Dual Class Shares and Governance

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Markets to learn more and use that markets code to get up to fifteen percent off . Today's number sixteen. That's the total number of go Lldion,el Messi has scored in all his World Cup appearances, now tied for the competition's record . So I'm going to say, who gives us shit ? The Tartan Army's coming for all you bitches, including you Lionel Messi Nah gas, that's a real meal . Watch out Morocco. Here we come after a resounding defeat of that world class facial team . We're top of the table right now. We're literally leading that's right. Our flight, our group. That's right. I'm just now learning you are a massive Scotland fan. I have a question for you. Can you name one player? Oh, I don't know. McComney. We go . Well done. Well, I don't know. That's the he's the only one who really matters. That's a great I'm so glad to hear that. Now the other guy the midfielder is incredibly incredibly incredibly good. What's his name? McGinnis ? Fuck McGinn, John McGinn. John McGinn, that's right. Yeah, he's supposed to be. Yeah, he's a great player. He's supposed to be absolutely outstanding. Unfortunately, my favorite Scottish player, Billy Gilmore, who was a previous player at Chelsea Legend, is injured at the moment, but it's great to see you doing well. You know who else is doing well? Oh sa,w you a team in England, right? That's right. Fourteen. No, that was that was resounding. That was and against a good team too, right? That's right, exactly. Croatia is a very good team, very strong. Luca Modrick still in good form in good shape. I heard his great grandson is going to be in the next World Cup . No, no, no, no. Don't do it like that. By the way, it's Leonel Messi, not Lionel Messi. Lion, is he always been Lionel and me . What's your favorite player on team England? Reese James. You know, I'm a lifelong Chelsea fan, so I got to support all the Chelsea Boys. It's very sad to see Cole Palmer is not included. He's been posting some Instagram photos of him in like Marbea or Abizo or something . So he's living his best life and we wish him well. That guy's gonna need that guy's gonna need a bolando or whatever they call to get laid. He's not an attractive man. He is not an attractive man. That bit of better splash the cash in a beef of he's looking to have a little world cupping of his own, so to speak. You left out Andrew Robertson, the captain of Team Scotland. I'm so embarrassed. I got what's his name, John McGinn's wrong. Name wrong. Yeah, Scotland has a decent squad. A decent squad. They're very they have they have one of the best backs of his gener ation and Andrew Robertson You're reading off of AI right now? No, I'm not. I've been totally I got this in my notes actually because I'm so excited about them, but I'm not reading off of AI . But I think I'm curious, I don't know if I'm hoping this is McTomenay's cup. We'll see. I don't know, I'm putting a carpet before the horse, but tomorrow night , I'm joining the Tartan Army here in London and we're marching to a pub and I bought my kids . I bought my kids all these awesome jerseys and we all have kilts but they're refusing to wear their kilts so I'm going to shut off their phone and tell them I'm not turning it on until they put on their kilts. Good . That's the only leverage I have. But if they if they make it, I'm definitely have you heard what's going on in Boston that they're out of beer? Out of beer. Beer. How awesome is that? How awesome is that it's amazing. It really is. I'm seriously excited. So I am all in on Scotland until they're out and then I'm going for team England. Going for team England. Over team USA because I gotta say USA looked pretty good too. I was impressed. USA was outstanding . They say this is the best team they've ever assembled. Incredible athleticism. I don't know, there's just something. I hate to say it, but I feel like the rest of the world needs it more than the U. S. It's just so strange though. It's so much about team vibe. I used to go so we're house divided, I think I told you this. I like arsenal. My youngest likes Chelsea, my old est likes Tottenham. And we go to a lot of Tottenham games and Harry Caine and Son were the strikers of the forwards. Two of the greatest of the game, and the team never jelled. It just never jelled. It's so much and they say that's the difference between the American club and the European ones is that I guess the Americans don't have a lot of opportunities to play together and they just never quite gel at an elite level. Yeah. And that's always been the problem for England too. We've always been so they're outstanding. I mean , such a brilliant way. If they don't win, they have problems. Well, we came close in the last one, so credit to the girl that for . But I mean it's last time we won was nineteen sixty six and we've had we've always had many of the best players in the world the best talent in the world. The story of team England has not been a very a very good one , at least over the last few decades . But apparently what really got everyone going was Thomas Tuchel, the manager's speech at halftime. Thomas Tuchel basically said to them, he said, If we lose, we lose and that's fine , but we're going to do it our way . And that's what we're going to be happy about. We'll lose our way. So that is my message to you as we begin this podcast. If we have a shitty podcast, we're doing it our way. What we're talking about, it'll be our way. Dig jokes of planning. Okay, that's what you're saying. Jokes of planning is what you're asking for. Let's bust right into it, my man. Let's do it. Let's do our way. Now it's the time to buy my hope you have twenty of the wearable . The United States and Iran have signed a memorandum of understanding that pauses the conflict and reopens the strait of Hamuzz to commercial shipping for the next sixty days. In exchange , the U. S. will lift its naval blockade of Iranian ports, but the agreement leaves some of the toughest issues unresolved. Key negotiations, including the future of Iran's nuclear program have been deferred to a second round of talks scheduled over the next two months . Let me just go through quickly what this memorandum of understanding actually says and then we can get into what it means. It's a fourteen point plan. I've collected some of the most important takeaways here, which I'm just going to go through right now. So first off, both sides declare an immediate end to military operations on all fronts, including Lebanon. U. S. lifts its naval blockade on the strait immediately. Okay , Iran will reopen the strait free of charge within thirty days. That's good, but importantly, that no charge clause ends after the sixty days , meaning we can go back to normal for sixty days and then Iran has the right to basically jack up costs and charge a fee for any ship that goes through it. So that's not great. Okay, Iran reaffirms it won't develop nuclear weapons. Both parties agree to discuss the issue of enrichment, but Iran will quote maintain the current status quo of its nuclear program. So what I take away from that is nothing has changed there. The US will undertake with regional partners a three hundred billion dollars reconstruction fund to rebuild Iran. The U. will S. also undertake, that's the word they use, undertake, to unfreeze all of the currently frozen Iranian assets , and the U. S. will terminate all sanctions on Iran. So that's basically the deal . If I could summarize what it gets us, it basically gets us nothing because the nuclear program will basically continue as is and lots more to negotiate there and the strait which was open ed before the war will be reopened . And then in exchange we paid in fourteen American lives a hundred billion dollars in taxpayer funds to fund this war a full percentage point of inflation, which will amount to billions of dollars in household expenses. And then potentially we're going to pay another three hundred billion dollars for this reconstruction fund, although there is an agreement on that. I mean this to me, if it's even a deal and that',s questionable, might be the worst deal ever. And I don't think I'm being hyperbolic when I say that. What are your reactions? So I don't know if you heard but this morning, Mexico presented the US with a memo of understanding where we're going to give them Phoenix back . I told my kids if they kept misbehaving , I was going to bomb them. And they presented me with a memo of understanding where I've agreed to buy them a new iPhone . This is okay, so to be serious for a moment, the perfect reflection here was the signing at Versailles where they nobody in the Trump administration clearly took a history course and realized that Versailles is known for elaborate signings that don't mean a fucking thing It just shocks me. No one said, Uh oh, that's a bad look to sign this at Versailles. So let's go through this in more detail . In terms of documentation and seriousness, I've said for a while, a memo of understanding is meaningless. It outlines that you're interested in getting to a deal. I've never even heard Memo of Understanding in the context of geopolitics . The JCPOA was one hundred and fifty nine page agreement . The MOU is less than two pages. This is not a serious document. The core issue that everyone around the world and Trump agree on is that nuclear constraints were the core problem. The JCPOA required Iran to reduce its enriched uranium stockpile by ninety eight percent, which they complied with and dismantled two thirds of its centrifuges and cap enrichment at three point seven percent and accept unannounced IAEA monitoring . The memo contains no nuclear constraints at all. Just a pledge. Oh, okay, the Irogis is pledging never to build a weapon . Which, by the way, Iran made the same pledge in nineteen seventy when it signed a nonproliferation treaty. Verification and inspections, which is kind of the meat and potatoes of this. The JCPOA had IAEA inspectors, continuous monitoring , twenty four hour a day access provisions, the MOU, the memo , defers all of this to a sixty day negotiating window with no guarantees . This is paying more for a worse product. The memo comes with a twenty five billion dollars price tag and another three hundred billion in quote unquote reconstruction framework, exceeding the JCPOA's cost while delivering fewer nuclear concessions . They're at sixty percent enriched uranium, which is way above what it was at the when they tore up the JCPOA at three point seven . So Iran enters these talks in a much stronger position than it was when Trump decided to tear up the agreement. We're giving away military leverage . The memo commits the US to not increasing its regional forces with Washington withdrawing extra forces within thirty days of the final agreement. And the reason we spend one and a half trillion dollars on a military is so we can have one of our eleven aircraft carriers anywhere to tell people when they get out of line to sit the fuck down and we're taking that away. In addition, something that hasn't gotten any coverage and it's really important in my view is the JCPOA was a multilateral agreement . Its signatories included the U. S. , Iran, the EU, UK, France, Germany, and get this , China and Russia, meaning that if Iran went back on its word and started enriching uranium, China and Russia had an incentive to economically punish Iran . And at this point their incentives are probably to see a stronger Iran if it keeps sticking its finger in the eye of the Western world in US geopolitical power abroad. So there's there's no enforcement mechanisms, no monitoring mechanisms. We have reduced our credib ility globally. We have given up leverage of our military. We have alienated European allies . We have sent the world into economic disarray. We have shown the Gulf States and every other nation around the world that when you put a US military base on your territory, it's not protection. It's a bullseye . And basically the political outfall from this or the political amongst an incredible neutering and weakening of the United States for the next several decades Trump knows what a shitty deal this is and is already throwing his vice president under the bus, the political equivalent of sending a mob with a noose after JD Vance saying, Oh, well the parts I negotiated are strong, but this is JD's thing. And by the way, even Secretary Hagseth and Secretary Rubio know this is a giant steaming pile of shit and are nowhere to be found. And they've said, JD, you go on the view . You go talk about this deal This is in a word disastrous . Your thoughts that I think in addition to that, I agree with everything you said. I think there are so many reasons to believe that whatever quote unquote deal we have is n't actually a deal . And that doesn't seem to be what the markets are believing right now, at least when you look at oil prices, which have come down and the stock market, which has gone up , because there's a lot more optimism about this. But I just want to go over all of the reasons why you shouldn't think that this is actually a deal. So number one , since the MOU was signed , Iran has already fired multiple drones at commercial ships , and those drones were intercepted by the US military. So already it doesn't seem real because Iran is still firing missiles . And of course, the U. S. doesn't want to talk about that because if they talk about that and recognize that we don't seem to have an actual ceasefire agreement or a peace deal here, then suddenly Trump looks bad. So that's a big problem. There's also this three hundred billion dollars reconstruction fund thing that everyone's bickering about and arguing over, which again is to signal to me that we don't actually have a deal . It is in the MOU . It is one of the points, one of the fourteen points in that agreement that the US is going to quote undertake to construct this three hundred billion dollars reconstruction fund . The question is what does undertake actually mean? Does that mean that they're in charge of getting other regional partners to pay for this thing? Does it mean that the U. is S. going to pay for this thing? I don't know , but what I do know is that Iran is expecting three hundred billion dollars. And if they don't get it, then the deal is off. Well, Trump has gone out and said, quote, that the story that the US is paying Iran three hundred billion is fake news put out by the Democrats. He also reiterated in an interview that we're not investing and that we don't have a fund. So clearly there is disagreement over what are we going to do about that? That's a huge deal . Also, it's only a sixty day agreement . So by definition, it isn't really a deal because it's going to expire. So it's really more of a pause . But then finally , and this is most important in my view , based on what Trump has said , I don't think even he takes this seriously. And this goes back to what you said about how he's blaming it on JD and we will get to that in a moment. I have an interesting clip to play for you. But I just want to read you some of the quotes that he said about this deal that signal to me that he himself doesn't think that it's a real deal. So he said quote , It's a memorandum of understanding . And if I don't like it, we'll go back to shooting at them dropping bombs on their head. End quote. He also said, quote, We have an understanding of certain things without writing it, and if they don't honor that we'll probably go back to bombing them end quote. So he's already talking about how this isn't that real, this isn't that strong, and we can just always go back and shoot them again. Then he was asked how long the military will stay in the Gulf. He said, quote, probably a while. That's not good. And then when he was asked if he saw this deadline of sixty days as a hard deadline, he said, quote, No, I don't, just as long as they're behaving, I really don't care that much. So everyone seems to be like collecting around this idea that this one's real , this one means something . I think it probably means something more than the pre vious fake frameworks of deals . But I don't think that we can take this that seriously if the president himself isn't seeming to take it that seriously . I have a clip of this JD Vance situation, which I think is interesting, but I just want to get your views on whether you think that this deal is actually a deal or if it's like bullshit, like the rest of them. Well, let's play the clip and I'll comment. Okay. So this is the clip of when Trump was asked about how JD Vance is handling it. Let's see what you think of this. There's some element to this where you send the vice president , if it works out, great , you look like a genius for sending him. And if it doesn't work out, it's the Vice President. I like that idea, sure . Boy. This way, if it works out, I'm gonna take the credit. If it doesn't work out, I'm blaming JD. You better be careful, J D. So he's basically just said it. I got to appreciate its authenticity. Yeah . Yeah, look, this isn't just to be clear, this isn't an agreement . It's a memo of understanding. It's a business document and memoes of understand less than half the time advance to an agreement. I think this agreement or this understanding never gets to an agreement. First off, they talk about the cessation of all hostilities in Lebanon , yet Hezbollah nor Israel are signatories to this thing . There's no incentive for Iran to actually come to any sort of agreement. They have accomplished what they needed. They have basically given the president his symbolic out so we can try and declare victory and leave. He's left, he's gone. And the notion that they're going to go back if they misbehave in thirty sixty or ninety days with military action is just not realistic , given the absolute lack of support in the upcoming midterms. What you're going to see here is Iran will operate within two goalposts, and that is they are still going to try and exert enough pressure to show the world they have their boot on the carotid artery of the global economy and they control the strait of hormuz and will leverage that for political and financial advantage. That to me is clear. At the same time, they won't be so aggressive that we have no choice but to go in again, which is that gives them a huge birth , but this is Iran emerges from this much stronger than we went in. We have given them a nuclear weapon in the form of their ability to now control and influence the strait of Hormuz . And the political takeaway domestically is the following, JD Vance will not be president. There is going to be no way he can escape this. The president is hanging this anchor around him. It's as if he sent a mob and a noose for him politically. And I've said all along that neither Vance nor Rubio are going to be the nominees from the Republican Party because what history tells us about Donald Trump is that he's the equivalent of political Chernobyl and that anyone close to him dies of leukemia. He doesn't give a shit about JD Vance. He gives a shit about having a fall guy when he knows this is a disastrous agreement . And I think JD Van shows a total lack of political savvy. Anyone here from Secretary Hagseth, he's like, Oh no, no, no, JD, you take it. You take it. I don't I don't want to anywhere near this. This is , I mean, there's just it's this comical that they're even calling this some sort of agreement. It no one already already no, one's appears to be living up to it. Also, just the three hundred billion reconstruction fund, the way I read that, and I'm curious to get your take is that essentially Kushner and Wickoff have said they see everything as a transactional business opportunity . They said, You know what? Iran's a huge economy, eighty million people . We want to build the next St. Regis there. We'll go in, we'll raise money. This is a huge opportunity to go in and invest alongside of Halberton or Exxon or Chevron. This is an opportunity to make money. My frame of thinking is like hotels and resorts. Yeah. How do we make money anyway? So I would imagine at some point they said , you know, we're going to raise money out of the gulf and investors and Jared and Witcoff are going to raise a fund to invest in Iran. And guys, wink, wink, let's get along. Let's make money. Let's make money together, guys. You're reasonable people. Have you said what he said about the IRGC that some of them are rational people . I mean this is he sees everything. It's like he's the buyer and the seller and he thinks if he wills the car dealership into selling him a f errari for the price of a camry that somehow they'll decide to do that . We, i. e. the president, have been so plagued here by the IRGC and unfortunately , European allies, China and Russia are kind of all saying, you know what ? I don't mind if this guy gets his eyebrows singed really badly and if he loses a couple fingers and maybe even a couple hands because he's been such an asshole. I mean, it's just weird to think that the IRGC now has potentially more support . And then the wild card here is Israel . Israel, Netanyahu is on record for decades saying it's given the opportunity , he is going to eliminate what he perceives as Israel's enemies and their proxies . They're the wild card here because I'm not sure Trump has as much authority or power over Netanyahu as he would like to believe and notice they were not Netanyahu was not shown the quote unquote memo because I thought he was worried he was going to front run it and say no, this isn't going to happen. We're not going to cooperate . Yeah, exactly. So many wild cause in here, including Israel, including also if this deal is branded as a disaster, which I believe it already is, then you can probably see Trump just going back on it because all he really wants at this point is to just save his skin and probably to save himself for the midterms because that's really I think it's likely that this is what this is all about . His approval ratings are tanking, inflation's going up. Everyone knows that this is a disaster. So he needs to save face in some way, shape or form. And if everyone believes that this wasn't a success, then he hasn't really accomplished his objective. So maybe he'll just blow it up again as he's done multiple times in the past. In terms of the economic takeaways , why investors care about this? Again, this all goes back to inflation and as a result , interest rates and the probability of rate hikes . I mean, if your belief is that we have a deal and therefore inflation's going to come down , I would just encourage you to just reconsider that belief . I just don't think that you can really say with any level of confidence or certainty or optimism that we have a deal here and that we're going to see oil prices coming down significantly materially and that ultimately that is going to mean that inflation is going to come down and therefore that we won't have to raise rates. I mean, the Federal Reserve meeting was literally unanimous for the first time ever . It was the first time that we didn't see anyone advocating for a cut. And now the probability of a rate hike in twenty twenty six has gone up to more than fifty percent. So the likelihood is, yes, we will have rate hikes. And I think if we learned anything from the Federal Reserve, it's that we know now that they are very worried about inflation . And I just I think maybe this can slightly reduce your concerns about inflation, but I don't think it can eliminate them . And I certainly don't think that this changes the path forward for the Fed in any significant way. So those are the economic takeaways in my view, we'll see , but I think we should expect rate hikes in twenty twenty six . We'll be right back after the break if you.' Andre enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts. Support for the show comes from Delete Me. Have you ever thought I should really be doing something to protect myself from stalkers, scammers and hackers? But you're not sure what? Here's what you do. 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Last week, leaked financial statements revealed that OpenAI lost thirty nine billion dollars in twenty twenty five, raising questions about how long the company can sustain its current level of spending. Anthropic, meanwhile, appears to be on a different trajectory . Aordcingc to reporting from the Wall Street Journal, the company expects revenue to surge one hundred and thirty percent year over year to ten point nine billion dollars in the second quarter , and supposedly it is on track to generate its first operating profit. But because both compan ies remain private, we still have only a partial picture of their finances. So we wanted to fill in some of the blanks in this section. So Scott , there's a There's a lot of nuance to these numbers, especially the numbers that I just mentioned in this intro . And I think it's really essential for two of the most important and significant IPOs in history, open a anthrop ic, which are coming out in the pipeline this year. I think it's essential for us to have an understanding of how profitable or unprofitable these companies actually are. And in a lot of the discourse , what I'm getting a sense of is that people have a lot of opinions about open AI or anthropic, but no one really seems to have an actual understanding of their profitability and how much money they are making and how much money they are losing and spending . So I wanted to just start here with a demystific ation of what's really going on . And I'm going to start with open AI's financial s. So those financials were leaked and we had a conversation with Ed Zitran who leaked them earlier in the week . And it gave us a picture into OpenI's financials in twenty twenty five , and it was independently verified by multiple sources, including the Financial Times. So let's just go through them. So thirteen billion dollars in revenue in twenty twenty five, up two hundred forty percent. That is significant . That's a big deal . They lost thirty eight and a half billion dollars. That was the net loss. That's a big number, very scary, very bad, but there is some nuance in there because that was reflective of multiple things like stock bas ed compensation, and then also supposedly this one off charge that they had to pay during their reorg from non profit to for profit. There's some debate on this, so it's a little bit unclear. We'll return to that in a moment. But let's just focus on what we know about their operating profitability because we actually do have clarity on that now and that is meaningful. So just as a reminder for our listeners on what operating profitability actually is . This is basically the amount of money that you're either making or losing from your day to day operations. So it doesn't include your capital expenditures. In the case of open AI, it wouldn't include how much they're spending on building like the Stargate data center. So this is like what the business looks like day to day. Let's just break down what the line items are in the operating profits. So how much are they spending on general and administrative? That's the first line item. This is mostly how much they're paying their employees. It was one point six billion dollars in twenty twenty five . Sales and marketing expenses, five point seven billion dollars. Staggering number, I'm sure you have some thoughts. Costs of revenue. This is basically the cost of delivering the product. I see this as inference costs. How much are you paying for compute when your users are asking Ch arg y questions, seven point five billion dollars. Staggering number. Finally , research and development. This is training cost. This is how much you're paying to compute providers when your engineers are basically training your models. The number is nineteen billion dollars. So their total operating cost and expenses in twenty twenty five was thirty four billion dollars. That's on thirteen billion in revenue, which means their total operating loss and this is the most important number twenty one billion dollars in twenty twenty five . That's how much they lost on day to day operations. There's a lot of debate on this, but that I can tell you with a high degree of certainty . I want to get your reactions and then we can maybe keep going and digging into these numbers. The weird thing is I don't think it matters anymore. I think that I think what matters more is well one SpaceX, the SpaceX IPO has been such a, I don't know what the term is . It's been such a spect acle. It's been so incredible in terms of the valuation and the fact that I think it's up thirty or forty percent since then it's come back a little bit, but it's still just remarkable that person at OpenA INthropic is calling whoever was the lead banker at SpaceX and saying can you manufacture the same scarcity and cadence of lockups? And they're all trying to take a note out of SpaceX's book, right? And I think operating losses to a certain extent have become moot . It's manufacturer scarcity, it's growth , and which SpaceX doesn't have, but more than anything, it's an ability to articulate an infinite TAM or a total addressable market. Also, I think it's a race to see who gets there first because the valuation of anthropic and open AI, whatever the valuations would have been if they'd gone after SpaceX are up twenty percent to fifty percent because the most exciting thing from an investor relations standpoint or from the bankers who are going to market this is that well, , if you thought SpaceX was a great deal and it popped for forty percent , what if I told you I had a company that was growing ten times as fast and is only forty times revenues? Welcome to OpenAI or Anthropicolog. The bigger problem right now for open AI versus anthropic is that what you're seeing, I've had some dialogue with different CEOs of companies talking about AI and their investments in AI . And what you're seeing is what I call a blame the model narrative right now. And that is a lot of companies are waking up and saying, Jesus Christ, I'm spending all this money on AI, and they're putting pressure on their CFOs and some of their managers to show a return . And so what a lot of them are doing is swapping out open AI for anthropic because they think, oh, it's a model problem. It's not. I mean, I think anthropic's great, but you have a lot of blame the model, which is disadvantaging open AI and anthropic. And I think what you're going to see is the numbers come out is not only is anthropic operating at greater fiscal discipline, it's still a money furnace, but it's an oven as opposed to the volcano that the incinerator open AI is . But I don't even think that that's what the market's going to be focused on. I think the market's going to be focused on to anthropic's advantage that anthropic will reflect more momentum upwards . But the fact that these companies are a money furnace , I don't know. I think they're going to be able to position it as if you have a company like SpaceX out there with two and a half trillion dollars market cap and they need at some point, it's basically it's got one great business , right? It's got the Starlink business. That's a that's a great business, but it's, you know, a relatively small ish business . It's got a sexy business, the rocket business, which is an even smaller business , and then it's got a money furnace. They're smart. They just brought bought cursor, which is a real business . But if I were marketing open AR anthropic, I'd say at the end of the day , there's a debt, there's a floor on this of say three or four hundred billion because why wouldn't Musk come in and buy this thing if things got rough and overnight be the you know, at some point he's going to have to backfill these expectations . So it's almost as if cash flows at least for the next couple of years don't appear to have much importance. Growth shockingly had less impact on the SpaceX IPO. It's total adjustable market, which I think both open AI and in proper are going to be able to have all sorts of p ictures of every person in the world losing their job to AI and everything being run by AI . And then what they'll also, I think, be able to say is Jesus Christ , these are value stocks at these val uations. We're going out at forty or fifty times revenues , which is a value stock compared to what else compared to the thing you just bought shares in. So I think the money f thatirm thereness is open AI is less important than we might think. Yeah, I think it's definitely possible that that could be true when these companies go out and that'll be really interesting to see to test the markets. Do investors care about the thing that honestly only matters. The only thing that really matters in investing, which is profitability . I mean, maybe I'm like a boomer at heart for thinking that, but that's basically what the whole game is all about . But the question is, can they paper over that giant wound in the business with something else? And I think to your point, SpaceX has been a success story, and they've employed very interesting and very honestly smart tactics to do that. One thing that you mentioned was this tiny flow, the fact that four percent of the shares are publicly traded, which basically means that the stock can be pumped by its superfans, by the retail investors to a big degree and that is exactly what we're seeing right now. To be clear, as the lockups expire, I still think that this stock is going to get crushed over the long term. I think in six to twelve months, you're going to see huge amounts of selling of the stock because people are going to realize they need to take their winnings and use it to buy something like a house or a cool apartment, whatever it may be. You also mentioned the total addressable market , the fact that SpaceX said that the TAM is twenty eight trillion dollars, which is more than the GDP of every nation on Earth except for America. And by the way, twenty six trillion of that was attributable to AI , which means that technically open AI and Anthropic could play the same game. They could say, oh, our TAM is the GDP of America because we're in AI. There's all this excitement and such a huge opportunity here . And so they could recreate that. The thing they can't recreate is the cult of personality there's Elon Musk . And I think that is a big reason why SpaceX has been as successful as it has been going out in this IPO and that is there is a huge cult following around Elon Musk, around his track record of making people rich in the form of Tesla, his two hundred forty million followers on Twitter , the fact that he is this, you know, Jamie Diamond is calling him the Edison of all time. Whether or not you agree with him, that's what people are saying about him . And that's not something that Sam Altman and Dario Amaday can really do. They don't have that level of cultic following, nor do they have the storytelling ability that Elon Musk has and has demonstrated to have had in his long tenure of being a public company, CEO of both Tesla and now SpaceX . So I think that eventually the profitability problem is going to have to matter . And I just want to dispel some myths that are going on about OpenAI right now because when those financials came out , as I said, there was this net loss of thirty eight and a half billion dollars . But in the Financial Times reporting, they talked to someone who was quote familiar with the matter and that person said that that number doesn't make sense or that it isn't real because thirty billion dollars of that net loss was attributable to this one off charge from when they went to a for profit. And so supposedly the more accurate net loss that is going to be recurring for open AI was eight billion dollars and that is the number that all of the AI boosters are clinging to right now. They're saying it's not that bad. It was only eight billion dollars. The Ed Zitrin financials are fake, like this is not that big of a deal . But I just want to bring us back to again what happened what we know about the operating profitability and that is we know that the operating losses were twenty one billion dollars, negative . Those losses are not massageable , you can't bullshit out of those. Those are the actual losses. And so my takeaway here is that someone is lying , either it's the Financial Times who is lying about what we saw on the income statement or Ed Zitrin, who's lying about those financials, which were independently verified by those journalists, or someone who is familiar with the matter is lying about what the profitability actually looks like. Either way, this stuff is getting very shady , very weird , there's a lot of murkiness . And I think eventually investors are going to have to care because eventually the entire business model of AI is going to be called into question and more and more people are asking themselves does this business actually make sense? Open AI is reducing their prices because they need to compete with those Chinese models that we've talked about, which means that their margins, negative margins are only going to get even wider . So I do think that eventually it becomes a problem, but to your point , maybe in the first few weeks of trading it doesn't matter to people. But if you're a long term investor , I don't know. I think eventually you have to care about this. Well, here's your flaw. You're speaking rationally . And yeah , I mean let's forget what companies are supposed to do. Companies are supposed to gather inputs and use culture, IP, plant property and equipment to produce an output that they can sell more for the cost of the inputs. That's called profitability and cash flow. And when you buy a share of stock, you're buying an ownership in that cash flow . And growth companies which have dominated the market have done so because they've been able to say, if you give us enough capital, we can use that cheap capital to pull the future forward or make acquisitions . And ultimately, we end up with, especially in a digital economy, these cash volcanoes of high margin revenues and basically are essentially monopolies in the form of to ld us the global citizens or West's daily life . These companies, everyone's looking for the next one, at some point , you know, you find out that okay,, if this company can't produce profits, at some point, it's either an acquisition target or it has IP value, or it's a trophy asset or something like that . But I generally believe we have made the jump to hyperspace right now and it feels like nineteen ninety nine, whereas long as it's a hot area, either space or AI , I think you could price these things at a ridiculous number. And I'm predicting a pop on day one. I just think retail investors have thrown in the towel and institutional investors have said, yeah , it's not an investment. It's a trade, but why wouldn't we get in on the trade ? As long as the getting is good. But that never ends well. Right. Unless you get out before it ends . And that is I don't think people I would bet a lot of institutional , I mean, maybe there's some institutional players looking to hold these things for ten years . But at a minimum , I don't care what the price is. If I get allocation and open AI or anthropic, I'm going to take everything I can and after the end of the first day I'm going to look at it, the end of the second day, the end of the fifth day, I'm going to look at it I think it would be very difficult for any of these companies to sustain their current valuations unless it ends up that forty percent of American jobs go away and it's all replaced by tokens and AI and data centers in space, it ends up. I'm wrong and that every person I know that knows fuck all about physics who's told me this is literally impossible what they're explaining in their S one or in their perspectives . Until then , this is a trade, but it's a trade that's working out for everybody. So it keeps attracting more capital. But you're talking about long term rational valuations and cash flow. We are in a different era right now and I'm officially saying this is ninety nine cents . In ninety nine cents you could sell you could sell thirty dollars worth of dog food or seventy dollars that cost s do sixllarty six to ship , but if you sold it for nineteen ninety five , the internet, the total adjustable market of internet commerce was so huge that you would bid up pets dot com. You would bid up these ridiculously stupid companies that made no sense that we ' lreosing more money as they grew that had negative margins. At least these companies in most instances have positive margins. These are great companies that won't collapse the way they did in the dot com era, but they could easily easily I mean, like Barry Riddle said , if SpaceX declines by eighty percent in absence of knowing where it was , you wouldn't look at it at five hundred billion and think that it's cheap , you'd think that it was expensive . So I think look, if you get out my I've had a bunch of people call me saying should I get allocation or should I sell? And the people who call me and say, should I sell, I'm like, yeah, wait till the first couple trades and then sell as much as you can. And the people who think they said I've been offered allocation, I'm like, take it and I think it's a trade. I think you trade out of this thing sooner rather than a later. As an investment , I'm a boomer. I cannot in any way see how these companies sustain the growth and profitability they're going to need to justify these valuations over the medium and the long term. Yeah , it's just a really big statement which I agree with. I want to return to Anthropic because Anthropic is possibly the only company in this space, the only hot company that is potentially defying this narrative , specifically because of that Wall Street Journal report that we got last month which said that they are on track to achieve operating profitability in the June quarter. And if that is true , that is a big deal because here we have the one A I company that is supposedly profitable on an ARPEX basis . If it's true. And personally, my view, I don't think that it is true. I think that this is an extreme example of the numbers being massaged because if you dig into the numbers you learn that they are extrapolating based on a quarter in which they are receiving a huge discount on their compute deal with SpaceX , a discount which will literally end at the end of the June quarter, at which point they will be spending fifteen billion dollars a year on their contract with SpaceX. In other words, their compute costs are about to explode . So for them to say we're about to reach operating profitability is sort of it's like the profitability equivalent of bullshitting your AR , I think. It's like if we would assign some massive one off contract with an advertiser and then we just multiplied it by twelve and we were like, look, we have this incredible AR. We're going to keep making money like this, but of course we won't. So when people say anthropic is profitable, one they're not. They said that they're trending to be in a single quarter and two, we should treat that statement with a lot of skepticism. Having said that , from a spending perspective, anthropic, we don't know much , but what little we do know , it appears that Anthropic has its shit together in a much bigger way than open AI . And we did a little bit of analysis on this according to a Wall Street Journal report, Anthropic's compute costs last year were seven billion dollars . However, the Wall Street Journal had also gotten that wrong in that same report about open AI. They were off by about sixty percent now that we know what open AI's real financials are. So let's assume the same thing was true of anthropic. That means their compute costs were about eleven billion dollars last year. That is an estimate. Then you add in some of the sales and marketing costs, which would be a lot smaller than open AI's , also the employee compensation. Big big point here, Anthropic has about half the number of employees as open AI does . Our estimate is that Anthropic's costs came out last year to just under sixteen billion dollars, which would mean given their revenues that they lost eleven billion dollars in twenty twenty five. That's a lot, but it's half as much as open AI . So I think if Anthropic, they say they've got forty seven billion dollars AR right now. If they actually hit that number , if they actually generate that much revenue, and if they can not let their costs grow by two hundred percent . They have a path to profitability, I think . But that's a lot of ifs, a lot of stuff up in the air . That's where I land on this. I think that it's possible for this business model to work . But I think that you have to be crazy, crazy strict about your spending and about managing your costs. Something that I think Anthropic has somewhat of an interest in doing, but open AI doesn't at all . So open eye to me, trade , anthropic, potentially a real investment. Yeah, and also I do believe that if these companies wanted they could be profitable right away. If they priced it, there is there are a lot of users who would pay a lot more money for these models, and I think they could cut a lot of cost and investments. And I do think that costs with scale will come down dramatically. The problem is that business is a great business worth thirty or fifty billion dollars, not worth five hundred billion or a trillion . So they have to kind of spend against a future that they're predicting to justify these valuations. But these are businesses , I do believe that could be profitable sooner rather than later . They just wouldn't be able to sustain , you know, what is it? Anthropic is growing five X a year . So again, the market not even the market, valuations are the tail that wags the dog. What is wagging the dog right now? Getting JP Morgan and Goldman Sachs through soft and hard lockups and a low float to create manufactured scarcity , a vision of a total addressable market that is just so enormous that it's impossible for anyone to calculate where your potential market size is . And then a spokesperson who is just commanding a ton of attention. And I think these companies but they should all send a thank you note, you know, wine and roses to Elon Musk because these companies are going to look cheap by comparison . And it's going to create I think it's going to create I used to think, well , we're going to run out of money to invest in these guys because Musk is soaking up all the capital and alphabet preempting a cutting line. I've now gone now. Everyone is drunk on this and is going to pile into these things and they're going to they're going to pull back. I wouldn't be surprised if they pull back the numbers of shares they're offering, that they try and implement some of those tactics, the soft lockups with retail investors or what have you . But you can bet you know, the CFOs of OpenAI and Anthropogist and can we speak to the bankers at JP Morgan and Goldman and how they managed the float here and what they and how they marketed this and they'll say come on in because this is hundreds of millions of dollars of fees. And I worked with SpaceX and we said that revenues would grow a hundred X by twenty thirty. None of us knew what we were talking about, but it didn't matter because we cashed out. So one hundred percent agreed on that. We'll see. In the meantime , I'm using AI models to try and predict what are the cost of team Scotland tickets if they get into the quarterfinals? It's not pretty . It's not pretty . If that happens , we need to do a live podcast in the stadium . If we do that, we're going. Yes. If we do that, we're going. Yep. Okay, I'm very excited about that. Now I might be Team Scotland. We'll be right back. And for even more markets content, sign up for our newsletter at profittymarkets dot com . Support for this show comes from Odo. Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? Introducing Odu. It's the only business software you'll ever need. 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But but now now, that's changed. Today our most innovative companies are staying private rather than going public. The result is that everyday Americans are excluded from investing and getting left further behind while a select few reap all the benefits. Until now , introducing VCX, the public ticker for private tech, now available wherever you buy stocks. VCX by Funrise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution, space pl Eorxation,ense Defch, T ande more. Visit get vcx. com for more info. That's getvis . com. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the fund's prospectus at getbcx. com. This is a paid sponsorship . We're back with Prof G Markets. Snap is making its biggest product bet in years , but it may be a giant thud. Last week, the company unveiled its new augmented reality glasses, the SNAP specs . CEO Evan Spiegel has described the launch as a crucible moment for the company, but investors were less than impressed. Shares fell nearly eight percent following the announcement. One of the main concerns for investors is the price. Snap specs will retail for roughly two thousand two hundred dollars , which is nearly three times the cost of meters competing smart glasses. So Scott, these new smart specs, Snaps spec, excuse me , have been released . I'd love to just play this clip of Evan , the CEO getting interviewed on CNBC , unveiling his new Snap specs. You're wearing your new specs, which you just unveiled. They cost two thousand one hundred and ninety five dollars . The stock's down more than five percent . How do you address investor concerns about the potential market for these. Well, Julia, thanks so much for joining us here at AWE. It's been such an exciting day for the company and something we've been working towards for more than twelve years now to really bring computing into the world and make it more human. Are you buying Scott? When I saw him put on those glasses, I thought this I thought for the first time in my ever, I thought, I am much cooler than Evan Spiegel Like I think I could pull at a bar more easily than Evan Spigel at those things on. If he wore those things, I think it's an even race . Look , they launched specs in twenty sixteen at one hundred and fifty dollars , or it was one hundred and thirty , and nobody bought them. So they decided the solution was obviously to launch two thousand two hundred dollars glasses that look even more stupid . This is a bottom line. This is the beginning of the end of SNAP as a hardware company . And on a larger level, what this reflects is the danger of dual class shareholder stocks because SNAP's stock is off ninety percent in the last five years . While the SMPs have been up eighty percent, Evan Spiegel and his fever dreams of being Apple , you know you know instead it's Zoom has cost his shareholders an absolute ton of money and this is the tragedy . You know, SNAP is actually the core business is actually pretty good . If they essentially meta came in with this fever dream also of wearables, but they can lose sixty billion dollars and it's a speed bump. Snap cannot Cook can waste a billion dollars trying to have an option to see if in fact Zuckerberg was crazy genius with his mixed reality headset, kill it. It doesn't even show up in the earnings. Snap has spent three point five billion dollars in augmented reality since twenty fourteen . The stock's down seventeen percent since it unveiled the glasses, erasing one and a half billion in market value and essentially it's a hilariously small number by the way just shows you how not valuable this company is. This is the problem and it's the perfect activist play but as an activist who was stupid enough to go into dual class shareholder companies with people who are not business people as the people controlling the business , you're just in the back seat as someone drunk has their hands on the wheel, and there's nothing you can do. You can can you scream, slow down , but they've got the radio blasted and they're doing shots of Jack with their hands on the they just don't give a shit what you think . Because if you look at the core business , SNAP has a young, engaged user base, nearly half a billion daily users . Four fifths are under the age of thirty five. That's an advertiser's dream compared to Meta where it's for forty three percent . And American Snapchatters open the app and I can testify to this as the father of teenagers thirty times per day. Investors value meta's daily users at four hundred dollars each. Investors value snap s daily users at sixteen dollars each because the CEO is fucking crazy is out of his mind and has an obsession, has a meth addiction , a crack addiction to burning capital on prophylactics cosplaying a wearable . So I know some people on this board act like fucking fiduciaries . Either spin thec Spes company or Shitcan it and focus on what is Snap's core asset. And the fact is that it's a great messaging platform with one of the most attractive user bases. This stock is at four bucks or five buck s? ninety percent value destruction. It's easily a twenty or a thirty dollar stock if they get this guy's lips off of the crackpipe of believing he's Steve Jobs and can come up with the next iPhone . They're subscale. They don't have the capital. He guy went to design school. This is where he spends all his time and money and he's the controlling shareholder here and he's already a billionaire married to a model. Does it give applying fuck what your stock price is? And that's the problem . So this is this is the problem with dual class shareholder companies is you can be rational and it doesn't matter. They're in charge . Yeah . I just want to the dual class shareholder point is a really important one. I just want to make sure we're all on the same page about it . What this means and this used to not be a thing and in the last two decades ish basically starting at Google, it became a thing. It means that there are two classes of stock . One of them a lot fewer votes , and the other has a lot more votes. And essentially what happens with these dual class share companies is that the founders give themselves all of the stock that has more votes, basically giving them more voting power . That's the case for a lot of companies Google , meta, plenty of them. Snap is that times a million , because they have three classes of stock. There's class A, which is the shares that you can buy as a retail investor, the publicly traded shares. They have no voting rights whatsoever. You don't get any vote . Class B, you get one vote. Class C, you get ten votes. Evan and his co founder are the only people in the world who own class C , which means that him and his co founder together control ninety nine percent of the voting power in this company. Evan personally controls fifty three percent of the voting power , which basically means that he controls the company. No matter how many shares other people go out and try to buy, no matter if an activist investor tries to come in and steer this ship in the right direction. And also by the way, you mentioned the board should get their act together. What are they supposed to do? They can't fire him . He's the only guy who can make the real decisions about what the company does. And I think it's such an important point because the dual class stock has become such a popular thing over the last few years. More than forty percent of tech companies that went public last year went public with dual class stock. In the nineties, that number was less than ten percent. This is one of the sexiest things in terms of corporate governance right now iss isuing two class es of stock and giving the founder the founder CEO all of the power. And usually it's worked out. It worked out for Meta, it worked out for Google. But to your point, this is the perfect example of dual class stock going in the wrong direction . My friend Alex Heath had the best quote. He said, This is Founder mode gone wrong, which I think is one hundred percent true. This guy clearly investors, shareholders have lost their faith in him, but there's nothing you can do about it because he's in charge. I never missed a chance to tell a story that I think makes me seem more important than I am. You asked what the board members should do. They should do what I did on the board of the New York Times and that is be such a fucking pain in the ass eventually they kick you off of the board . I can tell you, Arthur Soulsberger was so happy and to finally kick me off the board because every time he showed up to a board meeting , he knew that asshole was going to be there asking him questions like , what the fuck are we thinking owning seventeen percent of the Boston Reds? Why do we own about dot com Snap Board mem bers , you should be making Evan's life fucking miserable every three months . You're supposed he has made the lives of your shareholders who you are supposed to represent he has made their lives miserable . He needs to feel that every ninety days . What are the chances this Sunday night I've been invited to a party hosted by Evan and I've RSVPDS. What is the chance that that invitation is withdrawn? Let's create a thing on Kalshe right now because the board members will be there and guess what board members? You are not doing your fucking job unless you make that guy's life miserable during the board meeting every ninety days because the people you represent are miserable . Yes. What do you think? Do you think I'm in my room Sunday night ordering room service? True story. True story. I don't know. What do you think? You ship post a lot of people and they seem to continue to keep coming back to you. I think you still get that invite. I'll just put the caveat out there. We're criticizing Evan Spiegel. We're criticizing the strategy because you and I both think that it's a bad one. From what I understand about the guy, I like the guy. I actually think he seems like a really nice.. It's very likable He's a lovely young man. There we go. Yeah, he's a lovely young man . But so are you , so are you, but if you have your head up your ass and lose ninety percent of shareholders' money, you deserve to be fired . I mean, it's not about whether he's love. Here's the bottom line. I'm just trying to get your invite back. That's all I'm doing. Humans, we're gonna be at the hotel Duca Cap on Sunday night. The guy's a billionaire, he's handsome. He's married to a model. Does he care that some hedge fund manager managing the Wisconsin public retirement fund is down ninety percent? That's a surprisingly important point. Does he give a shit? He's a billionaire in the Cotte Zure surrounded by people who will kiss his ass and tell 'em that the glasses are great. I tried them last night . Oh my god , this thing is literally this glasses are a steam ing pile of shit . It is so ridiculous that these things it's like these things made Tim Cook with that mixed reality headset look cooled . He looked like he had game with that thing on. Yeah . Anyway, I'll see you Sunday, Evan . Final point here, Snap has a market cap of eight billion dollars. It's less valuable than Domino's Pizza. It's roughly as valuable as the GAA . I mean, compared to like SpaceX just bought Cursa for sixty billion dollars , eight billion dollars, this is Chump Change, meaning this is a very acquirable company I think I would be shocked if companies aren't looking at that market cap and thinking, let's go in and make an offer, acquire the audience, acquire maybe some of the hardware and some of the wearables, tech if we're interested in it. And Claire made this our producer, Claire Miller we were thinking who might be the acquirer? And she suggested a company that actually I totally agree with, and I think this will probably happen . Open AI . Open AI loves spending money on stupid bullshit. They've acquired eighteen companies so far. If they're trying to build this wearables device with Johnny Ive, Evan Spiegel's gotten halfway there with his with his one hundred and thirty two gram pair of glasses that weighs as much as the baseball , maybe they can get to the finish line with with Snap. So I think that this is going to be an interesting story. Is Snap going to be acquired? Will there be activist invest ment or interest, I think, certainly. But I could totally see open eye making an offer. An activist in a dual class shareholder company is not even paying into the wind. It's jerking off into the wind. It is so it is such an exercise in futility that I thought I was going to change Arthur Salzberger's mind and get him to think rational Sorry, I'm still on book . I just thought it about. That pretty's good, right? By the way, team Scotland , Team Scotland . It's jerking off into the wind yo wee Continuing it's not continuous. If it's not hagged it's shiked If I'm not exaggerating, the board of Snap, okay, this stock's at four or five bucks. If he if he announced I'm shutting the specs division down and I'm declassifying the stock , it's at twenty bucks in two days . And I always like to try to bring my profanity and an ability to get uninvited from things back to a personal learning . One of the most powerful words in business vocabulary is fiduciary . And fiduciary means the following that once I have my deal, I'm getting a certain amount of money as a board member . I'm a fiduciary. I represent the interests of other people . One of the biggest honors I've ever had is twice I've been asked to be someone's executor for their estate. That is you f areid auciary for them after they are dead . Meaning they trust you they trust you a hundred percent to represent them after they have no voice at all. That is such a fiduciary is such a powerful word. You are representing other people's interests . And what I would remind the board of Snap is you're supposed to be fiduciaries for all shareholders. It is such a powerful word and board members consistently forget that F word . Hey guys, that's my speech. I love it. I think it's great. Let's take a look at the week add We'll see the Fed's preferred measure of inflation from the Personal Consumption Expenditures index for May . We will also see earnings from FedEx, Carnival, Cerebrus, and Micron Technology not that exciting, but maybe something interesting will happen. Scott, do you have any predictions? God, that felt like a giant flaccid penis after everything we've been talking about . That felt like my that felt like my sexual performance. Bring us back. My sexual performance after a few too many Margaret is . Yeah I'm so profane today. You are Jesus. It's the Scotland in you. Shocking I was kicked off the board of the New York Times, isn't it? Isn't that hard to believe? Yeah, I love that that's your advice to board. Oh my god kicked off. He couldn't wait to kick me off. When you think about it, one of the worst pieces of advice possible . Go out with all sometimes the best thing you can do is anyways, that's the problem. Ultimately, for shareholders, it's the right move, but if you're trying to be on the head, you know what's going to happen? The board I already know it. The board members are going to be at the hotel to camp collecting their quarter of million dollars or five hundred thousand dollars. Do the shareholders even matter? They don't even care. They don't even hear from them, those anyways. Can't wait to see you in the Code Desore . Prediction. Well, look, something's got a something , anything has to happen here . And I don't know what it is.