Why AI Stocks Are Overvalued + Are Networking Events Actually Worth It?

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1:17Welcome to Office Hours with Prop G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. Anyway, if you'd like to submit a question for next time, you can send a voice recording to officehours at PropGmedia.com. Again, that's officehours at PropGmedia.com. Or post your question on the Scott Galloway subreddit, and we just might feature it in our next episode. Plus, now you can call or text us a question at 201-472-3656. That's 201-472-3656. Let's bust right into it. Our first question comes from a listener who emailed us.

1:53Hi, Scott, this is Pablo and I currently live in Boston, Massachusetts. First, thank you for your work you do and for consistently bringing sharp opinions to important topics. I really enjoy the podcast family across Prof G Media. I work in AI adoption and consulting and I'm seeing what feels like AI fatigue across organizations. For many employees, AI is starting to feel like an annual checklist, something they're expected to learn and keep up on top of their actual job. At the same time, managers are struggling to measure ROI and justify ongoing AI spending, and adoption often seems concentrating among small groups.

2:32What's your take? Are expectations for AI outpacing organizations' ability to absorb it? And if so, what does that mean for productivity, AI investment, and for the broader market and economy over the next few years. Thank you again. Thanks for the question. I think it's a question a lot of people are asking investors, CFOs, users. So AI spending is up. That's pretty obvious. Worldwide spending on AI is forecast to total 2.6 trillion in 2026, a 47 % increase year over year. And total AI spending in 2025 was 1.76 trillion. So as you can see from about 1.8 to 2.6. For most functions, human labor actually remains more cost effective.

3:15Now, how long that lasts will be seen as token pricing comes down. NVIDIA, VP of Applied Deep Learning, claims that for his team, AI costs more than the employees themselves. A 2024 MIT study found that 77 % of vision-based tasks, it is cheaper to employ humans than AI. And last month, Microsoft began canceling most of its direct cloud code licenses just six months after opening access to it. I wonder how much of that is I'm trying to, I don't know, shitpost anthropic in, you know, in favor of their own or open AI's LLM. So I think there might be some politics there. Anyways, what we're seeing in the market, a survey of 6 ,000 senior business executives found that 90 % of firms report AI having no impact on productivity over the last three years.

4:0469 % of firms actively use AI with higher usage rates at younger, more productive firms. And two-thirds of execs regularly use AI, but their average usage is just one and a half hours a week. According to Apollo chief economist Thorsten Slock, a friend of the pod, there are no signs of AI boosting profit margins for companies outside of the tech sector. Yet, according to Morgan Stanley Research, AI adopters are seeing their cash flow margin expansion outpacing the global average by 2x. AI tools increased coder productivity on individual files by 290%, but only uplifted a company code's product by 30%.

4:40We have seen an increase in productivity in the U.S. economy, which I do think is a function of AI. But I'm a bear around AI stocks right now. I'm bullish on AI technology. I think the technology will survive and it will, I don't want to say live up to the expectations, but be an incredible unlock for productivity. I don't think we're going to have the labor apocalypse that's being predicted. And I think a lot of those predictions are just investor relations saying, my technology is so disruptive, it's going to create chaos in labor markets. Please fund my next round at a ridiculous valuation.

5:17So I think you're going to see kind of a desert or an era of disappointment around ROI that will result in a pretty serious drawdown. Not a collapse that we saw in 2000 because these companies are 5 and 10xing their revenues. But at this point, it feels almost impossible for their growth and earnings to meet the expectations built into the current valuations. So I think we're about to enter into the ROI phase. So, for example, an area where there has been negative ROI is in the design space. the number of designers at IBM and tech companies as a percentage of total employees has actually gone up because this sort of human-centered, interesting, differentiated design is more important than ever.

6:05And AI hasn't proven to be great at visuals and design. Remember that Coca-Cola doing the AI commercial and Sora designing things and, you know, Sora was shut down. At the same time, I think you're going to see a lot of, I don't know, boring shit like supply chain. I was speaking to the CEO of Flexport and so much of their efforts are people just tracking shipments and calling people and saying, what is the status of this? And negotiating agreements and solving problems. And it feels like AI speaking to each other or LLM speaking to each other can probably solve a lot of that. I find that it's the boring stuff that moves the needle.

6:50So what am I saying here? I think we are entering or leaving the experimental phase and the signaling phase and are moving to the more tangible ROI phase. And I think that is going to involve a substantial drawdown in the valuation of AI stocks, which I believe are at unsustainable valuations right now. Now, having said that, when people like me all agree that things are overvalued, they usually go up dramatically from there. And then when people throw in the towel and say, oh, it's a new world and it's different this time, that's when it crashes. Although it is feeling very 99 to me. So in sum, yeah, expectations have outpaced organizations' ability to absorb it, no doubt.

7:30You know, I think it's outpaced every single expectation. So, you know, does that mean, what does that mean for a corporation? I think the CFO is about to implement more guardrails rather than the CEO just talking about it more and more to improve their stock price or wallpaper over management's poor decision making. I do think we're entering into, quote unquote, the ROI era from the experimentation era, which will put pressure on every component or layer of AI relative to the current valuations, but also expand substantially what I call the adoption layer. I think it's going to be a very good time to be in the business of helping companies make decisions around where to spend on AI and where not to spend on AI.

8:18Thanks for the question. Question number two comes from Reddit, Definition L5196, who says, Hi, Scott. I'm a 25-year-old male from London and set up my own sports marketing business at the beginning of this year. I have one client who currently I work for in-house, and I speak to global brands about sponsorship of sports events. I want to know, what's your opinion on Cannes Lions? Is it actually any good for networking and building relationships for younger people who don't have much credibility yet? This year, they have a specific Lions sport program. The problem is it costs 2 ,500 euros and I don't have that type of money to invest back into the business yet for relationship building.

8:56Is it still worth going to Cannes and trying to meet people whilst out there? Well, look, my brother, if you don't have the money, you don't have the money. So, you know, my sense is the market has made that decision for you. How many different stage than you? And that is I'm now in the spending part of my life. I don't go to Cannes Lions to network. I usually get a couple speaking gigs. Unfortunately, I don't have any speaking gigs this year. Oh my God, my career is over. I've been cast aside like an old dress.

9:30But I go because I love it. And that is, I do some networking, but I go, I hole up at my favorite hotel in the world, the Hotel Du Cap, and I start drinking rosé around 1 p.m. And then I take a Zodiac into the Palais and I roll up and I always pull up to the Bronx side of Facebook or Meta Beach and walk through like a conquering hero. So if you're 25 and don't have the money or it's a stretch, I wouldn't do it. I just think you want to be focused on your business heads down. I think there's probably less expensive ways to network and networking functions in London. It is a lot of ad executives.

10:09There is a lot of content and networking, but the thing about Cannes Lions is it's pretty damn expensive. Everyone ends up at the Carlton Hotel drinking 18 or 24 euro glasses of wine. A word salad to say keep your head down and it's not even the economic cost, it's the time cost. I would keep your head down trying to produce great product, great content and find other less expensive local ways to build relationships and wait until you're more comfortable because that 2 ,500 euros is just the start of your expenses in Can Lions. I mean, it's expensive to get an Airbnb, everything you can't, you know, it's just, they jack up the prices.

10:50The South of France is expensive. So I would keep your head down right now such that you can build your company and be in a more comfortable position to go to something like Can Lions at some point in the future. And also investigate if they have scholarships for young, they have something called Young Lions. Maybe that's what you're already talking about, where they will subsidize your trip. Anyways, I hope to see you there, but not this year, in maybe five or 10 years. Thanks for the question. We'll be right back after a quick break.

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15:03Welcome back. Question number three is from Original191-99. Hi, Scott, former college athlete here. You've talked about your experience rowing at UCLA. First off, how did you get into that sport since it's somewhat niche? And how did it shape you personally and professionally? So I played sports growing up. I was, I peaked at the age of nine. I was like all San Fernando Valley pitcher. And then I hit a growth spurt that lasted about another, I don't know, eight years where I became exceptionally tall, but my weight stayed the same. So I looked like Ichabod Crane. Also had really bad skin, which made for just a cocktail of just sexy.

15:43But my athletic skills waned because I was just so tall and skinny. And then they sort of caught up a little bit towards the end of high school. I made the baseball team at my high school and got cut. And I got to UCLA and I thought I would really like to be a D1 athlete. And I started putting on some muscle and thought, okay, I don't have the skills that these real athletes have at UCLA. But I'd heard about crew. I was tall and I thought I'm reasonably good shape. So I tried out for crew. I made the team. I was easily, I'm not exaggerating. So crew at that point was a varsity sport. It no longer is now it's a club sport, but it was kind of, you know, In terms of prestige, anyway, it was on the low end of the totem pole.

16:26We weren't raising millions of dollars from people who wanted to get front row seats. They would rather go see Reggie Miller or see Troy Aikman at the basketball or football games. And there were 31 people on our crew team. And crew is very much about metrics. They're constantly measuring your erg, your road time, your pull-ups, your how fast you run the perimeter, five and a quarter miles at UCLA. And thank God, this guy's name, I think it was David Naughton. Now, that's the guy from the Dr. Pepper commercials who was in American Werewolf in London. Well, let's just call him David Naughton. But thank God for David, because David always came in 31st, and I always came in 30th.

17:04I was the second least, I would say worst, least talented person on the crew team. I didn't like it. I thought it was an enormous pain and monotonous. I was in a fraternity getting fucked up every night, or not every night, but three or four nights. They used to call me Upchuck Norris because within about 10 minutes of starting to row at 5.30 in the morning in Bologna Creek in Marina del Rey, I would chow. And if you're, as I was, if you're, I think I was Bowman, that means everybody gets to see your vomit as we row past it. And crew attracts an unusual breed of very, like, half my boat was pre-med.

17:43They were like a very serious, disciplined group of young men. and I was none of those things. So I did not enjoy Crew. Now, having said that, it was hugely beneficial to me because Crew gave me a couple of things. One, it got me my job at Morgan Stanley. I interviewed everywhere. I didn't get many offers. And I walked into my interview at Morgan Stanley and the head of the fixed income department or the department came in and said, you can go home. Oarsmen and Oarswomen get an automatic hire because you're willing to kill yourself. So I basically got a job offer because I was on crew. But the thing it really gave me was that the majority, 99 % of people, especially in a modern age where we try to screen out the pain in our lives, 99 % of people will never know their true limits.

18:37They think, oh, I can't endure this heartbreak. I can't endure this physical pain at work. I can't endure the anxiety and the stress. of my kid not doing well. What you realize when you row crew is that you have absolutely no real sense of your limits. And that is during crew, at some point you can't feel your legs when you're in a race because the blood isn't getting there fast enough. The air you're intaking, breathing in, feels like fire going down your esophagus. And you have to deploy mental tricks to not pass out because you're that exhausted. That happens at about 800 meters. And every time you figure out a way to go to 2000 meters.

19:25So what crew has taught me and has paid off immensely, despite the fact that I was just an inferior oarsman, is that whenever I think I can't take this frustration and anxiety of being an entrepreneur, I can't take, you know, the emotional stress of my divorce, or I think, wow, I just can't handle what's going on with my family or my kids or, you know, my mom being, whatever it is, whatever faces you that really you think is testing you. When you think I can't take anymore, that means you're about 40 % of your way to your actual limit. and having that confidence that you're going to be fine, that you can get through this as long as you just keep rowing is an unbelievable advantage.

20:17I used to, when my first job at Morgan Stanley, I was living at home with my mom. I didn't have a girlfriend. I didn't have dogs. And quite frankly, I wasn't as well educated as the other 85 analysts at Morgan Stanley. Not because I went to an inferior school, but I went to a school where you could get lost and hide and learn almost fucking nothing, which is what happened to me at UCLA because I was immature and more focused on, you know, watching Planet of the Apes after getting ridiculously fucking high two or three times a week and drinking a lot. And I was able to learn almost nothing other than, you know, the words from every Led Zeppelin album, which is awesome, which is awesome.

20:57But I decided when I got to Morgan Stanley, all right, what is strategy? Strategy is applying a unique strength or asset to try and differentiate yourself in the marketplace. So I decided, as a first-year analyst, every Tuesday I would go in at 9 a.m. and I would stay till 6 p.m. on Wednesday. I would work through the night. I would work basically, you know, kind of 30, 33 hours straight. And people noticed and thought I was crazy or whatever, but it was an abusive culture back then. And they kind of liked that. But I wanted to show that I came to play. And I knew that at 3 a.m. when I was just fucking exhausted and reading a prospectus or doing a spreadsheet or whatever it was we did back then, that most people would think, oh, I can't take it.

21:44I got to go home and sleep. I knew that I was at 800 meters. I wasn't even close to my limit and that I could get through to 6 p.m. the following day pretty much no problem. And I have, I think I have more grit and more perseverance than most of the people I've run across. Now, do I deploy that all the time? No, as I get older, I love being lazy. And, you know, but when it counted, when it was go time, I could go as hard or harder than anybody. And I got that from crew. So it was an enormous learning for me. And the way I look at my experience at crew or on crew is similar to, I think, the way a lot of people look at their experience in the Marines.

22:27and that is they're glad they did it past tense. But yeah, the ability to know just the delta between what you think are your limits and your actual limits is a blessing. Thanks for the question. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehoursofproftgymedia.com. Again, that's officehoursofproftgymedia.com. Or if you prefer to ask on Reddit, just post your question on the Scott Galloway subreddit and we might feature it in an upcoming episode. This episode was produced by Jennifer Sanchez and Laura Janair. Kami Rika is our social producer.

23:08Brad Williams is our editor. And Drew Burrows is our technical director. Thank you for listening to the PropG pod from PropG Media.

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