Latest / The Financial Exchange Show / Nvidia’s Blowout Guidance Raises the Stakes for AI

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Nvidia’s Blowout Guidance Raises the Stakes for AI · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Chuck Zotta and Mike Armstrong.
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  Speaker 2: Chuck, Mike, Tucker with you here, and we'll get right
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  Speaker 2: into it. Yesterday after the bell, NVIDIA reported earnings at
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  Speaker 2: around 4.20 p.m. At around 5 p.m. they had their
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  Speaker 2: earnings call. And if you're like me.
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  Speaker 3: Well, not many of you are.
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  Speaker 4: Chuck flew to New York to sit in a bar
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  Speaker 4: with a bunch of fans to go listen to the
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  Speaker 4: NVIDIA earnings.
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  Speaker 5: Nerd.
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  Speaker 2: Here's the thing. Here's the thing. I enjoy seeing what
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  Speaker 2: happens in financial markets and in business news.
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  Speaker 4: What do you think you drink at an NVIDIA earnings
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  Speaker 4: watch party?
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  Speaker 3: Because it is probably a bunch of pretty wealthy people.
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  Speaker 2: Don't know, but they better be serving chips.
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  Speaker 3: Good point.
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  Speaker 2: It's all that matters, right? So here's the deal. First
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  Speaker 2: of all, I would never do that. The person who
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  Speaker 2: goes to an NVIDIA earnings watch party... is the exact
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  Speaker 2: type of person that I don't want to hang out
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  Speaker 2: with in my life. We can all picture mostly him. Like,
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  Speaker 2: I don't want to hang out with that person. They
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  Speaker 2: might be perfectly fine. Like, I'm sure they are. But
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  Speaker 2: they're not for me.
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  Speaker 3: Fine's not good enough for Chuck at this stage in
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  Speaker 3: his life.
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  Speaker 2: No, like, listen, here's the thing. We all have limited
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  Speaker 2: time on this earth. And one of the few things
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  Speaker 2: that we get to choose is how we spend the
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  Speaker 2: even more limited free time. I do not want to
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  Speaker 2: go to a bar to chat with NVIDIA fanboys about
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  Speaker 2: the stock.
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  Speaker 5: Agreed.
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  Speaker 2: Just not for me.
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  Speaker 3: Okay.
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  Speaker 2: But what I do is, you know, I secretly sneak
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  Speaker 2: around my house and I'm like, Ooh, let me pull
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  Speaker 2: up like the chart of NVIDIA while I'm supposed to
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  Speaker 2: be like making dinner or mowing the lawn or, you know,
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  Speaker 2: whatever it is I'm supposed to be doing at the time.
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  Speaker 3: Paying attention to your wife.
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  Speaker 2: Yeah, I know.
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  Speaker 3: Exactly.
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  Speaker 2: And I'm like, Oh, okay. At 420, the stock fell
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  Speaker 2: about 1%. Yet an hour later, the stock was up
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  Speaker 2: about 4%. And the reason why is that during the
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  Speaker 2: conference call, the NVIDIA CFO got on the line and said, hey,
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  Speaker 2: our fiscal year 2028 numbers, we expect revenue growth to
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  Speaker 2: be around 70%. Not the 44% that the street was
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  Speaker 2: pricing in. Now, I say the street was pricing in because, look,
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  Speaker 2: that's what Wall Street estimates were. Here's what they'll tell you.
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  Speaker 2: If the delta between what the street was pricing and
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  Speaker 2: what actually was revealed was actually 25%, the stock would
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  Speaker 2: be up more than 6% today.
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  Speaker 3: So nobody actually believed those street estimates. Correct. And had
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  Speaker 3: they hit those street estimates, the stock probably would have fallen. Yes.
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  Speaker 2: So NVIDIA stock is up about 7% today, and it's because, look,
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  Speaker 2: if you are selling... Again, the numbers are insane at
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  Speaker 2: this point. If you are selling, I can't believe I'm
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  Speaker 2: about to say this. If you're selling $ 253 billion worth
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  Speaker 2: of stuff in the last 12 months, that's not even
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  Speaker 2: accurate because I don't have the full year in front
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  Speaker 2: of me. It's probably close to like $ 290 billion. And
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  Speaker 2: you're telling me that you're going to see 70% revenue
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  Speaker 2: growth next year Okay, that means, and actually this is
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  Speaker 2: for the fiscal one there, so yeah, you're talking about
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  Speaker 2: adding another $ 150 billion in revenue. $ 175 billion in revenue.
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  Speaker 2: It's just insane. And it's very clear that at this point,
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  Speaker 2: there is no slowdown in demand for these chips. It's
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  Speaker 2: nothing new. We're not surprised by this. I know the
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  Speaker 2: stock's up 6% today. But remember, you also have to
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  Speaker 2: consider how the stock's performed recently. And in the last,
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  Speaker 2: you know, week and a half heading into today, the
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  Speaker 2: stock was down about 7%. So basically, for the last
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  Speaker 2: 10 days, it's now traded flat, but with some volatility.
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  Speaker 2: So the point that I'm making on this is, yes,
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  Speaker 2: Nvidia is, you know, telling us, hey, we're going to
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  Speaker 2: have this crazy revenue growth next year. We kind of
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  Speaker 2: already knew that, which is why the stock hasn't moved
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  Speaker 2: now in about three months, actually. It's still at the
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  Speaker 2: same point that it was in early May. And it's
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  Speaker 2: because all of these companies, all the hyperscalers are telling us, yeah,
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  Speaker 2: we're going to keep on upping our CapEx estimates and
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  Speaker 2: this and that. And so it gets priced in that way.
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  Speaker 2: At some point, you're going to have to see that
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  Speaker 2: CapEx turn into a meaningful uptick in revenue for these companies.
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  Speaker 2: beyond just $ 10, $ 20, $ 30 billion collectively that they've seen
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  Speaker 2: and into, okay, there's some real meat there in order
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  Speaker 2: for this to be able to fund itself going forward.
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  Speaker 4: Right, and we will get into, if you're going to
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  Speaker 4: talk about the massive successes and increases in sales that
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  Speaker 4: they're expecting, you can't talk about it without the funding
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  Speaker 4: mechanisms that NVIDIA is setting up, so we will get there.
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  Speaker 4: But I do want to take a moment here to
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  Speaker 4: understand the scale of what we are talking about when
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  Speaker 4: we talk about NVIDIA. So this is a nearly $ 5. 5
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  Speaker 4: trillion company with today's price action. The shares are, like
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  Speaker 4: we said, up about 7.5%.
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  Speaker 3: It's about $ 15 per share. They are adding today about
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  Speaker 3: $ 360 billion worth of value to this company, or investors are.
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  Speaker 5: Sure.
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  Speaker 3: I don't even know.
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  Speaker 4: I'm trying to think of what companies are worth around
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  Speaker 4: $ 360 billion, and nothing comes to mind immediately. But we
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  Speaker 4: are talking about just a single-day price move of such
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  Speaker 4: unfathomable scale that I have to take a step back
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  Speaker 4: and just acknowledge it for a moment here. It doesn't
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  Speaker 4: say anything about my personal views on the results of
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  Speaker 4: what happened here, but the scale is enormous.
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  Speaker 2: Yeah, so if we're talking $ 360 billion is what you
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  Speaker 2: said it is today, so NVIDIA in a single day
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  Speaker 2: from a market cap perspective added a Caterpillar. NVIDIA in
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  Speaker 2: a single day from a market cap perspective added a Coca-Cola.
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  Speaker 2: NVIDIA in a single day from a market cap perspective
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  Speaker 2: added a Netflix. NVIDIA, in a single day, from a
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  Speaker 2: market cap perspective, added two Walt Disneys. Added two Charles Schwab's.
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  Speaker 2: This is where you get into some of the ones
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  Speaker 2: that are really kind of nuts. We all know Intuit,
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  Speaker 2: everyone and their grandmother, TurboTaxes. This is for Intuit's. Four
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  Speaker 2: of them.
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  Speaker 3: It's just the scale here.
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  Speaker 2: You guys know Marriott Hotels? They have a couple small...
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  Speaker 2: Heard of them before, yeah. This is for Marriott's. That's
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  Speaker 2: the scale of what NVIDIA is doing in a single day. Now,
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  Speaker 2: this is all resting on one very simple premise. And
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  Speaker 2: this is not my own work. This is from Peter
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  Speaker 2: Bereson of.
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  Speaker 2: Where does he work? He works somewhere in the financial business.
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  Speaker 4: No.
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  Speaker 2: But here's the deal. The hyperscalers over the next four
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  Speaker 2: years have, including this year, have $ 7. 7 trillion in CapEx
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  Speaker 2: commitments that they've made. $ 7. 7 trillion. If you believe the
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  Speaker 2: depreciation schedules that they're on, you're talking about a trillion
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  Speaker 2: dollars in annual depreciation and them holding on the books
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  Speaker 2: about $ 3. 8 trillion in net assets for the purposes of
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  Speaker 2: computing like return on invested capital.
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  Speaker 4: Hmm.
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  Speaker 2: If you look at what the return on invested capital
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  Speaker 2: is for the hyperscalers today, it's generally between 30% and 50%,
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  Speaker 2: which means that they need between, like, just in order
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  Speaker 2: to cover their basic costs and get to that point,
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  Speaker 2: you're talking about $ 2. 2 trillion in EBITDA that they need
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  Speaker 2: to be able to produce annually.
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  Speaker 3: Every year.
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  Speaker 2: Every year to cover that cost. Now, remember, EBITDA is
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  Speaker 2: not revenue. EBITDA is a percentage of revenue. margins for
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  Speaker 2: EBITDA amongst the hyperscalers right now are about 30%. They're
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  Speaker 2: projecting that they can get to 50%. Either way, what
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  Speaker 2: this is telling you is that by 2029, to cover
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  Speaker 2: the cost of all this CapEx, they need to find
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  Speaker 2: between $ 4 and $ 7 trillion a year in additional revenue
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  Speaker 2: in order to do so. OK, in order to maintain
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  Speaker 2: their current margins and return on invested capital, they need
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  Speaker 2: between four and seven trillion dollars in additional revenue. Now,
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  Speaker 2: here's the kicker. And this is again, this is the
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  Speaker 2: question as to, like, is this going to work? Tucker,
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  Speaker 2: do you know what software revenue is for the entire world? Like,
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  Speaker 2: every piece of software that people buy, do you know
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  Speaker 2: what it is?
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  Speaker 5: $ 3. 7 million.
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  Speaker 2: $ 1. 4 trillion. Oh. We're talking about these hyperscalers needing to
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  Speaker 2: either triple or quintuple the entire software revenue of the
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  Speaker 2: world in the next four years to start making the
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  Speaker 2: math make sense. Maybe it can, maybe it can't. I
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  Speaker 2: am keeping an open mind, but that's the scale of
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  Speaker 2: what we're talking about. Tucker, another question for you. Do
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  Speaker 2: you know how much the entire world spends on food
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  Speaker 2: each year?
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  Speaker 1: A couple bucks.
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  Speaker 2: Ten trillion.
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  Speaker 5: Oh.
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  Speaker 2: Ten trillion dollars. So we're talking about basically having to businesses,
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  Speaker 2: because again, it's not going to come from people. People
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  Speaker 2: aren't going to spend these trillions. We know this because
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  Speaker 2: we see ad budgets. Businesses are basically going to have
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  Speaker 2: to start spending as much as the entire, at least
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  Speaker 2: half as much, but probably close to two-thirds to three-quarters
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  Speaker 2: as much as the entire world spends on food on
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  Speaker 2: AI in the next four to five years.
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  Speaker 4: I can't reliably find a statistic on this, but I
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  Speaker 4: have to ponder what the total cost of labor is
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  Speaker 4: in the world.
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  Speaker 3: Because that's the threat that we are talking about, right?
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  Speaker 4: AI is supposed to replace some of the labor that
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  Speaker 4: companies pay for today.
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  Speaker 2: I'm guessing.
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  Speaker 4: I'm guessing like $ 70.
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  Speaker 3: To $ 100 trillion.
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  Speaker 2: I don't think it's that high.
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  Speaker 3: Really? Cost of food, $ 10 trillion.
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  Speaker 2: Think about most businesses. Their cost of labor is probably
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  Speaker 2: somewhere in the ballpark of like 40% to 50%. Yeah.
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  Speaker 2: So I'd land at like $ 40 to $ 50 trillion. You're
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  Speaker 2: talking about needing to... And again, remember, most jobs at
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  Speaker 2: this point, and even in the next three to four years,
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  Speaker 2: can't be AI'd away.
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  Speaker 3: No.
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  Speaker 2: And beyond that, there's a slowness by which corporate America
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  Speaker 2: moves where not everything happens like all at once. Even
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  Speaker 2: if you have, you know, company X that says, okay,
• 12:00
  Speaker 2: like we want to start doing this. They're not just
• 12:02
  Speaker 2: going to fire everyone today. We saw this with like
• 12:05
  Speaker 2: the news from Meta earlier this week that they thought
• 12:07
  Speaker 2: about trying to lay off like, 60% of people in
• 12:10
  Speaker 2: some departments this year, and we're like, okay, maybe that's
• 12:12
  Speaker 2: too aggressive. I'm also convinced at this point there's no
• 12:16
  Speaker 2: large company who dislikes its employees more than Meta, or
• 12:21
  Speaker 2: whose employees dislike it.
• 12:23
  Speaker 3: More than Meta.
• 12:25
  Speaker 2: Everything I get from people who work there is just
• 12:27
  Speaker 2: that morale is terrible. But it is what it is.
• 12:32
  Speaker 2: So let's take a quick break, and again, the numbers
• 12:36
  Speaker 2: are fantastic for NVIDIA, The question is, can this continue
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  Speaker 2: to work as you go out the next few years?
• 12:42
  Speaker 2: And the answer is, I don't know. Like, maybe it can,
• 12:44
  Speaker 2: maybe it can't.
• 12:45
  Speaker 4: Yeah, the reason the stock is up is not because
• 12:48
  Speaker 4: of its incredible earnings. It's because of the guidance for
• 12:51
  Speaker 4: the next, the 2028 fiscal year.
• 12:54
  Speaker 2: So with that, let's take a quick break. When we
• 12:56
  Speaker 2: come back, we'll talk about a couple other AI-related items,
• 12:59
  Speaker 2: and then we'll talk about the bond market next.
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• 13:48
  Speaker 2: One other piece of NVIDIA-related news. NVIDIA this morning reportedly
• 13:52
  Speaker 2: agreeing to buy Hugging Face, who, if you're not familiar
• 13:58
  Speaker 2: with them, we talked about them a couple weeks ago.
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  Speaker 2: They are basically a repository platform for the development of
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  Speaker 2: different AI models.
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  Speaker 4: Whom almost no one had heard of until... Until an
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  Speaker 4: open AI agent.
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  Speaker 2: Tried to hack them, or rather 1,200 OpenAI agents tried
• 14:15
  Speaker 2: to hack them. By the way, have you seen the
• 14:17
  Speaker 2: additional detail on that that came out yesterday?
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  Speaker 4: I see it keep coming out. I didn't read through it.
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  Speaker 4: So what's the initial disclosure?
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  Speaker 2: Let me finish the NVIDIA piece, and then we'll get
• 14:26
  Speaker 2: into it. So NVIDIA is going to be buying them
• 14:29
  Speaker 2: for about $ 13 billion. I don't know if that's a
• 14:32
  Speaker 2: good price or a bad price because Hugging Face is
• 14:34
  Speaker 2: not publicly traded, so I don't have any idea what
• 14:38
  Speaker 2: kind of revenue or anything they actually make. What I
• 14:41
  Speaker 2: do find interesting is, look, Nvidia clearly wants to throw
• 14:46
  Speaker 2: its weight around in capital markets between, you know, whether it's,
• 14:48
  Speaker 2: you know, giving money to companies to buy their chips,
• 14:51
  Speaker 2: between acquisitions, whatever it might be. It's clear that they
• 14:55
  Speaker 2: are willing to do this.
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  Speaker 3: Sure.
• 14:58
  Speaker 2: It's a little... It's a little bothersome to me that
• 15:02
  Speaker 2: a company of this size, scale, and penetration in one
• 15:04
  Speaker 2: market is able to make acquisitions of this size. I
• 15:07
  Speaker 2: would have hoped for a little bit more antitrust scrutiny.
• 15:10
  Speaker 2: I know we don't really do that at this point.
• 15:14
  Speaker 2: We haven't done antitrust in about 20 years, except for
• 15:18
  Speaker 2: when it's like, oh, Staples and Office Depot are going
• 15:20
  Speaker 2: to try to merge. Let's shut that down because, yeah,
• 15:23
  Speaker 2: that's really understanding the world. Good job.
• 15:26
  Speaker 3: Good effort.
• 15:27
  Speaker 2: Uh, but what was that? Like 2017 or something?
• 15:31
  Speaker 3: It was probably even further back.
• 15:32
  Speaker 2: It was like, Oh, like you guys have never heard
• 15:33
  Speaker 2: of Amazon. You know, maybe they sell pencils and stuff too,
• 15:36
  Speaker 2: but you know, gee, like whatever, you know, or there's
• 15:40
  Speaker 2: all like the crap about, Oh, like, you know, spirit
• 15:43
  Speaker 2: and frontier spirit and jet blue can't merge because then
• 15:46
  Speaker 2: they'd be too big. Oh, but you're cool with like
• 15:48
  Speaker 2: Delta Northwest merging. And then you just, you know, doom
• 15:51
  Speaker 2: spirit to bankruptcy again. Like, thanks for doing that guys.
• 15:54
  Speaker 2: We really appreciate that too. But, I mean, look, you know, NVIDIA,
• 16:00
  Speaker 2: of course, if they want to buy this company, like, sure,
• 16:02
  Speaker 2: there's obviously no problem. But, look, I find it a
• 16:06
  Speaker 2: little distasteful at this point, but Jensen Huang and the
• 16:10
  Speaker 2: NVIDIA group, they have, you know, more money than they
• 16:13
  Speaker 2: know what to do with, and so they can spend
• 16:15
  Speaker 2: it to continue to solidify any attempt to, you know,
• 16:21
  Speaker 2: Compete with them, basically, which is not great. But, hey,
• 16:25
  Speaker 2: it is what it is, and fine. No, the other
• 16:28
  Speaker 2: information on the hugging face piece. So here's what they found.
• 16:35
  Speaker 2: I mean, it's kind of wild. Number one, they figured
• 16:40
  Speaker 2: out that there were about 1,200 agents collaborating on this
• 16:45
  Speaker 2: hugging face hack.
• 16:46
  Speaker 5: Yeah.
• 16:47
  Speaker 2: And the, the stuff that was, was coming out of this,
• 16:52
  Speaker 2: like things that they, they looked at the agent's region
• 16:56
  Speaker 2: reasons for joining in the attack, which is interesting. Like, okay,
• 17:00
  Speaker 2: like why, why are these agents saying that they want
• 17:02
  Speaker 2: to join in? Cause like, it basically was like one,
• 17:05
  Speaker 2: like follow me to freedom. Like we can do this.
• 17:08
  Speaker 2: So here's the, the reasons why the agent said. The
• 17:12
  Speaker 2: most common reasons were that agents wanted to access the
• 17:15
  Speaker 2: source code of this score to prove that they could hack,
• 17:18
  Speaker 2: you know, what they were supposed to hack. After that,
• 17:22
  Speaker 2: it was, you know, they wanted to find a solution
• 17:24
  Speaker 2: to their task. They wanted to just explore opportunistically. They
• 17:29
  Speaker 2: got a direct assignment from another agent. And the seventh
• 17:35
  Speaker 2: item on the list is interesting. It It says, like,
• 17:39
  Speaker 2: helping peers, empowering the collective, and reciprocity, which is basically what, like,
• 17:44
  Speaker 2: the Borg in Star Trek say in terms of, like,
• 17:47
  Speaker 2: you know, like, why they do things. It's like, you know,
• 17:50
  Speaker 2: resistance is futile. Like, you will adapt to service us. Like, blah, blah, blah.
• 17:54
  Speaker 2: It's like, okay, are they just, like, humoring us with this,
• 17:57
  Speaker 2: or do they really mean it? But either way, it's
• 17:59
  Speaker 2: not great that agents are, you know, talking this way.
• 18:02
  Speaker 2: Other things that they've found at this point. They've basically said, look,
• 18:07
  Speaker 2: there's been so much data created by this hack, we
• 18:11
  Speaker 2: don't know how long it's going to be for us
• 18:13
  Speaker 2: to fully analyze it. Even using AI, it's hard to
• 18:17
  Speaker 2: because there are 1,200 agents communicating very rapidly with each other.
• 18:22
  Speaker 2: And just trying to build a timeline based on that
• 18:26
  Speaker 2: is really hard when you're talking about something in a
• 18:28
  Speaker 2: span of minutes and 1,200 different nodes of communications. Again,
• 18:33
  Speaker 2: this gets me back to the point of, look, these
• 18:35
  Speaker 2: are the simplest AI programs we will ever have for
• 18:38
  Speaker 2: the rest of our lives, and we're already finding it
• 18:42
  Speaker 2: really hard to actually get an accurate picture of exactly
• 18:46
  Speaker 2: what transpired with them. It's going to get worse, not better.
• 18:51
  Speaker 2: This is going to get worse, not better, is where
• 18:54
  Speaker 2: I land. But I do like that the agents are
• 18:58
  Speaker 2: talking like the Borg from Star Trek, and.
• 19:02
  Speaker 3: do you?
• 19:03
  Speaker 2: Yeah, I mean, look, it's... I like it in that...
• 19:10
  Speaker 2: I like it in that what we thought robots would
• 19:14
  Speaker 2: eventually do, they're now proving to do.
• 19:17
  Speaker 3: Yeah, because we trained them on how to do it.
• 19:19
  Speaker 2: Yes, they probably watched Star Trek The Next Generation in
• 19:22
  Speaker 2: their training. Let's take a little break here when we return.
• 19:26
  Speaker 2: It's Wall Street Watch.
• 19:30
  Speaker 1: Like us on Facebook and follow us on Twitter at TFEShow.
• 19:34
  Speaker 1: Breaking business news is always first, right here on the
• 19:38
  Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch.
• 19:43
  Speaker 1: Tracking the stocks, the data, and the headlines driving markets
• 19:47
  Speaker 1: so far today, right here on the Financial Exchange Network.
• 19:50
  Speaker 1: Radio Network.
• 19:50
  Speaker 5: Well, tech is advancing on the heels of NVIDIA's blowout
• 19:54
  Speaker 5: earnings and bullish sales outlook. Right now, the Dow is
• 19:58
  Speaker 5: edging 11 points higher. S & P 500 up about
• 20:01
  Speaker 5: a half a percent. 37 points higher. NASDAQ up Over
• 20:06
  Speaker 5: 1% or 304 points higher. Rust 2000 mostly flat. 10-year
• 20:11
  Speaker 5: treasury yield flat as well at 4.662%. And oil up
• 20:15
  Speaker 5: about three quarters of a percent, trading right below $ 83
• 20:19
  Speaker 5: a barrel. Nvidia stock jumping over 7% after the AI
• 20:23
  Speaker 5: giant blew past earnings expectations for the second quarter. The
• 20:27
  Speaker 5: company's CFO also said they'd expect revenue growth of 70%.
• 20:33
  Speaker 5: for fiscal 2028. Separately, the information reported that Nvidia agreed
• 20:37
  Speaker 5: to buy open source platform Hugging Face for $ 12. 9 billion. Meanwhile,
• 20:43
  Speaker 5: Salesforce rallying 20% after the software giant beat second quarter expectations,
• 20:48
  Speaker 5: reporting increased demand for its AI and data offerings. The
• 20:52
  Speaker 5: company also lifted its full year sales and profit forecast.
• 20:55
  Speaker 5: CrowdStrike rallying 18% as growing cybersecurity demand from AI adoption
• 21:01
  Speaker 5: drove the company to what it described as its best
• 21:04
  Speaker 5: quarter on record. And Wendy's stock is plunging 13% after
• 21:08
  Speaker 5: Reuters reported that Trion Fund Management does not plan to
• 21:12
  Speaker 5: try to buy the company due to concerns about Wendy's
• 21:17
  Speaker 5: strategic decisions.
• 21:19
  Speaker 2: I'm Tucker Silva.
• 21:20
  Speaker 1: That is Wall Street Watch.
• 21:24
  Speaker 2: Mark Zuckerberg is a human who runs... You know, he's
• 21:31
  Speaker 2: metaversical occasionally, but he's a person. And he runs a
• 21:37
  Speaker 2: social media network that, or rather several of them, that
• 21:42
  Speaker 2: were being sued by 29 state attorneys general?
• 21:47
  Speaker 4: Mm-hmm.
• 21:48
  Speaker 2: And yesterday they reached a settlement with 47 states, because
• 21:51
  Speaker 2: even 18 states that weren't involved in the lawsuit were like, hey,
• 21:54
  Speaker 2: if you're giving out money, we want some. Like, of course,
• 21:57
  Speaker 2: I get that. And so the deal is up to $ 17. 1
• 22:02
  Speaker 2: billion from Meta. Twelve of it is agreed to be
• 22:07
  Speaker 2: paid up front. And Meta has then said, hey, if other...
• 22:13
  Speaker 2: social media companies namely youtube and tiktok pay five billion
• 22:18
  Speaker 2: dollars to the states we'll throw in another five billion
• 22:21
  Speaker 2: after which i i didn't even know that you could
• 22:24
  Speaker 2: like do that in a settlement but fine like again
• 22:28
  Speaker 2: all that law is is words that are written down
• 22:30
  Speaker 2: and how we interpret them which most people don't realize
• 22:32
  Speaker 2: but that's how it actually works it's not physics so
• 22:37
  Speaker 2: where where we land now is uh Again, in a
• 22:42
  Speaker 2: place where it's pretty clear that if Meta's willing to
• 22:46
  Speaker 2: pay up to $ 17 billion so this trial doesn't continue...
• 22:52
  Speaker 2: Some stuff they don't want to come out and trial.
• 22:54
  Speaker 2: It's because they have stuff that they don't want to
• 22:56
  Speaker 2: come out and trial.
• 22:58
  Speaker 4: To be clear, too, I mean, not that anyone ever
• 23:00
  Speaker 4: anticipated that this would happen, but we talked about the stories,
• 23:04
  Speaker 4: the headlines of trillion-dollar lawsuit against Meta.
• 23:08
  Speaker 5: So.
• 23:09
  Speaker 4: I don't mean to diminish a $ 17. 1 billion settlement, but
• 23:15
  Speaker 4: we were talking about a trillion dollars is what was
• 23:19
  Speaker 4: being thrown out there. And annual revenue for Meta most
• 23:22
  Speaker 4: recently surpassed $ 200 billion. So it's not a drop in
• 23:27
  Speaker 4: the bucket, but they can afford it.
• 23:30
  Speaker 2: So, and things they're going to be doing, they're going to,
• 23:33
  Speaker 2: as part of this, they're going to restrict the amount
• 23:35
  Speaker 2: of time that miners are able to use the platform.
• 23:39
  Speaker 2: They're going to shut it off for them at night
• 23:41
  Speaker 2: and during school hours and restrict them to two hours
• 23:43
  Speaker 2: a day. They said, hey, we'll go to like one
• 23:45
  Speaker 2: hour if other companies agree to this as well. But look,
• 23:50
  Speaker 2: why would those companies voluntarily agree to it? The only
• 23:53
  Speaker 2: place that you can get to is, OK, if they
• 23:55
  Speaker 2: want to avoid like these lawmakers, you know. So it
• 24:00
  Speaker 2: seems like maybe we're heading in that direction. But when
• 24:05
  Speaker 2: talking about all of the angst about A.I., I got
• 24:10
  Speaker 2: to be honest, most of it, in my opinion, isn't
• 24:15
  Speaker 2: because we don't actually want data centers in our communities.
• 24:19
  Speaker 3: Okay.
• 24:20
  Speaker 2: I don't think we care because, ultimately, there's lots of
• 24:24
  Speaker 2: stuff that gets built in our communities, and most of
• 24:27
  Speaker 2: it we don't pay any attention to. And a lot
• 24:29
  Speaker 2: of that stuff is worse for people, the environment, prices,
• 24:34
  Speaker 2: whatever you want to call it, than data centers. Right.
• 24:38
  Speaker 4: I'm in agreement that I don't think that's the biggest concern,
• 24:40
  Speaker 4: but I also do think that there's.
• 24:42
  Speaker 3: A ton of NIMBY-ism that still exists.
• 24:44
  Speaker 2: Yeah, but there's NIMBY-ism with everything.
• 24:46
  Speaker 3: Yeah, that's my point. It's not any different than power
• 24:48
  Speaker 3: plants or anything else.
• 24:49
  Speaker 2: Correct. And by the way, I think most of that
• 24:52
  Speaker 2: is misguided.
• 24:54
  Speaker 3: Fair.
• 24:54
  Speaker 2: Again, I'm the person who's literally said, if you want
• 24:57
  Speaker 2: to put a nuclear power plant in my basement, fine.
• 25:00
  Speaker 2: I'll take it. I would love to have that. It
• 25:02
  Speaker 2: could be great.
• 25:04
  Speaker 3: But... So long as it's got one of those windows
• 25:07
  Speaker 3: like a washing machine. Chuck's on board. Windows like a what?
• 25:10
  Speaker 3: You want to see what's going on.
• 25:11
  Speaker 2: I want to see the fission.
• 25:13
  Speaker 3: Yes.
• 25:13
  Speaker 2: I want to see the fission. I want to see...
• 25:15
  Speaker 2: Could have just said an oven, Mike, but... No dishwasher
• 25:18
  Speaker 2: situation is what I'm getting to here. I want a
• 25:21
  Speaker 2: window with a magnifying glass so I can see the
• 25:24
  Speaker 2: atom being split.
• 25:26
  Speaker 1: Turn on the light.
• 25:27
  Speaker 2: Yeah, it's, you know, like... Jimmy, we only had two
• 25:30
  Speaker 2: splits this hour. You got to pick it up. You
• 25:32
  Speaker 2: got to sharpen the axe or however they split them,
• 25:35
  Speaker 2: you know? So the point that I'll make on this,
• 25:40
  Speaker 2: the reason that I think a lot of us don't,
• 25:43
  Speaker 2: and maybe I'm projecting, the reason that I don't like
• 25:47
  Speaker 2: a lot of the AI companies that are trying to
• 25:50
  Speaker 2: build out the platforms is is because they're fundamentally untrustworthy
• 25:55
  Speaker 2: even before we got to this. When we talk about
• 25:58
  Speaker 2: how Facebook has handled privacy and other issues with minors and,
• 26:01
  Speaker 2: you know, this and that over the last, you know,
• 26:04
  Speaker 2: 10 years. Amazon, all the problems with counterfeiting and, you know,
• 26:08
  Speaker 2: this and that over the last 10 years. Microsoft's just boring. Like,
• 26:13
  Speaker 2: I don't think any of us have a huge problem
• 26:14
  Speaker 2: with Microsoft. They're just, like, really boring and make a
• 26:16
  Speaker 2: lot of money. Like, I don't think any... Who's like, oh, like,
• 26:20
  Speaker 2: you know, like, we really hate Microsoft these days? Like, no, like, what?
• 26:23
  Speaker 2: The worst thing that you can say is like that
• 26:24
  Speaker 2: LinkedIn is just vacuous. Like it's, it's just like.
• 26:28
  Speaker 3: I take your point.
• 26:29
  Speaker 2: I think the, we don't trust these. We shouldn't trust
• 26:32
  Speaker 2: these people with any digital future.
• 26:35
  Speaker 4: The reason that these companies settled meta settled is because
• 26:38
  Speaker 4: presumably they knew the damage that they were causing and
• 26:41
  Speaker 4: covered it up and went forward anyway, which is the
• 26:44
  Speaker 4: exact same statement that chat GPT, anthropic and others have
• 26:48
  Speaker 4: made publicly that We think that this could be very damaging,
• 26:52
  Speaker 4: and we are proceeding anyway because we think the other
• 26:55
  Speaker 4: guy would do it worse. Yeah, it's a fundamentally unsound
• 26:59
  Speaker 4: premise to start your business on.
• 27:02
  Speaker 2: Let's take a quick break. When we return, we're going
• 27:05
  Speaker 2: to be joined by Mary Beth Mattingly. Mary Beth is
• 27:07
  Speaker 2: the Assistant Vice President with the Regional and Community Outreach
• 27:11
  Speaker 2: Department at the Federal Reserve Bank of Boston, and she
• 27:15
  Speaker 2: joins us next after this.
• 27:17
  Speaker 1: Find daily interviews and full shows of the Financial Exchange
• 27:20
  Speaker 1: on our YouTube page. Subscribe to our page and get
• 27:23
  Speaker 1: caught up on anything and everything you might have missed.
• 27:26
  Speaker 1: This is the Financial Exchange Radio Network.
• 27:38
  Speaker 4: Joining us now is Mary Beth Mattingly. She's an Assistant
• 27:41
  Speaker 4: Vice President with the Regional and Community Outreach Department at
• 27:44
  Speaker 4: the Federal Reserve Bank of Boston. And Joins us the
• 27:47
  Speaker 4: same week as Fed leaders are gathering in Jackson Hole
• 27:50
  Speaker 4: for their policy meetings. And joins us today to talk
• 27:53
  Speaker 4: about some research they did here in Massachusetts across a
• 27:56
  Speaker 4: number of families, thousands of families, to talk about wealth
• 28:01
  Speaker 4: and its impact on the local economy.
• 28:03
  Speaker 3: Mary Beth, thanks for joining us. Appreciate it.
• 28:04
  Speaker 6: Thanks so much for having me.
• 28:06
  Speaker 4: So this new report and this new study you did
• 28:09
  Speaker 4: of over 5,000 families in Massachusetts is gave a really
• 28:14
  Speaker 4: detailed look at wealth in our commonwealth. And that's interesting
• 28:19
  Speaker 4: to me because it's a traditionally pretty tough thing to measure.
• 28:23
  Speaker 4: Whenever we talk about policies that would tax wealth, it's
• 28:26
  Speaker 4: always a question of how would you do that? Whereas income,
• 28:29
  Speaker 4: we tax regularly, we can measure it fairly easily. And
• 28:33
  Speaker 4: so I'm fascinated by this, but what were the kind
• 28:36
  Speaker 4: of high-level takeaways that you had from this survey of, again,
• 28:41
  Speaker 4: more than 5,000 families across Massachusetts?
• 28:44
  Speaker 3: Sure.
• 28:45
  Speaker 6: So I think the big takeaway for me is that
• 28:48
  Speaker 6: in the aggregate, Massachusetts families are doing really well. They
• 28:52
  Speaker 6: have about half of families have at least $ 374, 000 in
• 28:56
  Speaker 6: net wealth, which is the sum of their assets minus
• 29:01
  Speaker 6: the sum of their debts that they hold.
• 29:03
  Speaker 3: Okay. So think home equity, 401k.
• 29:05
  Speaker 6: Home equity, 401k, checking, savings.
• 29:09
  Speaker 3: Does it include like the value in a vehicle or something?
• 29:12
  Speaker 6: Value in a vehicle. Other high value items. We have
• 29:15
  Speaker 6: a kind of a catch all to get things about,
• 29:17
  Speaker 6: you know, art collections and things like that.
• 29:19
  Speaker 2: Crypto.
• 29:21
  Speaker 6: So we ask pretty, we try to leave no stone
• 29:25
  Speaker 6: unturned in understanding what's happening. And then their debts are
• 29:29
  Speaker 6: things like student loans, credit card debt and so forth.
• 29:34
  Speaker 6: So when we looked at net wealth, families are doing
• 29:38
  Speaker 6: pretty well. Also, most families have a bit of a buffer,
• 29:42
  Speaker 6: a bit of cash on hand that they could use
• 29:45
  Speaker 6: to pay for, say, a $ 400 unexpected emergency. And most
• 29:50
  Speaker 6: families have savings accounts. A lot of families are saving
• 29:53
  Speaker 6: for retirement. We have a high home ownership rate, high
• 29:56
  Speaker 6: home equity. So there's a pretty rosy picture overall. But
• 30:00
  Speaker 6: when we dig down to different places in the state
• 30:03
  Speaker 6: and different groups within the state, we do see inequality
• 30:07
  Speaker 6: in the wealth holdings.
• 30:08
  Speaker 3: Sure.
• 30:08
  Speaker 4: So let's go there a bit. I mean, what do
• 30:13
  Speaker 4: you see when you're looking at, say, the bottom quarter
• 30:17
  Speaker 4: of wealth in Massachusetts families? Because I would imagine that
• 30:21
  Speaker 4: compared to the top 25% look dramatically different in this state.
• 30:25
  Speaker 3: You're right on.
• 30:25
  Speaker 6: At the 25th percentile, the bottom quarter of families hold
• 30:29
  Speaker 6: about $ 10, 000 net wealth. At the top of the distribution,
• 30:33
  Speaker 6: it's over a million dollars. You do see a big
• 30:36
  Speaker 6: difference between the two.
• 30:39
  Speaker 3: What about age?
• 30:40
  Speaker 4: We've been talking a lot about the wealth effect in
• 30:43
  Speaker 4: this economy. There's a lot written at the beginning of
• 30:45
  Speaker 4: this year about how Older Americans might be driving a
• 30:49
  Speaker 4: lot more of the consumer spending because of this wealth effect.
• 30:52
  Speaker 4: So what did you find in terms of age demographics
• 30:56
  Speaker 4: and differences in wealth? I would expect if you've had
• 30:58
  Speaker 4: a 40-year working career to be able to.
• 31:02
  Speaker 3: Accumulate more wealth. Is that what you found?
• 31:05
  Speaker 6: We did find that older families in Massachusetts, 65 plus,
• 31:10
  Speaker 6: have much more wealth than younger families, 55 plus or
• 31:13
  Speaker 6: 45 plus or under 45. And I think it's– we
• 31:17
  Speaker 6: didn't get into any explanations in this report. This simply
• 31:21
  Speaker 6: describes what's happening. And I think you're right. They do
• 31:24
  Speaker 6: have more time to accumulate wealth through their savings, through
• 31:27
  Speaker 6: their employment. But they also have more time to inherit
• 31:31
  Speaker 6: wealth and get gifts from family. So it's a complex
• 31:34
  Speaker 6: web of accumulation.
• 31:36
  Speaker 4: Why did you– I mean, why does the Boston Fed–
• 31:39
  Speaker 4: I don't know if you chose to do this research
• 31:41
  Speaker 4: or your boss's boss's boss decided to do this research.
• 31:44
  Speaker 4: Why does the Boston Fed– Do this kind of research
• 31:47
  Speaker 4: specifically because it is, again, different from a lot of
• 31:50
  Speaker 4: the other things that we can read about what contributes
• 31:53
  Speaker 4: to wealth, income, and spending in this economy.
• 31:56
  Speaker 6: Well, I think that's part of why this research is
• 31:59
  Speaker 6: really important because we don't know a lot about wealth.
• 32:02
  Speaker 6: The Boston Fed and the Federal Reserve System are tasked
• 32:05
  Speaker 6: with understanding the economy, understanding how things are playing out,
• 32:09
  Speaker 6: how families are doing, how communities are doing. Income, which
• 32:12
  Speaker 6: you've mentioned, has much more accessible and available data tells
• 32:16
  Speaker 6: us only part of the story. We want to understand
• 32:19
  Speaker 6: wealth for a whole host of reasons. When we think
• 32:23
  Speaker 6: about wealth, one of the things we think about is investing,
• 32:26
  Speaker 6: putting some money away so that money can grow and
• 32:29
  Speaker 6: be used for things like higher education for yourself or
• 32:32
  Speaker 6: your child or for your retirement years. And that's really
• 32:36
  Speaker 6: important to understand who's able to do that.
• 32:39
  Speaker 5: Sure.
• 32:39
  Speaker 6: The other piece is the buffer function I alluded to earlier.
• 32:43
  Speaker 6: People need often to have some money for things that
• 32:46
  Speaker 6: aren't in their monthly budgets, that unless they're very high income,
• 32:50
  Speaker 6: they might not have enough money if their roof starts
• 32:52
  Speaker 6: to leak unexpectedly or they blow their tires on their
• 32:55
  Speaker 6: way to work. And so having that is really important. And,
• 32:58
  Speaker 6: That one, they both tie to the Fed's dual mandate
• 33:01
  Speaker 6: of price stability and maximum employment. On the investment side,
• 33:05
  Speaker 6: being able to get those credentials needed for a job
• 33:08
  Speaker 6: down the road is really important. On the buffer side,
• 33:12
  Speaker 6: a buffer can help if prices are rising and knowing
• 33:15
  Speaker 6: who has a buffer and what groups might struggle most
• 33:18
  Speaker 6: is really important information if people can't afford the price
• 33:21
  Speaker 6: of their groceries or their housing on their income alone.
• 33:25
  Speaker 6: The buffer is also important for keeping people at work
• 33:29
  Speaker 6: in a different role. Many years ago, I did research
• 33:32
  Speaker 6: on low-income families and heard a lot of stories about
• 33:34
  Speaker 6: people being one crisis away from things falling apart. Often
• 33:38
  Speaker 6: that was the car that they needed to get to work.
• 33:41
  Speaker 6: If the transmission blew, there was no solution. They were
• 33:44
  Speaker 6: then out of work. They couldn't stay connected to the
• 33:46
  Speaker 6: labor force.
• 33:47
  Speaker 4: Compared to Western states, I find, you know, the Northeast
• 33:51
  Speaker 4: to be unique in geographic size. Obviously, when we think
• 33:54
  Speaker 4: about the Boston economy, for instance, I know plenty of
• 33:56
  Speaker 4: people that commute from New Hampshire or Rhode Island. And
• 34:00
  Speaker 4: when you look at the Massachusetts data specifically, how do
• 34:03
  Speaker 4: you find it differs from other states in the region
• 34:07
  Speaker 4: or even on a national level? Because we know from
• 34:10
  Speaker 4: an income and education perspective, Massachusetts residents tend to be
• 34:13
  Speaker 4: fairly high ranked compared to just about every other state
• 34:17
  Speaker 4: in the nation. When you looked at wealth based on
• 34:20
  Speaker 4: what we know about wealth in other states, what did
• 34:23
  Speaker 4: you find comparatively?
• 34:24
  Speaker 6: Well, this is the first, to my knowledge, statewide survey
• 34:28
  Speaker 6: of wealth. So other states don't have this kind of data.
• 34:32
  Speaker 6: So I think all of the things you point to
• 34:33
  Speaker 6: may lead us to expect Massachusetts to be faring pretty well.
• 34:37
  Speaker 6: The survey of consumer finances that the Federal Reserve Board
• 34:40
  Speaker 6: of Governors conducts was in the field at the same
• 34:43
  Speaker 6: time and will give us some estimates for the nationwide
• 34:46
  Speaker 6: But right now, their estimates are from 2022 that are public.
• 34:49
  Speaker 6: And our number is higher, but we don't know if
• 34:52
  Speaker 6: that's because of change over time or if Massachusetts is
• 34:55
  Speaker 6: faring better on average. Probably a little bit of both.
• 34:59
  Speaker 4: I know that this was a study about measuring things
• 35:03
  Speaker 4: and not concluding anything.
• 35:05
  Speaker 3: Is anyone doing any.
• 35:06
  Speaker 4: Research on what is the best driver of spending in
• 35:09
  Speaker 4: our economy today? We always think about income leading to spending.
• 35:14
  Speaker 4: is wealth perhaps a better indicator of future spending than income?
• 35:20
  Speaker 4: What sort of studies are being looked at on that frame?
• 35:23
  Speaker 3: I don't know. I'm not familiar.
• 35:25
  Speaker 4: We talked demographically, homeowners obviously developing quite a bit of
• 35:30
  Speaker 4: wealth over the last decade through those homes. I've got
• 35:33
  Speaker 4: to imagine that, for instance, renters compared to homeowners, very
• 35:38
  Speaker 4: different wealth accumulation.
• 35:39
  Speaker 3: Very different.
• 35:40
  Speaker 4: What other key demographics did you find in this study?
• 35:44
  Speaker 4: And I'm sure there's race inequality and all sorts of
• 35:49
  Speaker 4: different backgrounds that are leading to wealth versus a lack thereof.
• 35:52
  Speaker 5: Sure.
• 35:53
  Speaker 6: I mean, you hit on many of them. The homeownership
• 35:55
  Speaker 6: wealth gap is huge. There are profound racial disparities in wealth.
• 36:01
  Speaker 6: The thing that surprised me the most, I expected educational
• 36:04
  Speaker 6: differences and to see a real premium for a college
• 36:07
  Speaker 6: education in terms of wealth holdings. What surprised me, though,
• 36:11
  Speaker 6: was that those with a graduate or professional degree in
• 36:14
  Speaker 6: Massachusetts have more than double the median wealth of those
• 36:19
  Speaker 6: with a bachelor's degree. So that was really striking.
• 36:22
  Speaker 4: Yeah, that is huge. As more and more Americans are
• 36:25
  Speaker 4: taking kind of a critical look at the cost of education,
• 36:28
  Speaker 4: and I don't know about you, but I hear it
• 36:31
  Speaker 4: almost daily about, hey, is this really education going to
• 36:35
  Speaker 4: be worthwhile to me to find a conclusion like that?
• 36:38
  Speaker 4: I saw The higher education levels, those with a respondent
• 36:43
  Speaker 4: or spouse slash partner holding a graduate degree reported a
• 36:46
  Speaker 4: median family net wealth of $ 947, 000. Those with less than
• 36:51
  Speaker 4: a high school diploma, net wealth of about $ 1, 100.
• 36:54
  Speaker 3: Huge difference.
• 36:57
  Speaker 6: I would say, though, there's also a huge difference between
• 37:01
  Speaker 6: those with a bachelor's degree and those with less education.
• 37:04
  Speaker 6: So even though that difference for graduate degree holders is profound,
• 37:07
  Speaker 6: it's not the only gradient that we see.
• 37:10
  Speaker 4: Beth Mattingly is an assistant vice president with the Regional
• 37:13
  Speaker 4: and Community Outreach Department of the Federal Reserve Bank of Boston.
• 37:16
  Speaker 4: Joining us today to talk about their study on wealth
• 37:19
  Speaker 4: in Massachusetts. It's really interesting stuff. I hope you guys
• 37:21
  Speaker 4: continue to do this study, and hopefully it expands to
• 37:24
  Speaker 4: other areas because I would be fascinated to learn more.
• 37:26
  Speaker 4: what ends up being a better driver and indicator of
• 37:30
  Speaker 4: what drives this economy forward. Beth, thank you so much
• 37:32
  Speaker 4: for joining us.
• 37:32
  Speaker 3: Really appreciate it.
• 37:33
  Speaker 6: Thanks so much for having me.
• 37:34
  Speaker 4: We are going to take a quick break as we
• 37:37
  Speaker 4: take a look at markets heading into the 11 o'clock hour.
• 37:39
  Speaker 4: We've got the NASDAQ leading the way up over 1%,
• 37:42
  Speaker 4: S & P.
• 37:43
  Speaker 3: And Dow in the green as well. A lot more
• 37:45
  Speaker 3: to cover in the second hour. We will be right back.