TDI Podcast: R2D2 – The Truth About AI (#947)

21:15Ross Gerber:I'm like, what do you mean, what do I do? It's Copilot from Microsoft. It's just a nice, easy app that just, you know, gives me all this stuff. And they were like the whole time freaking out. Let me ask you this. Let me ask you that. It's fascinating the amount of things that can be done today. We talk about some of the small items, right? Whether it's the formulas, the teaching a little bit, the rewrites, the brainstorming, the organization. companies are spending an awful lot of money on what they hope it to be one day, right? Where we have the ability for it to, I don't want to bring up the Terminator kind of thing, but think, right?

21:49Ross Gerber:You know, they want it to think and then therefore it can do other things, right? Okay. So there's a big question about what's going on right now. Is it in a bubble? What's going on? We've seen some rockiness in a lot of names after I've been, I'll be honest, there is one particular thing I've been talking about that's concerning me. It's the vendor financing, circular financing. Right. The issues particularly with open AI, particularly with open AI. And I'm like, wait, what? You know, you're promising, you know,$1.4 trillion on losses over those years. And all these companies are making, you know, are basically banking on this.

22:29Ross Gerber:Or you have like a Microsoft that is paying big money. Let's use a number. It says a stupid number. A million dollars to a company XYZ. And then they turn around and utilize that to pay back Microsoft for a five-year contract on Azure, right? Or SoftBank selling$6 billion in NVIDIA stock to buy OpenAI stock, which will buy NVIDIA chips. Right. So you basically, in a way, companies are taking money off their balance sheet and putting it onto the income statement, right? That's what they're doing to boost up their profits. But you have OpenAI making these promises like Oracle. Oracle, for example, you saw what happened.

23:04Ross Gerber:We actually, full disclosure, own Oracle. Had that great pop after earnings. And then it's just basically deflated from there back down to. Yeah, but it's up 100 % in the last year. I got that. I'm just talking about from that one announcement. I'm just talking about the announcement. So with all that. You want a smooth stock market? Yes, I do. What do you mean? Straight up? Just no doubts. How long have you been doing this? It doesn't work that way. Hold that thought for a second. We're going to come right back to that. But I want to talk about interactive brokers for a second. I don't want you to be fooled by what you see out there.

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24:10Ross Gerber:And I guess the question is, you know, Ross, is it a bubble? Is it a bubble?

24:16The Disciplined Investor:Definitely not in a bubble. We're not in a bubble for many reasons. I've been in bubbles. Fortunately for me, I was in two of the biggest bubbles ever, and I'm sure you were too, with dot-com and the real estate crash, which, you know, fortunately during the real estate period of time, I wasn't in real estate much, but whatever real estate I had at that time, I lost a hundred percent, let's say. And during the dot-com crash, which was extremely painful, I had also made a fortune in the previous five years. You know, the S &P was up 20 % a year for 95 to 2000 before the market peaked and then went down about 50 to 60%.

24:54The Disciplined Investor:So if you go back into the bubble-ish eras of those times, when there's a bubble, the feeling is manic. Like everybody is making money doing this. Why are you not doing this? Literally nobody questions the bubble. What they question is why you're not doing this. You see what I'm saying? Yeah. Why are you, when you got a whole bunch of people every day going, are we in a bubble? Are we in a bubble? You know, for sure we're not in a bubble because you're only in a bubble when nobody's questioning it. Right.

25:30Ross Gerber:What a big, I understand that.

25:31The Disciplined Investor:Right. And then somebody like me, who's like trying to be rational, who manages billions of dollars is trying to be rational. It's like Palantir stock, you know, and you're like trying to be rational. It's like explain this valuation. There's no explanation for it. So, yes, is Palantir in a bubble? Yeah. I mean, there's a couple of stocks that are absurd. Tesla, you know, maybe is a little overpriced, you know. But it's like when you look at the market, when you look at Microsoft and Google and Meta, Meta is like 20 times earnings. I mean, come on. What bubble are they in?

26:02Ross Gerber:It's kind of interesting, though, that you get to the point that things are – if you don't want to use the –

26:07The Disciplined Investor:So Microsoft's PE was twice as high during dot-com than it is today. Correct. That's Microsoft.

26:13Ross Gerber:You look at Palantir. And they're still doing well. Yeah, no, I get that. You look at what happened with Michael Burry. Did you see that last week he put out a letter to his client? He closed shop. He closed shop. By the way, fascinating.

26:28The Disciplined Investor:Closed shop. Closed shop. Like, done. I mean, it's not really a shop. Okay, it's$150 million. I know, but still, he closed. He didn't have to close. It was like three clients.

26:38Ross Gerber:But he didn't have to close. I don't know if he was making a statement.

26:42The Disciplined Investor:No, I think his AUM, you know, you have to have at least$100 million in AUM to file a shop. And he was at$150 million, and he shored a bunch of stuff. And, you know, quite frankly, I think he just doesn't want the scrutiny. Yeah, I would agree with that part.

26:57Ross Gerber:I think so. And he just gave up and threw his hands up and all. But kind of fascinating.

27:02The Disciplined Investor:Steve, this betting business is a tough business. You mean talking about options and all that? yeah and just this idea like i'm gonna like bet that palantir is gonna fall to 50 that was in the next two years which is what he's betting and he bet 10 million let's say on this bet and i'm going you know he doesn't even make money until it gets to 50 and i'm like you know when you're doing these kinds of things it seems to me that you're not good at just buying google and being happy with that. Right. You know, like I always figured if I can make 10 to 20 % a year over the long-term consistently over long periods of time, you make millions and millions of dollars, which turns out to be true.

27:45The Disciplined Investor:Buffett, probably the king of all time made, let's say 20 % a year over the last 40 years. I mean, he's made fortune. So you don't have to go out and make a hundred X your money and be the big short guy, you know? Well, he was lucky the first time that it all paid off for him. you should just be happy. You know what I mean?

28:03Ross Gerber:And there's a lot of people that did the same thing he did. They didn't have the financial wherewithal to stick it out as long or the cojones. Yeah, yeah, yeah. And they just got out and got killed and he just stayed in and that was great. So who knows if he's going to be right, by the way. But it's a horrible way to make money.

28:20The Disciplined Investor:It's like a really hard way to make money versus buying Google and just like sitting on it for the next 20 years. Exactly. And, you know, since we brought up Microsoft, if you bought Microsoft at the high in 1995, And you held it to today. How do you think you did?

28:34Ross Gerber:You did very well.

28:35The Disciplined Investor:You know, you bought it in 99 at the absolute high. Very well. You know, how did you do, you know? And so like the truth of the matter is Microsoft's been wildly successful. Valuations have changed over time. But what we're beginning on with AI is what I call useful computing. See, what most people don't understand is most of the data we've gathered over the last decade. And we put it onto these server farms on AWS. and we have these great, you know, abilities to buy things and get them right away or to entertain ourselves endlessly on video games or whatever. This has been a wonderful era of growth of this sort of cloud-based computing system.

29:14The Disciplined Investor:But what happened was you look at all this data and you go, what's the point of it all? Like, I got a Salesforce. Like, so what does this tell me? It doesn't tell me anything. It's organizational. It's two-dimensional.

29:25Ross Gerber:Two-dimensional.

29:26The Disciplined Investor:But it's two-dimensional. Now all of a sudden I throw AI on it and I say, and I'm able to talk to it. And I say to you, you know, what, who are my best clients, not based off AUM, but based off client satisfaction and deposits divided by AUM, you know, like, you know, who are really my best clients who refer me the most people. And then it could like spit out a list, you know, and then you can make modifications. So being able to now use data, put them on GPUs, build new data centers. And this is why I'm not worried about the spend. See, what most people, when they say, oh, it's losses forever.

30:02The Disciplined Investor:Now, Google, Microsoft, Apple, all these companies have so much cash and they make tons of cash. And it sits on their balance sheets, kind of like what Berkshire Hathaway is doing right now. This provides no value to shareholders, okay? So having$75 billion in Microsoft's balance sheet, that doesn't do anything. Helps shareholders none. So I'm in the camp, you either buy back your stock or you pay dividends or you invest it. So when you invest in a data center, you're making a capital investment like into a factory that will not pay off in year one. You are spending a pretty large amount of capital, let's say 10 to 20 billion to build this data center.

30:41The Disciplined Investor:And then your expectation is over the next five to 10 years, you would recoup your capital and make a return and it will support your other businesses, right? Right. And so when people look at what OpenAI is doing and say this is crazy or incestuous or whatever, what they don't understand is that if OpenAI doesn't do this, it will not be the leader in AI. And so it is such a competition to see who will divide up the wealth of AI creation that if you don't invest now and if you don't go full out like Elon did and like Meta's doing, you have zero chance of competing against them. But this is very Elon-esque.

31:26The Disciplined Investor:Apple just chose to stay out of the game.

31:27Ross Gerber:Apple's like, I'm out. What Sam Altman is doing is very Elon-esque, right? It's making these huge, huge pie in the sky, which, by the way, it doesn't always pay off. Let's be honest. No, it doesn't. But they're going out. OpenAI just seems to be a little bit on the edge to me from the aspect of it's difficult enough for a company that is established and making earnings over the last 50 years that is well known and with a product that has been tried and true to forecast more than, let's say, a year out. These guys are trying to forecast five, eight years out on a new technology that is unproven.

32:03Ross Gerber:They basically have to get to the next level before this happens and spending an awful lot of money on it. Now, I'm all in favor that it's all going to work out great and everybody has enough of a pie for everybody to share. But, I mean, AI was what? I'm going to go out on a limb here. Five years, maybe three, but five is really the totality of the technology of what we're looking at today.

32:25The Disciplined Investor:Well, that's hard to predict. That's hard to predict because, you know, these GPUs, they'll have better GPUs, but they're so good now. You know, I don't know what the depreciation lifespan will be for these, but I suspect that they'll run for some time, even if they're not the most cutting edge chips, you know, five years from now. But what I think is, going back to what you were saying, Sam Altman is cut from the Elon Musk cloth of massive statements about stuff because you can't raise money from Silicon Valley unless you just bullshit the hell out of people. And that's the way it works in Silicon Valley.

33:06The Disciplined Investor:I say this all the time. Private equity guys pitch me all the time like, oh, we want to buy part of your company and this and that. And if I tell them the truth, which is we're going to grow 20 % a year for the next 10 years, and you can just put it in your fucking formula and figure out what we're worth. You know, it's just not as exciting as if I tell them some fantastical story about how we're going to redo finance like never before. And I need, you know,$100 million to build the greatest AI financial planner ever. And I could probably raise on a$2 billion valuation, you know, if I made up this fake story about some AI financial advisor that will have all of our combined 30 advisors intelligence put into one so they know how to do IRAs better than anybody else, you know.

33:54The Disciplined Investor:It's true, though. So that story, I could sell. I could raise tons of money. Right. You're not overstating at all. There's guys doing it now. Yeah, of course. There's guys doing it.

34:00Ross Gerber:Literally, and everybody listening, he's not overstating. This is not.

34:04The Disciplined Investor:For me, I'm just, I'm good. I'm good. You know, like what I think is that humans are amazing. I think tech people don't give humans enough credit because they're not such great humans. And so when you are around great humans, you realize like this AI stuff is exactly how Star Wars will be. Okay. And I think Star Wars is a wonderful vision of the future. And when you think about how R2-D2 and C-3PO work together in Star Wars, I think that will be how robotics will look like and AI in the future, where you have a humanoid robot that's super annoying that tells you statistics, and you have this weird purpose-filled robot that will actually do stuff that is very useful for you.

34:46The Disciplined Investor:And I think that it won't look like a human. And so I think what the future brings right now is a completely open field. And anybody who has this claim that they think what seven or eight years in the future is going to be like, it's not going to be like that. And we don't know. That's the fun and beauty of it. When I invested in Apple, I did not know about the iPhone. I didn't know that that could exist. I was pretty happy with the iPod Nano at the time. But I think where the risk is, is if you remember back in the days, one of my first great stocks was a company called AOL, and it's very much like OpenAI.

35:28The Disciplined Investor:Very much so.

35:29Ross Gerber:Well, because they're the first in. Well, not the first.

35:30The Disciplined Investor:They were the first in. And they sent out tons of discs to everybody so that you could have online access. People didn't really sign up at first. It was like$25 a month, which was like a lot of money in 94, 95, you know? And like, they just, and people are like, what is this strategy? Just send everybody discs in America. And like, they're just going to sign up for this internet. Like, what is, what do I even need this for? Like email, you know, what's that?

35:57Ross Gerber:What's that?

35:58The Disciplined Investor:You got mail, you know? So like my generation, you got mail was like a big deal. And so when I signed up for AOL in 95 or 94, I was like, this is awesome. I'm going to send somebody an email. And there was like nobody to send emails to. And AOL was a revolution. And all of a sudden you could plug your computer into the wall and it would do stuff. But AOL rallied like crazy until 99. I was fortunate enough to be at the New York Stock Exchange at the top of the market in 1999 when Time Warner purchased AOL. It was the craziest thing I've ever seen. That's why I know bubbles, because I was in it, you know?

36:38And so at that point, from 99 to today, AOL still exists.

36:45The Disciplined Investor:And I think it was just sold again to some weird company in Europe for some reason, which I don't understand, you know? I mean, what does it have? I mean, that was with you. AOL is mail and news. That's the app right now because I still have my AOL address and I still use AOL. And I use AOL and Yahoo because it makes me feel good.

37:03Ross Gerber:Oh, well, there you go. You know, it's funny. I read a number of years ago, I read a Harvard Business Review. I don't use Instagram. Oh, no? A number of years ago, I read a Harvard Business Review article and it was talking about the second in, the second in advantage. And it was this discussion of things like AOL or other companies that you could think about that were taken over by the second in, where, for example, is McDonald's and Burger King. Or, you know, you look at the different companies that are out there that have that. And that could be something because they look at, you know, for example, Lowe's versus Home Depot, right?

37:36Ross Gerber:The second in was Lowe's. Right. And you look at that and there's something to be said about, like, who is going to be that second in that's going to learn, whether it's a perplexity, whether it's, you know, Google's, whether it's Google. Google XAI. I don't know.

37:50The Disciplined Investor:You know, which by the way, Google supposedly raised another$15 billion. Yeah. I was stoked. Cause I own some of that. And I think they raised that at 200 billion valuation, which means I doubled my money. There you go. I'm happy.

38:01Ross Gerber:Which is interesting because, uh, the valuations there, I think are a little bit nut. So, well, if you want to talk about bubbles, the private market is where it's at. Yeah.

38:10The Disciplined Investor:Okay. So you're talking about credit equity or both, both like the way my business is so freaking weird sometimes like the way see the whole purpose of private investments was that it wasn't for the public right right and now they're trying to sell private investments to the public but they're not liquid and then what happens is you don't have a market so they'll say oh we're raising at this at this valuation we're raising at this at this valuation but it doesn't mean those companies are worth that do you see what i'm saying i understand i guess so like so like people are like i want to get in on and drill and they're like all right well we're raising money in series f uh you know you can buy five percent of the company for you know 75 billion dollars you know so is open ai worth 500 billion like no way right no way right right but it doesn't matter it doesn't matter that's the funny thing because it doesn't matter because only private investors you know which are supposed to be smart and sophisticated investors are dumb enough to pay that, I guess.

39:14Ross Gerber:I have clients that have more private equity and hedge funds and even interval funds that we have to babysit until we can unwind them. Right. And, you know, whether it's some of these guys are buying whiskey barrels, you know, or they're buying some other who knows what.

39:32The Disciplined Investor:There's so much garbage private stuff. It's now, see, you know, because we manage a lot of money and we have a lot of money come in every year. So we're one of the, we're what I call 100 % organic. We don't buy firms. People just give us money to invest because we're good. You know, so every week we take in, let's say, 10 to 20 million of new capital. Okay. And so these people call us like rabid dogs, you know. And so I got every private equity company pretty much calling us like rabid dogs, except the huge ones, which like don't need anybody because everybody calling them for some reason. And so, so they all call me and it's all the same, which is access.

40:14The Disciplined Investor:Like, oh, well, we have access to private stock and this and private stock and that. And it's like, but what does that matter if you're paying five times what the company's worth? Yeah. Plus a 15 % SPF. Right. Oh, I don't even want to go into all the fees stuff because, you know, we're an RIA. hey, so we charge 1 % or less typically for pretty much all clients unless you're a super small client. And so like, you know, I try to keep my fees all in at 1 % or less with the ETFs and whatever. And so it's like, you know, when you think about a hedge fund or a private equity guy coming in and saying, I want two and 20, which works out to be something like four to 5 % annually if they're successful.

40:54The Disciplined Investor:It's like, I'm like, why would you get paid five times more than me? You know? And then they're like, oh, well, we're happy to share some of these fees with you because obviously it's excessive.

41:02Ross Gerber:Not to mention that they're creating their own valuations to get to the 20.

41:07The Disciplined Investor:Yeah, that's what I'm saying. You know what? I can value my company. I can value my company. We're a private company. And there's like eight formulas I could use. You know what I'm saying? Yeah. Which formula would I use is the one that gives me the best valuation, right? Yeah, I get it.

41:22Ross Gerber:And by the way, did you see that Schwab purchased a private equity platform just what? Well, this is what happened. This is what happened.

41:30The Disciplined Investor:So we were like, oh, we should be doing private equity because we're Gerber Kawasaki and we want to be able to do everything that clients want, right? And so I'm like, all right, I'll look into it. So first company we talked to, Equity Zen, right? Equity Zen, good company. I really like these guys. and we talked to forge too but i didn't like forge because the stock is public and they're losing like tons of money you know like i was like this is not a good company and so of course swap based 600 million for it and and and then like this equities end we were pretty close to starting to work with but then it got into like well okay i want to buy something today like what can you actually offer me and it was like four or five different securities you see what i'm saying Like total.

42:17The Disciplined Investor:And so I found one and I was like, send me the information on this. And they sent me the information. And I'm looking at this stuff and I'm like, these valuations make no sense. Of course, there's no negotiation in any of this. And then of course, there are different fee structures depending on whether it's an SPV or whether it's a direct purchase or, you know, it's like, and I was like, you know, I've invested in probably 10 private companies in my life. you know i've i've gotten a good return so far on maybe one of them you know well not only that you

42:49Ross Gerber:have the capital calls you have all that it's it's it's a crazy yeah but like i invested in tesla

42:53The Disciplined Investor:and i invested in bitcoin i invested in nvidia too right 10 years right okay and i've made 100 plus capital calls without right without any of this bullshit total liquidity and no two and 20 and i'm a stock market investor so that's part of it too i'm a trader so if the thing doesn't trade it doesn't work for me because I take advantage of days when the markets are down to purchase stocks. I take advantage of the markets, you know? And so if you're good at this, which is very hard, to be honest, it's very hard for me to do it too. It's not like I have some special skill other than I have no emotion towards money, you know, which is really one of the key features to being able to invest well is not being emotional about money because you often are losing or gaining lots of money in one day.

43:39The Disciplined Investor:Like today I am losing a lot of money and we're not going to be specific about the days, but other days I'm making lots of money, but you know, it doesn't matter to me. What matters to me the most is doing the best we can for our clients. And, and that is where I care. Like I want to pick the right stocks and do a great job because a lot of people rely on us and we want to do the best job possible for them. And, you know, not just be a bunch of lemmings buying the S and P and, and, you know, I get it.

44:05Ross Gerber:I get it. Listen, I see that all the time. Stuff comes just like you stuff comes through my door i'm like who is creating these portfolios and by the way from some of the big companies right some major names i'm like what why would they create this portfolio you have somebody who is conservative in all equity if somebody that's you know aggressive and they have this like you know weird portfolio of just and you know because they got talked into this whole factor or something like that i want to switch gears i want to talk about back to the humanoid robots, the idea of R2D2, C3PO, or we can call down the lost in space robot, or we can look at Terminator and what's going to happen there, or even Hal.

44:46Ross Gerber:Hal.

44:47The Disciplined Investor:Well, I kind of think that it's possible that a robot might come back in time and kill Elon. Oh. You know, like maybe we're living Terminator right now. Oh. Oh, that's what you mean. And like, you know how like the Terminator came back to kill the person that was going to stop the Terminator. Right, that was going to solve the whole thing. Sarah Connor, Sarah Connor. Yeah. And so what I fear is Elon's robot army. You know, like I don't think this is good. I don't actually think humanoid robots have much purpose, to be honest. I think if I'm building a robot, I would want it to be built specifically for what I want it to do.

45:32The Disciplined Investor:But to be walking around my house and folding laundry, you know, my kid said, and I thought it was very smart. I said, why would you spend a trillion dollars? Why would Sam Altman spend a trillion dollars to make a robot so it can fold laundry? Yeah. Like, and serve food.

45:44Ross Gerber:Like Rosie, Rosie from the Jets.

45:45The Disciplined Investor:Yeah, like, I get it if it would only cost 100K to develop something like that. But if I'm going to spend a trillion dollars, maybe I want this thing to do more.

45:53Ross Gerber:But the whole idea of humanoid robots, listen, we know that, Elon, I know that you have a long history, made a lot of money from Elon. He's quirky. Let's just say that. He's quirky. Quirky. And he's a little bit immature. And, you know, he wants to do these things that somehow seem fun. I mean, like, you know, let's play baseball with a humanoid robot. Let's, you know, let's, stuff like that. But robots don't necessarily have to be humanoid, right? They could be automation machines of some sort. And they could be then smart thinking, right? Whether it's like you saw in some movies where glass spills from a table and all of a sudden the robot is a little round thing, like a little rumba, automatically goes and cleans up the mess, right?

46:33Ross Gerber:Yeah. Or maybe somebody's having a health issue and all of a sudden there's some device that detects it in the house and then utilizes whatever it is. Well, they kind of already have that. Right, right. But we have some of that. But you know what I'm saying.

46:45The Disciplined Investor:Looking for one of those for my mom.

46:47Ross Gerber:You know what I'm talking about, right? Yeah. Or the Amazon pickers, which we have too. But that whole thing, which creates mini robots or even nanos, by the way, to solve health issues.

46:57The Disciplined Investor:Yeah, but I think like this is where we get into this like fantastical area of thought when we're looking at the MAGA movement that I think is, you know, you sort of say, are we really advancing as a society? Are we really moving to the Jetsons or are we kind of haven't gone anywhere? Because when I was in Orvieto, I think those people were way smarter than us.

47:18Ross Gerber:Oh, yeah.

47:19The Disciplined Investor:Today. Yes. So if you go back thousands of years, I think they were actually smarter than we are today. And Orvieto is proof of it. It's like these people were super smart. How did they build this stuff? How did they get everything up that hill? And then I was dumb enough to put in the mapping to drive through Orvieto. So then I got stuck in the middle of the city. And I started yelling at my wife, why did you just put in the mapping? This is an ancient city. It's not made for cars. you know so i'm starting to panic because the car doesn't even fit in the road and i don't even know what to do you know yeah and then i couldn't even turn right because it was not wide enough where i was it was telling me to turn so i went the wrong way up the street and sure enough it opened up into a parking lot i was like thank freaking god by the way i must have been in that

48:03Ross Gerber:car with you because i had that exact experience by the way i'm sure you did because you put into

48:08The Disciplined Investor:google take me to the restaurant in orvieto to the main square right that's right and then it tries to kill you. Talk about AI. Show me a way through Orvieto that doesn't kill me. That would be great. Let's continue with the robot and the whole robo taxi thing. So here's the idea of technology. All technology that has been wildly successful simply makes our lives more efficient and better. It simply does that. Uber is a perfect example of that. Uber, when it came out, taking cabs sucked horrible it never was a good experience you call these people they may or may not show and when when my my business partner actually showed me uber the first time i actually had my own driver you know i tell the story a lot and i used to call this guy and he would pick me up and take me to clubs and wait and then drive me home okay because i didn't want to get a dui and i go out and i was single and he goes oh we got uber you don't need alex anymore coincidentally that guy's name's Alex and you don't need Alex anymore.

49:06The Disciplined Investor:I didn't want my real Alex to get upset. And, uh, and I, and it's like, you don't need Alex anymore. I can go on my phone. I can order a black car. Cause Uber was originally just black cars, you know? And I ordered the, they ordered the car on the phone. It came, picked us up. We went out clubbing. It was really fun night, actually in hindsight. Um, and then we called the car and it took us home. And I was like, this is amazing technology, you know? Yeah. Like amazing. So when you think about the cell phone, for example, like before cell phones, you know, you just didn't communicate, you know, and all of a sudden you got a phone.

49:39The Disciplined Investor:It was like, I could walk around with a phone. I think my first phone was like a Nokia, you know, and, and you'd make calls. There was no texting. And then there was the Blackberry era when we came up with this innovation that we could text, you know? So like most technologies really make our lives better. And now we finally reached a point where technologies are making our lives worse. And the example of that is social media. So like today, there's no doubt in my mind that Steve Jobs had no intention that young people would be walking around staring at phones all day. That is not what his intention was when he built the iPhone at all.

50:13The Disciplined Investor:He didn't think so at all. He was thinking like, wow, this is great. I'll connect to the internet and you can listen to your music and make calls. You know? That was pretty much it. I agree. Yeah, that was all he, you know? And so today, like the Facebook era, and the social media era, you know, has basically just like destroyed the minds of our youth. And they're fine doing this, the technologists, because they've made so much money doing it, you know? But it hasn't added to our lives. And that's where I fear this robot stuff goes. See, having a robot that just walks around and does laundry is not gonna improve my life in any way because the person who does it in my house is quite nice and I have no reason to replace them, okay?

50:51The Disciplined Investor:There's not an inefficiency here, you know? So when you think about where are there inefficiencies that can be solved with robotics, there are lots of jobs that are quite dangerous or difficult, you know? And so you're like, okay, I'd put a robot in charge of like cleaning the turbine engines of the plane or something like that, you know, where it's like dangerous or, you know, or unhealthy, you know, like mining jobs are unhealthy. Window cleaning. Yeah. Like those dudes that go outside on high rises, that could definitely be something that's a robot and and humans do this but you know you're like if we could just come up with an easier way to clean windows on high rises that's a great use of a robot you see what i'm saying i get it just stick to the window and go up and down all day and i got this robotic uh kitty litter box and it really just like my cat poops and it does the circle and it gets the the poop into a bag oh that's helpful that's helpful it's wonderful yeah that's good i've never cleaned crap you don't need

51:52Ross Gerber:And you don't need a trillion dollars to program that. But what about the RoboTaxi? Which is the, again, I think more than anything, I think. We don't need RoboTaxi. We don't need them. Why do we need the RoboTaxi? What is the whole thing with Elon with the RoboTaxi? We don't need them. Is it a carrot though? Is the RoboTaxi a carrot for Tesla? Because somehow it's almost like a trigger for investors.

52:13The Disciplined Investor:The idea is that we're not going to drive anymore. So there's somebody at Tesla named Elon Musk and maybe some other people who think people like us are going to stop driving and that these robo-taxis will be ubiquitous. They'll be everywhere. And you'll just like step out onto the street and a robo-taxi will pick you up and it'll take you home. And then you want to leave for work, you step out of your house and a robo-taxi will pick you up and take you home. I'm not really sure about this vision because it would involve replacing like pretty much every car that exists. Which is good for Tesla.

52:45The Disciplined Investor:Which is good for Tesla. Well, yes. But when I talked to Elon originally when we actually cared about climate change. And I said to him once, I said, you know, it was a question actually at one of the events. And I said, you know, if Tesla can make X amount of cars, like how many years would it take? Like if we make as many electric cars, like how many years would it take to replace the vehicle fleet? And it was basically like 20 years, you know, so it takes 20 years to replace the vehicle fleet if everybody just bought new cars that were autonomous. So if we had something that actually worked today and you say, okay, there's 75 million vehicles sold globally annually, who could get up to 75 million production of autonomous vehicles?

53:26The Disciplined Investor:You know, it's just not gonna happen. So people are gonna drive regular cars until I die. That's what I think. And I'll be one of them because I love driving.

53:36Ross Gerber:But you also, I would speak for you. You would not be unwilling to get behind the wheel of a quote-unquote autonomous driving car and let the car do its thing. Oh, I take Waymo's all the time.

53:48The Disciplined Investor:I take Waymo now all the time. I don't like Uber because Uber is a horrible experience, like from the perspective of a RoboCab. So that's the innovation is getting the human out of the car. And most of the humans driving Ubers in L.A. are not from L.A. They're not good drivers. They don't smell good. It's just not a good experience.

54:08Ross Gerber:The whole time I was thinking the smell. I didn't want to say it. I was thinking. I'll say it. As you're talking about it.

54:13The Disciplined Investor:Every time I can spend$180 to go to the airport in an Uber and it smells like crap in a car. Something happened. And I hate to tell the guy this, you know, and I'm like, dude, you've been sitting in this car for 73 hours straight and it reeks, you know?

54:27Ross Gerber:Yep.

54:27The Disciplined Investor:From everything you've eaten. And I'm like. So what about. When I get in at Waymo, it's like smells like roses.

54:33Ross Gerber:There's no person in there. But Waymo can be any car with a Waymo. With a Waymo. Oh, tech. Tech. That's the big issue. And that was the hope, I thought, really, from a Tesla standpoint, that they would have the services component that would pay for, you know, they would bring in all sorts of money. And that's why that I think that Elon keeps, I see it, he keeps on talking about this. And every time he talks about it, the stock goes up, even though sales honestly suck at Tesla. Right.

54:57The Disciplined Investor:I mean, horrible. And it's worse now than ever. Right. But like, see, the whole cab thing too is I always like had this vision that Tesla would make these amazing electric vehicles that could drive themselves. Because what I actually really want is when I'm driving to the Dodger game in the World Series, that I can just push a button and it will drive me.

55:16Ross Gerber:Yeah, congratulations, by the way.

55:18The Disciplined Investor:So thank you. So if I can push a button and my car drives me around completely safe, like a Waymo, that's a huge win for Tesla. Huge, huge win. So the model is we sell you a car and it can drive itself and it's electric. And I think you could sell 10 to 20 million of these a year. And that was the original goal of Tesla. Okay. But once Elon came out as an extremist, which is what he is kind of, it's like, you know, he turned off like pretty much everybody, you know? And then it was like, well, the right wingers still like him. And then he turned those people off. And so when you're like, who actually likes Elon anymore?

55:57The Disciplined Investor:It's basically like white male tech geeks that love Tesla. That's it.

56:03Ross Gerber:And it's not a big market. It's interesting because you said when you originally started talking with Elon back in the day and why you probably bought Tesla as a stock, which you made a tremendous amount of money on. I know that. Remind me of Apple. Yeah, right. But now, I mean, the Ford F-150 Lightning production being canceled. I know.

56:17The Disciplined Investor:I'm so pissed about it. I'm so pissed because Elon forced these companies to go electric. and I care about climate. And I think climate solutions is where there's money. And so it's like now all these companies are like, thank God we don't have to do this anymore and compete with Tesla so we can go back to selling gas guzzlers and making much bigger profits.

56:35Ross Gerber:I mean, the hybrid's not the worst idea for - No, hybrid is a good solution. For like an F-150 where you're worried about, I mean, you can get the torque, don't get me wrong, but worried about the longevity of the truck. It's the range anxiety thing. There's a lot of range. Just thinking about it gives me anxiety on that, you know?

56:51The Disciplined Investor:Well, you know, it's one problem that I've never had. And as much as you worry about it, now the new Rivians are 400 miles of charge. So it's farther than a gas car. You own Rivian stock? I don't own the stock. Did you see the pay packages came out? Yeah. And, you know, I don't know what's wrong with all these people, you know, but like RJ has not done a great job. You know, no offense. I love Rivian. And so just full disclosure, I love Rivian. I don't own the stock. I own a car. I own a car, which I really like. I think they make wonderful EVs, but I think operationally they're just challenged.

57:30The Disciplined Investor:I just don't think they have the work ethic and the type of focus like Tesla had to really get to where they need to be. They just need to be pushed harder and that's a management issue. So RJ is a great marketer and he's built a great brand, but I just don't see the, like, when you go to Tesla, like I was reading about like the Tesla meeting, all hands meeting they just had where Elon's now basically saying 2026 is going to be the hardest year of your life. Cause if we don't achieve all these things, we're going to be in trouble. And I was like, I was like, as much as I hate the fact that Tesla's in this like really tough situation.

58:07The Disciplined Investor:I'm like, I love the work ethic. Yeah, sure. I love it. I mean, on the floor, Elon will die. He'll die trying. That's why I don't bet against these people. You know what I mean? And so, you know, I still own$90 million worth of Tesla stock somehow. And, you know, people say, well, you don't like Elon. You don't like what they're doing in their direction. I said, I'm not saying they're going to fail though. I don't know. I don't know, but I'm not betting against them for sure. But what I do know is that I'm not going to give up driving. My kids will drive, but they probably don't care as much as adults.

58:42The Disciplined Investor:I don't think Tesla's Technology in its current hardware setup is good enough to compete with Waymo. Waymo completed a million robo-taxi rides last month in California. This is impressive. They're everywhere where I go now. I think they're the first mover. And because it's Google, I think they dominate. I think Tesla's messing around has cost them. Right? They got plenty of money. Right. And there's a reason for Waymo to exist beyond taking rides. because Google understands they've got you captive in the car and they're an ad model. And so when you're driving for your 30 minutes in the Waymo, soon it'll be things like, do you want to watch ads and your ride will be cheaper?

59:26The Disciplined Investor:Stuff like that. Okay. So we're getting to a point where Google can really monetize the cab in a different way than Tesla. Right. And so that's to their advantage. Tesla selling cars that drove themselves is a better business than being a cyber cab. The other thing with the cab business that's tough is they kind of assume that because there's no driver, that the making money part would be equal to what the driver would make. So if you're a full-time Uber driver, let's say you made$65 ,000 last year. So their assumption is like, well, then if I'm a full-time robo cab, then I'll just make$65 ,000 profit because I don't have a driver.

1:00:06The Disciplined Investor:But it doesn't quite work that way. And one of the reasons is because, you know, like there are certain times that drivers make more money than others. And the drivers learn when they want to drive depending on demand. And so when there's a concert that lets go and there's surge pricing, drivers make a lot more money than in the middle of the day when there's no demand. You see what I'm saying? So the way Uber works and the big challenge that they had early on in their existence, if you remember, was surge pricing on New Year's Eve. Oh, I remember. I remember. And so you go out to your party on an Uber for$28 and then you try to leave at one and it was like$128 and people would freak out.

1:00:51The Disciplined Investor:But that was just like the supply and demand dynamics that they hadn't smoothed out. Over time, they got enough drivers that drivers just come on on Saturday night that want to deal with drunk people who drive across town because they make more money doing that, you know, and drivers come off. So the idea that we're going to have just like millions of these cabs just like kind of just waiting around for rides all day long doesn't sound like margins going up. It sounds like margins going down. And that's my perception of what will happen with cab. In five years, the cabs will be free, basically.

1:01:27The Disciplined Investor:Wow. Especially in New York.

1:01:29Ross Gerber:Especially in New York.

1:01:30The Disciplined Investor:You'll have to watch ads. You'll watch YouTube.

1:01:32Ross Gerber:Oh, God, no. Don't talk about that. No, it's not us.

1:01:36The Disciplined Investor:This is what the kids do. The kids are perfectly fine trading their brain cells for free.

1:01:42Ross Gerber:Yeah, I see it. Hey, listen, I want to just quickly finish up on something. First, I want to say something, Ross. I really enjoy talking to you. Seriously. No, thanks. I have so many guests. I've had 950 shows on this particular podcast. I have so many guests I've had over the years. And you are a treasure. I really appreciate that.

1:02:00The Disciplined Investor:Oh, thanks. I really appreciate that. That's why I like doing your show because I enjoy talking to you. Thanks. So let's talk about the massive energy need for these data centers.

1:02:13Ross Gerber:And I actually have a few investors. We made on companies that I usually would not invest in. I'm like, okay, beginning of the year, like, for example, full disclosure, SMR, OCLOS, EG, you know, these companies have made me.

1:02:25The Disciplined Investor:Be careful with nuclear. No, clearly.

1:02:27Ross Gerber:But I'm out of them primarily. I just hit them a little bit recently this week again. But we made like 600 % on these things. So I'm clean on those profits. Let's talk about that. Where are we going?

1:02:39The Disciplined Investor:So this is actually the part. Now you're getting into what I'm actually working on. So we look at AI like any other gold rush where it's like the most obvious place you think to make money is usually not. Open AI, you know, Microsoft. Not that I think Microsoft will do fine, but I'm just saying where is the real money to be made? And one of the things that I learned when the Palisades burned down was I started watching infrastructure being rebuilt. And the first thing they started working on power, they're still working on power. and I started hanging out with these power guys, right? Cause they're outside of my house every day.

1:03:18The Disciplined Investor:And they're, boy, these guys are like, it's such a specialized skill, okay? Like putting in power transmission lines and all this kind of stuff. It's not like you could just like go to school and do this and be good at it. It's you're climbing poles, you're dealing with high power wires. It's a skill that you learn through working on the job. It's a union job. And the way the cities do this is they outsource to companies. So it's not like this, like we do have the Department of Water and Power here in LA, which is unique, but most power companies are privately owned or they outsource power services like transmission lines and fixing stuff.

1:03:56The Disciplined Investor:And one of the things I learned first hanging out with the power guys was that our infrastructure is pathetically old. The power that they were taking out of the Palisades, many of the poles were over 80 years old. They literally, my neighborhood was built 80 years ago. I think it was in the 50s and 40s. And it's the same pulse. Okay. So it gives you an idea how aging the infrastructure is in the United States for power. Now, I started studying this many years ago with electric cars, because what I was concerned about was power in the same reason. Like if everybody had an electric car, do we have enough power to do this?

1:04:33The Disciplined Investor:And if the price of power goes up substantially, then that defeats the purpose, right? Yeah. And then we have these clean energy sources like solar and nuclear. And so you've got many issues here to address. First, I'm building a big data center, let's say in Arizona. I think OpenAI says they're going to build a trillion dollar data center in Arizona. So you're talking about this massive footprint of thing. Now, if you've ever gone into a small data room in an office, for example, let's say it's a one room with a bunch of servers, it's hot as hell. And you've got to run air conditioning through this stuff.

1:05:06The Disciplined Investor:And you've got like a thousand wires, you know, plugging all the server stuff. You've got to hire all these people who manage it too, you know. So running these things is complicated, expensive, and use a lot of power and a lot of humans, right? And so we started looking at this and where I was like, oh, my God, this is the opportunity. And it started with GE Verona for us, which we made a nice return off. Symbol GDV. Yeah. And then, you know, I stay away from, so my stepfather's.

1:05:33Ross Gerber:But they also got a big pick as a nuclear too, GE Verona.

1:05:37The Disciplined Investor:Right. But see, my stepfather's one of the leading nuclear scientists in the world. Oh. So if there's anything nuclear related, I know more, I can learn more about this than anybody else. Yeah. And he like works with the department of, he's retired now, but the department of energy is very close with everybody in the nuclear department. power industry. And he's literally the dude who like builds nuclear power plants. And he has a very simple answer. There will be no nuclear power coming online for seven to 10 years. It takes that long between regulation, building safety. And then you got all the NIMBYs who go crazy when you try to build anything nuclear near them.

1:06:15The Disciplined Investor:Okay. So nuclear power is not a short-term solution for AI. So keep that in mind. Okay. It's a long-term solution and one that we should address. And the government needs to subsidize nuclear because it has very low returns for investors. And so now the Trump administration announced that they're going to be supporting nuclear power, which is a great positive step. But there will not be any nuclear coming online anytime soon. Okay. Look at it that way. Okay. On the other side of the coin, we have natural gas. We have solar. We have other forms of energy. The best form of energy is from the sun and its solar power.

1:06:53The Disciplined Investor:So we have the ability to scale, you know, power generation pretty well if we want to using traditional methods. But we also need transmission and we need infrastructure and we need the ability to, you know. To capture it. Scale this up, right? You know. And it's just a huge investment. Like it's so much work, like physical work building a data center. You know what I mean? and all the power around it. So we just bought stock in a company, Quanta Services, a PWR, and Quanta Services really does all that. You know, the servicing, the transmission lines, it's really a bricks and mortar play on AI.

1:07:35Ross Gerber:Is that specific to solar or is that specific to -

1:07:38The Disciplined Investor:No, it's specific to all the different types of energy generation. They do more of the like servicing, like connecting it, making sure the wires work, you know, like the whole bit, not a generation of the power. Is it like a baker used for the oil industry? Kind of, yeah. So they do all the hard work. Now it's not a high margin business because it's labor intensive, but you can't do anything without these people. You just can't. So we're looking at a couple other companies now in this area as well, which I'm not going to talk about because we haven't done anything yet with them. Um, but like essentially this infrastructure is really the play.

1:08:17The Disciplined Investor:Is it, you know, an infrastructure in the United States is terrible, terrible. I mean, in the city of Los Angeles, for example, you know, cause I work, I'm working and trying to get rid of the communists running our city. And, you know, so we got one city council person in who's wonderful, Tracy Park, who's, is wonderful in West LA. And, you know, and we had a meeting and she was just like, you know, the infrastructure in LA is so bad and antiquated. Everybody's upset about the fire. They don't want to know that 40 % of the fire departments in LA are just unusable right now. The trucks don't work, you know, like infrastructure just is so old in our country and so many places, and it needs to be invested in.

1:08:59The Disciplined Investor:And part of that is the government and part of that is the private sector. And so we're going nowhere without power.

1:09:06Ross Gerber:No, it's clearly, no, there's no question about that.

1:09:08The Disciplined Investor:We're going nowhere. It doesn't matter how much we talk about AI. They got, Satya said it the other day, Satya Nadella from Microsoft said, I got chips, I got a building, but I don't got power. So we can't scale any faster than we're scaling until we have power, you know? Right. And, and boy, you know, this is not something you do in a day. So, you know, if you're talking from scratch, I'm building a solar battery system, transmission lines into a new data center. This is a massive investment. And that's what's happening right now. So the good news is these are investments all in the United States.

1:09:40The Disciplined Investor:They create lots of jobs. It's very labor and skill intensive. And if you're a young person and you don't want to go to college, you could get a great job in the power industry. There's just no question. So that I think is one of the most interesting and important and crucial investments you can make as an investor. And my fun GK right now, we, we, we have two of these, and we just had a stock Amphenol, which does all the wires in the data center. We've owned a stock called train technologies, which does air conditioning systems, which I originally bought because they do heat pumps for, um, for climate change.

1:10:15The Disciplined Investor:And now it turns out, you know, we need all these air conditioning things on data centers too, you know, so train is in a great position with global warming and the huge demand for air conditioning just in general, because most of Europe doesn't actually have air conditioning. And then, of course, now this data center demand is just wonderful for cooling products and such. So Trane is in a wonderful position as a company as well, which also has exposure to that. So we're continuing to build out what I call the the bricks and mortar of AI, because I think that's in a lot of ways more interesting than the AI plays themselves.

1:10:54The Disciplined Investor:Right. Because, because either way those could win. They win because of every, see, I posted this the other day for, from 1875 to 19, let's say to 2000, or to when the internet was created, let's say 1875 to 1995, let's say oil, Oil, the industrial era, factories, roads, trucking. This is how we built America. And America is this wonderful story, the railroads, the communication, the telegraph that was laid next to the railroads, the communication. And when you look at infrastructure is what made America wealthy. We weren't a rich nation. We were a bunch of farmers until we had railroads. And once we could trade and move goods and communicate, all of a sudden that infrastructure made America extremely powerful and wealthy.

1:11:51The Disciplined Investor:Because all of a sudden consumers all around, not just the United States, but even globally could have access to our food. For example, our cattle. So shipping cattle from Chicago to New York. So now you go from 1995 to the president's all about the internet, which runs on electricity. So we've moved from an oil-based power system around cars and trucks and oil and factories to now an electrical-based system that ideally cars and trucks and factories and everything will work on electrical-based systems now. Okay? And the problem is none of that infrastructure, the railroads, the telegraphs, that hasn't really been built.

1:12:29The Disciplined Investor:That if it works on it. Or what we want it to become. You see what I'm saying? Yeah. So for this vision to be actualized in the next 20 years, which is our lifetime, infrastructure is going to be the absolute key to the success of it, more so than the innovation itself. Yeah, amazing.

1:12:48Ross Gerber:Ross Gerber from Gerber Kawasaki. I'll have the information on how to get in touch with you over on the show notes for episode number 947. You can find him on Twitter. You can find him everywhere that social media is. And I really appreciate you coming on board today, as always, giving us just an incredible depth of information on all sorts of topics. Thanks so much.

1:13:06The Disciplined Investor:No, no, I appreciate it. Now I want to go buy some more power stocks. There you go.

1:13:09Ross Gerber:Go get them. I convinced myself. I'll see you soon. Thanks. Yeah, take care, Andrew. Great. How great, how great is that discussion with Ross? I mean, we have a great synergy there. We should probably do a show like more regularly, I think. I'll have to talk about that. Anyway, things are interesting, to say the least, of what's going on right now in the markets. I think you make some very good points with regard to, you know, we're not necessarily in a bubble, but we're in a valuation question mark. And there is great opportunity to be had right now. And then there's going to be winners and losers, like we've seen, but yet at the same time, there's a lot of money being made, a lot of money being spread around.

1:13:48Ross Gerber:So we'll keep a watch on that for you as well. As I mentioned, go over to the Disciplined Investor. You can see the show notes, everything. And by the way, we have some AI-generated show notes if you want to read it and catalog it on the episode show notes page. So that's over on thedisciplinedinvestor.com. I want to thank you for joining me this week and every week. A shout out to all of our great clients. Thank you for all that you've done. You do. And thank you for believing in us, trusting us with your hard-earned capital, your life savings. We hope that many more of you will come on board over the next times, the weeks, the months, the years that we're here.

1:14:27Ross Gerber:Plenty more to go of the disciplined investor. Stay disciplined, stay investing. Keep your head up and watch for the opportunities. Thanks for joining me this week. I'll see you again real soon. This podcast is intended for informational purposes only and does not constitute personalized investment advice. Investing involves risk, including the possible loss of principal and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests and may not necessarily reflect those of Horowitz & Company, Inc., an investment advisor registered with the U.S.

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