now?

40:08Garrett Baldwin:Yeah. So I write, I, I, I write a lot. I write a, I write a morning piece. That's a market breakdown. So just real quick, just to give you a recap. Yeah. I focus on three things at a very, very macro level. One is liquidity. And the way that that I focus on that is Michael Howell's work and Posner's work, a lot of focus on the shadow banks and how that has been a real driver of equity markets for the better part of the last 15 years. And I highly recommend that. Then I focus on momentum. So momentum is basically a math equation of breakout stocks versus breakdown stocks. And when that goes negative, that reading, that's where I start to pay attention to what's something called the FNGD, which is an inverse ETF around FANG debt.

40:52Garrett Baldwin:And whenever this thing breaks out above its 20 and its 50-day moving average, be aware, Nothing really good happens when that happens. And then I start looking for the opportunity for like a short-term bottom or a reversion. I look at when the insiders step in and they buy. And those are the three major things that I focus on each day. Where can people subscribe? So me and the money printer is the daily free. And we have a paid letter called the Capital Wave Report, which covers those three specific things. I'm also on TheoTrade. I do a morning show on TheoTrade at 8.45 every day as well. So I stay very busy.

41:28Garrett Baldwin:I love the markets. I view the - Are you having fun? I love it. Yeah. I mean, again, the story of the world's told through markets. So that's why I do what I do. And I think that's why you do what you do as well. 100%. It's been great talking with you and we'll do it again sometime. Ladies and gentlemen, this has been Garrett Baldwin. Thank you so much for watching. Please go ahead and smash that like button. Make sure you're subscribed to the channel or the audio podcast. and we will talk to you soon.

42:16All right, all right. Five o 'clock Tuesday. You know what that means. It's time for an all new edition of What Are Your Thoughts? First time viewers, first time listeners. My name is Downtown Josh Brown. My co-host's name is Michael Batnick. Michael, say hello to the folks. Hello, folks. Can we explain the t-shirt? Because I'm loving it.

42:38Michael Batnick:All right. So I got an email a couple of weeks ago. Hey, why no Grand Rapids Hedge t-shirt? I don't know. Why not? So I went to chat GBT. I said, make me a t-shirt with a title wave and the word Grand Rapids Hedge over it. So it initially started out as a wave for the Rapids. Yeah. We replaced it with the Bush. So now we've got a hedge, Grand Rapids. But why is it Grand Rapids hedge for the people that don't know? All right. So Ben is a beta male. He doesn't give opinions. He 50-50s everything. He's on the one hand and on the other hand. We call it a Grand Rapids hedge. When you say a lot and you say nothing, shout out to Benny Carlson.

43:11Michael Batnick:It's a Grand Rapids hedge. He lives in Grand Rapids. Yeah. That too. That's awesome. It's so great. Does he have one? Yeah, he does. I hope he has one. Yeah. All right. Guys, on tonight's show, as we do every week, we will go through the biggest events and happenings in the market right now. I'm super excited for today's show. We have a sponsor, but before we get to the sponsor, I want to let everybody know August is Portfolio Review Month at Ritholtz Wealth Management. To be very clear, listen to the giraffe, folks. Portfolio Review Month, basically, it's almost impossible for us to find time to speak to as many people as we would like to during the course of the year.

43:57Things get a little bit slower in the summer, but not really, to be honest, this summer. But we are carving out some time to talk to some of you who have been sitting on a portfolio for a long time, not really sure what's happening, not really getting advice, or maybe getting advice, but not sure if that is good advice. And we want to give you an opportunity to reach out, talk to a CFP, and see if you could be doing things differently with your financial plan, with your portfolio. So now is the time. Go ahead and hit the link that Nicole will put in the chat, or the link that I believe will be in the show notes or in the video description.

44:34And we're standing by. We're ready to talk. Okay, we got a full house in the chat tonight. Chris Hayes is here. Magnus Giancarlo. Cliff is here. Georgie, all the regulars. Also have some new folks and some new faces here that I would love to say hello to. Steve Z, Micro GX. Who else is in the house tonight? Michael Whitham, welcome. Good to see you, dude. H2E2K, Seabass23. It's a veritable rogues gallery. Doc, I see you. All right, everyone's, Jay Luther, everyone's good. All right, so Public is the sponsor. I use the Public app personally, so does Michael. It's on the home screen of my phone.

45:21Public is for people who take investing seriously. Do I have that right, Mike?

45:25Michael Batnick:Deadly seriously. This is not a game. This is real business, not funny business. This is serious stuff we're talking about. Look, you can do very basic stuff like a 4.1 % APY on your cash with no fees or minimums. You can transfer a rollover IRA in from a 401k. You can open a brokerage account. Wait, can you get a match? Could you get a match? You can earn a 1 % match on IRA deposits, transfers, and 401k rollovers. And the reason I like the app so much is how easy and fast it is. like you could be up and running in minutes. And in 2025, that's an important thing. So go to public.com slash W-A-Y-T to learn more.

46:06Tell them Josh sent you. Tell them Michael sent you. Paid for by Public Investing. Full disclosures in podcast description. All right. We got a lot of housekeeping out of the way. I feel pretty good about that. Oh, who could it be? It appears we have a surprise. There she is. Ladies and gentlemen, say hello to Callie Cox. Callie is the chief strategist at Ritoltz Wealth and one of the finest investment bloggers currently in the game published something awesome this week that everybody read. And her site is called Optimistic Callie, which is perfect. If you know Callie, you know that's her jam.

46:49Welcome to the show. what's up i want you to know that i literally pushed the doorbell well i mean how else will you make it ring right i know exactly we don't have a ring cam so we would have let you in no matter what we were uh it's it's awesome that it's awesome to have you here so we're going to start with the earnings season callie because um this has been a pretty good one not unbelievable believable but like better than expected and uh a lot of look there's definitely punishment for companies that miss earnings i don't think that's like novel i think that's pretty much the way it always is but we always point it out um but by and large at a headline level this is a pretty good earnings season what do you think yeah i think you have to hedge that a little bit or grand rabbits hedge i'll throw an ode to michael's shirt there let's do it uh by the way is ben a Grand Rapids hedger or is he just a research analyst?

47:43Let's be honest. Okay. So this earnings season, the bar was low heading in. I think, so Bloomberg estimates that we look at showed that S &P profits probably grew like 2.5%. If you think of the average over the past five years as like 7 % or 8%, that's pretty darn low. But it's also a lower bar for companies to beat. And I know I've said this on What Are Your Thoughts before, but the best recipe for market gains is when you have low expectations and moderately good news. That seems to be what we're getting right now. But I also think you have to look at it on a sector level because tech is performing in a whole different league than the rest of the market on the profit side, but obviously on the breadth side as well.

48:27Seven of 11 sectors, though, had a year over year increase in profits. So it's not just tech that's got earnings growth. We all know the highest growth rates came from comm services and technology. Financials were a standout. And I think if you ask most people, where do you think the lowest growth rates were? They would nail it without even looking. Energy, materials, and staples. So it feels familiar. I don't know. Mike, what do you think? This is pretty much in line with the last few quarters that we've lived through.

48:57Michael Batnick:We were talking about stock market reactions. I think it was with Adam Parker talking about, was it with Adam who said financials haven't really done too, too well after beating and And part of the reason was because they had already done so well. But I was looking today at some of the stocks that I own in the capital markets. CME, on fire. ICE, on fire. NASDAQ. Do you still own that, Josh? Yeah. No. I'm out, unfortunately. S &P Global. All of these names. And JP Morgan is back near 50, all-time high. The banks are acting fantastic. Um, Cali, the beats are seeing a one day out performance of 1.12 % versus the, uh, versus the S and P index on average.

49:37Um, that's the highest since the third quarter of 2024. All right. Not that, not that amazing. Um, in the tech sector, it's closer to 2 % above the S and P. Um, so that's, that's good. When I, when I mentioned the misses being punished, misses are seeing a one day under performance of negative 5.7%. And we talked about this last week, it was minus 5.2%. So it's actually, it's getting worse. They are obliterating companies that don't come in at least in line. Should we read more deeply into that? Or is that just, hey, this is what it is, you got to do the number? I think it's a product of the low bar that we saw.

50:20If you're missing this low bar, then we have no patience for you. That's what investors are thinking. I do think last week changed a lot because heading into last week, I think that narrative of companies beating weren't necessarily performing that well past the index. And then companies that were missing were getting obliterated. Last week, we had like a third of S &P companies reporting, including, I believe, four of the MAG7 companies. So I think there was just like a sample size. There is a sample size thing that we needed to get across the line there. But I think what you can read into it is this, if you're missing the low bar, and to be clear, most sectors had quite a lower bar than what was expected even like three, four months ago, because of tariffs, because of everything that has happened since April.

51:07And look, if you can't make that low bar, then there's probably something seriously wrong. That's what's going through investors' heads. I mean, I want to say too, technology, I was astounded at how little tech expectations have changed. So think about that 2.5 % year-over-year bar at the beginning of the season. That came along with a 20 % earnings growth expectation for tech. So you had really low bars in the energy, consumer discretionaries, and materials of the world. And if you can't meet that, something's wrong. That's a good segue. way, going into last week, the estimates for the MAG7 was 4.5 % year-over-year growth for this quarter.

51:50And at the end of last week, according to ChartKid, Matt, that number has doubled. It's now 9.08%. The MAG7 delivered. They didn't all get, they didn't, I mean, even Apple had a good earnings report. They didn't all get, you know, outside of Tesla, they didn't, you basically, if you're in these stocks, if you're in Alphabet, if you're in Apple, we all understand the negative narratives around what's going on with these companies, just in terms of where they're at. But like the numbers were the numbers and they were good. It was strong across the board. Yeah. And I want to clarify one thing. So that 4.5 % that you mentioned was actually the blended like actuals versus estimate estimated growth for the S &P.

52:32So MAG7 stocks that reported last week actually boosted the bar for the overall estimate.

52:38Michael Batnick:Pushed it all up. Four percentage points, which is insane to think about. I have three comments. Number one, a lot of the stocks that are getting hit are stocks that have had a monster bounce off the April lows. A lot of these stocks are up 40%, 70%, double. So all right, a stock like Netflix, for example, very good earnings. The stock is up a gazillion percent. It's now giving back 14 % kind of quietly. Good. That's healthy. These stocks should not go up and up uninterrupted forever and ever and ever. And on Apple specifically, Apple had a beat, pretty surprisingly strong numbers. The stock has been red for the last six days from the open to the close because it's not getting rewarded for what it did on the hardware side or anything.

53:23Michael Batnick:It's the open question. It's the AI story. I know we're going to talk about Apple later, but that's it. And they're not in the game and the market does not like that. Well, it's the AI story. So I think Apple is a funny example because, yes, Apple is getting hit for falling behind on the AI front. But Apple had a lot to say about tariffs in the post-earnings release commentary as well. I know they said that tariff costs were supposedly going to go up by, I guess, like 300 million. Sorry, not tariff costs explicitly, but operating costs were going to go up by like 300 million through the end of the year.

53:54So I find that there's a little more dispersion when it comes to MagSafe and companies. Like there's a little bit more going on beneath the surface than AI. But I mean, I think you bring up a good point. We've seen a really strong rally since April. And now investors are asking companies to prove it. Yeah, I think that's the perfect point. Like when meta reports, the only tariff impact conceivably that you would see in a meta is maybe like an advertising pullback related to tariff, like general uncertainty. But they're not manufacturing anything at scale. It's not an important part of the company's business.

54:31Apple is very different than Meta. Apple's got to make physical things in one part of the world, ship them to another. They have to source components from everywhere. So like the tariff conversation being heavily featured during the Apple call is exactly what I think people should have expected if they didn't, because that's where that hits. You wrote about the AI CapEx spending versus the human economy, which so one is gangbusters and the other is slowing. And I thought you did a really good job smashing those two themes together and giving people some food for thought. And we're going to roll through a couple of your charts.

55:15And I just love to have you comment as we go. Let's put up this first one. robots are pulling the economy along this year. So this box that you have around 2025 is showing the yellow bar is AI and tech investments, which for this year,$152 billion in AI-related spending, which you could explain to us, and consumer spending,$77 billion. And obviously, consumer spending is, at least according to this, looking to be way down from the prior two years. And AI spending is mushrooming. So what's the takeaway from what you looked at here? So I think with this, you have to remember that there are two moving parts that we're watching in this chart.

56:03There is the AI spending, which I quantify and the industry quantifies as spending on or business spending on information processing equipment, computers, and software. And look, that's a proxy, right? Like there are probably a few line items here and there that you could throw into that AI line item, but we'll just go with it, right? Information processing equipment and software. And consumer spending is a main component of GDP. In fact, it's 70 % of GDP. It's a$16 trillion line item when you look at the components of what make up this economy. And what you're seeing here is that consumer spending has only grown by$77 billion this year.

56:43I mean, consumer spending has pretty much stalled out if you compare that to the$16 trillion base that we're talking about. And business investment in AI alone, again, that info processing equipment and software has grown by$152 billion. So you could take this two ways. You could say, OK, AI is propping up the economy. Clearly, it's adding more than this component of the economy that is so large and so dominant, especially over different periods in history. Or you could say consumer spending is really setting a low bar. It's stalling out. You know, it's not it's basically not growing. And that's why, you know, little line items like AI spending, little, little line items like AI spending are exceeding it.

57:28I think the latter is right. I think this is more a reflection of how poor or how stalled out consumer spending has been over the last two quarters. And look, AI CapEx is going gangbusters. Can it prop up the economy, though? I'm not so sure. I don't think you have a thriving US economy without the consumer. It's not big enough. It's big enough to move the stock market. But$1.4 trillion is not$16 trillion to your earlier point. No, and it's not$26 trillion, which is total GDP that we're talking about here. I mean, the stock market is different, right? The stock market is not the economy. You can work in expectations there.

58:05You have a little bit of future prospects that's baked in. And look, with tech, too, I mean, tech is the profitability golden child of the S &P 500. But valuations are still quite high, fairly high, because we're baking in the AI story, which hasn't really rolled into profits yet. But there's a bit of a back and forth between expectations and reality here that I think investors are still really trying to juggle and understand. New Loon in the chat is asking if you're factoring in the Sidney Sweeney component to any of this. I don't know how much you've thought about that or not at all. Did Sydney Sweeney do an ad for Meta?

58:44So Sydney Sweeney is going to do AI. Did I miss that? The jobs report, what'd you guys think? 73 ,000 last month and then they revised lower the prior two months or three months? What was the - Two months. The prior two months. So we're, I don't know. I don't know if like stall speed might be too much. I don't think it's, is it stall speed or is it just like way moderated down versus some of these months we were seeing before? I like the precision of way moderated down. So let's go with that. I'm just kidding. So I would hesitate to say stall speed because stall speed, the standard that we're setting here is actually a lot lower because the labor supply, the workforce, the number of people out there employed or looking for a job is actually shrinking at the moment.

59:36which is not something you see often. It's shrank for the labor supply has shrank for the past three months. This is immigration. This is the effect of - Mainly immigration. Yeah. Based on what we can see from the data. And of course, boomers leaving the workforce, aging out of the workforce. You can't ignore the demographics. But the labor supply is shrinking. That means that there are fewer people out there needing and looking for jobs, which means that there are fewer positions out there that are needed or fewer hires that are needed to soak up those unemployed, that unemployed population. So you have to remember that the game has changed a little bit for the job market.

1:00:11But that's not a healthy dynamic. I wouldn't consider shrinking labor supplies something that I put in the thriving job market bucket. Guys, pop her chart up. Callie, does it just based on history? We're looking back to 1970. The title of this chart is Hiring Grinds to a Halt. This is a three-month average of non-farm payrolls, which you peg at 35 ,000 jobs per month. Just looking at history, does it seem likely that this is all of a sudden going to bounce off that zero line? Or is that not historically what we usually see happen? I don't know what turns us around, Josh. That's a really tough one to say.

1:00:52Housing. You think so? You give me 150 basis points. I'll give you more hiring. Yeah, well, too bad the Fed can't cut the 10 years. All right, here's what I would say. That's the only thing. That's the only thing that like turns this on a dime is a housing boom. I don't know what else is big enough. Yeah, I mean, it's a good question. I mean, I think a rate cut, if I had to throw a story in there, I think a rate cut is it. But more than one. It's preferably a lot. Yeah. Can you throw that chart back on? Even one can infuse enough confidence in the economy to maybe give us a little bit of a spark.

1:01:34It's hard, though, because what we've seen underneath the surface, too, is that hiring has come down through a bunch of different sectors, especially on the private side. I mean, right now, the only sectors really net hiring over the past three months have been education and health services and state and local government. So it's great if you're a nurse or a firefighter. but if you're in a white collar job, if you're in a manufacturing job, if you're in a trade or transportation job, you've really been out of luck.

1:02:00Michael Batnick:Try it back out for a second. That's what I mean. All right. So if we look at, so there's no doubt the three month average is coming into the danger zone, into the red line, but look what happened before it. So maybe an optimistic take on what we're seeing now is a normalization of an absolutely absurdly abnormal job market where anybody could get a job, where anybody could get a raise? Is that a fair interpretation or is that too charitable? Chart off. I think it was a fair interpretation up until a few months ago. Hiring is so weak. I think the details that we've seen in the consumer confidence side with the labor differential have slipped below what is normal.

1:02:42And what is normal these days? Hard to say. But I look back to the 2010s, which was a pretty sluggish job market. And we're even seeing some indicators drop below those points. So I think you have a point, Michael. I think about that a lot because what we've seen over the past few years is slowing from a fiery hot job market. But from absolute levels and from the level of layoffs that we've seen this year, it is getting to a point where you should probably grit your teeth a little bit more about what's happening in the job market. We got one more chart from you. Fewer employees, more robots. I'll just I'll paraphrase what you said and then you can react to it is the robot economy cannibalizing the human economy hyperscalers are ramping up business spending but keeping their headcount steady so most of these kind of tech explosion capex booms are accompanied by hiring more developers and it seems like the only person trying to do that is Mark Zuckerberg by any means necessary.

1:03:44In this particular boom, the headcounts are not rising while CapEx is. And I'm just curious, what else would you add to that? Or what do people need to know about what you see happening there? Well, first of all, this is a chart that you see on social media and you're like, oh my God, robots are taking all over the world, AI overlords, like please save us. It's not that. It can seem like that at first glance. But what I'm trying to get across here is the fact that, you know, for all of the spending, this CapEx spending that we're seeing from the hyperscalers, it has to come out of one pocket or another.

1:04:22And if you think about business costs, so when we talk about where that money could come from, we have equity financing, debt financing, cost control, free cash flow, which is a derivative of cost control. But costs, I mean, wages are the biggest cost for most businesses. And what we've seen on the big tech side outside of 2021 has really been this control on the workforce, this control in the headcount. I don't think it was to, you know, eventually spend Buku's amount of money on AI, but I think it is one of the pockets that these tech companies are kind of fishing from in order to fund like$300 billion worth of CapEx spending.

1:05:03And it's important for investors to remember this because it's really hard for companies to be the golden child of profitability, which is what tech is right now. But also these big, big spenders and these really ambitious future. The money has to come from somewhere. And they're not taking on massive amounts of debt, at least not directly. The private credit guys are in order to fund the data centers. But to your point, they have to spend the money from somewhere. If they're not spending it somewhere else, it's meaningful. And I have to ask myself, do I think we live in a world where investors can swallow smaller or even standstill profit margins from big tech?

1:05:45I'm not so sure. Expectations are really high for that sector. So this is my Grand Rapids hedge. AI is a very compelling story. I don't think you can argue against that. But the profile of a company that has to almost pivot to catch up to AI or to try to lead at the forefront of AI, it requires them to take money from somewhere, requires them to spend from somewhere. And that somewhere is still a big question mark that some people might be ignoring.

1:06:14Michael Batnick:I just pulled up a stock that we had spoken about a while back that reminded me of this. Remember Accenture, Josh? We spoke about that. They do like AI consulting and other sort of consulting. Not well. Holy mackerel. The stock crashed. Yeah. I'm sure there's a story there, but wow. I was not expecting that. The opposite of that is IBM, which is much better at what Accenture does. All right. Callie, we've kept you longer than I promised you we would. I want to say thank you so much for joining us. For those of you who are not aware, Optimistic Callie is published, I think, at least weekly, probably multiple times per week, right?

1:06:52I can't promise that. No promises. But check out optimisticali.com. Callie, thank you so much for joining us. We really appreciate it. Great job this week. Yeah, I'm around whenever you need me. All right. Bye, Callie. All right, Callie Cox, ladies and gentlemen. What'd you think of that idea that, you know, we're celebrating all this CapEx spending and it's obviously fueling industrials and electrification related stocks and obviously software companies. but like the spending is coming from somewhere and we're basically, it's looking more and more like a hiring standstill in a lot of areas of corporate America.

1:07:32What do you think?

1:07:33Michael Batnick:Yeah, I'm not worried yet about where the cash is coming from because it's coming from their balance sheets primarily. But I saw that Google did a debt offering or Alphabet did a debt offering for the first time in a couple of years. Yeah. So yeah. And then Facebook was talking about the idea of maybe external financing for like a$30 billion expenditure. But listen, it's coming from them. They have all the cash. They can afford it. Yeah, so we're going to talk about Palantir in a little while. So I don't want to go too in depth on that. But when you hear them come out and say, we're going to do$4.1 billion in revenue this year, and we now have 860-some-odd commercial clients, non-government, all of those clients, what they would love to be able to do is spend the money on AI-related projects that will enable them to not hire the same amount of people they hired last year.

1:08:26You have to understand that's part of the goal. Without a doubt. All right, last thing before we move along. We got a July ISM. And just to put a bow on everything we've been talking about, there were not a lot of bright spots in the data. But in the commentary, here's a sampling. Quote, We continue to see strong demand driven by the build-out of artificial intelligence-related data center capacity, semiconductor industry expansion fueled by national policy, and large-scale grid modernization projects. New orders for defense equipment also surged. Non-defense orders dropped. So that's what people are spending money on, at least according to the manufacturer survey.

1:09:14Michael Batnick:So, and yeah, well, we have, we have NVIDIA. What does NVIDIA report? A few weeks? Yeah, they're always last. They're last. All right. That will, that will not, not matter. Okay. Let's talk about the state of the market. How would you describe the state of the market today? Giddy. Giddy. I don't, I don't like the term bubblicious because there were always bubbles. And I don't think the whole thing's a bubble, but I do think the way people are behaving, There's a giddiness. I mean, whatever. It's fine. It's understandable given this rush that everyone's feeling coming off the April lows and seeing the market make new highs.

1:09:59But I think that's kind of the vibes. I don't know. What do you think?

1:10:03Michael Batnick:I think there's a lot of optimism, a lot of it peripheral to the S &P 500 itself. It's like the S &P is going up every single day. You know what I mean? but there's just a lot of, there's a lot of, yeah, getting this is a good word. So let's get to it. All right. The DGEN DAO, I don't think we've referenced this in a while. Have we updated the components or are these, what's the, what's the situation here, Josh? I don't think we've updated the components, but just at a glance. They still work. There's nothing on here that I would take off. I don't think. I feel like now we might be. I would take Reddit out of here.

1:10:36Michael Batnick:That's not a, that's not a DGEN stock. I don't think. Well, no, no, no, no. No, it's part of the DGEN ecosystem because that's where they're all talking. You're right. My bad. You know what's missing? You don't have Joby on here. Yeah. And I think Palantir is an obvious miss. Oh, yeah. Oh, no. It's on here. It's on here. It's on here. I'm sorry. Do we have Applovin on? Yeah. Wait, what's on there? Joby is? Where is it? No, we don't have Joby. Oh, there it is. You're right. Okay. So Joby definitely, that's a DGEN, especially after this week. Either way, the individual tickers are less important.

1:11:08Michael Batnick:just the direction because one ticker is not going to make or break this line uh they're up 24 year-to-date and if you look at where they are from the lows they've almost doubled from the lows that's so that's the key takeaway we should have just bought we should have just uh we should have just etf this like people came to us and said some somebody came to us and said were you guys serious because i'll i'll build that right now yeah we cannot get conscious watch this um all right here's here's something so i'm all i'm video by the way i guess you're allergic to money mike yeah i'm all out of nvidia um you're out i sold a little just because i gave you permission to sell last week thank you i really i needed that um i'm all out i sold a little bit last week a little bit more the end of the weekend and the rest of it today um all right this chart helped push me over the ledge uh turn on please this is from our friend todd so on astrategas all right so what we're looking at for the listeners is this it's a line chart of nvidia and its weight in the S &P 500, which is now about 8%, versus the weight of the industrials.

1:12:09Michael Batnick:And I mean all of the industrials, every single one of them. We keep saying how crazy it is, but this is so insane. Wait a minute. So for people that can't see the chart, how many billion dollars is NVIDIA's market cap away from being bigger than the entire industrials? It's right there. It's right there. It's 1%. It's like 1%. It's like$5 billion. So may I remind you, these are not small names. Chot off, please, for a second. These are the top 10 names in the XLI. GE Aerospace, RTX, Caterpillar, Uber, GE Vernova, Boeing, Eden, Honeywell, Union Pacific, and Deere. Those are just the top 10. It just can't be.

1:12:52It just can't be. It can't be this. And I'm long in video, and I'm not playing this out right now. But it makes no sense. And you can't even argue that it's in part due to the fact that the industrials are cheap because they aren't. It's not like you're talking about heavily discounted stocks in the industrial sector, at least. In the healthcare sector, you sort of can make the case that those stocks are all selling at depressed valuations. Now they're caught up in the tariff shit.

1:13:24Michael Batnick:Dude, be that as it may. It's still crazy. Yeah, no, no. I'm with you. I'm with you. So these are the top 10 names in an admittedly depressed healthcare sector. Eli Lilly, Johnson & Johnson, AbbVie, Abbott Labs, UnitedHealth, Merck, Thermo Fisher, Intuitive Surgical, Amgen, and Boston Scientific. Come on. What? One of these is wrong. But in the case of healthcare, that could be wrong because those stocks are way too depressed. like those stocks are too heavily discounted in the case of industrials and what are we talking about is it how many companies from the s &p 500 industrials could be 80 stocks how many 50 i don't i don't know i don't either but it sounds wrong all right so that so that's some stuff on the public markets let's go to private markets so you looked at that and said and said i gotta i gotta i gotta sell this i gotta i gotta sober up a little bit yeah i mean i was i was you know i I didn't want to fit out the door anyway, mentally.

1:14:27Michael Batnick:All right. In private world, OpenAI just did a funding round at$300 billion. I think they released some of the growth numbers are truly outstanding. So, you know, this is what happens in what everybody's calling the biggest technological revolution of our lifetime. Literally, everybody's saying it. Tim Apple, well, maybe not Tim Apple, but they're all saying it. Anything here, Josh, or can I keep going? I'm using OpenAI 100 times a day, but I'm paying one subscription price. It's like 20 bucks, right? 20 bucks a month? Yeah, so I'm not sure if that's going to be the long-run business model for that company.

1:15:04I feel like it should cost at least as much as Spotify, not to give them any ideas. Maybe it should cost way more, just given the value that I'm getting from it. And you already know what I'm not using when I'm using ChatGPT.

1:15:17Michael Batnick:Right. I am looking for... I saw the, it doesn't matter. I don't have the numbers here handy, but the, but there, this is it. Oh, here it is. Okay. Open AI's annual recurring revenue has soared to$13 billion, up from 10 billion in June. That's people like me that can now not live without it. Same, same. I started paying in the last few months, up 30 % since June. Not bad. Okay. This is a really good one from Dave Nottig. A bit wonky, but I still think it's important. So Dave said, actually, let me just read this for a sec. So Tidal Financial Group put out their ETF industry highlights of the week and key metrics at a glance.

1:15:56Michael Batnick:So one year open to close ratio is over five, which is - What does that mean? Open to close? For every closed ETF, there are five that open, okay? I'll throw this out. No. I'll let you cook and then I'll tell you why it's not anything. Dave said, Nodding said, we've crossed the five to an open to close barrier. I think we've only seen that one or two times before. It's literally launch it, we'll fix it live land. And then there's some other stuff in here just about the industry assets. But why is that garbage? Because it used to cost a lot to keep a zombie ETF trading on the public markets. And now maybe because of AI or maybe because of streamlined compliance or whatever, the cost of letting one of these things just live, even with$50 million sitting in it, you never know when a sector or a strategy or a theme is all of a sudden going to get hot.

1:16:50Fair. And it's like roulette. If you're a Pacer ETFs or like a second tier ETF issuer, you've got all these products out there. All of a sudden, one of them could just explode. Like, why not? It's like roulette. Keep the chips on all the squares. I don't see this as an indicator anymore the way it used to be.

1:17:11Michael Batnick:However, by the way, you mentioned second tier. Baltrunas calls them indie issuers and they are on fire. So you might say that – so I'll see what you just said and I'll raise you this. Valtunas tweeted, new filing for a 2X Figma ETF. The stock that just had its IPO today with a$250 – 250 % pop, which is the most ever, by the way, for an IPO that was over$500 million. So throw that in the how crazy is this. Well, you had to sell that. You had to sell that on the first day. You had a second. All right. Robin reported last week equity notional volumes are up 112 % year over year. Of course, some of that is price, but up 25 % quarter over quarter.

1:17:49Michael Batnick:Options contracts are up 32 % year over year. So people are just going wild. And I want you to throw up this transaction-based revenue. The second Robinhood chart, please. Look how much freaking money they're making from options. This is Robinhood's transaction revenue up 65 % year over year to$539 million. And what's the options? That's the neon. Oh, shit. And green, for example, is equities. And we know that that's just payment for order flow because there are no transactions there. But my God, are the options profitable? So, right. Green is not stock trading commissions. That's PFAS. That's PFAS.

1:18:28And then what's the top gray other? What do you think is in there? It's tiny, but.

1:18:33Michael Batnick:Maybe some. I don't know. Is that like. Margin. Margin balances. Yeah. Maybe. Margin loans. Probably rolls up into it. All right. From Goldman Sachs. We spoke about this last week with Adam, I think. Speculative trading hits record high. I mean, obviously, just across the board, call option activity has surged to its highest since 2021. IPO SPAC issuance is at a multi-year high. Even ARK, even ARK, Balthunas tweeted, how back are we? You ask? We are so back that ARK just took an$800 million in one day. It's the biggest - God bless her. It's the biggest one-day inflow ever. She's doing good. She's doing good again, though.

1:19:12This is like her, this is her market.

1:19:14Michael Batnick:Yeah. So we mentioned Figma. Vlad Bastion tweeted a chart of the market cap of the top 100 information technology stocks with their forward PE. And Figma, of course, at the IPO price was number one. And then just to put a ball on this, all the way on the other side of the market are insiders who are not participating. They are not buying. Next chart, please. So Bloomberg ran a story. I didn't have time to read it yet, but I pulled the chart. Insider buying dries up. Insider buy trails sales by the most since July 2024. So that's the market. That's where we are. So maybe take a bit. So to sum up, Robinhood-esque, ARC-esque activity is back at highs.

1:20:01People are doing the most speculative things they can think of to do. And corporate insiders are using this as an opportunity to sell. or at least not buy. Yeah. And like Figma is not even getting the market cap. It's getting because it's Figma. They're getting it because there's scarcity of IPOs and people just love, you know what IPOs are for people in their twenties. Do you have any idea how big the baseball card pack, uh, pack breaking thing is on the internet? Do you know about this at all? Not as well as you,

1:20:37Michael Batnick:but yes. All right. My friend's kid, he's out of college now, just barely out of college now. He's doing these auctions on the internet with like a sealed pack of baseball cards. And he's doing a pack break. And people can bid on this thing before he opens it. And then he opens it. And wherever the highest bid is, you can kind of see like, did people overestimate or underestimate how valuable the cards in there might be. But now it's at another level where they're taking loose baseball cards. It's like some of them are like$20 ,000 cards. They're repackaging them and resealing them and starting all over again.

1:21:15Like as a scam or what? No, it's not a scam. People just want to bet on pack breaks. Tech IPOs are pack breaks. Like in other words, everyone put in their allocation at Robinhood. They got one share. That was like the meme last week. Like, oh, thanks Robinhood for my one share. That's a pack break. Like, you don't, nobody has any f***ing idea what Figma is going to be worth on its first day of trading or its second. No idea. Here's my evidence. They priced the IPO at like 20 something. Then they raised it to 30 something. Then they open it and it goes to a hundred because people have no idea what these things are worth.

1:21:54I'm so glad you said that.

1:21:56Michael Batnick:Nobody has any idea. I made this analogy. It's like drafting NFL quarterbacks. They want to get it right. The bankers don't want to f*** the companies. It's hard. If they get that reputation, who would hire them? People are like, oh, this is for their rich clients. No, they want to price it right, but who could see the future? It's hard. Who could possibly? It's hard. Now, there are some telltale signs that a deal is going to be great. One of them is they keep the share amount. They keep the share count relatively low. People are looking for companies that don't have a lot of debt. They're looking for companies that have explosive growth rates.

1:22:28They're looking for companies that use a lot of AI stuff in their prospecti. like there are some indicators, but in the end, in the end, it's at the, but it's a pack break. So the same people that are willing to bet on a resealed package of baseball cards. And by the way, the way that works is you're guaranteed 45 % of your money back. So no matter what cards are in there, you're not going to take a total loss. If you bid, if you bid$2 ,000 on a, on a pack and there aren't any special cards in there, you're guaranteed to get at least like a grand back. Anyway, that's what this activity is. It's lottery-esque.

1:23:07You're putting in an allocation for Figma, not because you have any clue of where they're going to put the stock when it opens, but because, oh my God, imagine if it Figma's.

1:23:16Michael Batnick:Josh, there's another aspect to this. The day that it IPOs is very important. It came public on Thursday at an all-time high. What if it came public on Friday, on a day that people didn't want to buy stocks? On a tariff day. I got one more. I got one more on this, and we can move on. this is an amazing story I love it so much Fenwick and West is a law firm that did all or most of the legal work for Figma not just for the deal but prior to and they handled all the going public stuff for the company right they made a very big bet they said let's get equity in this client and not just take our I don't know God can you imagine $3 ,000 an hour legal fees.

1:24:02They took equity, I don't want to say instead, but in lieu of some of the money that they ordinarily would have gotten. Talk about speculative. They took the ultimate bet on a client. Fenwick, I think, was paid the equivalent of$30 million worth of Figma shares for the right to do that. Those shares, as of July 31st, were worth - uh it says right here it says 900 000 shares 900 000 shares times 85 dollars

1:24:34Michael Batnick:that's 71 million bucks for where it is right now not bad can you imagine like what like what an amazing what an amazing decision this is a law firm so pretty uh pretty pretty impressive um all right i have nothing more other than to say that i agree with you things have we are so all the way back yeah and things have gotten absolutely crazy they It could get crazier though. Oh yeah. Cause I've seen it. There's no laws. I know they can. You've seen, we saw it in 21. I was honestly, this doesn't feel that crazy. I'm saying there's a, there's a lot of speculation, but it doesn't feel, it doesn't feel like all the way bonkers.

1:25:11Michael Batnick:21 was way nutser. If we get like, if we get like 10 more figmas, you know, or we get a super figma, like, you know what I'm saying? Like if we get a figma, but where it's like, instead of 70 billion, it's like 700 billion. All right, so that's a good segue to Palantir. Yes, all right. Okay. Is Alex Karp the new Elon Musk? There's similarities. I listened to the call as well. Elon Musk is not hot right now. Alex Karp is very galvanizing. He's messianic. Look, I think what people love about him is he's delivering. I don't think he could have the same level of swagger if his results were just whatever.

1:25:59His results were insane. Did you listen? Did you hear Dan Ives? Yeah. Dan's like one of my favorite human beings in the world.

1:26:06Michael Batnick:I texted him a picture of his question. Dan said like, I'm sorry also that the haters are unsatisfied. This is not a quarterly conference call. I love him so much. Alex Carp and Dan Ives were trolling the haters. Well, one of the things the haters said was that the business model where they don't hire direct salespeople was not going to work. And Dan Ives asked him a question about that, like the decision to continue down this road. And look, Dan, say whatever you want. Dan has been bullish on Palantir since it came public and has never changed his tune. And he's been really, really right on the stock.

1:26:45Let's go through some of the highlights here so people understand the extent of what's happening. And then we'll talk about the valuation. um q2 2025 revenue hit a billion dollars for the first time that's a 48 percent year-over-year number it's just it's it's incredible um and 14 over the prior quarter it's being driven by not just government contracts which i think is a lot of people look at palantir and they're like all right great so the army right and the cia no dude commercial client revenue growth was up 90 something percent versus only 50 % for government spending growth. So Palantir is now has like almost 900 customers.

1:27:30They'll have a thousand customers.

1:27:31Michael Batnick:Josh, in that vein. So they said during the second quarter, they closed a hundred because that was my impression too. I was very new on this company. They closed 157 deals of at least$1 million. 66 were 5 million and 42 were at least 10 million. Yeah. Chart off. And it reminds me a lot of CrowdStrike, Like they highlight, without using some of the names, they highlight like a large US wireless carrier or phone company. You can imagine it's either T-Mobile, AT &T, or Verizon. But talking about the way that they're building these KYC tools for banks where you can open an account in seconds. That normally would have taken nine days worth of human processing of information.

1:28:21The breadth of the business and the amount of verticals that they're selling into now I think is really what captures people's imagination. they're basically becoming the business AI layer that they claim is substantially stronger than just a plain LLM. And they talk about it in terms of ontology, meaning like learning and understanding mistakes that an LLM would make that a human never would and building accordingly. Because, you know, you can't make a, you know, ha ha ha, stupid AI. You can't do that with some of the projects that they're working on. So net dollar retention up 128%, operating cash flow for the first six months of the year, 849 million.

1:29:08They're projecting$4 billion of full year revenue or more. And let's do this rule of 40 thing really quickly.

1:29:18Michael Batnick:Wait, hang on. Before we get to rule 40, he said that he was going to 10X that shit in five years, did he say? He said 10X revenue in five years. So 40 billion. They spoke a lot about the rule of 40, and it's the first thing that they have in their deck. So let's run through a few of these charts. All right, this is impossible to see, but this is a very important metric for enterprise software companies. And what you're looking at is on one axis, it is, let me just pull this up. It's the margin and the revenue, right? So a good company will have over 40 and they are so far off the charts. It's insanity.

1:29:54Yeah. And rule of 40 is about like revenue growth and margins and just the ability to, you know, CrowdStrike talks about this a lot. I think like ServiceNow, Workday, like the types of companies that are selling enterprise software are the ones that you'll most frequently hear this rule of 40 idea and why it's so important. It's how they think of themselves, profitable growth. And Palantir's score, it looks like they're playing a different sport entirely just based on this dot plot. It's really impressive.

1:30:29Michael Batnick:The next one compares them to the top 25 market cap companies globally. And the only one that best them on this metric is NVIDIA. Some of the gray bars or circles are meta uh broadcom microsoft mastercard google i mean they are they're executing so they've got and then the next one shows the growth of the rule of 40 so the valuation yeah 94 94 40 is considered good um but the valuation is insane sorry sorry to interrupt you bob sacramento in the chat says i prefer the rule of 69 i just i didn't think you would see it so i wanted to just surface that for So do I. Yeah, me and Bob both. Okay. Let's do this valuation stuff really quickly.

1:31:16Chart on. Great job on this one, Sean. Now, what is this? That's the market reaction. Yeah, I mean, needless to say, record high. We're going to do Palantir versus everyone else.

1:31:28Michael Batnick:Yeah. All right. This is the thing. All right. So it's a$400 billion market cap on$4 billion in annual revenue. Granted, he said he wants to 10x revenue in the next five years. And let's say he can actually do it. Obviously, can't have a recession. That'll probably hurt his chances of getting there. But even if he comes close, maybe in that scenario, you could understand the$400 billion, but not if it goes to$800 billion, right? Right. Palantir's market cap at$407 billion. Home Depot is$385 billion. Coca-Cola,$297 billion. Salesforce,$240 billion. So this company is now worth one and a half sales forces.

1:32:19McDonald's,$215 billion. Nike,$110 billion.

1:32:22Michael Batnick:Seems a bit rich. But I guess to Dan's point and to Alex's points, that's what people have been saying for the last$300 billion in market cap. Good for them. They're executing. Oh, 100%. It didn't make more sense at a$250 billion market cap. Right. It's such a great point, which is why just use charts, throw everything else in the garbage. But that's another conversation. Put up this next one. I asked Sean to just quantify the company's fundamental performance because, I mean, it really is epic. On the left side, less impressive, just like on the surface, but the growth rates are really still are.

1:33:03No, no. The market isn't dumb.

1:33:05Michael Batnick:Like obviously they've galvanized the share base and the business is executing. So this is what it is. Look at this revenue, quarterly year-over-year revenue. In Q4 of 2023, which might have been their first quarter as a publicly traded company or I don't know, 20%. It's accelerating. It's at 48%. It's the fastest pace of quarterly year-over-year revenue growth that they've reported so far. and it's a yeah that's that a that's that all right we have uh we have amd numbers let's get that in here maybe this will make you feel good or bad about having sold nvidia oh look in there look at their gaming segment revenue yeah everyone's very excited about the gaming sense um no but dude it's up 69 year over year nice as of this uh as of this conversation and the is off 4 % in the post-market, but the stock has been ripping all year or at least since April, I should say.

1:34:08It was a$75 stock that ran to 180. Oh yeah, you know, this gets back

1:34:15Michael Batnick:to the conversation we had with Callie. I mean, I don't own the stock and it's easy for me to say this doesn't bother me, but just as an objective observer, all right, the stock went from freaking 75 to 180 and it's given back a few bucks, big deal. These numbers aren't that impressive on the surface. I don't know the story well enough to say anything negative, but I guess they beat on revenue by, I don't know, looks like 200 million. And earnings per share was in line, 48 cents. I guess revenue up 32 % year over year is impressive. Gross margin fell to 40 % from 49 year over year. and data segment revenue was up 14%.

1:35:00Does that sound like blow me away numbers? No. Not really, right? I guess that's why this isn't NVIDIA. All right. And we got a report from Toast, which for longtime viewers, listeners know, this is one of my names. Stock is not really reacting in the post. It's down 71 cents, but it looks like Toast was good. ARR up 31 % year over year to 2 billion. that's for the quarter. So this is becoming a pretty big company. That's, if you could do the math, you're talking about an$8 billion annual run rate with a, what's the market cap? $27 billion market cap. So not bad. Gross payment volume up 23%. I doubt the whole restaurant sector is growing its spend.

1:35:51So you can see them making big inroads. And we don't have to go through the rest. Oh, this one's good though. Total locations up 24 % year over year. They now have 148 ,000 restaurant clients. When I first started buying the stock in the teens, they had like 60 ,000. So they are just rapidly, and there's only, I think it's 600 ,000 restaurants in the country or 700 ,000. Like it's not that big of a number. A lot of people would guess it's in the millions and it just isn't. so if they're at 148 they have now crossed over to the point where like they are the the category king and um they're not the only player out there but like uh there are some of the legacy players like micros which i think uh oracle owns and uh clovers out there but i think this is like this is the the uber of of uh of restaurant payments so uh i don't know i gotta spend some more time on this overnight, but it looks like a good report.

1:36:55So for those who have followed me into the stock over the years, here we are looking pretty good.

1:37:01Michael Batnick:I would say so. Yes. All right. Let's play a game to catch a falling knife. I'm going to run through. I brought five charts for us, Josh. I'm going to run through the charts and then we'll reset and I'll get your thoughts. Okay. Well, we're going to pick one each or force rank them. yeah all right let's go through the charts so first we have lululemon the stock peaked in the beginning at the beginning of 2024 at 511 dollars it's now 197 i brought you ups which has just been going oh pretty much straight down from 232 in 2022 to 87 today i brought you sweet green which is a bit of a newer issue, peaked at 44, not even a year ago, and it is now down to 12.

1:37:51That's pretty bad. You know, I owned this for 15 minutes.

1:37:55Michael Batnick:Oh, I didn't know that. All right. I brought you Enphase Energy, a stock that I owned for a cup of coffee. My bad. I made the case for that on this show. It peaked at 336. It's now 32. Oh my God. And then we couldn't not do UnitedHealth. Stock was 625 bucks yesterday, basically it is now 251 dollars so i will say first that i the only falling knife i would catch is like the bluest of blue chip type of names um stocks that are going straight down these are these are ugly so if you have two of them are in the dow jones ups up oh is it ups united health and ups are dow 30 components now ups does not belong with the dow holy shit holy shit is Amazon in the Dow now?

1:38:45Yeah. So you don't need UPS. UPS is an e-commerce thing at this point. So what do you think? Would you take a flyer on any of these? Yeah, I would take a flyer on UPS. I would wait till they get kicked out of the Dow and I would buy it. They figured out that Amazon is literally the worst customer they could ever have. And in January, they announced a substantial restructuring plan where they are going to minimize their their business with Amazon to, I don't want to say the bare minimum, but substantially lower. They had become extremely reliant on Amazon. Amazon for UPS means high volumes of packages and extraordinarily low profitability on each delivery.

1:39:30And it just, it's, they're much better off doing things like small and mid-sized business or international. So they are trying to transition the business. The problem is the company has to shrink to do it.

1:39:43Michael Batnick:So dude, it's almost like stock market participants aren't stupid. I'm looking at the free cashflow of UPS and it was over$10 billion in 2022. And now it's three and a half billion and it's just gone straight down. Do you know they just reaffirmed the dividend and then they're going to pay it out of negative cashflow? That's not great. But I don't think if you're UPS, I really don't think you can cut the dividend and a corollary to that is Pfizer. Like Pfizer got to the point where the dividend was like six or seven percent and they refused to cut it. Because I think these companies know it like unless it's an emergency like GE or whatever, like even Schwab, I think Schwab never cut its dividend.

1:40:27Like these companies, they intuitively know that's game over. That's where you lose your whole shareholder base for forever when you do that. And I think they get a lot of pressure from institutional shareholders that intimate to them. Like if you guys cut your dividend, I am definitely selling. And so UPS wants to soldier on. I think I would buy that one though. Just not right this second. I want one more really nasty news announcement to come out. Maybe they get kicked out of the index.

1:40:58Michael Batnick:All right, so Lulu is getting their lunch eating by aloe. Is that the story? Yeah, I wouldn't buy that. And everyone else? the truth is the quality of the clothing is not as good as it used to be when you talk to their customers talk to women who their entire wardrobe was lulu three years ago now it's aloe they yeah they will tell you that they are um much more willing to buy viore or aloe even though the prices are higher than than trust lulu and i don't know how you turn that around it seems like it's a really tough thing to do this lulu is the gap 20 years later yeah that's tough the gap has spent 20 years basically bleeding relevance still to this day.

1:41:37And that's what this reminds me of. So I wouldn't buy that one. So nothing there.

1:41:42Michael Batnick:What about Sweetgreen? Operational issues. They're just not good at running this business. At Sweetgreen? Yeah. And I think they get f***ed up with prices and tariffs. And also, it's a lunch spot. It's an office thing. Yeah, that didn't matter, though. In 2024, I was in the stock. It was one of the hottest stocks in the market. And they had a really great story to tell about how robotics would ultimately take over the preparation of salads and on and on and on. But they're not executing. They're not hitting their numbers. They're guiding lower. They're not marketing well. It's just a tough story.

1:42:24I don't need that in my life. And I still don't know what they do.

1:42:28Michael Batnick:United. I'd buy United if I had to buy one of these. I don't even know who number two is. All right, fine. All right, so fine. Would you put United up against UPS at today's prices between now and the end of the year? The reason why I would be more inclined to buy United is because this went straight down where you can make the case that whatever is driving the price action is an overreaction. You can make the case just based on how violent it is. Whereas UPS, it's just a slow bleed, which is matching the free cash flow and is nothing but lower highs and it is just the cleanest downtrend. So to me, I draw a distinction between a falling knife, which is something that's going straight down, which is the other four, versus UPS, which is like a slow bleed.

1:43:12Michael Batnick:To me, that's just heinous. Yeah, we don't have Nike in here. Because Nike is not a knife. There's no way. It's just not. Look at the chart. It's still a little. I know it popped after its earnings, but it's still knifey. No, it's not. It's not. All right. Nope. It's gross. It's gappy. Let's revisit these in the winter. We'll see how they did. My bet would be UPS, even though I think there's another leg lower. I think UnitedHealth might have permanent impairment to their business model. UPS has already acknowledged that and is actively trying to turn to a different. It doesn't matter. Who cares?

1:43:53All right. So what will Apple do to find growth in the second half is the question. So let's put up this chart. The last quarter they reported last week was actually not bad. Phone demand was high. I have a friend who was in the cell phone business, and he pointed out that they're talking about switching from titanium back to aluminum, which means more broken phones, which means a faster replacement cycle. With titanium, the only stuff that breaks is the screen or the battery to force people to upgrade. And nobody's upgrading for a better camera because the cameras at this point are like sci-fi.

1:44:35They're so good. Chat GPT is better than AI series, so no one's going to upgrade for Apple's AI. So how do you get people to buy phones faster and not hold on to an iPhone for five years? Make them break easier. So I know that's a really cynical take, but it also happens to be true. So if they actually go through with this and go back to aluminum, you will know the reason why they need the phones to break. Another thing they can do, though, is triple the size of their ad business. It's$7 billion a year right now. Think about this. That shocked me, by the way. That number shocked me. I had no idea.

1:45:10It should be way higher. It should be way higher. Amazon decided to focus on its ad business and within a few years became the third largest advertising platform on earth. There's no reason Apple can't do this. and they're already in the business. It would not be from a standing start. Think about all the opportunities Apple has to put ads in front of you. Your eyes never take themselves away from their screens. So that's a thing. But wait, it wouldn't be on the phone. You don't want ads popping up on your phone. No, within their services business. Within their services business. Apple has a huge opportunity in advertising.

1:45:48We'll leave it at that. We won't go deeper. But like, just look at Netflix. They said in calendar 2025, their ad business will double. Half of Netflix's subscribers are now in the ad supported tier. Michael, that took three years. And this is a chart from a really good piece by Julia Alexander at Puck. But just the gist of it is, if Apple decides they want to talk about advertising to Wall Street and get really seriously focused there, that's a good answer to the question of where will Apple find growth? Because they're basically, they're in it, but they're not trying that hard. And it could be way bigger and globally.

1:46:31And I just thought that was an interesting idea. And we'll see if they actually do it. What are your thoughts?

1:46:35Michael Batnick:I think in the short term, the stock is so relatively depressed to its peers and just the sentiment. nobody's bullish on Apple, then I think it wouldn't take much to change sentiment and get the stock to pop. Problem is they really do need a growth engine because the stock is not cheap. And that's like the bigger overhang. So they need either an AI play, which is I think seeming increasingly unlikely. I guess they can make an announcement and surprise us. Or they go in, they lean into what you're talking about. And if they were to go from 7 billion to 20 billion, that would be significant even for them.

1:47:07There's no ad supported tier for Apple TV. Right. You're telling me if they launched an ad supported tier, they wouldn't pick up millions and millions of more subs who just don't want to pay the full freight for like this is not new. Everyone's already done this. In fact, Amazon now defaults you. Amazon Prime members are defaulted to the ad supported tier and you have to pay a premium to have no ads. Paramount is showing you ads. Yeah, they want you. They want to show you ads. Yeah, Netflix is showing you ads. Like Peacock is showing you ads. Hulu is showing you ads. What are you waiting for? Ad support at Apple TV, do it.

1:47:46Do it.

1:47:47Michael Batnick:Bacardi Cola. Just make it happen. All right. Anyway, we're in to make the case. I pitched this on CNBC today. It's a really interesting story, so I wanted to rehash it. And we almost never talk about high dividend payers in this section. but I have one for you. Ooh, the stock looks sweet. Okay. Dominion Energy is a utility that's become a growth company. If I asked you, what is the capital of the internet geographically? What place in the world? You would probably say something like Menlo Park or Cupertino or San Jose, or you'd say like somewhere in Asia. But the truth is it's in Virginia. It's in a place called Loudoun County.

1:48:35This is where AOL was based 30 years ago when they invented the consumer internet. And that's where the first data centers were built to serve as AOL and then ultimately Yahoo and now Google and Amazon and Microsoft Azure. This is Loudoun County is called Data Center Alley. It is the largest cluster of data centers on the planet, all in one place. The Wall Street Journal says 70%, listen to this number, 70 % of the entire world's internet traffic passes through this Northern Virginia data center cluster every day. It's an unbelievable thing. If you happen to be the local utility that is covering Loudoun County in Northern Virginia, it's like discovering oil in your backyard.

1:49:30So that's exactly what's happened here. Um, all of this AI CapEx shit that we talk about night and day involves, uh, electrification and spending on the grid and blah, blah, blah, blah, blah. And, uh, Dominion is the company benefiting more so than any other, uh, company in that area. So it's a boring, sleepy utility that realizes it's, it's in the middle of a, of a gold mine. And what's happening going forward, because everything I just told you is in the stock, what's happening going forward is they, in July, formally proposed a rate increase to their regulator. Regulators will respond in September.

1:50:17This is called the rate case. And if they win their rate case, meaning it's a regulated business, they'll be able to charge more. And the reason why they need to charge more, they've explained, is CapEx and spending related to this opportunity with all the data centers. So basically, you've got a stock technically breaking out above 61. It's a 4.42 % dividend. It's not just electricity in Virginia. It's also natural gas in South Carolina and a whole bunch of other stuff, building one of the most massive offshore wind projects in the world off the Virginia coast. and you got a shareholder base that is largely there for the dividend yield.

1:50:59But now all of a sudden, you've got a lot of growth tied to this AI story. And the AI story doesn't end anytime soon. The amount of electricity need, I feel like it's forever. I love it. Yeah, so I like the story. I wanted to pitch it to you. Let's put this chart up. Last but not least, you know how I love these golden crosses. Like what the hell else do you need to say? Today, we broke above resistance dating back to last October. You got that 50-day rising above that 200-day, which will be rising soon. And not crazy overbought. So this is, I think, one of my better make the cases this year.

1:51:39Michael Batnick:I like it. If you are bullish on AI, and why wouldn't you be? The CapEx is not slowing down. But you're like, but$4 trillion. I get it. We all get it. It's$4 trillion. This is maybe a safer, less risk way to play it. I like it. Yeah. Look, I'm saying$50 is the pivot point. $50 has been support for a while. So if you're wrong, you risk 11 points. I really don't think it'll get there. I mean, it certainly could. There's a market-wide event. Yeah. I like it. So long as it stays above$50, you're getting a 4.5 % yield. and I think the story stays intact, you can stay long. Okay, I like it. It's not going to double.

1:52:24Michael Batnick:It's a utility. Yeah, I like it. All right, I brought a chart. The first chart is, Daniel, if you would. All right, this is the revenue, the quarterly revenue since the beginning of 2019. You could see that it's more than doubled. This is a company's quarterly revenue? Yes. Okay, there's only a handful of companies this could be at this dollar amount. That's correct. Okay. Okay. It is significant. It is not a small company. And the next chart shows that over the same time period, you've gotten more larger swings, slightly larger return, but really nothing to speak of. The orange line is the S &P 500.

1:53:05Michael Batnick:So 2019 to today, that's, you know, it's a long amount of time. Oh, so this is the share price versus the S &P. Yeah. And the chart before was? The revenue. Ooh. I want to say I'm looking at 2021 as my clue. I don't think it's a Mag 7 because it didn't. Oh, wait a minute. 2022, it did crash. And it bottomed on every other Mag 7. It is a Mag 7. Is it Meta? No. Is it Microsoft? No. Maybe go f*** yourself? I don't know. It's Amazon. It's Amazon. Why didn't I know that? Oh,$176 billion should have been the tell for me. But it's just kind of wild. Like the company's not working. The business has grown over the last six plus years.

1:53:56Michael Batnick:Dude, the chat all guessed. Everybody guessed. Everybody guessed Amazon except for me. But it's hard. The stock business, it's no easy thing. I think that's my key to shut up for the night. Hey, guys, thank you so much for joining us on the live. It was great to see so many familiar avatars. We miss you guys when we're not here. We really appreciate it. For those of you listening to us out in podcast land, hey, a review goes a long way. It's a signal to the algorithm at Spotify and Apple that what we're doing is high quality. And this is how you support the show. Tomorrow's an all-new animal spirits because it's Wednesday.

1:54:35We'll do another Ask the Compound.

1:54:37Michael Batnick:And wait, this goes live, idonshop.com, 9 a.m. tomorrow. Oh, I like that. Limited number, very few. I don't shop.com. We'll have the Grand Rapids head shirt. And at the end of the week, an all new edition of the compounded friends. So keep it locked. We'll see you soon. Thanks again.

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