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Nvidia Crushes Earnings — So Why Is the Stock Falling? · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul Lane.
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Speaker 2: Good morning, welcome back to the Financial Exchange. You know,
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Speaker 2: there are some days in markets where you can look
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Speaker 2: at it and say that the market is focused on
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Speaker 2: something other than artificial intelligence and the ramifications of it.
1:23
Speaker 2: Today's not one of those days. Maybe Monday was we
1:25
Speaker 2: were digesting tariffs. Maybe maybe some weeks in the past
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Speaker 2: when we were talking about the FED, we're about something
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Speaker 2: other than AI. Tuesday we had the state of the
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Speaker 2: Union and so plenty to talk about there. Today is
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Speaker 2: AI day here on the Financial Exchange. And Video reported
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Speaker 2: earnings after the Bell Salesforce reported, and we're going to
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Speaker 2: be spending a lot of the first part of this
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Speaker 2: show walking through what seems to be changing and dominating
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Speaker 2: the narrative when it comes to AI, because, by all accounts,
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Speaker 2: yesterday after the Bell and Video reported once again Blockbuster
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Speaker 2: earnings best growth in four quarters, and the stock this
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Speaker 2: morning is down three and a half percent so far
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Speaker 2: in early trading and dragging down the NASDAK. This is
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Speaker 2: the largest company publicly traded company in the world, single
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Speaker 2: biggest component of the S and.
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Speaker 3: P five hundred.
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Speaker 2: Now remember that I would guess what do you think
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Speaker 2: if you you know average person pulled them and asked.
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Speaker 3: What is in Vidia do ten years ago?
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Speaker 2: One in one hundred could tell you maybe one one thousand.
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Speaker 4: That one in one hundred is reasonable.
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Speaker 2: And today the largest company out there. So let's start
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Speaker 2: off with the basics. In Video reported results last night
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Speaker 2: after the bell. They reported revenue of sixty eight point
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Speaker 2: one billion dollars, beating expectations of sixty six point two.
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Speaker 2: They reported adjusted earnings per share of a dollar sixty
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Speaker 2: two per share, beatout expectations in between one fifty two
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Speaker 2: and one fifty four. Their gross margins beat expectations by
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Speaker 2: twenty basis points. Their data center revenue beat expects by
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Speaker 2: three point six billion dollars. Do you have any data
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Speaker 2: points that disappointed on earnings?
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Speaker 3: I don't know.
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Speaker 5: To simplify the earnings for the listeners rather than the
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Speaker 5: nitty gritty of all the numbers, they just they knocked
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Speaker 5: it out of the park. These numbers, even by Nvidia's standards,
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Speaker 5: were was the biggest beat that we had seen in
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Speaker 5: quite some time, particularly on the forward revisions expectations. They're
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Speaker 5: anticipating doing seventy eight billion of revenue in Q one,
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Speaker 5: which blew pass estimates of seventy three billion that usually
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Speaker 5: in years past has skyrocketed the stock when they come
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Speaker 5: out with forward guidance that in this case was five
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Speaker 5: billion more than anticipated by Wall Street analysts out there.
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Speaker 5: It just was Mike a tremendous quarter. Numerically, they did
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Speaker 5: everything that you could ask for if you're an equity
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Speaker 5: analyst out there.
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Speaker 2: They're blackwell. Momentum killed it their guidance. As you talked
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Speaker 2: about beat on expectations, their shareholder returns. They returned forty
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Speaker 2: one points won billion dollars to shareholders in fiscal twenty
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Speaker 2: twenty six.
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Speaker 3: There was.
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Speaker 2: Nothing really to be disappointed by in this report. I
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Speaker 2: can't find anything that anybody said like, oh yeah, look
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Speaker 2: at that. That's a concerning area of growth for Nvidia
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Speaker 2: in this category.
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Speaker 3: There wasn't one.
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Speaker 2: And so the logical question is why the heck's at
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Speaker 2: down three and a half percent in early trading. Obviously
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Speaker 2: it's only ten oh nine am. We will see how
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Speaker 2: this plays out for the day. But you know, reporters
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Speaker 2: from Bloomberg and the Wall Street Journal and the New
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Speaker 2: York Times are all writing about why they think it's
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Speaker 2: down for the day, and I think they get at
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Speaker 2: some of what we are seeing here. But to me,
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Speaker 2: they're not really connecting the dots. And so I'm reading
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Speaker 2: pieces here about you know, well, there's been a lot
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Speaker 2: of pressure on SaaS company software as a subscription service,
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Speaker 2: and so that's the skepticism that people are seeing when
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Speaker 2: it comes to the AI trade is well, and I
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Speaker 2: say that has nothing to do with in Video. That
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Speaker 2: doesn't that that should matter, That should only propel them further, right, Potentially,
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Speaker 2: you know, it's about you know, skepticism about the industry
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Speaker 2: as a whole. And I don't see that either. I
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Speaker 2: think what I see from all of this is investor
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Speaker 2: one in Video reports earnings two to three weeks after
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Speaker 2: every major customer that they have. Right, major customers are
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Speaker 2: the other big tech companies that are spending on AI development.
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Speaker 2: I don't need to name them. You're probably familiar with them.
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Speaker 2: Everybody knows what in Video is going to tell us here,
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Speaker 2: right right, they were going to report a blockbuster quorder.
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Speaker 2: Why because everybody is still spending massive amounts of money
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Speaker 2: on artificial intelligence build out and they will continue to
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Speaker 2: spend that money on AI build out until that narrative changes,
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Speaker 2: at which point in Video stock could get hit. But
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Speaker 2: until that turn happens, I this is the second quarter
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Speaker 2: in a row where we've had this exact same discussion.
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Speaker 2: In Vidia crushed it on everything HM, and their stock
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Speaker 2: is not reacting. And so the obvious question is, Okay,
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Speaker 2: what will it take now to drive the stock? Because
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Speaker 2: if you're blowing out earnings expectations like this, what is
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Speaker 2: that next leg up for your company? And it's really
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Speaker 2: tough for me to envision now that this thing is
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Speaker 2: let's talk about where we are in terms of market
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Speaker 2: cap now four point six trillion dollars, what is going
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Speaker 2: to be that next leg up? I suppose one area
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Speaker 2: that I hope isn't the next leg up is that
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Speaker 2: in Vidia's outlook continues to assume zero revenue from data
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Speaker 2: center compute in China due to the export restrictions YEP.
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Speaker 2: So if you're looking for some increase it could come
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Speaker 2: from there. That would be enough to surprise investors, but
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Speaker 2: we would know about it before.
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Speaker 3: They report earnings.
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Speaker 2: There does not seem to be much that investors are
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Speaker 2: willing to give to Invidia on this, and I can
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Speaker 2: kind of under stand that, right. I mean, you're talking
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Speaker 2: about a company that is very expensive now and the
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Speaker 2: the potential for downside here, Like okay, so let's play
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Speaker 2: out the upside versus downside, right, Amazon, Microsoft, Meta, and
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Speaker 2: Alphabet just committed to spending six hundred and fifty billion
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Speaker 2: dollars in AI development over the course of twenty twenty six.
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Speaker 2: I think you have to look at that and say, Okay,
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Speaker 2: what's more likely they bump that up to eight hundred
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Speaker 2: billion or they have to bump it down to five
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Speaker 2: hundred and fifty billion.
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Speaker 5: Yeah, I think that's best summarizes what we're seeing going
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Speaker 5: on with in video stock today is that if you
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Speaker 5: look at the data center revenue from Nvidio, so we
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Speaker 5: just mentioned they did sixty eight billion dollars in this
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Speaker 5: most recent quarter, sixty two or sixty three billion of
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Speaker 5: that is the data center. So it's all about the
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Speaker 5: AI stuff that we talk about. The fifty percent of
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Speaker 5: that sixty two billion of data center revenue is coming
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Speaker 5: from those big boys like you just talked about the
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Speaker 5: high scalers. They are the ones that are spending half
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Speaker 5: of that sum. So there's a customer concentration issue where
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Speaker 5: if you look at the projected numbers like you mentioned,
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Speaker 5: six hundred and fifty billion, or I've seen seven hundred
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Speaker 5: billion of AI data centers build out for those big boys,
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Speaker 5: those hyperscalers. You're right, at some point in time, you'd
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Speaker 5: think that there's going to be a plateauing, a decline
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Speaker 5: in spending. All of these companies out there are spending
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Speaker 5: significantly to build up, whether it be their models or
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Speaker 5: other parts of their AI build out. There's going to
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Speaker 5: reach a saturation point with these models, whether you look
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Speaker 5: at Open AI or Anthropic in its model, where it's
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Speaker 5: been trained to a point of such sophistication that it's
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Speaker 5: going to not need perhaps as many as these chips
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Speaker 5: as they once previously did. And I feel like that's
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Speaker 5: the story Mike with Nvidia stock today is just it's
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Speaker 5: not Wall Street punishing them for what have been tremendous quarters,
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Speaker 5: but it's Wall Street looking forward to seeing how can
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Speaker 5: this growth of seventy three percent year over year revenue sustain.
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Speaker 5: And it's not in Vidia's fault. It's just hard to
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Speaker 5: imagine how that pace could continue. And that's why you
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Speaker 5: see the valuation of the company kind of plateauing over
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Speaker 5: the course in the last six months or so.
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Speaker 2: By the way, just some scale for all of this
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Speaker 2: because again putting these numbers into context I always find
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Speaker 2: useful and important. So the revenue for their fourth quarter
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Speaker 2: hit sixty eight billion dollars. That beat their expectations. It
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Speaker 2: beat analyst expectations by about one point nine billion. It's
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Speaker 2: about the annual revenue one point nine billion, about the
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Speaker 2: annual revenue of a company as big as Maderna. It's
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Speaker 2: about the quarterly sales of a company like Lululemon. That's
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Speaker 2: the degree to which in Nvidia beat everyone else's expectations.
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Speaker 2: They had one point nine billion more in revenue than
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Speaker 2: anyone expected, and one point nine billion in total revenue
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Speaker 2: is what Lululemon sells at all of their stories globally
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Speaker 2: in a single quarter like this is unfathomable dollars that
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Speaker 2: we are talking about here. But again, since October of
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Speaker 2: last year, the narrative on all of this has shifted,
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Speaker 2: and it's not shifted in a everything.
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Speaker 3: Is bad way.
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Speaker 2: It has shifted in a not everyone is going to
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Speaker 2: be a winner way, and.
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Speaker 3: That doesn't mean in Video is going to do poorly.
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Speaker 2: In fact, it seems to me that they are going
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Speaker 2: to be one of the last shoes to drop if
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Speaker 2: things do go poorly in the semiconductors or in the
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Speaker 2: in the AI space, because you're going to keep spending
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Speaker 2: the money on the development until you realize the developments
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Speaker 2: not worth it.
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Speaker 3: But there is much more.
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Speaker 2: I guess discerning and differentiation between investors today compared to
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Speaker 2: a couple of years ago. And that's what we're gonna
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Speaker 2: talk about next here on the Financial Exchange. Is that differentiation.
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Speaker 2: Who are the winners? Who are the losers that investors
10:52
Speaker 2: are trying to pick out here? That's next here.
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Speaker 2: Top story of the day continues to be in Video's earnings,
12:08
Speaker 2: which again beat on all expectations. Stock now down five percent,
12:11
Speaker 2: down to one hundred just below one hundred and eighty
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Speaker 2: six dollars per share. We'll continue to track it as
12:16
Speaker 2: the day goes on, but we did get some other
12:18
Speaker 2: earnings as well. Salesforce reported this week this has been
12:23
Speaker 2: maybe into it's mentioned more often, but very few companies
12:26
Speaker 2: more lumped into that software as a service story and
12:30
Speaker 2: narrative than Salesforce.
12:32
Speaker 3: For those that.
12:33
Speaker 2: Are not familiar with the company, you know, again, if
12:36
Speaker 2: you've been out of the workforce for a for a
12:39
Speaker 2: few years, that you might not have experienced them, but
12:40
Speaker 2: are They are a customer relationship management platform, so If
12:43
Speaker 2: you work in sales in just about any any industry,
12:47
Speaker 2: you have likely been at least heard of Salesforce and
12:51
Speaker 2: they build all sorts of databases custom to each organization,
12:56
Speaker 2: each industry to allow sales organizations to track potential customers,
13:03
Speaker 2: log all sorts of emails and notes. And you know,
13:07
Speaker 2: what started off as of pretty basic software has now
13:10
Speaker 2: integrated with hundreds thousands of different types of providers and
13:15
Speaker 2: some pretty complex stuff now like it started off as okay,
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Speaker 2: just this platform where you can log calls and you know,
13:22
Speaker 2: make a note about a customer, Now all sorts of
13:26
Speaker 2: pretty interesting stuff happens with it that makes it much
13:28
Speaker 2: more usable. But the question that has been risen by
13:32
Speaker 2: investors is, okay, in the world of AI, where companies
13:38
Speaker 2: can build out software pretty easily, does a company like
13:41
Speaker 2: Salesforce still have a growth model?
13:43
Speaker 4: Right?
13:44
Speaker 5: Can some of these bigger institutions or organizations out there
13:47
Speaker 5: just build their own software from within? And you hear
13:52
Speaker 5: differing opinions on this if you read different pieces, of course,
13:56
Speaker 5: those people in the software space will pound their fists
13:59
Speaker 5: on the TI and some of the Salesforce executives did
14:02
Speaker 5: in the most recent earnings call to argue that it's
14:06
Speaker 5: they're oversimplifying the complexities of programs like Salesforce or Workdays
14:12
Speaker 5: another one which was an HR software provider, and it's
14:16
Speaker 5: there's probably some truth that there's probably been some over
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Speaker 5: selling and indiscriminate just dumping of these companies that ultimately will.
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Speaker 3: Shoot questions, ask shoot first, ask questions that ultimately.
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Speaker 5: Will be more durable than investors are anticipating right now.
14:31
Speaker 5: But it is a fascinating focus and has really been
14:35
Speaker 5: the story of twenty twenty six is the pressure that's
14:38
Speaker 5: been on the software space, and it just seems like
14:41
Speaker 5: like these companies can't do anything right. They just every
14:45
Speaker 5: single time earnings come out. And even when we're seeing
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Speaker 5: Salesforce the numbers that just came out reported, none of
14:51
Speaker 5: these have just because their numbers may be coming in
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Speaker 5: a little lighter than anticipated. None of that is due
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Speaker 5: to anything with AI today. This is all future production
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Speaker 5: that's not going to impact numbers for the next several years,
15:05
Speaker 5: and it just seems like they can't really catch a
15:07
Speaker 5: break in terms of what Wall Street's looking at.
15:10
Speaker 2: Yeah, to be clear, guidance was in line expectations for
15:14
Speaker 2: the future, you know, again in line with what investors anticipate.
15:17
Speaker 2: That's probably part of the problem is that investors want beats.
15:20
Speaker 2: By the way, Salesforce stock is doing just fine today,
15:22
Speaker 2: stocks up about two and a quarter percent.
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Speaker 3: But the problem is for the course of the last.
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Speaker 2: Year, they've lost about a third of their value, and that,
15:30
Speaker 2: you know, put them in the same lump as a
15:32
Speaker 2: whole bunch of others fact set into it. I don't
15:35
Speaker 2: know Expeedia these days, but a number of these software
15:38
Speaker 2: companies have taken a hit. If any of these software companies, though,
15:43
Speaker 2: are seemingly ahead of the curve on AI adoption, I'm
15:46
Speaker 2: gonna put Salesforce up there. I mean their tool called
15:50
Speaker 2: agent Force. It's a automation tool that allows you to
15:56
Speaker 2: provide customer service sales support without human intervention. And they're
16:01
Speaker 2: currently seeing annual revenue for that one tool surpassing eight
16:04
Speaker 2: hundred million dollars. Now that's small, I agree, but they
16:08
Speaker 2: just launched the thing in the last twelve months, I believe,
16:11
Speaker 2: and so it is a pretty significant uptake that they
16:15
Speaker 2: are seeing. I think every company like this is going
16:19
Speaker 2: to be pushed to show how they can be more
16:22
Speaker 2: nimble and faster now that AI has been released, and frankly,
16:28
Speaker 2: one of the advantages a company like Salesforce has is
16:31
Speaker 2: kind of the same one that I put in Google
16:34
Speaker 2: or Facebook's.
16:36
Speaker 3: Bucket.
16:37
Speaker 2: They know a heck of a lot about their customers, right,
16:40
Speaker 2: And so I'm thinking about this from our our own organization,
16:44
Speaker 2: and we use Salesforce.
16:45
Speaker 3: We are a Salesforce customer. Just full disclosure here.
16:48
Speaker 2: If I wanted to build build something in house using
16:54
Speaker 2: artificial intelligence to help my business, the data that I
16:59
Speaker 2: have store about my customers in Salesforce is the most
17:03
Speaker 2: thorough of any system that I have.
17:05
Speaker 3: Right.
17:05
Speaker 2: So, if I were trying to build something in house
17:07
Speaker 2: to say, Okay, I want an AI tool to respond
17:12
Speaker 2: to my customers when they send me an email or
17:15
Speaker 2: answer the phone and respond to basic questions, the data
17:20
Speaker 2: that Salesforce has about those people would be the best
17:22
Speaker 2: tool that I could use to train because it has
17:25
Speaker 2: both incoming emails from those customers already outgoing emails are
17:29
Speaker 2: tracked in their calls, all sorts of data on those people.
17:33
Speaker 3: And this is not unique to our organization. This is
17:35
Speaker 3: what this tool is used for.
17:37
Speaker 2: And so I just look at this and I know,
17:40
Speaker 2: ultimately the AI training tool is the most important thing,
17:42
Speaker 2: but you do need to train it on something and
17:46
Speaker 2: Salesforce has the data. Salesforce has the information, and they
17:49
Speaker 2: already have the.
17:52
Speaker 3: Again for a lot.
17:53
Speaker 2: Of industries, for example, it's hey, what are the risks
17:56
Speaker 2: to using one of these AI systems? If I work
17:58
Speaker 2: in the healthcare space, comfortable just using letting my customer
18:02
Speaker 2: data out onto chat GPT and for most organizations the
18:06
Speaker 2: answers know.
18:07
Speaker 3: But if I've.
18:08
Speaker 2: Already risked it all by putting it at Salesforce anyway,
18:10
Speaker 2: then if they adopt an AI tool to let me
18:13
Speaker 2: be more efficient, I might be willing to pay them
18:15
Speaker 2: more than somebody else.
18:16
Speaker 5: There's going to be far more patients and stickiness from
18:19
Speaker 5: ourselves like an existing customer, where we're going to be
18:21
Speaker 5: willing to wait for agent Force to develop and become
18:24
Speaker 5: more and more of a productive tool because you were
18:27
Speaker 5: as an organization, You're not going to shift years of
18:30
Speaker 5: records over to another provider because of the headache that
18:33
Speaker 5: that would create. But ultimately where it becomes a challenge
18:36
Speaker 5: perhaps for Salesforce going forward, is with those new businesses
18:39
Speaker 5: that are starting. Are there going to be artificial intelligence
18:42
Speaker 5: or what they call AI need of companies that build up,
18:45
Speaker 5: drum up this software and from a starting point, they're
18:48
Speaker 5: cheaper and undercut them from a pricing standpoint versus the
18:51
Speaker 5: legacy incumbent clients that they have, like us, who are
18:54
Speaker 5: not going to go down that road because we have
18:56
Speaker 5: six or seven years or more of data within Salesforce.
19:00
Speaker 1: Me.
19:00
Speaker 2: That is the question, and I guess the answer will
19:03
Speaker 2: depend on how good Salesforce is at doing that themselves
19:07
Speaker 2: because they have a head start.
19:09
Speaker 3: Yeah right, if you are.
19:11
Speaker 2: A tire company, Salesforce knows more about tire companies in
19:17
Speaker 2: the sales process than some new startup does, and so
19:19
Speaker 2: they should be able to still offer a better product.
19:22
Speaker 2: But for how long and how cheaply can they do it?
19:25
Speaker 2: Quick break Wall Street Watch coming up next.
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20:03
Speaker 6: Well, markets are negative territory with tech selling off, as
20:06
Speaker 6: Wallsbury reacts to in Video's fourth quarter earnings and revenue
20:10
Speaker 6: that were stronger than expected. However, the stock is pulling
20:14
Speaker 6: back to this point. Right now, the Dow is down
20:16
Speaker 6: a third of a percent, or one hundred and sixty
20:18
Speaker 6: four points, SMP five hundred down one in a quarter
20:22
Speaker 6: percent or eighty six points lower. Tech heavy NAZDAC now
20:26
Speaker 6: down by over two percent or four hundred and seventy
20:29
Speaker 6: eight points, to Rustle two thousands off by four tenths
20:32
Speaker 6: of one percent. Tenure Treasure reeled down three basis points
20:36
Speaker 6: at four point zero one six percent, and crude oil
20:40
Speaker 6: edging higher, trading at sixty five dollars and fifty four
20:43
Speaker 6: cents a barrel. Well, as the guys discussed, and Video
20:46
Speaker 6: reported a ninety four percent profit increased to forty three
20:50
Speaker 6: billion dollars in seventy three percent sales growth to sixty
20:54
Speaker 6: eight billion dollars in the previous quarter. However, shares are
20:58
Speaker 6: down by nearly five percent. Meanwhile, Paramount said its streaming
21:02
Speaker 6: revenue grew in the previous quarter, but reported weakness in TV. Separately,
21:07
Speaker 6: Warner Brothers logged a bigger than expected per share loss.
21:10
Speaker 6: The media company also reiterated that Paramount's revised bid could
21:14
Speaker 6: reasonably be expected to lead to a better proposal than
21:19
Speaker 6: its Netflix agreement. Paramount shares a rising nine percent, Warner
21:23
Speaker 6: stock is dipping, and Netflix shares are up about one percent. Elsewhere,
21:27
Speaker 6: Salesforce shares are up about two percent after the CRM
21:30
Speaker 6: software maker beat fourth quarter expectations. However, it's fiscal twenty
21:35
Speaker 6: twenty seven revenue outlook underwhelmed. Wall Street. Zoom said AI
21:39
Speaker 6: helped drive double digit growth for its customer experience platform. However,
21:43
Speaker 6: it's adjusted earnings per share in guidance disappointed investors, sending
21:48
Speaker 6: the stock tumbling by twelve percent, and Trade Desk shares
21:52
Speaker 6: are off about six percent after the advertising tech companies
21:55
Speaker 6: guidance disappointed due to softness in the auto and consumer
21:59
Speaker 6: package goods categories. I'm Tucker Silvan. That is Wall Street Watch.
22:04
Speaker 2: So, Paul, we talked about earlier on in the show,
22:07
Speaker 2: just how the narrative around AI seemingly.
22:10
Speaker 3: Has changed over the course of the last six months.
22:14
Speaker 2: What I took is genuinely very concerning, and this has
22:18
Speaker 2: been consistent over the last three years or so. Was
22:21
Speaker 2: that anytime any company out there he used the word
22:26
Speaker 2: AI in their earnings release or in general conversation or
22:31
Speaker 2: interviews with media, you saw a pretty immediate and upward
22:35
Speaker 2: reaction to their share price, and that was whether or
22:39
Speaker 2: not there was much evidence that they could use AI
22:41
Speaker 2: successfully or not, whether they would truly be beneficiaries of it,
22:44
Speaker 2: whether they were designing something, building something, or receiving income
22:49
Speaker 2: from the trade. The investors just bid up their shares.
22:52
Speaker 2: The good news is we're not seeing that anymore. And
22:56
Speaker 2: I think there's two ways to read that. One way
22:57
Speaker 2: to read it would be investors are growing increasingly skeptical
23:02
Speaker 2: that AI is going to be as big of a
23:04
Speaker 2: technology and a game changer as they previously thought. The
23:09
Speaker 2: other way to interpret it would be they do believe
23:11
Speaker 2: it's going to be a true game changer, they just
23:13
Speaker 2: don't believe that the existing companies playing with it are
23:16
Speaker 2: going to be the giant beneficiaries. And I think that
23:19
Speaker 2: narrative will continue to shift over time, but it's not
23:22
Speaker 2: clear to me that one.
23:23
Speaker 3: Of those two is dominating.
23:24
Speaker 2: I think there is still plenty of skepticism on the
23:27
Speaker 2: part of some that, hey, you can't spend six hundred
23:31
Speaker 2: and fifty billion dollars in twenty twenty six and see
23:33
Speaker 2: any sort of positive return on that anytime in the
23:35
Speaker 2: near future.
23:36
Speaker 3: Plenty of people express that.
23:38
Speaker 2: This stuff is going to appreciate faster than you're anticipating,
23:40
Speaker 2: and you're going to be left with a whole bunch
23:42
Speaker 2: of infrastructure that's not that useful. The other side of
23:45
Speaker 2: that coin is, no that stuff you should be spending
23:47
Speaker 2: a trillion dollars of the next year instead of six
23:49
Speaker 2: hundred fifty billion.
23:50
Speaker 3: It's going to be incredibly.
23:51
Speaker 4: Because if you miss it, you're obsolete or your business
23:54
Speaker 4: is going to go in the other direction.
23:55
Speaker 2: And I think plenty of those people would argue. And
23:57
Speaker 2: by the way, I think it's a one in ten
23:59
Speaker 2: chance that you're investment is actually going to pay off.
24:01
Speaker 2: It's going to be some new company that we haven't
24:03
Speaker 2: even dreamt up of yet that takes the cake on
24:05
Speaker 2: this stuff.
24:06
Speaker 4: That's what makes it so fascinating.
24:08
Speaker 5: But ultimately, the positive progression here to your point is
24:14
Speaker 5: at least there is some discerning views to look for.
24:19
Speaker 4: What are some improvements.
24:20
Speaker 5: AI is maturing enough where there actually are product developments
24:24
Speaker 5: that are causing industries to be questioned going forward. Versus
24:28
Speaker 5: previously it was a lot more focused on just the
24:32
Speaker 5: adoption of chat TBT and more user growth there. Now
24:35
Speaker 5: with what you're seeing from Anthropic and some others out there.
24:39
Speaker 5: These are actual viable coding products or software products that
24:44
Speaker 5: are being at least previewed or demo that are showing
24:47
Speaker 5: that they could be of productivity use or could be
24:51
Speaker 5: useful to businesses going forward. So that is a positive
24:54
Speaker 5: because I think, at least myself going to this year, Mike,
24:56
Speaker 5: my focus was, Hey, we need to see meaningful improvements
25:01
Speaker 5: to this technology and proof of concept that is actually
25:04
Speaker 5: going to allow for companies to have more productivity or
25:07
Speaker 5: increase revenue growth. And at least it seems like Wall
25:10
Speaker 5: Street is on the same page of that. It's less
25:12
Speaker 5: more less of hey, we're gonna do AI. It's not like,
25:16
Speaker 5: proved to me, what actually are you going to do
25:18
Speaker 5: with it to make your case?
25:18
Speaker 3: And there are indications that that's been successful.
25:20
Speaker 2: Yes, yeah, right, Like that was a big question everybody had,
25:24
Speaker 2: is prove to me that there's gonna be some return
25:26
Speaker 2: on investment. I don't know if we're going to see
25:29
Speaker 2: the actual return on investment, but we are seeing much
25:32
Speaker 2: more applicable use cases of AI today than we did
25:34
Speaker 2: six months ago.
25:35
Speaker 5: Meta is a good example that doesn't get talked about.
25:37
Speaker 5: They are spending a lot of money, but their algorithms
25:40
Speaker 5: and the ads that they are delivering through Facebook. Even
25:43
Speaker 5: as they continue to spend more and more, they're seeing
25:46
Speaker 5: productivity growth on click through rates and conversions of sales
25:50
Speaker 5: to their ads. So it's an example of something that
25:53
Speaker 5: you probably just because they're not a big player like
25:55
Speaker 5: chat TBT in the large Languese model, they're actually they're
25:58
Speaker 5: spending within AI has led to benefit to business. And
26:02
Speaker 5: there's other examples out there. There were far lesser or
26:04
Speaker 5: far fewer of those last year.
26:06
Speaker 2: By the way, when CEOs were asked by the conference
26:09
Speaker 2: board their biggest risks that they see out there last quarter,
26:15
Speaker 2: fifty nine percent said geopolitical risk, fifty six percent said
26:19
Speaker 2: cyber and fifty three percent said artificial intelligence. The most
26:23
Speaker 2: recent reading sixty one percent saying AI single biggest risk
26:27
Speaker 2: of their business going forward.
26:29
Speaker 5: After reading Trip Michael, who'll have on later in the
26:31
Speaker 5: program New York Times piece for scrutting Taiwan the geopolitical stuff,
26:36
Speaker 5: he shook me a little bit a little preview.
26:38
Speaker 3: There, So shifting gears here.
26:40
Speaker 2: On Friday of last week, the US Supreme Court overrode
26:44
Speaker 2: the Presence decision to implement terras via the AEPA which
26:49
Speaker 2: stands for the International Economic don't remember AIPA. Those tariffs
26:55
Speaker 2: got written off and ruled unconstitutional by the US Supreme Court,
27:00
Speaker 2: defectively capping some executive powers like was done. Frankly, I
27:04
Speaker 2: equate this similarly to the way the Supreme Court looked
27:07
Speaker 2: at the Biden's attempt Biden Administration's attempt.
27:09
Speaker 3: To erase student loan debt.
27:12
Speaker 2: They basically said, whether this's a good idea or a
27:14
Speaker 2: bad idea, go to Congress and have them do it.
27:16
Speaker 2: And that was the message from the Supreme Court this time.
27:20
Speaker 2: The Trump administration obviously now jumping around trying to figure
27:24
Speaker 2: out new ways of implementing tariffs. There's now a ten
27:26
Speaker 2: percent average efective tariff. But in the background, what you
27:28
Speaker 2: do have happening is thousands of lawsuits against the US
27:32
Speaker 2: government from companies that paid the tariffs. And wouldn't you
27:36
Speaker 2: know at Wall Street jumping into the mix here on
27:38
Speaker 2: how do we make a penny on this? With honestly
27:42
Speaker 2: some pretty inventive solutions. So how is Wall Street going
27:44
Speaker 2: to make money on tariff refunds? Because as far as
27:47
Speaker 2: I know, Goldman Sachs probably didn't pay a lot in
27:48
Speaker 2: the way of tariffs.
27:49
Speaker 5: Never doubt our country's ability to securitize or monetize just
27:53
Speaker 5: about anything that exists, whether it's these stupid prediction markets
27:57
Speaker 5: now where you could bet on probably the weather in
28:00
Speaker 5: Boston or anything that you could really imagine.
28:03
Speaker 2: They're not stupid people. I had a gamble on you
28:05
Speaker 2: wearing a quarter zip today. That's a goat off big,
28:08
Speaker 2: that's a good bed. If you look at my schedule.
28:11
Speaker 5: This is another instance of it where I just found
28:13
Speaker 5: myself shaking my head. I didn't even think to go
28:16
Speaker 5: down this path of securitization. But basically, now what Wall
28:19
Speaker 5: Street traders are doing is, let's say you are a
28:21
Speaker 5: business that paid over twenty million dollars.
28:24
Speaker 4: Of tariffs over the course of the last year or so.
28:26
Speaker 5: The total amount is one hundred and thirty three billion
28:28
Speaker 5: of teriffs that were collected over the past year. You
28:31
Speaker 5: now can sell off your let's say twenty million of
28:34
Speaker 5: tariffs to a law firm or a Wall Street hedge
28:40
Speaker 5: fund firm that is going to go out there and
28:42
Speaker 5: they're going to fight the battle to get your potential
28:44
Speaker 5: refund of your twenty million.
28:46
Speaker 3: But they're my money and I want it now.
28:49
Speaker 2: That's Basically, what this is is if you've got a settlement.
28:53
Speaker 2: You've all seen those commercials, right, it's my money and
28:56
Speaker 2: I want it now. That's exactly what this is. They
28:58
Speaker 2: are buying your future pains for pennies on the dollar.
29:01
Speaker 4: But pennies on the dollar is the important point there.
29:03
Speaker 5: They're not going to get you all of your money,
29:05
Speaker 5: or they're not gonna you're not going to recruit all
29:07
Speaker 5: of it back. You can get twenty cents thirty cents
29:09
Speaker 5: on the dollar, and we the law firm or we
29:12
Speaker 5: the hedge fund, we're gonna go out there and we'll
29:14
Speaker 5: battle for the other seventy cents of the equation and
29:17
Speaker 5: go through the courts and deal with probably what's going
29:19
Speaker 5: to be a year's long process maybe more to get
29:22
Speaker 5: this done for you.
29:23
Speaker 4: And it's just a ceases to amaze me.
29:25
Speaker 5: If there's always something someone out there trying to make
29:29
Speaker 5: a buck.
29:30
Speaker 3: Kind of makes sense.
29:31
Speaker 2: If you're small, probably a lot of fixed costs associated
29:35
Speaker 2: with filing for the reimbursement of these tariffs.
29:37
Speaker 3: You have to maybe sue the government, you have to
29:39
Speaker 3: hire a lawyer, you have to do.
29:40
Speaker 2: All these things complex and so if you're in that position,
29:44
Speaker 2: where it's not a ton of money and you've got
29:46
Speaker 2: a lot of fixed costs to do it.
29:48
Speaker 3: Yeah, you sell it off to Wall Street and make
29:50
Speaker 3: them do it.
29:50
Speaker 5: If your apple, obviously you have the lawyers in the
29:52
Speaker 5: house to do this for you on retainer. But if
29:55
Speaker 5: you're a smaller business that sold Christmas ornaments or whatever
29:58
Speaker 5: the case may be, then may this is an attractive opportunity.
30:02
Speaker 2: Which, by the way, kind of sucks because what does
30:04
Speaker 2: this do kneecap small businesses? Yeah, yeah, right, those are
30:08
Speaker 2: the ones that can't afford to do this right now, right,
30:10
Speaker 2: let's take a quick break. When we come back, I
30:14
Speaker 2: want to go back to the state of the Union.
30:15
Speaker 2: President had a lot to say about prices and affordability
30:19
Speaker 2: on was it Tuesday Night?
30:20
Speaker 3: Tucker Monday Night? Tuesday Night.
30:22
Speaker 2: I want to talk about where prices might be falling
30:25
Speaker 2: and what the President had to say about affordability.
30:27
Speaker 3: That's next on the Financial Exchange.
30:29
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30:33
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31:03
Speaker 2: Paul Tuesday night, during the State of the Union, the
31:05
Speaker 2: President had a lot to say about affordability between groceries, gasoline, electricity,
31:11
Speaker 2: really housing like it covered a lot of different areas.
31:14
Speaker 2: But there's this piece about prices falling. And we do
31:19
Speaker 2: a fair bit of talking about prices falling versus inflation falling,
31:24
Speaker 2: and I think the two get mixed up because one
31:29
Speaker 2: is good and frankly one is bad. Right, So let's
31:33
Speaker 2: talk about inflation. Generally, the Federal Reserve targets a rate
31:37
Speaker 2: of inflation of two percent. They rarely actually get there,
31:41
Speaker 2: but that's their target level of inflation. Depending on which
31:44
Speaker 2: government report you're looking at, we're experiencing inflation right now
31:47
Speaker 2: year over year between two point four and two point
31:50
Speaker 2: nine percent positive, meaning prices have not fallen over the
31:54
Speaker 2: last twelve months. They have definitively increased somewhere between two
31:58
Speaker 2: point four and two point nine percent in the aggregate,
32:01
Speaker 2: depending on what reading you are looking at. The idea
32:06
Speaker 2: of prices falling one almost never happens. And the points
32:11
Speaker 2: that I want to make to people is if prices
32:14
Speaker 2: do fall in the aggregate, it almost always is the
32:18
Speaker 2: result of an economic disaster, just plain and simple. That
32:23
Speaker 2: is the message that you need to take away. No,
32:26
Speaker 2: you will not ever see prices return in the aggregate
32:29
Speaker 2: to where they were back in twenty nineteen, and you
32:32
Speaker 2: don't want them to know. If they do return there, it's,
32:35
Speaker 2: by the way, because you've taken a pay cut because
32:39
Speaker 2: you lost your job and had to go work in
32:40
Speaker 2: some other industry, and so has everyone else, and so
32:45
Speaker 2: the idea of prices declining it would indicate some pretty
32:49
Speaker 2: disastrous times. I'm trying to pull up a chart right
32:52
Speaker 2: now of CPI over time to point out the times when.
32:56
Speaker 5: Oh wait, I believe is one area where you at
32:59
Speaker 5: least have plateauing or perhaps a slight decline on prices
33:04
Speaker 5: if memory serves correct.
33:06
Speaker 3: So here we go.
33:06
Speaker 2: I've got data going back to nineteen forty eight, and
33:10
Speaker 2: there are very few instances of year over year negative
33:14
Speaker 2: price changes. July of two thousand and nine prices down
33:18
Speaker 2: two percent, terrible, nineteen fifty five down eight tens of
33:24
Speaker 2: a percent, nineteen forty nine down one point eight percent.
33:28
Speaker 2: That is not what you want to see. Now, you
33:29
Speaker 2: also don't want to see nineteen seventy nine or nineteen
33:33
Speaker 2: eighty when prices were up thirteen percent.
33:35
Speaker 3: That's bad.
33:37
Speaker 2: You don't want to see seventy four when they were
33:38
Speaker 2: up twelve percent, and you don't want to see twenty
33:40
Speaker 2: twenty two when they were up nine percent. But the
33:42
Speaker 2: idea that prices are ever going to come down again
33:45
Speaker 2: is a false story. Egg prices, yeah, they might come down,
33:49
Speaker 2: Beef prices might come down. In the aggregate prices coming
33:52
Speaker 2: down won't happen. You don't want it to happen. It
33:54
Speaker 2: would indicate that you probably don't have a job. So
33:57
Speaker 2: be careful what you wish for on this front. Now,
34:00
Speaker 2: the President did talk a lot about strategies to bring
34:03
Speaker 2: down prices here and there, and the question is will
34:06
Speaker 2: any of them matter to Americans and actually be accomplishable.
34:10
Speaker 4: My view on this was it is very much easier
34:14
Speaker 4: said than done.
34:15
Speaker 5: You're talking about so many errors that are incredibly complex
34:18
Speaker 5: that I don't feel as if any sort of political
34:23
Speaker 5: policies or interference is going to be able to deal
34:27
Speaker 5: with a bird flu crisis that potentially could emerge and
34:30
Speaker 5: impact egg prices, or deal with beef prices. It's just
34:34
Speaker 5: too wide of a net to cast that you're going
34:37
Speaker 5: to be able to impact all these different errors of affordability.
34:41
Speaker 5: Oftentimes you just have to let the economic discourse kind
34:45
Speaker 5: of plug along the Federal Reserve. This is one of
34:48
Speaker 5: the pillars of what they're responsible for, and that's why
34:50
Speaker 5: we spend so much time on the program talking about
34:53
Speaker 5: what they're going to do on the interest rate front,
34:54
Speaker 5: because that is really the best tool that you have
34:58
Speaker 5: to go attack this issue. But even that is not
35:02
Speaker 5: full proof.
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36:04
Speaker 2: Just another important distinction, Paul. We also tend to misuse
36:10
Speaker 2: the terms affordability versus inflation and very different things. You
36:16
Speaker 2: can make college more affordable by canceling all student loans
36:23
Speaker 2: reimbursing people for their debts. You can make food prices
36:28
Speaker 2: more affordable by giving everybody a five hundred dollars check.
36:33
Speaker 3: Or electricity prices.
36:35
Speaker 2: In Massachusetts, we decided this year that everybody's going to
36:37
Speaker 2: get a refund on their electricity prices. That is making
36:40
Speaker 2: things more affordable. It's also directly working against you on prices,
36:49
Speaker 2: and this is part of the problem that I see
36:51
Speaker 2: out there.
36:52
Speaker 3: Almost all the.
36:53
Speaker 2: Ideas that we're talking about when it comes to affordability,
36:56
Speaker 2: whether it be terriff reimbursements, whether it be cutting taxes is,
37:00
Speaker 2: whether it be any number of solutions around electricity costs.
37:05
Speaker 2: They are all potentially going to make prices to make
37:08
Speaker 2: those goods and those services more affordable for us because
37:12
Speaker 2: the government is basically saying we will subsidize them. At
37:15
Speaker 2: the same time, it will make those things more expensive
37:19
Speaker 2: and ultimately lead to higher prices. And so unless you're saying, hey,
37:22
Speaker 2: we are going to permanently subsidize this like we do
37:25
Speaker 2: K through twelve education, then you need to be prepared
37:30
Speaker 2: for the likely outcome.
37:31
Speaker 3: Go look at college.
37:33
Speaker 2: When we subsidized it, when we made it so there
37:35
Speaker 2: was easier to get loans, the prices went up. And
37:38
Speaker 2: if you do it with electricity and you give everybody
37:41
Speaker 2: reimbursement checks for really expensive electricity costs, then you will expect.
37:45
Speaker 3: The same solution.
37:45
Speaker 2: The only way to control inflation is to control the
37:49
Speaker 2: money supply, and instead, for the last three decades, the
37:53
Speaker 2: only thing that we have wanted to do is give
37:56
Speaker 2: money out because it gets us re elected. And I
37:59
Speaker 2: see a lot of those same solutions playing out here
38:02
Speaker 2: and might make things more affordable ahead of an election.
38:05
Speaker 2: Will not bring down prices. We've got to take a
38:07
Speaker 2: quick break. Markets remain open and in mixed territory of
38:10
Speaker 2: the Nasdaq strongly down after in video earnings.
38:13
Speaker 3: We'll be right back after this