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The 5 o' Clock Shadow with David Shapiro and Viv Govender · Strictly Business Podcast

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You're listening to Strictly Business Podcast with Lindsay Williams.
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Welcome to It's Nearly the Five O'Clock Shadow with David Shapiro from Sasson
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Securities and Viv Govender from Rand Swiss.
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Now last week we started the show, or I did,
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with a quote attributed to Donald Trump and it was an astonishing start to the
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show because the
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quote was astonishing, more than astonishing actually.
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And this week we're going to start with something even more astonishing and that's
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David Shapiro's post on LinkedIn, by the way.
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It says here, a snapshot of the latest quarterly results for Meta, Microsoft,
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Alphabet and Amazon,
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showing their revenue, profit and planned spending are below.
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And the one that go to here is Amazon quarterly revenue, 181 and a half billion,
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operating profit 30.3 billion.
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Now, David, these are the sort of numbers that a small country would be proud of.
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That's exactly the point.
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As I was going through them en masse, you know, I looked at them all together.
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And when you look at it,
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you just understand the astonishing size of these companies,
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the incredible amount of revenue that they create,
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and also the huge amount of money that they're spending.
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And, you know, that is going into the US economy.
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And just to follow it up, which I've only got the numbers now.
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If you look at the first quarter GDP numbers in the US,
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the amount of business spending that has gone up, I mean, it's a staggering amount,
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10%,
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which is all the amount of money that is going into data centers.
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And, you know, Viv's going to come in there.
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He knows a lot more than I do.
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But, I mean, what's from AI bubble at the end of last year to where we are now,
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that there's just not enough power, there's not enough compute power.
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And, you know, there might not be enough data centers in order to satisfy the
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demand for AI or the processing.
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You know, it just it gives you an idea of the power, number one, of AI, of what
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this,
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you know, this new economy is.
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And also of the United States, of these businesses.
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It's amazing.
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It's amazing, David.
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You referenced the US GDP number.
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It came out and the US economy grew by 2%.
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in the first quarter.
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And of course, the first quarter is going to be impacted,
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or rather impacting the second quarter and beyond because of the war in Iran.
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But it's still a good, steady number.
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But if you want to finish, David, and then we'll go to Viv,
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because I've got a sort of an analogy to make about what I'm seeing,
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because they're going to be spending $700 billion on AI CapEx next year.
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I mean, it's only $30 billion, and Viv mentioned a couple of weeks ago, but
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still, it's a massive amount, isn't it, David?
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Well, if you consider the whole of the South African economy, that's what I
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wanted to highlight,
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is $400 billion.
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You know, that's the South African economy.
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And they're spending it, I don't know, in a quarter, I don't know, half a year, not
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even.
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They're spending it.
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This is one small business or one business.
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It just gives you an idea of how big this really is and the competition around it.
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And that's why I say you cannot afford.
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There's huge criticism about Meta and how much they're spending and whether or not
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they'll be successful.
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But they can't afford not to.
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You know, they can't fall out the race, nor can anybody, you know,
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nor any company in that area.
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So this is going to go on.
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I think the other thing is just, yes, these companies are spending,
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but they're also making massive amounts of money.
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OK, they're making massive amounts of money, Viv.
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But are they spending the money on CapEx because the other companies are spending
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the money on CapEx?
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As David suggested, I'm saying it, he suggested it.
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Look, I mean, there's a couple of things to think about here, first of all.
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So 700 billion, and I think I mentioned to you guys in the past, if you just do the
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calculations, right, 700 billion translates to...
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Probably they need about maybe just over a trillion or so to basically make this a
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valid investment.
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I mean, you need probably well more than a trillion.
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But let's just say it's a trillion to make this $700 billion a profitable investment.
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For them to raise $700 or get a trillion dollars worth of revenue,
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they've got to basically generate somewhere between $10 to $20 trillion
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worth of GDP growth to basically
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harvest that amount of revenue, if you know what I mean.
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You can't basically...
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get all of what you make in the world back as your own revenue.
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You've got to basically make it a deal for everybody else as well.
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And generally software companies get less than 5% in terms of the efficiencies,
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the productivity they add to the world back as revenue.
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So this is 10%.
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10 trillion dollars that's 10 percent of global gdp just on this year's spend i
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mean that's the numbers we are talking about
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now the other side we have seen growth in basically the amount
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of revenue these companies have not particularly google or facebook but like
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the
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philanthropic where we are seeing for instance
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uh they predicted to have some of the region of a hundred billion dollars of
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revenue by the end of this year
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okay This is from $100 million at the start of 2024.
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So in three years' time, going from $100 million to $100 billion, that's a 1,000
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times increase.
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That's roughly 10 times a year.
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So all these numbers just are unprecedented.
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The logic behind this is unprecedented.
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I honestly believe, and this is something that's out there, I think I told you guys
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before, this is not quite a business decision for these companies.
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I don't think Mark Zuckerberg is investing in AI.
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as a pure business decision because he could get access to a lot of these models
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at a far cheaper cost than delivering his own llama model the reason
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facebook has llama is not just to basically become a ai company it's because
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that allows facebook to do more with the data it gets in
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the reason that google is developing gemini is
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not just because of that uh you know it it's it's considered as an llm and whatnot
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because it's not the most popular item out there
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it's also to help with his own search and on advertising business etc but even with
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these kind of like
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The reason these guys are doing it is almost, I believe, religious.
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I use that term advisedly.
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I think that these guys almost have a religious belief that they are creating
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something that is going to basically win the future.
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To quote another genius leader of states, Vladimir Putin, and this was a few years
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ago, by the way,
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he says, the one that wins AI wins the world.
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And I think that's the belief these guys have.
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They believe if you win AI, no matter what your cost is, no matter what the
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circumstances, you're the first to get AGI or ASI or whatever.
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You have pretty much won humanity.
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You won the game of humans and you've, or civilization, whatever you want to call
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it.
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And whatever the cost to get there, getting there is worth the price.
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And I think that is what we're looking at right now.
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And the one more thing I would put out there is I think Dennis Asavas, which is
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the guy that runs Google DeepMind,
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the AI division of Google, says he believes we are about, I think,
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two-thirds or three-quarters of the way to AGI already.
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And that is a, you know, mockable kind of statement.
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So, yeah, this is what we're dealing with.
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These guys will spend as much as required.
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They will risk bankruptcy, as I think it was Larry Page said,
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risk bankruptcy to have a chance of being the one that gets to AGI.
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And that's the kind of spending we're doing here.
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Are these companies good investments?
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Maybe not.
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Companies that really want to be buying are the companies that make the chips that
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these guys need to buy, the NVIDIAs, the Microns, and so on.
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Those are the guys that are really guaranteed to make money.
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These guys are playing for, you know, all or nothing kind of stakes.
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Okay, there's a phrase I'll come back to you on in a couple of years' time,
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guaranteed to make money, Viv.
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But anyway, that's for another time.
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David, when you saw all those results,
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if you had a blank sheet and you had a new client's money, would you say to that
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client, yes,
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we have to go for this one, this one, this one, or this one, or none of them, they're
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too overpriced, they're spending too much capex.
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What did you think when you saw those numbers?
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No, I just, you know, I get very nervous when we come to this period every three
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months,
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simply because I think that many times analysts always set the bar too high.
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And when I look at the size of these companies, you know, you say, well,
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how can they keep generating this quarter after quarter and growing it quarter after
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quarter?
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And that's why I get very nervous that somewhere along the line.
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They're going to trip over a wire or something's going to happen.
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And yet here you are.
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Here they came out with these numbers again.
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Sure, Microsoft, not Microsoft Meta, there was more concerns, not about the absolute
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numbers,
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but about what they're spending and around whether they can recover it, whether it's
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too much, whoever knows.
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And Viva, I think, has summarized it well.
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You know, it is.
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There's a lot of ego involved in this, wanting to rule the world.
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And these are the kind of characters that run these businesses.
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But I can't avoid it.
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At the moment, I must tell you that just you asked me the question,
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will I still buy?
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Of course I will buy.
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And that's because I'm getting very nervous of the rest of the world, you
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know,
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with oil at these kind of levels and the delay that this is going to, you know,
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that.
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finding peace in Iran is going to cause.
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And oil price in the 110 to 120 is very difficult for us to
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digest.
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My only qualification is, what I'm also scared of, is that somewhere along the
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line, this might bleed.
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into sentiment on the tech market.
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In other words, it might become too difficult to handle and it might have some
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impact.
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But for the meantime,
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I've just been looking at Qantas services results and they provide electricity.
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They are providing the power to the data centers.
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I mean, if you look at G-Evanova, all these businesses, one that we guarded,
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which was Siemens Energy.
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All of a sudden, they're back in fashion and doing incredibly well.
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So, Lindsay, that's your supply chain.
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You know, those are the companies.
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Anything related to the building of data centers, you've got to have.
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You know, when I say you've got to have, sure.
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So, here's the game now, David, not looking at the big ones that you mentioned
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in your LinkedIn article, which I recommend everybody goes to.
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It's the auxiliary services companies.
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As well.
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Yeah.
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Are those the ones?
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As well.
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There's some nuggets out there.
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that haven't yet been discovered or have they all been mined already?
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No, no, there are nuggets in that area, but you've got to do your work because
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there's a whole list of them that I went
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through and suddenly you're confronted in the same way as the medical profession,
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but I think in this case they're going to do well with a good 10 to 15 businesses
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that are
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related, that are all going to provide power and will get contracts.
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They're going to be a lot of winners in this area.
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And, you know, doing it at the expense of all the economy.
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And I must admit, as a person who's loved luxury, I'm getting a bit edgy.
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You know, I looked at booking.coms, listening to booking.com CEO, and, you
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know,
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there's a slowdown in travel.
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There's a slowdown in a lot of areas.
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Of course there is because airline tickets are 25% minimum higher.
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I mean, you can't fly cheaply anymore.
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These prices are unbelievable.
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Viv, I want to move on to you because
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I wrote a brief brief to somebody with whom I'm doing a podcast next week.
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And he said, just pretend you're somebody that wants to invest in my fund.
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What are you worried about?
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So I said the following, Viv, listen to this.
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As a consumer investor and potential investor, I'm worried, no, terrified of
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the following.
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There's a war in the Middle East that might drag on for weeks or months given
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the intransigence.
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of the parties involved.
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To me, the near doubling of the oil prices implications yet to be fully felt, e.g.
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rising fuel and energy prices, higher mortgage rates, fertiliser up, bond yields
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creeping north,
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so inflation to soar, and interest rates too.
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So food, fuel, energy, shelter, all higher, and maybe going much higher.
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I don't think you understand what a prolonged period of high oil prices and
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the destruction of the world order
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means.
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and yet it's on a plate before us.
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That's what I'm putting forward to this person, Viv.
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And I know it sounds very simple, but there's some decent points there, I think.
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Well, certainly.
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I mean, we are in a remarkable time in which, as you mentioned, we are seeing a
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real shift in the global order,
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with the U.S.
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kind of losing its mind, in effect, over the last year or so,
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going against allies.
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damaging the relationship it has with its main allies in Europe, with things like
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Greenland, basically,
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obviously blowing up the Middle East as it has done,
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against the wishes of its allies in the Middle East as well as in Europe.
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At the same time, we have the biggest technological revolution in our lifetimes
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by far, and I'm including David in this,
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you know what I mean?
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We have not seen anything that is equivalent to this, since electricity at
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the very least.
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and possibly since the Industrial Revolution.
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And some people even say far back as fire.
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This is one of the greatest technological opportunities in history.
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And historically, this is when the fortunes are made.
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You have the railway barons, you have the billionaires of the car maker Ford, you
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have the internet guys, you have the computer guys like Bill Gates, etc.
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When you have new technologies coming about, that's when you have the
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supernormal profits.
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That's when you have the supernormal fortunes being created.
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And unfortunately, in this current environment, despite the risk, as David
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mentioned, you just can't be out of the market.
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It just can't be a...
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you know, away from these growing sectors.
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You may go for a bit of a bifurcated policy where you basically have an
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investment strategy where you have a certain amount of money that you put aside
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in a more safe,
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you know, to a stable kind of investments or, you know, segments.
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But you have to have a certain portion of your money allocated to these high growth,
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high risk segments,
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because the opportunity cost would be just too great if they do take off like they
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have over the last couple of years.
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David, you were speaking about a film called Monty Python and the Holy Grail,
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and I can't remember exactly what the scene was that you were describing, but
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I'll come to this.
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I don't know if you've ever seen a cartoon where there's two characters, one called
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Wile E.
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Coyote and the other one is Roadrunner,
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and they have this thing where the coyote tries to trip up the roadrunner as he's
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running along, et cetera,
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and of course we know what's going to happen, but it's still fun to watch, and
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it's also really fun to watch.
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Wile E.
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Coyote gets to the edge of the cliff and you know what's going to happen.
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He's going to plummet to the bottom.
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Now, is there any chance that we're all Wile E.
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Coyotes or rather people like you and Viv are Wile E.
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Coyotes?
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And at some point they're going to say no.
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The market participants are going to say no, it's far too much money.
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You can't justify it.
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And the oil price is this and everything else that I've just spoken about.
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And it...
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he falls off the cliff or rather the market participants do.
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Any chance, David, if there is a chance, are you ready for it?
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Oh, yeah.
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Penny markets long enough.
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One day these things do slow down.
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But for the meantime, I think it's only now gathering momentum.
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And that's why you've got to, you know what, you can't ignore it.
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You can't wait for that time to come.
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What you do have to do...
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do.
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And I always say this, you have to be in a situation where when you start to see the
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science,
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get out.
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You know what I mean?
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Just press the button, get out.
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And that's the beauty of stock markets today.
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You know, you're not in a fund where you're trapped, where it's going to take
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six months or a hedge fund or all these other products
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that are around, you know, that I don't even understand but uh
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have got some very clever around who construct all kinds of derivative
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strategies.
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You can't get out of those.
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The beauty is now, and if you want to do anything, and I could illustrate it for
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you,
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but I'm not going to, but what happens is that you can put an order on,
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they get executed almost immediately with some of the big platforms.
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You know what happens?
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They don't go onto the market and then deal.
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They do it and then...
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Obviously, they trade on that order and try to cover it in or whatever it is.
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So that for me is absolute paramount is liquidity.
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In other words, be liquid.
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Be able to get out literally at the touch of a button.
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Okay.
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So you're ready for it.
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Viv, are you ready for it?
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Always.
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Viv, do you concur with what David has said?
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Yeah.
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Look, I mean, I would say get a chance.
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Every single time in history we've had one of these things happen.
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It's been a you've had a crash.
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I mean the railways, when the US built railways, when we had the build-out of the
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broadband,
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of the fiber optic internet basically, always you have over-investments, you have
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a crash,
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and then basically what you have is the initial investors or the initial basically
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people that built the railroads or built the fiber
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optic networks basically having to sell at a discount, which is great for the world
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because now you have cheap railways and you have cheap,
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which is called fiber optics or whatever you have out there.
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but.
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It's been the history.
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This time might be different just because the technology is so powerful that we
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don't know what the end looks like.
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But historically, when we do have this massive infrastructure buildup of new
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technologies, you tend to find overinvestment and then a crash.
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As to what the strategy should be, I'm not so confident as David that I can find out
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when it's going to actually stop.
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Because you see, I mean, this year alone, we've had massive pullbacks in the stocks
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and then they come back again, roaring up.
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And last year, the same thing happened.
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I mean, what do the Bitcoin guys call it?
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The halvings, where basically every stock, when the stock, the price of Bitcoin
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halves, and then you hold through it and it goes back up again.
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So, as long as the technology continues to improve, that's my only requirement, as
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long as the technology continues to improve, I stay invested.
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When I see evidence that the technology no longer improves at the current rate, then
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I would say you pull out.
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And fortunately, the technological improvement has been excellent.
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By every measure that you can see out there, you know, you're seeing this thing
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improve.
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And if you don't see it improve, unfortunately for you, it's basically
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improved beyond your capacity to understand it, if you know what I mean.
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I don't know if I mentioned Terence Tao before in the past, the guy that's the
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best mathematician in the world.
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And he was talking about how mathematicians at the moment, because of
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new models, are going through the five stages of grief.
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And right now many guys are stuck in denial about, you know, how powerful these
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new computers are, new programs are.
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And this is the cutting edge of mathematics.
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And he's saying he's finding these programs now able to do stuff that
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basically they weren't able to do in the
20:01
past and actually able to be an asset in mathematical research.
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You find the same thing happening in biology, the same thing happening in
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physics.
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And the real thing that I think people have, the next step, the next step change
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is going to be robotics.
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You've got to see the new videos coming out where robots are having...
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He always comes back to robots, doesn't he, David?
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He always comes back to robots.
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Sorry if I interrupted you.
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I've got to see the videos of what did you say?
20:28
I missed that.
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Of the latest robots, yeah.
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In the past, they used to speed these things up.
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Now they're going to slow them down so you can see what's happening.
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In the past, you'd see robots moving, and they'd have to speed them up because they
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were so slow to make it look more impressive.
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Now they're slowing them down so you can see what they're doing.
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That's the difference.
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And why do I say robots?
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Because I've always said that the only way you're going to have, like, the $10
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trillion-plus GDP growth rates we're discussing,
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that has to come from physical AI.
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It won't come from, you know, new, you know, sort of software that writes you
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better, you know, sort of software.
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poems or does videos, you know, or whatever it may be.
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That doesn't create things.
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It has to be science.
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It has to be physical.
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That's the only way you can imagine, you know, a 10% plus GDP growth rates.
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Okay.
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Gentlemen, this is the only podcast.
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Go on, David.
21:18
There's something I just wanted to say, you know,
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in terms of how far do we stretch it.
21:26
You know, we picked up.
21:28
When ChatGPD came out and we started to see the demand for NVIDIA, I don't even
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know what price NVIDIA was.
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Today, let's call it $202 a share.
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Maybe it was $10 at that time.
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That's how much it has grown.
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And the problem is that people can't handle growth.
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When it went from $10 to $20, oh, I've doubled my money.
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I must get out.
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$20 to $40, oh, I've had it.
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I've had it.
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And we go along that with clients.
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They don't believe they're worthy of this company going up or that it will go up
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simply because of their past experience.
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You know, it's now 202, I'm just looking on the screen.
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That's a thousand plus percent growth in the last couple of years.
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That's fine, you know, it's still going ahead.
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It's still producing incredible chips.
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It's still at the forefront of the development.
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Yes, there's going to be competition and odd times and that.
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But what happens is that clients can't handle it.
22:29
You know, we can't handle those kind of gains.
22:31
And I'm saying even if it halved now, we would be up, what, 500%
22:38
or whatever, you know, even more than that.
22:41
So you've got to take, you know, you've got to keep measuring that as well.
22:46
Okay, I've stayed there now.
22:48
How long do I go?
22:49
Even if there is some kind of pullback or whatever it is, you're still far better
22:54
off than.
22:56
You would have been had you got out, you know, when you first felt you should have
22:59
got out.
22:59
We've been talking about Hollywood, David.
23:03
There's a film called A Few Good Men, Jack Nicholson, what's his name, Tom Cruise,
23:10
etc., Demi Moore,
23:12
and one of the phrases from that, you can't handle the truth.
23:13
So what you're saying is you can't handle the returns.
23:16
That's what you're saying to certain investors.
23:18
Yes, yes, yes.
23:20
Okay.
23:21
They can't, you know.
23:21
and They always want to get out, take profits.
23:25
But no one's ever lost money by taking a profit.
23:28
You know, all those old sayings, you know, they're relevant and whatever it is.
23:32
But where you're at the beginning of something like this, which is so exciting,
23:38
just don't be impatient.
23:39
Just go for the ride.
23:44
Which is what I'm doing.
23:46
Very good.
23:46
You can't handle the returns.
23:48
Gosh, I bet there's a lot of fund managers.
23:51
That would love to be able to say that to their clients.
23:53
I think there's a few here amongst us.
23:58
Now, gentlemen, this is the only podcast that has had two things said on it.
24:03
Last week, Viv said, when I asked him where we are in AI,
24:08
at what point on the graph of AI are we?
24:11
He said, imagine a chap in Manchester and he's just been given a steam engine.
24:16
That's during the Industrial Revolution.
24:18
And today, Viv took it even further, Peggy.
24:21
She said,
24:22
this is the most incredible thing probably since human beings discovered
24:28
fire.
24:29
So we've come from steam to fire.
24:32
I don't know where you're going to go next week, Viv.
24:34
Maybe the splitting of the amoeba or something like that.
24:37
I don't know.
24:38
But anyway, thank you very much, gentlemen, for a really good show.
24:41
Viv Govender is from Ranswist.
24:42
David Shapiro from Sasson Securities.
24:45
And that was nearly the five o'clock shadow.
24:48
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24:55
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24:57
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24:59
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25:04
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25:11
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25:13
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25:16
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25:20
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