Prof G Markets: Nvidia’s Blowout Earnings & Stock Split + Britain’s Damaged Economy

24:06All these healthcare companies are going to start buying our GPUs. So this is nothing short of absolutely staggering. Historically, the semiconductor industry is cyclical. I don't see why this would be any different. Kudos to them. A staggering earnings report. I love that they're creating all of this wealth for their employees and for their investors. I don't know where the stock's gonna be over the course of the next 24 months, but I would predict that in 20, call it 18 to 36 months, it's wealth south of where it is right now. I just don't see how with these types of margins and this type of dominance in a market, that's so important, so huge, has so many powerful players with their own capital, their own IP, that these types of numbers just aren't going to attract the biggest great whites in the world.

24:53What are your thoughts? You mentioned Jensen building in new expectations. I think he said that this was going to be on this most recent earnings call. He said that this is the next industrial revolution. But I want to pivot to just this analyst note that I was reading. I found this line that I found pretty funny. It said, quote, NVIDIA generated revenues that were around 5 % higher than what the analyst community had expected. While this was a positive result for sure, the beat was less pronounced compared to the previous two quarters when revenue estimates were beaten by more than 10 % respectively.

25:28In other words, NVIDIA is so strong that we're not even happy with beats anymore. We're measuring how much today's beat beat the last beat. it feels like we're not only building high expectations, we're building totally new kinds of expectations for this company just because of how much it's outperformed. And what I'd ask you is, based on your experience as an investor, have you ever seen earnings growth that is this strong and this enduring? It's been several consecutive quarters of triple-digit revenue growth. This is, yeah, I mean, you're exactly right. You beat by 20%. You only beat by 18%.

26:07You only over-delivered by this much this time. So the expectations here, this company is defying gravity. You could argue just on a shareholder ability to create shareholder value. NVIDIA, at this point, is probably the most successful company in history. Very few companies are able to add the GDP of Germany in 18 months. That's just, there's something about, and to me, it goes to a larger thing. This is a Taiwanese, I think Jensen's from Taiwan. He went to school in Oregon and then he went to Stanford and he decided to start the company in San Francisco. There's just no getting around it. There's something very unique about America and specifically the Bay Area when it comes to cold, hard cash.

26:51And it's important that we keep doing this because these companies, while they pay less than their fair share, less than your fair share on the GDP of Germany is a lot of money. So these companies pay a lot. I bet that NVIDIA will be responsible for a loan, will be responsible for a budget surplus in California this year. I bet anyone who's been there longer than three years, who's in a quote unquote professional track job, has$10 million plus in options equity right now. And then when they exercise those options, those they have to pay short-term capital gains on plus the 13 % that goes to the state.

27:29That's just a massive amount of tax revenue. I mean, I've always said there's very few problems money can't solve, and people hate hearing that. But I've always thought, you know, other than health, and even with a lot of health conditions, money can solve it, most things work out. I have a friend who's going through a divorce. He's real upset. And I know his wife's soon to be ex. I'm like, look, this is the bottom line. It's going to be a lot less painful for you guys because you have money. This company, I don't know what it added. It added 110th. It probably added$150 billion in five minutes.

27:59It's, okay, if you add$150 billion in market cap to the economy in five minutes after your earnings call, you should be able to figure out a way to expand the child tax credit, which costs 13 billion, I think. So anyways, long-winded way of saying go America. And just quickly, investing 101, they also announced a 10-for-1 stock split. Can you just remind our listeners what a stock split is and why a company would do that? Well, they want to make it quote-unquote more affordable and seem less expensive. So the stock, what is it out today? $1 ,100 or something? Yeah, I think$1 ,050, I want to say.

28:33Okay, so let's call it$1 ,100 by tomorrow. So it's$1 ,100. All they do is just go 10 for one. So now each share of stock costs$110. And what I hate is I saw some headlines today saying the stock's about to become a lot cheaper. No, it's not. No, it's not. You buy a stock based on valuation as it relates to its underlying fundamentals. The valuation is not changing here, just the number of shares. As a matter of fact, something I learned from one of the VCs I worked with is I always issued at the very beginning of the company, you issue shares. You incorporate, you have a certain number of shares.

29:08And as the founder, at least initially, you own all the shares. And then you start giving options out on those shares to your employees. Hopefully, you get an investor. You give him or her new shares in the company, which dilutes your stake. And what I initially always just formed the company with a million shares. And one of my VCs said, no, form it with 100 million. I said, well, why? He said, because if you give someone 1 % of the company, 10 ,000 shares isn't nearly as exciting psychologically as a million shares. Even though it's the exact same thing, even though you just own 1 % of the company, it's still, he said, just psychologically.

29:44I'm like, are people really that dumb? He's like, yeah. People really enjoy getting a million shares or options on a million shares. And that's exactly what this is, because now with fractional buying, there's really no reason to split the shares other than to signal how strong the stock is and also to psychologically make it easier for someone to say, well, I'll buy some shares. It's only 110. I can buy two shares as opposed to saying, oh my God, 1100 bucks. I missed that. I missed that boat. So I would argue it's mostly symbolic and it's mostly just to give people the impression somehow that the stock is affordable.

30:20It's really psychological. It has nothing to do with the underlying fundamentals. We'll be back with a look at the UK and a surprise general election. Stay with us.

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32:15We're back with Proctuary Markets. British Prime Minister Rishi Sunak shocked Parliament last week and called for a surprise general election on July 4th. For our American listeners, here's what that actually means. In Britain, parliamentary terms last five years, and Sunak's is due to expire at the end of this year. However, unlike in the US, the Prime Minister can decide when to hold a new election during those five years. So why has the Prime Minister chosen now? It isn't totally clear, but it likely has something to do with recent economic data. Before his announcement, the UK reported 2.3 % inflation, which is its lowest level in three years.

32:52Meanwhile, GDP grew 0.6%, which technically brought the nation out of a recession. However, these are small wins. The UK economy is still largely in decline, and the nation is still reeling from the disastrous 44-day tenure of the previous Prime Minister, Liz Truss. And now, after 14 years of being in charge, the Conservative Party looks set to lose. Its opposition, the left-wing Labour Party, is currently leading the polls by more than 20%. Scott, you recently moved to London. I think that gives you a right to talk about this. What are your thoughts on the general election? I have really enjoyed understanding almost nothing about UK politics.

33:33One of the reasons, one of the free gifts with purchase in moving to the UK is that discussions around assault weapons, bodily autonomy, they're not even discussions there because they would look at you like, well, of course a woman can terminate a pregnancy or why on earth would we have AR-15? I mean, they just are remarkably sane. I like Prime Minister Sunak. He strikes me as a really reasonable, thoughtful guy. It's a parliamentary system, so people are sick of the party. I don't blame them. I think the UK is the only country in the EU that hasn't grown in five years. Brexit will probably go down as the biggest self-inflicted wound since probably George W.

34:12Bush invaded Iraq. It's like, how do we make things more expensive and make our economy less productive at the same time elegantly? By the way, I remember being in Cannes when it went through, and every Brit was just dazed. They just couldn't believe what had just happened. Anyways, the GDP growth since 2016, This is eight years. In the EU, it's been 24%. In the UK, it's been 6%. Since Brexit, UK goods trade has underperformed other advanced economies by around 15%. UK consumer prices have risen more than, get this at, 30 % since mid-2016 compared with 27 % in the US and 24 % in Europe. So productivity down, expenses up.

34:55In the pound, in the immediate minutes following the referendum vote, the British pound dropped 8 % to a 31-year low against the dollar. The pound has never recovered to pre-Brexit levels. And also the brand as a financial capital of Europe has suffered. Paris overtook London as Europe's largest stock market in 2022. And the total capitalization of London-listed equities fell from a high of$4.3 trillion in 2007 to about$3 trillion in February 24. Think about that. The market capitalization of this market in the last 17 years has basically been cut by 30%. And just on an inflation-adjusted basis, it would be$6 or$7 trillion.

35:33So it means they've lost a ton of share. Over the same period, the value of US stocks almost tripled to$53 trillion. So UK from 4.3 to 3, the US from about 18 to 53. And the total value of IPOs in London last year was less than a billion. Total value of US IPOs, and this was a slow year,$26 billion. I want to flip this back to you because I don't feel... I'll give you some comments on... People constantly ask me now, what's the difference between the UK and the US? And I have been struck by how underwhelming the business environment is given the pillars and the foundation that the UK sits on. First off, it has incredible universities.

36:13It has really fantastic raw talent. I've met so many impressive people there that you just can't get around it. This is some of the most educated, interesting group of people. It has an amazing culture. So a lot of very important people with a lot of influence saying, well, okay, I could move to Seoul, Korea, or I could move to London. Seoul's an amazing city, but the majority of people I would assume would pick London. But at the same time, what I've also noticed is that there's no actual organic value creation. Everyone I meet there has made their money by servicing wealth created elsewhere.

36:51The most successful people I know are in investment banking, are in wealth management, and they're servicing the wealth of people who have made their money in the Gulf or in the US. And they're either in hospitality or hotels, but other than Premier League football, the hospitality and tourism industry, I'm like, where's the actual mojo here? Where are the companies? Where's the tech, yeah. Yeah, and they do have some fintech, but given, it's just, it is really an interesting question. I don't know how to answer it and I'll turn it back to you. But given the fundamentals, given the foundation of all the things you need or supposedly need for success, what is missing here?

37:32Because there's nothing resembling NVIDIA. There's not even, Christ, there aren't even that many buzzfeeds there. Seven of 10 IPOs in the last 10 years are below their offering price. So I'll turn it back to you. You grew up in the UK. You came to school at Princeton. You're obviously, you are the secret sauce. Young, talented, educated people who want to work hard and make money and are good people are the secret sauce to any economy. And the fact that you stayed here as opposed to going back where you have family, where you speak the language, and you decided to stay here. So what do you think is the issue in the UK?

38:06And why did Ed Elson, given the option, decide to stay in America? Well, I'll start with the economics and I'll return to my read on the cultural differences, which I do believe are important. But let's just start with the economics. and the economics are dismal. The UK went into recession in the second half of last year. Two straight quarters of negative GDP growth, and the quarter before that, the growth was flat. It's had one of the worst post-COVID recoveries in the G7. Stock market's been sluggish. You mentioned some companies, some tech companies, for example, Arm, which is the AI chip manufacturer.

38:44They are based in England, but they decided not to list on the London Stock Exchange. They went to New York. Valuations are cheap. And the US stocks are trading at around 20 times earnings. In the UK, it's 12. And then there's this national debt problem too. It's not as bad as the US. The UK has around$2.7 trillion in debt. And that's around 97 % of GDP. Nothing like America. But we also have to remember that the US is in a privileged position to borrow because it's the US. So everything's, generally speaking, everything is going wrong. And the question is why. I think there are two main reasons.

39:19One, and this is what the Tories will argue, that is the Conservative Party, is that this is a Europe problem. There's a wider problem in Europe. Europe as a whole has been struggling with growth for decades. It's struggling to bring an investment, and that's true. The second reason is specific to the UK, plain and simple, it's Brexit. And at a time when growth was sluggish, along with the rest of Europe, the UK came up with basically the most English excuse in history, which is, it's not our fault, it's theirs. And as you mentioned, it was a populist movement. It started with Nigel Farage. It played into all these weird emotions of English pride and English heritage, and also dismissal of foreigners.

40:00MPs in Parliament lacked the spine, really, to speak up about why it was a bad idea. And it will go down, I believe, as basically the most disastrous and damaging economic decisions in history. It cost the UK 4 % of GDP per year. Remember, this was supposed to stimulate the growth. Tariffs increased, which increased the cost of goods, including food. Brexit is estimated to have contributed to a third of food price inflation. Workers left, estimated 330 ,000 jobs lost due to Brexit. What's interesting, especially the skilled workers. England was struggling with this thing called Drexit, which is where all of these young doctors decided to pack up and leave.

40:40And now they need to figure out how to revamp the NHS and get doctors back into the UK. I'll pause there. I'll just say, I think this entire election comes down to this, which is the UK went from a majority voting to leave the European Union, and it's now reckoning with only 30 % of the population believing that this was ever a good idea. So the question voters are asking themselves is, who was responsible for the worst economic decision in history? And I mean, the answer is really the voters, but they will say it was the conservatives. You ask why I left. I mean, the answer, I was born and raised in London, but both my parents were American and they encouraged me to apply to American schools.

41:21So I did and I went to school in the US. That's why I left. The other question you ask is why haven't I gone back? There's one crucial cultural difference between here and the UK, which really bugs me. And I think it's very well exemplified by the grading system that I grew up with. So in America, I got one grade, A, B, C, D, E, or F. In England, I got two grades. One was your attainment grade, which is ranked one through five. And the other was your effort grade, which was A through E. So the first measured how well you actually did. And the other measured how hard you tried. Two separate things.

42:02Now, all the teachers told us that the best grade you could get was an A1. But all of us knew that wasn't actually true. The students knew that the best grade you could get was an E1, meaning you got 100%, you were top of your class, and you didn't even try. Maybe you even misbehaved. You didn't care. So you didn't care at all, but you still achieved. And to me, this is the perfect encapsulation of English culture, where we have this obsession with not trying, not taking yourself seriously, and worse, not caring. And I believe that if I'd stayed in London, I don't think I'd be where I am today because I never would have believed in myself or taken myself seriously enough to say, maybe I'm good enough to sit in the same room as Scott Galloway.

42:54That would have been an embarrassing thing to try to do. And I think it's actually a real cultural problem in the UK. I think it's why we're seeing this lack of creativity this lack of innovation, lack of inspiration, and crucially, a lack of leadership. I mean, you look at Boris. That is the most E1 guy you've ever seen. His hair, his clothes, his demeanor, it all screams, I'm the prime minister, I'm talented, and I don't give a shit. I just sort of showed up here, and it just so happens that I'm the most powerful man in the country. And this is everywhere in England, and it's rewarded. So I think this is why you're seeing the same guys leading in government and leading in business.

43:36They all went to the same schools. They all basically went to Eton. And they all went to the same universities, which was Oxford or Cambridge. And they all learned the same thing, which is it's good to succeed, but the best thing is to never try while you do it. To be accidentally successful. Exactly. The impression of being accidentally successful. Yeah, there's also one thing I've noticed in the limited business meetings I've had is that meetings in New York, people are very much, okay, what are you doing? This is what we're doing. Okay, it was nice to meet you, but I don't see a fit here. Great.

44:08Onward. Maybe I'll see you at zero bond or do you know so-and-so. People are generally capitalists. How can I help you? How can you help me? No, I don't like this. Let's move on. or this is great. How do we make money together? Let's get on it. And on your way home, you'll start sending them emails. They'll start sending you emails. Whenever I've done anything resembling a business meeting in the UK, it was just so lovely to me. I think every meeting went modestly well. And three or four days later, I'll get a meeting saying, we should definitely follow up. I'll send you some dates for fall. It's like an indefinite maybe.

44:46And the way I would describe Ed Elson and every other ambitious young person in the UK is I think you're going to be successful in the UK. I do think there's opportunity there, but the way I would describe it is you will be, you'll reach that level of success at 40 versus 30 here in the US. I mean, the flip side is my father, despite his lack of education, always just had real insight. And he said to me, he said, Scott, America is a terrible place to be stupid. And what he was saying is this country believes in winners and losers. And if you're stupid here, you're going to fall further faster than in Europe.

45:23But at the same time, if you're smart and you're hardworking, there's no mowing the long or trimming the daisies or kind of cutting people down, which I think is what happens. You're supposed to kind of wake up and be accidentally rich in the UK. That's why they're all, I mean, they're all rich, children of rich people. That's why they have that opinion. I mean, dynastic wealth. Exactly. That to step out of your class is uncouth. It's like unappealing. It's, you know, and even you can even feel some of it in the U.S. based on geography. There's a European kind of similar sensibility on the East Coast.

45:57I remember when I first moved back to New York and I was single and people would try and set me up. They would say, she comes from a good family. I'm like, I could give a shit with the family. I don't want to meet the family. I don't care. I'm going to make my own. People on the West Coast brag about having poor parents. They're proud of the fact that they came from nothing. Whereas in the East Coast, and I think it's much more European, your background, your roots, your dynasty are much more important. But there's a culture there that I think the route for the most successful people, remember the kind of the Silk Road or whatever, all these trade routes.

46:35There is a trade route in human capital. The most talented people in the world get to the biggest city in their nation. Then they get to London, Shanghai, Singapore. And then the real ballers, the real ballers end up in New York. And then when they decide to, they want to call you life, they end up in LA or somewhere else in America. But the most successful, most ambitious people in the world end up over US airspace at some point. Let's take a look at the week ahead. We'll see data on the personal consumption expenditures index for April, and we'll also see earnings from Salesforce, Costco, and Dell.

47:14Do you have any predictions, Scott? So I was fascinated by, I don't know if you saw it, but there was a$250 million deal struck between NewsCore and OpenAI. Yes, way bigger than all the previous ones, yeah. And I think this is a big deal because basically it establishes a precedence that these companies who have crawlable data or that have the kind of content that would be good grist for the LLM mill, These prices are going up. And I think it's essentially establishing or normalizing the idea that a lot of these content companies are going to be able to find an additional incremental revenue stream that'll be very high margin.

47:45So my prediction is companies like, strangely enough, a company like Gannett, which has just gotten the shit kicked out of it. A bunch of local newspapers, USA Today, a company like Yahoo. I think these companies are going to, I think you're going to see their stocks appreciate tangibly because out of nowhere, they're going to find them get 10, 20, 50, a hundred million dollars a year. There's, I think you're going to start to see a bidding war. I mean, obviously everyone's kind of, I think the New York times is being savvy and kind of playing the reluctant bride and is waiting for someone to come in and make them a big offer to be the exclusive provider and then sue everybody else that tries to crawl their content.

48:19Yeah. And they're suing them now, right? I mean, that's right. Yeah. A Hearst, a Condé Nast, the folks that just produce a massive amount of crawlable, you know, high quality data. So what I'm interested in is trying to find kind of the beaten down stocks. I mean, you could argue, you could argue the investment thesis around BuzzFeed is just that, although I don't know if they have the volume of high, you know, the 10 things to do on a weekend with your dog in Brooklyn. I'm not sure that's like amazing. That's a valuable data. That's amazing content for the LLMs. But the bigger players that have struggled to find new revenue sources, this could be a bit of a lifeline.

48:59And I think you might see, just being very transparent, I was looking at Gannett stock today. I used to own some of the debt. I sold it, but the stock's off substantially over the last five years. It's actually up this year. But I wouldn't be surprised if they announce we have a new deal with Anthropic or something, and we're going to make 25, 50, and then it might go to 100 million, and it's going to be 98 points of gross margin, which will quintuple their earnings. Anyways, prediction is that we're going to see some strange and overdue life in the market of kind of mid-tier media companies that have a lot of content that these LLMs are going to all of a sudden find value in.

49:43This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producers are Jennifer Sanchez and Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silvera is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Lynn Alden and it'll only be on the Prof G Markets feed. So reminder again, subscribe to Prof G Markets if you're still listening to the Prof G pod. Lifetimes

50:19You have me In kind reunion As the world turns And the dark flies In love