Why Bubble Talk is Totally Wrong with Ankur Crawford

17:56like it asks you 12 pretty deep questions. I think all of us should answer these questions because it tells you a lot about yourself.

18:02Downtown Josh Brown:Okay. And then it uses those questions. You tell it, you put in all your stats. You tell it what colleges you want to apply to. It takes the questions and just organizes it for you. So it has version control. You can send it to your parents or your counselor for comments. Okay. But it has something called strategic intelligence that allows you to, allows the kid to say, like, how am I supposed to answer this question? Yeah. You know, given my background, given my stats, given what I've been involved with, how is the best way, like, what should I really be saying? And so it basically allows that.

18:38Downtown Josh Brown:As you're explaining this, I'm starting to think like the colleges should almost force the kids applying to apply via AI interaction to prove that they're going to be ready for the world that's coming or that's already here, quite frankly. Like, it almost seems like this should be part of the process. Yeah, I mean, I think it should be. I built it. So, you know, I think the point is, like, not necessarily the app and how it will, you know, can really change the experience of applying to college. But the fact that, like, I've never coded before.

19:09Michael Batnick:Yeah. And I built this and it took me, like, 60 hours to build it. That's a long time, actually. I know. It was three weekends. Yeah, but she's never coded before.

19:18Downtown Josh Brown:So without it, it would have taken you 60 years. That's the point. It would have been infinite because I would never have done it. just wouldn't know where to start.

19:25Michael Batnick:So based on what you said earlier about the type of companies that you buy, these companies are experiencing exponential growth. There's nowhere near saturation. I mean, they just started. Based on, I guess, let's use like the most recent round, Anthropic raised at$800 billion. Would this be interesting to you or is it like too early in their growth phase? So interestingly enough, we recently participated in the last round and that last round three weeks ago was at 380 billion. I bet OpenAI was 800. And OpenAI was 850, I think. Okay, so say more. And so we did actually participate in that round.

20:04And in part, what's happening is, I mean, we have never before in the course of the market seen companies that are staying private till they're almost a trillion dollars. And so there's a lot of value that our clients aren't really capable of touching. And so we're actually going and finding really great companies that we believe in, that we think will grow in the private markets that have a road to IPO over the next two to three years.

20:35Michael Batnick:Which vehicle is this in? It's actually across all our funds. And so as part of the, I guess, the 40 act funds, we're able to take 15 % of the fund and put it into private. Into private. And is this the first time in the history of Altru that you guys have done this? No, we've done it before. Like we were early investors in Palantir back in, I think, 2012, 13, something like that. And we were investors in Chime. So it's not something that we've done often, but we are seeing a really interesting pipeline of companies now.

21:09Downtown Josh Brown:If you have companies, like if you have companies going to$500 billion dollars before they even file an S1 and you're a growth investor. On the one hand, it's sad that they're not public and more people can't get access. But part of me feels like this helps make the case for active management, at least for growth funds. Like growth funds should be doing this as a differentiator versus, you know, whatever their benchmark is. Right. Well, I mean, we should be doing it in part because there's so much value for our clients that is residual and we're not able to capture it in the public market. And then these things come public and you have another decision to make.

21:49Downtown Josh Brown:That's right. We are up a lot. Do we stick around? I mean, you probably have a lockup or whatever it is, but. Yeah. And look, we haven't had to contend with that quite yet. Okay. And we'll see. It'll be really interesting as Anthropic and Databricks and OpenAI come public. What happens?

22:08Michael Batnick:Well, yeah, because you don't know how the public market will react to it. Like if the public market vomits, you might buy more. That's right. So what sort of access of financial information do you have as investors in these companies? We get, depending on which company it is, it's quarterly. We get quarterly statements. Now, you know, not all of them are like have full, they won't have conference calls. And, but we have access to the management teams or someone at the company.

22:35Downtown Josh Brown:Needed is Berkshire Hathaway. So don't, don't worry. I want to, I want to talk big picture. you say that we are short compute globally. Sure, everyone is short compute? Everyone's short compute. Okay, for how long do you think that persists? Because one of the things, if you're invested in a lot of the stocks in the space, one of the things is like, am I gonna be like the last buyer? Am I gonna buy right before all of a sudden there's like a glut and everyone overbuilt and the CapEx plan starts to moderate? And that's everyone's biggest fear. Arguably, that's kept people out of this for three years, some people.

23:14Downtown Josh Brown:But how do you think about that compute shortage and how much more runway there might be? So I think of it in many different aspects. First of all, I'm going to go back to that first thing I said, that we think linearly. We've been trained to think linearly. You give someone two data points, what do they do? They connect them. They connect them. And then they extrapolate it. How far is the distance between here and there? That's right. And it's also they extrapolate it, right? But what happens if, in fact, that growth is exponential? And again, this is why people are struggling with the CapEx numbers and the growth numbers, because we really haven't experienced exponential growth.

23:49And so, you know, that's one aspect. I do believe that this is exponential kind of growth in the amount of compute that we need. and that is predicated on the fact that intelligence is when you start to build a neural network it is an exponential problem especially my intelligence like yes it's the

24:16Downtown Josh Brown:exponential problem i have always said this right in other words the amount because when you talk about neural and you talk about what it's the amount of connections that's right and the amount of connections is infinite it's a big number multiplied by another big number multiple and And for every layer beyond, it's an exponential problem, right? So for every connection here has an exponential kind of more connections beyond it. So I think that when you think about how we can use intelligence and as we try to recreate intelligence, that demand is – it's difficult to fathom, but it is very real.

25:01So think about agents. You know, a year ago, we were worried about, you know, oh, are we in a bubble? Yeah. Then we got agents. And right now, we're all stopped out on the agents that we can use and the tokens we can use. And, you know, people are trying to token max and their bills are getting out of control. Why is that? Because once we can ask someone to do or something to do something for us that is productive, we will deploy it.

25:29Downtown Josh Brown:The CTO at Uber said they already blew their entire 2026 budget on compute. It's, and it's like April. Did you see, did you see that news? I did see that. What do you make of that? Is that, do you think that they just have the guts to say it? And there were a lot of companies in that same position because of the cost of all this compute? You do? I think, I think there are a lot of companies that, you know, want to use more of the compute. And now that it's becoming accessible and democratized because you don't have to be a coder or to use it and anyone can use it. I mean, usage, I do think will go through the roof if they have the tokens.

26:03Downtown Josh Brown:We're going to do some market stuff. But to segue there, does having the level of conviction that you do in the exponential opportunity enable you to live through the periodic drawdowns, not just for tech and AI, but just like market-wide? Is that a big part of your portfolio manager persona? That's, I don't know if I have a portfolio manager persona per se, but - Well, it seems like you're very, it seems like you have this, like this innate bullishness about the possibilities. And so maybe that would enable you to endure more volatility than somebody who is either skeptical or doesn't have that same level of conviction.

26:43Well, let me give you an example. You know, in February, I got pretty worried about the market. And it was kind of like a guttural instinct of, you know, something doesn't feel right. We're starting to put ships into the seas near Iran. Like, and instead of just sitting there, despite my bullishness, you know, I raised 7 % cash in our concentrated equity fund. Yeah.

27:07Downtown Josh Brown:Right? Not by selling an anthropic. Not by selling an anthropic. Right. And so it was kind of like more of like a take, you take everything across the portfolio just to raise the cash to buffer yourself for volatility. That doesn't mean necessarily that, you know, you're incredibly negative on the AI trade. In fact, through the course of that period of time, I've only become more bullish. So that doesn't mean there won't be volatility with that trade because not everyone believes the same thing I do. Well, you can raise cash because you have the impression that others are going to sell and that that's going to open up opportunities.

27:46Downtown Josh Brown:That's right. And that doesn't make you bearish. It just makes you, I think, cognizant of the fact that other people are going to create those opportunities for you and you have to have cash to take advantage of that. That's right. And you know what? If you can sell something for a profit and buy it back 30, 40 % cheaper, you do that any day.

28:05Michael Batnick:I have a dumb question that I know Josh is thinking, but he's afraid to ask you. So I'll do it. when you and everybody says we're short compute, because everybody's saying the same thing. What literally does that mean? Like, where are the bottlenecks? And what does that mean for investors?

28:19Downtown Josh Brown:I'll handle this. Electricity is a very big bottleneck. Stop, stop, stop. It's enough of you. No, go ahead. Well, I mean, the unit of measure that we're talking about is tokens, right? Okay, so for Michael's benefit and some of the people in our audience. Could you please answer the question? No, no, I'm asking you. Josh really wants to answer it. Why do we measure this in tokens? What does our audience is like 90 % people that are either investing for other people or for themselves and just 10 % absolute lunatics. What does the audience need to understand about the way that you're thinking about the compute shortage and why tokens matter to this conversation?

28:59Michael Batnick:And are all tokens created equal? That's a really great question.

29:03Downtown Josh Brown:That's one of the best questions I've ever heard. So tokens are a unit of intelligence. And think of it as, I mean, technically, a token is two or three letters. So you send out a question, and it's 100 letters long, that's 30 tokens, right? That's technically what like your input token would be. But really, you should think of tokens as being units of compute. And the more thinking are the units of thinking and units of intelligence. And the more intelligence you need, the more tokens you use. It's as simple as that. Because not just your prompt, but then the response coming back to you. That's right.

29:41Downtown Josh Brown:And the tokens come from where?

29:42Michael Batnick:You buy them from these companies? The tokens is just, think about as like, if your chip is a flywheel or if it's a factory, you know, this is why Rye Johnson calls it an AI factory. So it's a factory where you're saying, I'm putting in three tokens, I'm getting out a lot of intelligence, or I'm putting in this many tokens and I need a lot of intelligence out, it has to grind through it. And that grinding is compute. Right.

30:08Downtown Josh Brown:The computer literally has to carry out its calculations. That's right. And then reply back.

30:13Michael Batnick:So I guess the question is, it's like, all right, so I pay a monthly subscription to these companies, to these LLMs for the privilege of using the compute. And the bottleneck is where Like they can't get enough because NVIDIA can't get enough chips because Taiwan Semi can't manufacture enough of them. Like where is it getting caught? Right now, you don't have enough chips, right? Still. You still don't have enough chips, although there's other parts of the supply chain now that are becoming short. So DRAM, you see what's happening in the DRAM market. DRAM pricing's, you know, grown, I think, 100 % year over year.

30:48And that is unusual for a commodity.

30:50Michael Batnick:Was that foreseeable for you? Did you know that was going to happen? You know what? Early on, like two years ago, I was like, God, this is going to really pull on DRAM. But the memory market was horrible. So quite honestly, I thought I was wrong. I was like, my gosh, I'm not seeing a response in the memory market.

31:08Downtown Josh Brown:You were so ahead of your time that nobody else had gotten to that conclusion.

31:11Michael Batnick:That's so interesting. The market was giving you a wrong signal. And you just thought it was so obvious that it would have priced it in. So you thought you were wrong and the market was wrong. Yeah. And I thought I was wrong. And then, you know, it basically just took off at the September of last year. So Micron was at$85 in August of last year.

31:29Downtown Josh Brown:Where is it now? $450, right? So it wasn't until just now that the market was like, oh my God, you know, we have this massive DRAM shortage because the pricing had just started to take off.

31:42Michael Batnick:It might have Micron was like$175 billion market cap. I think it's like$400 now or something, maybe even more. Is it really? I only know the share price. I don't know what the market cap is anymore, but these things move so fast. It's hard to keep track of the market caps.

31:55Downtown Josh Brown:You know what? The thing with the memory stocks, I try to explain this to somebody that doesn't know finance or stocks at all. 515, sorry to interrupt. Market cap? Is that nuts? It's a half a trillion, no big deal. No big deal. I try to explain this to somebody who is like not in our industry because they're like, should I buy SanDisk or whatever? I'm like, yeah, I don't care what you do. He's like, no, no, no. Like explain, explain, explain, explain it. So rather than try to like go into like memory chips and shortages and it's cyclical, but maybe this time it's not cyclical. I explained it. I explained it to him in a language that he wouldn't understand.

32:37Downtown Josh Brown:I said, think about like restaurants in New York, right? So we have a restaurant called The Corner Store. It's the hottest restaurant in the world. You literally cannot get in. I've been there twice, not to brag. people line up at, at three o 'clock in the afternoon on a Thursday and like hold places for people. And that's just to put their name down so they could sit at the bar. Okay. You like cannot go in this place. It's like Taylor Swift's diner. Okay. Was it good? Oh, it's great. It's unbelievable. But the point is, I mean, it's nothing. It's not like the, it's very good. It's roast beef sandwiches.

33:11Downtown Josh Brown:Like it's not like you're not going to fall out of your chair. And that's the point. There are 500 other restaurants in the same neighborhood, but people aren't lined up out the door of any of these other ones or maybe one or two of these other ones. And so my point was like right now, so many people recognize the opportunity in this small handful of stocks. There's like a line to buy them and they sell off and then they recover just as fast because just everyone wants to be there. It's not that you can't buy another stock. It's not that you can't go to another restaurant. There's only one corner store.

33:50Downtown Josh Brown:And if you open five corner stores on the same street, all next door to each other, each one of them would have a thousand people waiting online. Because right now, everyone just believes these stocks are going to keep doing what they've been doing. Or that restaurant is like the only place that they want to be. But it changes over time. So if you're about to buy it today, don't look at what the chart has done over the last year because it's not going to repeat. Or if it does repeat, it would be extremely anomalous. So the one contention I would have with that analogy is that the corner store.

34:28Downtown Josh Brown:You stupid bastard. No, please. Is that, you know, you're saying there could be many other corner stores around. Yeah. But in reality, because these are technology plays, there's actually for each technology segment, there's only a handful of. But you and I are old enough to remember when when memory was the ultimate semiconductor related commodity. OK, but let's talk through that lifecycle. Yeah. So when I started, you know, my career, there was like 12 different memory companies. Three were in Taiwan. They were funded by the Taiwanese government. There was like three in Korea funded. There was Micron.

35:13I've even forgotten all of the memory companies. Now, over time, because of the nature of how difficult it is to, and this is actually a story of the semiconductor industry. Because it was so hard to actually produce things at a smaller and smaller node, they were all forced to consolidate. Yeah. And so what happened? We basically came to this point in time as a consolidated industry where you basically have three players providing DRAM.

35:43Downtown Josh Brown:Sandus got bought by somebody and then came back out. That's right. It got by Western Ditch. That's right. And then spun back out. And these stocks were eight, nine, 10 times earnings. That's right. When there was a glut in memory, you could not give these stocks away. I mean, there's eight times earnings in August, eight, nine times earnings in August. And so the thing is like there's only three companies you can buy to play memory, right? To play DRAM. Right. And so there is no alternative. And only three suppliers to the industry. Forget about the stocks, like the product itself. That's right.

36:18There's only three of them.

36:19Downtown Josh Brown:Yeah. So there is actually, the reason there's a line out the door is because if you want to play memory, there is actually no alternative.

36:28Michael Batnick:When you say play, you mean from the investor's point of view? From an investor's point of view. So Western Dig in January 25 had a market cap of$15 billion, and it's now$125 almost. Is this a bubble? No. And in part, what's happened is like, think about the data that is produced. So this is very interesting.

36:47Downtown Josh Brown:The problem is that Michael can only think linearly. You have to think exponentially, Michael. That's why I love him. So think about all the data that's being produced. There's video, there's, you know, these agents that are producing things for you that need to now be stored. And so all of that data has to go somewhere. Now, the hard disk drive industry is very similar to the memory industry. There's two players, Seagate and Western Dig. And they're not adding capacity, right? They're not actually adding physical units. They're increasing the density of their hard disk drives, which is how they add capacity.

37:25but they're not doing it at a rate that is going to cause a supply-demand imbalance.

37:30Downtown Josh Brown:Right. That's another business nobody wanted to be in five years ago. That's right.

37:34Michael Batnick:You know, I love hearing you say it's not a bubble because these aren't your biggest positions. So it would be very easy for you to say like, yeah, that shit is really stupid. Yeah. Well, I do think the bubble talk is really stupid. Go. But we can get to that. Name names.

37:52Downtown Josh Brown:No, I'm just kidding. Why is it stupid though? Because to take the contra side, at a certain point, like these stocks will not be rising at the same rate that they have been. So it could be that it's not a bubble for the products and the chips, but it might be a bubble for the investments people are making.

38:12Michael Batnick:And or it could be a bubble in demand for compute because there won't be revenue. But that's the part that I don't believe. At least through 26, 27 and into 28, based on the CapEx that we expect, I don't think that we'll be in supply demand balance for compute. We have that kind of visibility. I don't know if 2030 is going to be that way, depending on how much CapEx we put in the ground. It's almost like asking me in 1996 whether or not we're going to be in a bubble in 2000. Well, I mean, I don't know. You tell me where the valuations are.

38:44Downtown Josh Brown:You can't predict what people will do. Right. You can't predict what humans will do with their money. It's impossible to know what they'll do three years from now. But based on the fundamentals of the announced CapEx over the next couple of years, you think the market is still in an imbalance benefiting the sellers. That's right. That's right. But the reason that we have to reconsider all this bubble talk is, yes, the stocks have gone up. Yes, it's gone from$15 to$125 billion. But look what the numbers have done. I mean, just in the last three months, Western Digi's numbers have gone from$10 to$25.

39:19Wow.

39:19Michael Batnick:Yeah. Right. Which numbers? The earnings numbers for 26 or 27, one of those like 10 to $25. Yeah.

39:27Downtown Josh Brown:It's like a different company. It's a completely different company. And this is, this is classic life cycle change for us, right? Where, where the industry is changing because of, you know, the market changing. So, so when it like NVIDIA for a long time, if you were like, isn't this a bubble, isn't it over for NVIDIA? Well, tell me what the right numbers are for Nvidia, tell me what the right numbers are for Micron and Western Dij, and I'll tell you if we're in a bubble or not. Ancor, one of the things people have trouble with, though, is pattern matching and their over-eagerness to say, this thing looks like that thing.

39:57Downtown Josh Brown:And I won't even go into like.com stuff because it's played out. But just in the last few years, the solar stocks came and went. The electric vehicle stocks came and went. We had 20 electric vehicle-related IPOs in 2021, 2022. And a lot of them literally went to zero. Most of them are single digits even today. And that's despite their fundamentals having improved. So people say, here we go again. They're bidding these stocks up like crazy. They think A, B, C. If A, B, and C don't come through, these stocks are all going to crash. Okay, so let me comment on that in that. The first thing - How do you differentiate?

40:40Downtown Josh Brown:is the question. So tell me just about the bubble and like people who often talk about this being in a bubble right now. What I have found is that sometimes it's almost easier if you don't understand something, be like, oh, it must be a bubble. I agree with that. And so there's a lot of like portfolio managers that I have talked to and met with and CIOs that and it's interesting because the PMs are often like they came from health care or consumer and getting your arms around what is happening with that kind of background is really hard. Is that part of your advantage as a growth manager? Is that you're native to this sector?

41:19Personally, I think so because it seems so obvious to me. I've never had this much clarity in my career. And in part because it's pretty clear what's about to happen.

41:31Downtown Josh Brown:Okay, so you think that it's people that—because we say bubble talk is code for I missed out or I'm so smart and these people just made all this money in XYZ. It's impossible. Therefore, it must be a bubble. That's how people think. I know, but that's kind of crazy. I agree, but. Right. So that's on the bubble part that I thought was important to highlight because I do think when I hear people talk about a bubble, I always ask, tell me where you think it's a bubble. Is it just the CapEx numbers? Okay, let me justify. Why don't you justify? Why don't I justify to you? that capex number and and i can yeah so wait can you first of all can you i i can in a second let me get to a solar question because the solar question is a really important one solar was a massive market and in 2000 when was it 2000 when when treat when we had this company called trina solar and jk solar there was all these or the chinese panel makers the canadian panel right Right.

42:32And all of those guys, CSIQ, Canadian Solar, they came to market. And, you know, I was particularly like, I graduated from Berkeley. I, you know, I loved alternative energy. I thought like oil was evil. And, you know, I would go to these meetings and the guy was like, yeah, we basically built the solar company in my garage. and I was like that's so weird you you built a you built a solar company in your garage and you're IPOing for 2.4 billion dollars which now seems like nothing but um I'm like how does that work and I was just a young analyst I was like there's something wrong with this like if I can go I'm a material scientist I can just go build a 2.4 billion you could spin up a photovoltaic cell right now that's right and so like why do these guys get to win and so what happened there was The technological hurdle was so low that as long as there was any profit to be had, it would basically get deprecated.

43:31Downtown Josh Brown:It became a manufacturing challenge to just make them the cheapest. And, of course, China will always win. But then there was also this big government subsidy component to it, which, you know, would come and go. But I just like people lost a lot of money. People lost a lot of money. So, all right. So in this case, the dollars being spent on this are real and growing. The profitability of it is high from the outset. It's not like one of these things where everybody has to lose money in order to subsidize it. A few companies are willing to do that. But a lot of these companies are coming out of cash flow in their CapEx.

44:07Downtown Josh Brown:And that makes it very different. And I think what you have to remember is if you look across the entire supply chain, because from 2000 to 2020, we have had the entire supply chain has been consolidated. So think about that, right? You had, you know, semi-cap equipment consolidated over the last 20 years. The box makers. The box makers consolidated. You know, the chip makers consolidated. The, I mean, even like the networking guys consolidated. And so you're coming at this problem from, and why do they consolidate? Not because they had to, it's just the technology became so complicated that in order to go from like a six inch wafer to an eight inch wafer, you almost had to join forces because the R &D budgets were out of control.

45:01Downtown Josh Brown:Okay. Right? And that happened for the chip guys too, to do a tape out, which is basically spin up a new chip. The cost of doing a tape out was going up, you know, three, four, five X for every single node. To fit all the transistors, do all the testing. Right. So the way to do it is you consolidated the market. So you just had more scale. So the R &D budgets were amortized over more revenue. As I said, I can't remember the last like chip IPO. Estera Labs. And when was that? 2024. But that's the point. Like, I remember an era where there was a semiconductor IPO every week. Right. And it's just, we don't have that.

45:38And now there are like just a handful of semiconductor companies, you know? There used to be 45, 50.

45:44Downtown Josh Brown:All using the same three foundries. That's right. And it really won that matters.

45:47Michael Batnick:So, can I ask you this? I think the biggest question for investors, if we could see into the future, that would put this debate to bed, is the transition from the hyperscalers, from asset light, to asset heavy, spending all of this money. And I see you're getting ready to cook and I can't wait for you to jump in. Like Amazon, which is one of your biggest positions. All right. So they're spending whatever they're spending on CapEx. Are they going to get a return on their investment that will allow for this to keep going? So what I would say is I can't 100 % say that they will get the same return that they expect.

46:28And going into this year, this was my number one, like back in, before Meta put out their big CapEx number, I remember talking to our team and saying, I'm really worried that, you know, the hyperscalers are going to zero cashflow. And that handoff of, we value things on cashflow. You know, as growth managers, we want to see the cashflow.

46:53Downtown Josh Brown:They're reinvesting all of their cash flow now. They're reinvesting all of them are investing all of their cash flow. And that handoff can be a tricky one. Because whenever you have a valuation regime handoff to going from PE to cash flow or cash flow to PE, from EV to sales to earnings, there's always a period of tricky. We're living through it. And we're living through it right now, which is why they haven't done anything for a while. Well, this is why they derated. We used to prize how asset light they were and how high their cash flow was. And now the story is different. Now they're in the most massive investment life cycle we've ever seen.

47:36Downtown Josh Brown:And there is no more free cash because they're plowing it right back into data centers. That's right. And what I would liken it to is when they started building out the cloud, right? So in 2011, 12, 13, 14, right? So Amazon started building their cloud probably a little bit earlier than that because they're doing it for internal use. They were spending a lot. We just didn't know because it was kind of inside of their cash. It was Amazon. They weren't even telling people, like, right. That's right. It was a different time. And even Microsoft, if you look at how they spent, they were able to kind of build this cloud, although they spent a lot of money.

48:14Michael Batnick:But it wasn't like this sort of spend, was it? It wasn't this kind of spend, but only because the cloud didn't come as fast as AI has come. So if we basically had said, oh, let me give you the capability of the cloud with the 5G network and give it to you immediately, the spend would have been significant. And that's what's happening with AI. The time horizons have compressed so much, and the capability is exponentially growing. So what is Amazon spending the money on, and where is the return going to come from? Well, they're spending the data centers, chips, cooling, you know, the entire shebang of, you know, how you have to build up a data center.

48:56Downtown Josh Brown:What's the Amazon relationship with Anthropic in your mind as an investor? Like, how key is that? It's like, because I remember three years ago, Amazon was talking about bedrock AI and saying, we're basically going to be a bring your own model. Like anybody can use any AI model they want at AWS. US and the street like that. And then Anthropic just took off for the enterprise. And all of a sudden it started being more like, well, you know, if you want to play Anthropic, the way to do it is via Amazon because of that relationship. So is that part of why you are so bullish on Amazon or not necessarily?

49:33No, look, I think Amazon, if you look at the valuation for Amazon today on a PE, on a gap PE basis. Yeah. And I forget exactly what it is, but it is absolutely not egregious.

49:46Downtown Josh Brown:Yeah. You know, it's like teens. Yeah. For, on an earnings basis. Which is maybe the lowest valuation you've ever been able to buy the stock for since it's been published. That's right. I mean, compare it to Costco or a Walmart. It's, I think, 10 points lower. Yeah. Than either of those. So is that really kind of the right valuation for a company like Amazon? It is a grocery store. It is a grocery store, that's right. But it's a very efficient grocery store. But the partnership with Anthropic and the investment, like how important is that to your thesis for why AWS could be one of the biggest beneficiaries of AI?

50:24Downtown Josh Brown:Or is it not that important? I mean, it's important because it drives the top line for AWS, right? So, I mean, if AWS is going to grow in the mid to high 30s this year, And part of that is because of Anthropic. Okay. So it is important in that aspect, but really for the duration, because Anthropic is going to work with other companies as well, right? They do. They will, all right, right? And so it can't be the only crux. So Amazon, look, they have Tranium. Like just like Google has their TPU, Amazon has Tranium. And so it is important to own the stack. Okay. Because it does lower your cost of compute.

51:02Downtown Josh Brown:Andy Jassy was talking about Tranium and some of the other chips that Amazon is making and saying, if we were to be valued or if people were to think about them as though we were selling these chips to third parties, it would be like a$50 billion business. do you think that the street is starting to, I don't want to say re-rate because it hasn't really, but do you think the street is starting to feel a little bit more bullish about Amazon's A, ability to produce chips, but B, more importantly, potential willingness to become a big chip seller given the shortage of compute? Like, could that be a whole new leg to why the stock should go higher?

51:44And I own the stock, So I want you to consider my question through that lens.

51:48Downtown Josh Brown:That's an interesting - She has more than you do. Yeah. You definitely own more than I do. I own this stuff too. Okay. So what I would say to that is that, look, it's an important aspect of the technology. They've been working on Tranium for a long time. I think they are behind the curve, actually, and they are catching up. So Tranium 4 is still - Delete all of that. It's still an okay chip. It's not a fantastic chip. I think TPU is a fantastic chip that competes with NVIDIA. That's the tensor processing unit from Alphabet. That's right. And mind you, they've been working on that for five years longer than Amazon's been working on their terrarium products.

52:23Okay. So Amazon will catch up. I think what is exciting about Amazon on that aspect, not that they're going to sell their chips, is that they can effectively make a compute layer that is, you know, cheaper. so you can do compute on a tranium that will you know be cheaper for you to run potentially um so more supply for a supply constrained market so um well i think it's just more more so to think about the stack okay right so if if you go and say i'm gonna i'm gonna use aws with a tranium chip to do a certain workload you know might it be cheaper if you're done on a tranium it may be

53:07Downtown Josh Brown:versus a very broad, powerful GPU that maybe is not necessary, overkill. That's right. For that one task. And it goes to your question about tokens, actually. Like, are all tokens created equal? We didn't answer that question, did we? And the answer is? No. Okay, so all tokens are not created equal, right? I fundamentally believe that this market is going to, there's going to be tokens that you pay a lot for and there's going to be tokens that, you know, when I ask GPT what the weather is going to be. Right. First, help me create an atomic bomb. That's right. I understand. Like very different.

53:46And so why should we be paying the same dollar value for each of those tokens? And not quite the atomic bomb. I don't ask it to do that. You might, but.

53:55Downtown Josh Brown:All right, get my kid into Princeton. I got it. Same idea. No, I think that's a really important part of the conversation is that, you know, the initial build is like, all right, it's GPUs. These GPUs are insanely powerful and probably over, it's like sending, putting a lion in your house, catch a mouse. If your daily use of Claude is like, what should I have for lunch today? So the market will figure out what to use for what, or maybe already has, you're saying. Right, it hasn't figured it out quite yet because all tokens are still kind of the same token value. Yeah. And so, you know, I do think drug discovery tokens will have a completely different value in the market than, you know, your educational tokens.

54:42Downtown Josh Brown:So that won't impact me as a user of these LLMs, but that will impact the way the enterprise version is being priced for corporate customers. Right. And I also think it might be, it might impact what model you use. Right. So. Well, so people are already figuring that out. people are already saying, I use this for this. I use this for the regular people, not professionals. I would imagine professionals, they go way more in depth on what, which of the company's operations are we carrying out here versus there? Right. Or, or an app that you build, right? If you're going to build an app for drug discovery, you might, you know, you may, you may price the app at a level that it allows you to use the most advanced tokens or the most kind of valuable tokens.

55:27Downtown Josh Brown:Okay. All right. So the products will be in part priced on how or which tokens are being utilized. That's right.

55:34Michael Batnick:So these companies keep saying that not spending enough is an existential threat. They have to spend. And they're able to say that because we're in a bull market. And even though some of these stocks haven't done amazing in the very short term, like investors are still giving them the benefit of the doubt. Is there, it sounds like there, it sounds like there's, you don't think there's a risk that they might say on a call, hey, you know what? we're actually going to take our foot off the gas pedal. But like, is there a chance that the market, and I know we're speculating here, that maybe the market could force their hand?

56:04Michael Batnick:Like if Microsoft didn't stop going down and the stock is down 45%, at what point does Satya say, all right, guys, like maybe we should chill out with all this?

56:11Downtown Josh Brown:The metaverse example, like the stock market enforced the end of metaverse spending. I think we all would agree on that. Like he probably would have kept going two more quarters had the stock not been in a 70 % free fall. Now Zuckerberg controls all the votes. So it really had to just be his acknowledgement that all of these investors who are selling the stock can't all be wrong. Right. That's the concern there. I think, again, it's very different than the metaverse because the metaverse, the promise of the metaverse was - I never believed in it, by the way. Credit to me. I actually believe in the metaverse still, but you needed AI to get there.

56:48Downtown Josh Brown:How much virtual land did you buy? None. In the metaverse? Did you buy a beach house next to Snoop Dogg's virtual beach house? No, I just played Roblox with my kids. All right. So, but, you know, the metaverse is actually, I do think it can be a reality. It just needed the capability of AI to get there. It was too early. In 2020, like, I remember doing like a little thing for Alger on the metaverse. And I said, this is a 2030 event, right? It's 10 years out. So he was trying to invest in 2020 or 20, when was that? 21? 2020, 2021. changed the name of the company. Right. To basically get to 2030, that was a long period of time.

57:32And also all by himself. All by himself with kind of deprecated compute, right? So he didn't have GPUs then that were going to drive this AI revolution.

57:42Downtown Josh Brown:Okay, so this is different. This is not that. So this is different. And in part because, you know, everyone's so worried about the ROI. Like, will we get the ROI back? And what I would say right now at this moment in time, they're basically making their money back in 18 months. Wait, how?

58:00Michael Batnick:What? So the cost of compute is actually rising right now. If you look at the cost of an H100, it has been rising. It hasn't been going down. And so you look at the compute stack and how the per hour pricing of a chip inside of one of these data centers, the payback is 18 months.

58:21Downtown Josh Brown:Meaning because the price of the chips is going up. That's right. An investment that you might've made 18 months ago, now you're in the money. But wait, is that the right way to measure it? For now, but the point is, what is the ROI? Right, so if you get paid back your capital in 18 months. So then do you really have to justify your ROI? Now, the other thing I think that people like miss in this is that they can turn as soon as they see the demand start to decline or get curbed. Guess what? They'll turn off their capex.

58:54Michael Batnick:And we're just we're nowhere near. We're nowhere near that. But the point is, it's not like a it's not like the telecom, you know, bubble of 2000.

59:01Downtown Josh Brown:So this is the other thing the bubble people will say. Look at these deal announcements. Every one of them is circular. Every one of them involves a company vendor financing some sort of an investment or paying a customer to pay them back to either buy compute or chips or use of a data center or lease something. And I've heard Jensen deflect that. It's like, of course, it's circular. We're all in the same ecosystem doing business with each other. How could it not be? And I'm sympathetic to that. But like, what would you say to people that say, oh, I remember the late 1990s when one company needed to make earnings this quarter.

59:44Downtown Josh Brown:So they would do a deal. And then the next quarter, the other guy had to make earnings. So they would do a reverse deal. I understand this is not the same thing, but how do you answer that? I answer that. Look, every deal has been different. I think that Amazon Meta deal worries me more because you're giving away part of your company to say, use my chips. and I'm going to give you 10 % of my company. What's the Amazon Meta deal? Not Amazon, AMD Meta deal. Oh, okay, I see. So Meta gets 10 % of AMD if they get to a certain amount of revenue in AMD chips, right? So effectively they're giving it for 0 % gross margin.

1:00:19Downtown Josh Brown:Yeah. You know, that to me is a little bit more quote unquote circular. OpenAI Oracle. OpenAI and Meta. OpenAI and Meta. Both had deals with AMD that look like this. NVIDIA basically seeding the market to enable the market is less worrisome because, I mean, NVIDIA's revenues on AI, like the AI-based revenues is going to be hundreds of billions of dollars. Yeah. So the 2 billion that they gave to CoreWeave is like, are they really enabling their own revenue? Not really. Well, they're seeding a partner who, if that partner is successful, it means years and years and years of future chip sales. That's right.

1:00:59Why is that bad? Why is that bad?

1:01:00Downtown Josh Brown:I don't think it's bad. It's not bad. I think it's actually common sense. It's not. Well, we see examples of this in every single industry is another thing to point out. So you see Pepsi gives a restaurant all kinds of free advertising and banners and things to decorate their bar and therefore sells more Pepsi into that bar for years and years to come. This is just a high tech version of it with billions of dollars, not thousands of dollars, but it's like a fairly common thing. Yeah, that's a great example. I, you know, I do think you probably see it. Miller Lite says, here's a billiards table.

1:01:37Downtown Josh Brown:Put it right in the middle of your bar. And the lamp hanging over it is going to say Miller Lite. And the rest, the tavern owner is like, okay, cool. We have a pool table. They're buying Miller Lite forever. And the bar does better. And like, this is obvious stuff. Yeah. We're just talking about it on a much greater scale here. Yeah. And that's what scares people. I think, again, if you think about the magnitude of what's happening. All my metaphors have to do with eating and drinking. I don't know if you're picking up on this. So the audience definitely is. So the, you know, the magnitude of what's happening here is just, it's hard to fathom.

1:02:11Again, if we go back to that, like, it's really hard to think how big and how massive this change is. And that's why I think people are just struggling with it. Okay.

1:02:21Downtown Josh Brown:So give the audience, give the audience three stocks that will double before the end of the year. Oh, no. I'm just kidding. Can we talk about like some of the actual investments that you're making in the public markets? Sure. All right. So we're looking at some of your holdings. Wait, can we go back to one thing? Yeah, shut up, Josh. So one of the things I want to go back to is that this fact, like in 2000, one of the issues with what happened in 2000, that 2000 bubble is the capex that was spent was long lived assets. So you put it into the ground. You think about like fiber optic cable. You put it in the ground.

1:02:57You spend billions of dollars and they were effectively long lived assets.

1:03:01Downtown Josh Brown:Like nobody needed them for five years. No one needed them for five years and then demand fell apart. But you also didn't have the technology to take, to take, to make use of those cables. There's no web video. There was no, I mean, do you remember using the internet in 2000? Yeah. It was a horrible experience. Yeah. It was like chat rooms where you're typing. It was, there's no social media yet. There was no YouTube. There was no, there, I mean, you could barely like download a webpage without it, you know, glitching. It could take like 10 minutes to download a song from Napster. Right. Like that was the internet.

1:03:32Right. I mean, 2004, 2005, like downloading a movie would take two hours. Yeah. It would be a horrible experience. And so we had dreamed the dream in 2000, but we actually didn't have the technology to support it.

1:03:46Downtown Josh Brown:The CapEx was a timing mismatch. That's right. Before the demand for all that stuff they invested. That's right. And what's really different now is actually all the technology is in place. And it's like, I've likened this to, when I've spoken to advisors just to make it a little bit more tangible, I've likened it to, you know, if you were an F1 car engineer.

1:04:08Michael Batnick:You're going to say Burger King. She's not using food analogies. Oh, yeah, sorry. I can't think of a good food analogy. But if you were like, you know, an F1 engineer and you dreamt up this amazing car and you're like, this is the way it's going to work. And I think I'm going to win because, you know, I've dreamt this amazing car up and you get to the race and you have four wheels. Yeah. Right. This time you've actually built the car. And the only thing that you're waiting for is gas.

1:04:37Downtown Josh Brown:Okay. Right. Or, you know, electricity, charge your battery. But like the point is that now the only thing you need is the compute. You have all the other parts in place. The tech is here. So therefore the CapEx is going directly into something that is currently working. That's right.

1:04:54Michael Batnick:But speaking of the capex, there's another doctor investor who's on the other side. Dr. Burry says that there's accounting shenanigans with the child there amortizing these expenses. Yeah, I don't think that's right. So he's basically saying, oh, they're using five-year depreciation, but there are six-year depreciation and they're actually four years, which is absolutely just incorrect. So why is he saying that? I don't know. You should ask him.

1:05:16Downtown Josh Brown:He's saying that these chips last a really long time. They might not be the newest versions. The A100s are still working. And those are from eight years, seven years ago? Those are from 2026. They're from 2021. So six-year-old chips are still very actively being used. I mean, the idea that these computes are just, or that the chips are going to die in three years, I don't really understand it. All right, let's do some tickers. So some of your holdings, and I sort of know a little bit about some of these, but why are you bullish on it? We'll just go like a few. Tell us about Nebius. Oh, wow. What?

1:05:59That's like a big, long story, which is really fascinating. I will try to shorten it for you guys.

1:06:04Downtown Josh Brown:Yeah, keep it to like 90 minutes. I understand that Nebius, my understanding is this was originally part of Yandex, which was the Russian Google. It wasn't part of Yandex. Oh, it's what Yandex became. Nope. So Yandex was the Russian Google. Yeah. Headed by a man named Arkady. Yeah. And when the Ukraine war happened. In Russia, Google searches you. That's right. All right, go ahead. When the Ukraine war happened, you know, he had just a disagreement with the politics. Okay. And, you know, he was one of the quote unquote oligarchs that, you know, was a sanctioned, but he was also on the outs with Putin.

1:06:52He ends up leaving. 1500 of his engineers end up leaving. I think Arkady paid for all of them to leave. And then he sat there. He's like, OK, I have$2 billion. What are we going to do? And they said, the future is really AI. We know how to build data centers. Let's build AI data centers. because we think we can do it better than everyone else.

1:07:13Downtown Josh Brown:Okay. And so, you know, remember they were Yandex. They got delisted. So it's in Europe. Now it's in Belgium or? It's in the Netherlands. They're based in the Netherlands. But one day they get this call from the New York Stock Exchange being like, you're going to get listed on Monday. Right? And they're like, what do you mean? Like, we're like a private company right now. And it was a Thursday. So they worked all weekend. They get listed. And all of a sudden there was this like weird ticker on the, on the exchange, NBIS. Yeah. And. I didn't know what it was either. Yeah. And so like, I was like, is it a wart?

1:07:45Like, what is this thing?

1:07:46Downtown Josh Brown:People were trading it though. People may have been. But you know what? Initially when people traded it, it was, it was all the people that were stuck in Yandex. Right. Right. That were like, thank gosh, I could get out now. And, and so they're like, get me out. I've been stuck here for years. And then it 10xed. And then, but they didn't have it. No one knew what the story was. So they put out this 110-page deck online. And I don't know. I remember hounding them, being like, I need a meeting with you. And they had no time. Yeah. So I hunted them down in Davos. Okay, as one does. As one does. And it was – and I just got to – we got to know the company really, really very well.

1:08:26Downtown Josh Brown:Okay. So you look at this as – because I know they're in autonomous vehicles and they have a lot of stuff going on. But like you look at this as a data center play that's domiciled in Europe, but doing business all over the world. What I would say is that this is actually potentially the next hyperscaler, the next AI native hyperscaler. Really? Yes. Okay. Tell us about, tell us about QXO. Oh, QXO. QXO is a fantastic company. It's not, it's not a typical tech company, right? But we all know Brad Jacobs. Brad Jacobs was the serial entrepreneur. He put together URI, XPO, left XPO, and began QXO. QXO is a building products company.

1:09:10He started it probably about a year and a half ago, bought Beacon Roofing. And he's basically going to consolidate the industry. What's really exciting about this is that, A, it's Brad Jacobs. We really, like you talked about, the management team. We know what he is.

1:09:27Michael Batnick:That guy's amazing. He is, Brad Jacobs might be one of the most impressive people.

1:09:32Downtown Josh Brown:Why is he in roofing right now? Because he's consolidating the home, the building products market because it's incredibly fragmented. Yeah. So what he's seeing is that, well, there's all these mom and pops that are in building products. Selling like tile and like all kinds of materials. He will. He just bought Kodiak. Yeah. And he's starting to get into the rest of it. So he started with roofing. Then he's going to get into everything else. He's going to take pricing, add efficiency, add technology. So you're a growth investor. Like how much potential do you need there to be in a story like this to include it in your portfolio?

1:10:06Downtown Josh Brown:Do you think this is like, if at all, I know we don't know what's going to work, but if it really works, you're not looking for like a 20 % return. That's not how you invest. No. Okay. So let me give you just like the framework for how he thinks. Beacon is about a billion dollars in EBITDA. He thinks that he's going to increase the EBITDA of his company to 5 billion in 29 to 30. That's a big deal. That's a big deal.

1:10:29Michael Batnick:In a quiet, sleepy industry. That's right. And he's done this over and over. This guy - And he's done it over and over again. I never heard of this guy. I think maybe four years ago, he was on Patrick O'Shaughnessy's podcast. He's been on, I think again. What an incredible story. You know what? He's also an incredible human being. If you see how he takes care of the people that work for him, A, he's a workaholic. B, he truly takes care of them. Like he is like a good boss. People, he's a great leader. So he has all the, everything you want to see in a fantastic CEO. I just listened to his book.

1:11:03Michael Batnick:I think it was called How to Make a Billion Dollars. Yeah, the first one or the second one? There's two of them. How to Make a Few Billion Dollars.

1:11:09Downtown Josh Brown:What's the investment case for AppLovin in a world where we think the apps are going to write themselves? Tell us about that. You own that in some of your funds. Yeah, so AppLovin is, it's not really an app creating tool. It's an advertising tool. It's the lovin'. It's the lovin'. It's the lovin' part that matters. And what's exciting about AppLovin, it used to be - Yeah, but this stock did get caught up in the software sell-off. It did, in part because it's part of the IGV. And this is part, and we have to talk about software at some point, but - Yeah. We'll go have dinner. We're just gonna start it.

1:11:43I know, I need another hour with you guys.

1:11:46Downtown Josh Brown:Okay. So with AppLovin, you know, they're basically an advertising company. And what they realized is that they have a lot of data. They have probably 50 % share of, you know, served ads in mobile games. And what they realized is, you know what, we're pretty good at this. We're using an AI engine to serve up these ads. And we're improving kind of the return for our clients. Why don't we start putting in lipstick or, you know, actual goods and monetize our ads differently? Okay. And so that whole story of, we're not only going to show you games to be downloaded inside of games, we're actually going to do e-commerce.

1:12:24So you're playing Candy Crush

1:12:25Downtown Josh Brown:and an ad pops up for Scrabble, like digital, like an app. Okay, so they've got very good at that. If people play this game, they'll probably play that game. Okay, fine. They know how to price it. The game app wants more exposure. Great business. You're saying they're now taking this business in another direction. That's right. So all of a sudden they're entering the e-commerce market to sell goods. And it helps them monetize their inventory significantly. Okay. And so really interesting. I mean, Adam, another, look, one of the keys for us is the management team. Adam is a founder CEO, hungry.

1:13:02He's very involved with who gets hired, how they get hired, the headcount. Like he's keeping his headcount flat. Okay. Regardless of the top line growth. So it's just a cash generation.

1:13:13Downtown Josh Brown:You seem to be on a first name basis with a lot of the founders of the businesses that we're talking about. How important is access to management for you as a portfolio manager? If there's a company like a Nebius that says, we're not going to talk to you. I don't care if you come to Davos. Does that cool you off in terms of wanting to be an investor? Or is it not that important? No, it's important. Because they end up being the stewards of your capital, of our clients' capital, right? We're betting. I mean, it is an important leg of any story is like who is leading a company? Yeah. You know, what is their integrity?

1:13:50Right. You know, it's really important to know the management teams. Obviously, like that access—

1:13:56Downtown Josh Brown:Can you get too close to them, though, where you like them personally and they screw over shareholders or they're more inept than you thought? Like, is that the downside to that? Well, it's not like I'm friends with them, per se, right? You just need to be able to ask them questions. That's right. Right, and I need to understand, like, are they good stewards of capital? I mean, it's important to me, for me to understand that Brad is a great leader. Okay. But that is really, like, he has incredible humility. That is important for me to understand. I have two more things we have to get to or the audience will kill me.

1:14:30Downtown Josh Brown:One of them is software, but before we go there, I said two days ago, I think Intel is like the stock of the year so far. Yeah. The comeback in Intel is extraordinary for a lot of reasons. Number one, it's not every day that a former Dow component, fallen angel, formerly one of the biggest market caps in the country, drops almost to single digits, has a new CEO come in after multiple failed new CEOs, and actually strikes a chord with growth investors again and reinvents itself. So that thing that we talked about early in the show about that reinvention, this looks like that on steroids, but I don't know as much about semis as you do, obviously.

1:15:14Downtown Josh Brown:So I'd love to get your take on like, is this a buy here or did we miss the whole thing or investors getting too excited? I'll be honest, I don't know. What I do know is Lipu is amazing. Is the new CEO. Yeah, Lipu is the new CEO of Intel. He is, again, an incredible - Is he visionary? leader. He is a visionary. And I mean, a story with Cadence, someone should do a deep dive on Cadence and see how he turned Cadence around. He took it from almost going bankrupt to the company that it is today. And that was under Lipboo's direction. So if there's anyone that could take this asset and turn it around, it's Lipboo.

1:15:57Downtown Josh Brown:The foundry is now being seen as a strategically important asset, whereas they were being ridiculed as recently as three years ago. These idiots thought they could build Taiwan Semi in the United States. Yeah. And what I would say, that's where I'm skeptical. So you don't believe necessarily that that's a great asset. And Taiwan Semi is doing it too in Arizona, aren't they? Taiwan Semi is building their fabs in Arizona. But if we're short compute and Intel is a company that can help bring more compute to the market. Right. But you have to, it's not easy, right? So if you've been inside of a fab and built a chip, it's difficult to build a chip.

1:16:36Downtown Josh Brown:I wouldn't know, but I would guess. Which is why, like, you only have one, right? You only have one foundry now. You have TSM. So you're not convinced that this foundry is going to be as successful as the bulls in Intel are? I don't know, right? Because it is a bet on the execution of the engineers inside the foundry. Lipu is not an engineer, you know? So hopefully he will hire the right people to make this happen. Okay. But I don't know. Okay. So you're not currently in Intel? No. Have you looked at it recently? We have looked at it recently. I just, it's an existential question. Like, can you be a foundry or can you not be a foundry?

1:17:09Downtown Josh Brown:Okay, Saspocalypse. Jensen has said the bears have this story completely wrong. Agents and agentic AI is actually going to utilize all of these CRMs and corporate software to help people. They're not going to spin up their own versions. Therefore, these companies do still have moats and they are relevant for the age of agentic AI. How do you feel about that? I don't agree, respectfully. You think Jensen's being too nice? I think Jensen can't really say what is happening because - Okay, so that's what I think. And so why do you think that? I think what you think, like, no way. Like, there's no way all of these companies can remain relevant if Anthropic is going to continue to come on at the rate that it's been coming on.

1:18:04Downtown Josh Brown:So that doesn't mean I think they're all sales. But I think it's really hard to know, obviously. But right now, they're all being treated like sales. Well, because the growth story,

1:18:15Michael Batnick:Salesforce cannot do what they've been doing for the last 15 years, where you re-up and the contract goes up. Right. And that's a huge part of the story.

1:18:24Downtown Josh Brown:Raise prices every year and no one's going to push back.

1:18:26Michael Batnick:How could that be possible? But, and of course we can't know, is the market overdoing it? Okay. What's the selling? So if you look at, let's take Salesforce. Salesforce, as of yesterday, was trading at 10 times EV to free cash flow. If you include stock-based compensation, right? Oh, no. If you exclude stock-based compensation, including stock-based compensation, it's like 14 and a half. That's not that compelling. It's kind of trading like broken tech with a little option value. That said, I think there's other interesting things out there right now that, you know, I'm definitive will cross this chasm.

1:19:04So, you know, the issue for me on the entire software space is that we only use 15 to 20 % of the software of any of these packaged software.

1:19:15Downtown Josh Brown:Yeah, they're selling it per head. And people might say, you know what? I'll pay you per use. I'm done with this game. That's right. Right. And so, so it's a more competitive market, right? People can write their own software and maybe, you know, maybe, and there are a lot of people that will have, will, will say that's not right because you have the security issues. Right. And it's valid, but again, why am I paying you more if I don't use the software? If one of my employees comes to me and says, I wrote this sick program, I run a wealth management firm. I'm not going to be like, oh, cool. Plug that into our system.

1:19:49Downtown Josh Brown:Let's see what happens. I don't care how much money I'm saving. I will potentially destroy my business. So that's the vibe coding thing. But there's a middle ground where the IT department at a company - Can do it themselves. Makes a concerted effort to actually replicate something that they're paying a third party for. And they show it to the board of directors and they say, like guys we really can do this and we can save the company 80 million dollars over the next five years and the company says all right that's what we're going to do like that's the real threat top line is coming down for these companies that's right and so i think the best case scenario is they don't get you know uplift as you were saying on that dbnr right which or is the the basically the expansion the expansion revenue yeah so they no longer can grow on a seat by seat basis, how much they're selling.

1:20:44And that's a big part of the growth story. And that's a big part of it.

1:20:47Downtown Josh Brown:You know that if we think AI, if we think that AI is threatening like employment in general, then higher head counts are going to be harder to come by period. Even if you can get a company to sign another package, doesn't mean they're going to have the same amount of employees. That's right. And so that, that dream of that 40 % operating margin that was why these SaaS businesses traded at the multiple that they did, I think that's a different terminal value. I don't know if it's 30. I don't know if it's 20. My gut is that given the landscape, these should be 20 % operating margin businesses. Is cybersecurity immune or not immune?

1:21:26I think parts of cyber will be immune. Parts of it will not be. Right. So, you know, a Palo Alto or a CrowdStrike, more likely to be immune because they're platforms and they can build on that platform just like Microsoft.

1:21:40Downtown Josh Brown:Yeah. But point solutions across - Like identity or, okay. Point solutions across all of software are gonna be at risk because they'll just be usurped by either new players or people who will, like you said, write code inside of the company and or by bigger players that basically just add that on. I think the market has this right. when I look at Constellation. So Constellation is like a collection of a thousand tiny niche software businesses where it's like, this is dry cleaning software. So I don't know, this is 20 ,000 dry cleaners in America and they all standardize on this one tiny piece of software.

1:22:24Downtown Josh Brown:That seems super susceptible in a way that CrowdStrike's Falcon platform is not susceptible. and if you look at the dispersion even within software let's say they're all down the ones that are um the ones that seem more replaceable those are down more like it doesn't look like just a wholesale panic it looks fairly reasoned yeah i mean like cadence isn't down as much as um team atlassian right right atlassian has zero moat yeah and that's why it's trading down to i I don't know where it is anymore, but. Okay. Are there any software stocks that you think it's already overdone and the market really has it wrong and are buys?

1:23:10You know, I do think Applevin was put into that bucket.

1:23:13Downtown Josh Brown:Okay. Just because it's in the index and they treated it. Just because it's in the index. And there were some short reports on it. And, you know, people are worried about advertising and agentic advertising. And how does Applevin get involved with that? But, you know, I think companies like Palantir, they're like the shepherd that is basically having everyone cross the chasm with them.

1:23:35Michael Batnick:Do you own Palantir? We do own Palantir. Not in the ETF, but across the other ones.

1:23:39Downtown Josh Brown:That one didn't come down until the end. Right. Like that one held up better than the rest of SaaS. Well, it's kind of sold. It actually, I don't know, went from$210 to$160 before like the SaaSpocalypse. And then it went, you know, later. Okay. But so it has pulled in quite a bit. Is Adobe dead? They're acting like there's nothing special about Adobe. And meanwhile, I see OpenAI shut down Sora. And I don't know who's using all these other tools, but is anyone paying for anything? I don't know. Because they are paying for Adobe. I just started to use Hicksfield, Hicksfield AI, which is basically a video generator.

1:24:18It's pretty amazing. What are you using it for?

1:24:20Michael Batnick:What sort of videos are you generating? Honestly, I just play with all these tools to figure out what they can do. And with Higgs feel, I was trying to figure out if I can make an advertisement for my app, right? And to see if like, if I wanted to have a TikTok video, how might I make it, right? And it was pretty good. I mean, it wasn't great, but it was pretty good.

1:24:42Downtown Josh Brown:I don't know if anybody told you this, but I am the creator of something called Halo. Have you heard this term? I was told you were. On a scale of one to 10, how clever is that? Would you say? It's clever. I would say I - No, that's good right there. No, no, no. Wait, wait. Okay. When we did the, when I, when we first thought about this, like AI and the declining cost to create, the corollary to this was not, I mean, Halo is like a really awesome way to call it. She's trying to say she came up with Halo. No, no, I didn't. But was that any tangible asset would get multiple expansion. And here we have it.

1:25:21Downtown Josh Brown:I mean, basically. So your packaging of it is beautiful? Yeah, gorgeous. Well, all right. So the reason I'm asking you this question though, could we overdo it? Could we overdo which part? I'm sick of that. I'm sick of hearing about Halo. Michael's going to throw himself out the window for years again. All right. Looking at the Mag 7, if you had to rank all of them from most Halo to least Halo, and I said, I think, so my first opinion, Apple and Amazon are the two most halo stocks in the mag seven, meaning the physicality of what they have and do. Okay. They don't own data centers, uh, Apple, but like the, my rectangle is my rectangle and it's not going anywhere.

1:26:06Downtown Josh Brown:And it's central to how the user is interacting with all of this AI. I think it's very halo. What do you think about that? Okay. If Apple doesn't act soon, that impact, that halo designation is going away. Because over time, I do believe that AI will allow us to extract ourselves from our screens. Okay. And into what though? Glasses? It could be glasses. It could be, I mean, you've seen the open AI button. It doesn't matter. It doesn't, maybe not that, but some form. Something will come along. It could be, it could be a bracelet. It could be spectacles. It could be something. Right. It could be something that hangs with you.

1:26:50What Apple should be doing is becoming that personal agent.

1:26:54Downtown Josh Brown:I can't believe they're not doing it already. I don't know. I don't understand why they're not. Where is Agent Xeri? I don't know. You tell me where is Agent Xeri. Why doesn't Siri book my plane tickets? I don't know. Okay. I agree with you. And so, but they are not doing it. Why? Because they can't, I think they can't do it. Well, I think they can do it, but they are so. They fired the AI guy recently. I think they don't have the horses. They didn't, I don't know if they fired him or if he left. But I think the issue is that they're so concerned with security as their whole being has been, we are going to keep your data.

1:27:27We're the safe tech. And so how do you do this and still maintain the story that you're basically the safest tech? So, you know, I think there's probably a bit of a conundrum.

1:27:41Downtown Josh Brown:You think that's why they announced new and improved Siri and AI capabilities two full years ago? Have not delivered. Multiple iPhone models have come and gone, and they don't have it. It's crazy. I've never seen anything like it. I'll tell you it's incredibly frustrating. Are the alarm bells going off there? Are they nervous? I certainly hope so. Okay. I certainly hope so. Because I don't know if they're nervous. I think that to some extent they've milked this device enough. I personally hate carrying around an iPhone. I wish I didn't have to. I love it. I take it in the shower. Now, if there were a new form factor that everyone was doing, if it's an amulet that you wear around your neck and you talk into it and people just got used to that, I would roll with it.

1:28:28Downtown Josh Brown:But there just isn't. But there will be. So our job is to figure out what the possibilities are in three years. Okay. Right? Is it possible for there to be a different device that is screenless? Is it possible for there to be a different device that you interact with differently so you're not opening this 150 times a day? Okay. Right? And I think there is.

1:28:51Michael Batnick:But if that goes away, what happens to Meta? Yeah. So this is a discussion that we've had internally of as you go to a more screenless world, what happens to other business models?

1:29:03Downtown Josh Brown:That happens to Instagram. Right. If I don't have my rectangle and I'm not doing this, then where does TikTok and Instagram get revenue from? Zero. Wouldn't it be wonderful to not have TikTok and Instagram? You know how bad it is for our brains. It's like really good for my ego though. At least Instagram. All right. I get it. I mean, but they said, listen, I remember Google Glass was already like 12 years ago. It was a bust. The Snapchat spectacles didn't go anywhere. Apple's own stupid helmet that only Michael bought. No one else on earth. They sold one. He returned it to his credit. Like I'm waiting, but until I think the rectangle is the rectangle.

1:29:46Downtown Josh Brown:And I don't think that anything can get in between us and our rectangles. Yeah. I think for now you're right. Yeah. But the longer they don't have a solution, the more at risk their model becomes. Their CapEx went down year over year. They seem super comfortable. Resting on their morals. Well, I don't know if it's rest. I actually think this part is brilliant. They're like, you guys spend the CapEx. We're just going to be the layer on top. We'll just hit the 30 % in the App Store. We're just going to sit on top and use your compute. Like you guys go spend all the CapEx. I think it's either Apple or Amazon are the best of the Mag 7 year to date for different reasons.

1:30:23Michael Batnick:Well, is Apple still the best business in the world?

1:30:26Downtown Josh Brown:I think the biggest size and the highest gross margins, probably. No, Apple's gross margins are not the highest gross margins. NVIDIA's gross margins are higher. Oh, yeah, NVIDIA would be the best. Even Google. Google's gross margins are higher. Is that right? Okay. Yeah, Apple's 40%, 38%, 40 % is Apple's. That's it? Yeah. What a piece of shit. And, Court, did you have fun on the show today? It was great. All right, so we're going to take a brief intermission and then we'll – no, I'm kidding. I have to say, this has been so illuminating for me. I've learned so much just talking to you today. and I think you're amazing on the show and thank you so much for doing this.

1:31:02Downtown Josh Brown:Thanks for having me. You guys are fun. Would you come back? Oh, I would love to. What are you doing next week? Not next week. This guy's already shaking his head now. All right. I want to tell people how they can learn more about Alger and your funds. Is it Alger.com? Is it that simple? Yeah. Okay. And do you do, you're not doing social media really, are you? A little bit? No. No. Good for you. So I respect that the most, I think. Maybe I'll have Maybe I'll write a bot To do it for me We want to have you back To talk about robotics And also I know Look at your face Look how excited you are Alright We have a lot to talk about Alright So maybe we'll do that Later this year I just want to say Thank you so much For joining us And guys Thank you for listening Compound appreciates you If you have not yet Hit the like button On this episode On whatever platform You are watching Or listening to us Now would be A pretty good time To do that What do you think John?

1:31:56Downtown Josh Brown:Right now? 100%. 100%, he says. All right, guys, thanks again. We'll see you soon.

1:32:05Downtown Josh Brown:You guys are fun. Yeah. All right.