How Trump's Policies Will Shape the Stock Market with Aswath Damodaran

Speaker 1 Hi, everyone, from New York Magazine and the Vox Media Podcast Network. This is on with Kara Swisher, and I'm Kara Swisher.

Speaker 1 My guest today is Aswath DeModeran, a professor of finance at the Stern School of Business at NYU, who's known as the Dean of Valuation.

Speaker 1 He understands how to look under the hood of a public corporation and tease out its value, and he's able to explain those valuations as well or better than anyone else.

Speaker 1 I actually met Aswath through Scott Galloway, who I co-host Pivot with, and it's one of the better things I've gotten from Scott. He's incredibly intelligent.

Speaker 1 He knows how to speak about economics in a very simple way, but not a stupid way. You get a lot of value from just listening to him, and he's so, so calm, which is really needed in this time of chaos.

Speaker 1 Aswath has written over 10 books, and his latest is The Corporate Life Cycle.

Speaker 1 As we're entering the third year of a bull run that is starting to make some financial watchers nervous, I want to talk to someone who can give us a sharp but unvarnished view of the investment landscape and Aswath is that guy.

Speaker 1 Our expert question comes from William D. Cohen, a former MA banker, best-selling author, and founding partner of Puck.

Speaker 1 If you need investment advice, you're not quite going to get it here, but it will give you some insight in where we're going. I know everybody's worried, so stick around.

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Speaker 1 Aswa, thanks for coming on on.

Speaker 3 Thank you for having me.

Speaker 1 So I've wanted to talk to you you for a long time. You're one of my favorite people who I met through Scott Galloway, which doesn't, it shouldn't be negative on you, but I'm teasing.

Speaker 1 So you're known as the Dean of Valuation. So let's start there.
You recently wrote that when it comes to U.S.

Speaker 1 stocks, at today's prices, there is an 80% chance that stocks are overvalued and only a 20% chance that they are undervalued. Explain your thinking right now.

Speaker 3 I mean, let's start by setting the table. We've had two great years for stocks, almost back-to-back, 25% years.
That's incredibly uncommon. I mean, we haven't had that since the 1990s.

Speaker 3 So, to begin with, stocks have gone up a lot. Earnings have increased as well, but they've increased about 10-11% a year.
So, prices are going up more than earnings.

Speaker 3 And you don't have the old reasons you could give in the last decade that interest rates were low and that you had no other place to go.

Speaker 3 I can put my money in T-bonds and make close to 5%.

Speaker 3 So, to get me to invest in stocks, you've got to offer me a lot more. Right now, stocks are being priced to give me about 4% more than that T-bond rate.

Speaker 3 And that's some, I mean, you're getting really close to historically low additional risk premiums.

Speaker 3 So from that perspective, I think stocks have run a little ahead of earnings, no matter how great the stories are. And whenever that happens, there is a catching up to do.

Speaker 3 Either earnings have to increase substantially, which they can't do because they're already at peaks, or stock prices have to come down. So my rationale is a very simple one.

Speaker 3 Stocks have run ahead, and they've got to do, there's some cleaning up to do.

Speaker 1 And cleaning up depending on the stock or just the market of the state?

Speaker 3 Across the market.

Speaker 3 It never is across all stocks the same way. Right.
So my guess is the cleaning up is going to be greatest where the run-up was also the greatest. You know,

Speaker 3 tech companies, especially the big tech companies.

Speaker 3 Let's face it, I mean, we've never had a decade like the last one where seven to ten stocks have accounted for one-fifth of the increase in market cap of all U.S. stocks.

Speaker 3 The Mag7 or the Fangam, as they were before NVIDIA showed up, have essentially carried the market. And I don't think you can do that for

Speaker 3 forever. And I think that even this year, you're starting to see them say, look, we're going to take a step back.

Speaker 3 And when they step back, no other individual group of stock can step in because they're so big. To make up for them, hundreds of stocks have to go up by an equivalent demand.

Speaker 1 So I want to, as I said, I'm going to get to the performance this week of the stock market. But having just those stocks, and NVIDIA in particular, right?

Speaker 1 It's just one stock that's really been pushing it.

Speaker 1 It's just there's nobody as big as these people, or is it just dangerous to concentrate so much in a sector?

Speaker 3 It's not just that. There are good economic reasons why these companies are where they are.
They've, in a sense, dominated their businesses. They've made them winner-take-all businesses.

Speaker 3 NVIDIA, if you look at the chip business overall, the chip business overall is a pretty commoditized business. You don't see other players benefiting like NVIDIA does.

Speaker 3 NVIDIA has benefited because it's taken a segment of the chip business, in this case AI chips, and made it its business. It's made, it dominated the market.

Speaker 3 And you can say the same thing about the other Mag 7 as well. Even though they might not have accounted for what NVIDIA did in the last two years, they've had their moments in the sun.

Speaker 3 It's almost like they're a rotating cast of stars. When one steps back, another steps in.
The only point is even great dominant companies have ceilings.

Speaker 3 And I have a feeling that many did each of these companies is hitting a ceiling within its own space. And when that happens, some adjustment has to happen to the city.

Speaker 1 It has to be made because the rest depend on it.

Speaker 1 Just saying, when you say magnificent seven, we're talking about seven stocks that have been driving, just for people who don't know, the SP's 500 gains, Meta, Amazon, Google, Apple, NVIDIA, Microsoft, and Tesla.

Speaker 1 Although Tesla's another story, we'll get to that in a minute.

Speaker 1 We're recording this on Tuesday.

Speaker 1 And last week was the stock market's worst week since Trump was inaugurated.

Speaker 1 Now, he hasn't been in that long, but there was initially a lot of optimism from Wall Street around Trump 2.0.

Speaker 1 What accounts for the jitters from your point of view?

Speaker 3 I think part of it is it's almost like you're putting the market through shock therapy, right?

Speaker 3 I mean, the market's been incredibly resilient for the last maybe 10 years. I mean, it takes shocks, it rides through them, it started with COVID.

Speaker 3 I think the market has amazed me, and it's been much more resilient than experts have been in terms of dealing with macro shocks.

Speaker 3 But I think when you shock it week after week with something new, at some point in time, even a resilient market says, okay, you know what? We're getting exhausted.

Speaker 3 So part of this is market exhaustion with change coming at it constantly. There's no time to absorb the change and try to assimilate the change into prices.

Speaker 1 So credit card debt is at an all-time high.

Speaker 1 The University of Michigan's Consumer Sentiment Index is down to its lowest level in over a year, and Walmart warned that its sales growth might slow down this year in part because higher prices caused by tariffs, which we'll get into in a bit.

Speaker 1 But the richest 10% of Americans now account for nearly half of consumer spending.

Speaker 1 We always hear that Wall Street isn't main street, but also, does that mean that Wall Street doesn't need Main Street as much as it used to?

Speaker 1 Or should investors be worried about an overextended middle class?

Speaker 3 I think it's been a problem building up over time. I mean, this goes back almost 10 years.
You look at the ups and downs.

Speaker 3 I think that, first, this concentration of spending among the wealthiest has increased, which is one reason there's a disconnect sometimes between consumer sentiment and what the economy is doing.

Speaker 3 The second, I think, is even numbers like the consumer sentiment have become political.

Speaker 3 What do I mean by that? You look at the consumer sentiment. The consumer sentiment among Democrats has crated since the election.
But among Republicans, so the reverse happened last year under Biden.

Speaker 3 So even the economic numbers that we thought were non-political have become somehow have become political. But I think that the economy, like the market, is due for a slowdown as well.

Speaker 3 I mean, we've been promised a recession or threatened a recession for the last two years.

Speaker 3 And it's kind of, again, the economy has kind of held out much better than economists have expected. But the reason we have recessions is things get overheated.

Speaker 3 You needed a cleaning up process in the economy as well. So I would argue that there's, you know, that this too is something that's long overdue.

Speaker 3 So you might have a coming together of two forces, a slowing down of momentum in markets and a slowing down of the economy coming together at the same time.

Speaker 3 And it'll take a little while for markets and investors to kind of deal with that reality because they keep expecting resilience to show up again, that things are going to bounce back.

Speaker 1 Right, which because they're used to that.

Speaker 3 Yeah, because we're so used to that, because we've had a decade of that happening.

Speaker 1 So let's talk a little bit then about President Trump, because he's the new factor here, and his policies will affect the markets.

Speaker 1 Elon and Doge haven't stopped making headlines, even though Elon is saying that Doge will be fully transparent. The website is full of accounting errors.

Speaker 1 We don't know how much government spending will actually get cut.

Speaker 1 It seems de minimis at this point, but the chief economist at Apollo Global Management wrote the government layoffs will mean higher unemployment overall, that will affect interest rates, equities, credit market, and so on.

Speaker 1 Talk a little bit about how you think Doge

Speaker 1 is impacting the stock market right now, besides making it chaos.

Speaker 3 I think the chaos part is obviously there. And I think that two things can be true at the same time.
The way in which DC, you know, Washington runs its budget is broken.

Speaker 3 You know, Congress is incapable of fixing the problem. Everything is on top of a legacy system.

Speaker 3 So, you know, part of my sympathies lie this system has to change.

Speaker 3 But you can also argue at the same time that the way in which Doge and Musk are going about breaking the system is the way you run a tech company.

Speaker 3 You can break down a company and say, I'm going to start from scratch.

Speaker 3 But when you're talking about the US government, you talk about millions of people, many of whom depend on the government for the next paycheck.

Speaker 3 This is an extremely dangerous thing to break if you don't know whether you can put it back together again. So I think the worry here is you might break something.

Speaker 3 It's not even that the government spending might not drop a lot. You might break something that you're incapable of putting back together quickly.

Speaker 3 And if it's something like Medicaid or Medicare or Social Security, that's a breakage you can't afford to have if your people dependent on it. So that might be the tipping point.

Speaker 3 If that happens, then you worry about the effects on the economy and unemployment and everything else kind of rippling through.

Speaker 1 How then do you break the spending problems, which everybody acknowledges, right, that it needs reform.

Speaker 1 And he seems to think the only way to do it is to chainsaw it, which doesn't seem particularly sophisticated.

Speaker 3 No, I think that you can't go back. You can't do what you do in a company.
Go back to zero-based budgeting.

Speaker 3 Everybody has to explain why they need the money because in a company you can get away with it. In the government you go to zero-based budgeting while you're trying to get them back to base.

Speaker 3 There are a lot of people who are suffering along the way. So I think you almost have to do it.
Pick a department where you think those side costs are going to be minimal and try it out there.

Speaker 3 See if you can go to zero-based budgeting there before you start to embark on. You can't do it across the entire system.
Yeah.

Speaker 1 Why are they doing it that way from your perspective?

Speaker 3 Because I think they believe that they have a window that is that is short, that it's not going to last four years.

Speaker 3 They might have three months or six months where the shock and awe factor is enough for them to do it. So in a sense, they're breaking everything at the same time, hoping they can fix everything back.

Speaker 3 And that might be too much to ask of any group of people.

Speaker 1 So Doge and Elon have essentially killed the Consumer Financial Protection Bureau, as someone put it in the Times. It's deregulation by firings.

Speaker 1 And CFPB was known as Wall Street's most hated regulator. Talk about its demise and what layoffs among government regulators mean for financial stocks.
Is it a good thing?

Speaker 1 Or is you know, they may not stay these people may not stay in office if they do things that consumers like, for example.

Speaker 3 I think for there might be winners among the businesses. The losers here might be consumers and people who are dependent on the services from these companies.

Speaker 3 So I think the reason we created the CFPP was to protect consumers. It wasn't to make businesses more resilient and more profitable.
It was to protect consumers.

Speaker 3 So the question is how much will consumers feel as pain as a consequence of these protections going away? So it's not as if we have to go back too far in time to look at what a world would look like

Speaker 3 without this protective. It might be fixable if somebody else somewhere else in the system picks up the slack, right? Somebody's got to provide that protection.

Speaker 3 The way things are right now, I'm not sure anybody's in a position to pick up slack because they're all under assault at the same time.

Speaker 3 So ultimately, somebody's got to play the role of copier. And if it's not the agency that you created to do it, who else is going to do it?

Speaker 3 And for a period there, the worst actors among us, especially among businesses, might take advantage of a moment where there's nobody watching the store. Right.

Speaker 1 So the other big economic story is tariffs.

Speaker 1 Trump paused his 25% tariffs on Canada and Mexico after markets react negatively, but the threat remains on the table and he's expanded it to include reciprocal tariffs, which could affect almost every country on earth.

Speaker 1 And it seems like markets are not pricing in tariffs because they think it's all bluster from Trump.

Speaker 1 And that means when they go from imaginary to real, they get priced suddenly and you see wild swings.

Speaker 1 that might actually convince Trump to back off again. Again, chaos.
So talk a little bit about what's happening here with tariffs and the the games that Trump's playing.

Speaker 3 Tariffs are a net negative for the global economy. I think you don't need an economics PhD to work through that if everybody imposes tariffs, essentially it's worse for the global economy.

Speaker 3 But like everything else, there will be winners and losers. And in the near term, the U.S.
is better positioned to live in a tariff-driven world than

Speaker 3 most of the rest of the world. Why? Because we consume so much more than we produce that

Speaker 3 other countries are going to bend their systems to stay with the tariff system because they can't afford to give up on the US as a market. So Canadian companies can't survive without the US market.

Speaker 3 They will find ways to buffer it and live with it, which will at least in the short term mean that

Speaker 3 Canadian companies are actually more negatively impacted than US companies by tariff that is initiated in the US.

Speaker 3 In the long term though, I mean if you look at the Mag 7 or the big companies that have carried this market, they're US companies in terms of incorporation, but they're global companies in terms of how they get their revenues in the businesses.

Speaker 3 So if you're Tim Cook, you're looking across the world, you cannot have growth unless you go to Asia to grow.

Speaker 3 So a world where countries are putting up barriers to trade, becoming isolationist, is not great for global companies.

Speaker 3 And from that perspective, you can argue that that effect has not been priced in properly, but that these companies will feel the pain over time a lot more from a world that shuts down and becomes

Speaker 3 more nationalized.

Speaker 1 And most of those companies are global. I mean, if the actually starts a trade war, will it tank the markets in the long run then? Given that most of the bigger companies are global companies?

Speaker 3 I think, you know, in a sense, markets will kind of hold off on that until they start to see that.

Speaker 3 What will cause a sell-off is when you start to see the earnings for a company come in well below expectations, and the company is very clearly saying this is because our global revenues are suffering because of this.

Speaker 3 So once people connect those dots, then it becomes, hey, the tariffs are driving this decline. Where else will it go next?

Speaker 3 So at that point, I think you will see a reality check, but I think markets are going to kind of hold off until they start to see that evidence.

Speaker 1 Do you see it as bluster?

Speaker 1 One of the things, you wrote the tariffs are a sign that globalization, unstoppable for much of the last four decades, has crested and that nationalism in politics and economics is re-emerging.

Speaker 3 I think it's too strong a force to just be bluster because you're seeing this not just from the U.S., you're seeing this from nationalist parties in pretty much every part of the world,

Speaker 3 including parts of Asia where you think, hey, they want to be globalist, they want to export things.

Speaker 3 You're seeing it in India, you're seeing it partially in China, where you want to bring things back within your borders because you think you can control them much better.

Speaker 3 I mean, in a sense, we've asked for this as economists by selling globalization too strongly and not talking about its costs.

Speaker 1 Here in this country. It has political costs.

Speaker 3 And it's got economic costs for some people. And we told them, you know, what I thought was pretty insulting, learn to code, do something else, learn to do something else.

Speaker 3 And I think we're paying the price for underselling its costs or underpreparing people for its costs. And this backlash, I think, is not something that'll just go away.

Speaker 3 It's going to kind of simmer under the surface, and you're going to see this show up in maybe different governments being voted in in Europe who are just as nationalistic as the U.S.

Speaker 3 in terms of trying to protect what's theirs. So I have a feeling that for the next decade, you're going to see this force continue to play out, even if markets turn against it.

Speaker 3 Because while markets often kind of constrain,

Speaker 3 many of these governments use the markets as their foil. They view the markets as the enemy, as Wall Street as the enemy.
So I think it will be sold as markets don't like us, but it's good for you.

Speaker 3 How well that sells politically is a different question.

Speaker 1 Yeah, that's interesting. So, as a corollary to international trade, Secretary of State Marco Rubio is pitching American companies on the incredible opportunities that exist in Russia right now.

Speaker 1 But investors and corporations are hesitant, I would be too. Do you see them diving into Russia, or where are the global opportunities for them?

Speaker 3 I mean, I think you've got to go where the people are, right?

Speaker 3 No matter how you dress this up, Asia is the place to go because half the world's population is on that continent. Russia is an aging small population.

Speaker 3 I don't see, I mean, you can talk about natural resources in Russia, but you know, Russia is not going to sit by while you extract, you know, natural resource from Russia and take it out.

Speaker 3 It's a country that's going to protect its interests.

Speaker 3 So I'm not sure there's much for U.S. companies in Russia.
It's not like Apple is going to double its iPhone sales by opening up the Russian market. It's too small a market.

Speaker 3 There's not enough buying power. So if there's opportunities in Russia, it's mostly in in natural resources.

Speaker 1 I always call them a mob country.

Speaker 1 Wall Street breathed a big sigh of relief when Trump nominated Scott Bessant for Treasury Secretary because they generally see him as a trusted hand and not an ideologue, although recently he's been a little bit that way.

Speaker 1 It's a difficult job ahead of him. It includes helping extend the 2017 tax cuts, but lowering deficits at the same time and creating economic growth, but keeping inflation down.

Speaker 1 And of course, making sure the gold is still in Fort Knox. What a ridiculous thing.

Speaker 1 Which you can add Fort Knox if you want, but all those, what is the most tough, the toughest thing for him? Because

Speaker 1 he can't cut taxes and lower deficits at the same time. You can't have economic growth without inflation.

Speaker 3 I think that

Speaker 3 the biggest balance is the inflation and real growth balance. I think that there's a very real chance.
I mean, we saw what inflation did in 2022.

Speaker 3 It's not just that it hurt markets, but politically, there's nothing more devastating than having an episode of inflation. As Joe Biden found out very, very quickly

Speaker 3 is inflation, I think,

Speaker 3 damages investor psyches in terms of how they shop, how they ask for wage increases. So

Speaker 3 inflation, to me, remains the thing that you have to worry about the most. At the same time, if you give an emission of we want 4% real growth, I don't see how you have both of those.

Speaker 3 You might have to pick a low growth, low inflation scenario

Speaker 3 if you have to find a balance. But I don't see a way in which you can have high real growth and low inflation

Speaker 3 with or without the tax cuts and all of the other issues. You add the tax cuts on top of it and a deficit that gets larger.
The task only gets bigger.

Speaker 3 But, you know, I think his immediate task, though, is to get the 2017 tax cuts extended. And I have a feeling everything else is going to sit in the background till that gets done.

Speaker 1 But if they're doing to do the tax cuts, the deficit issue is enormous.

Speaker 3 Aaron Ross Powell, Jr.: And the deficit issue is something the U.S. has kind of lived with.
It's every country you go outside the U.S., the question they ask is, how does the U.S.

Speaker 3 get away with what it does, right? If any other country did what the U.S.

Speaker 1 did, the World Bank would be here.

Speaker 1 Yeah.

Speaker 3 The reason the U.S. is able to get away is the largest economy with the most consuming power.
You have a lot of leeway to do things that other countries can't do.

Speaker 3 And for 40 years, we've lived beyond our means in terms of spending more than we bring in, except for that brief period when the budget briefly got balanced. We've been always at a deficit.
So

Speaker 3 this is something where the spending basically continues to grow and you have tax cut and the revenues drop off. My worry is if you add to those tax cuts with more additional tax cuts, right?

Speaker 3 You know, you want tax tips, you want tax, you know, overtime wages, whatever it is that you add on,

Speaker 3 those are things which will create more consequences in terms of the deficit getting even larger.

Speaker 1 Sure, sure. But Wall Street is already priced in the tax cuts.
They're trying to figure out how to pay them. Republican legislators right now working with very tiny majorities.

Speaker 1 But how will Wall Street react if tax cuts don't get extended? And alternatively, if the tax cuts do get extended and the deficit gets blown up in the process?

Speaker 3 I think Wall Street basically doesn't even look at deficit. They've kind of gone into denial on the deficits.
There's a huge thing on Times Square where you see how big the debt you know our debt is.

Speaker 3 I'm sure every banker looks in the other direction because you've got the Bank of America building their traders walk in. It's almost like they've become immune to this deficit question.

Speaker 3 So I think the tax cut issue, I think, if it doesn't get extended, will be a big negative surprise for markets because

Speaker 3 it's a 35% tax rate then at the end of the year. The cliff is approaching.
There are all kinds of other things that go away if this tax reform act does not get extended.

Speaker 3 And those things can have significant consequences.

Speaker 1 We'll be back in a minute.

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Speaker 1 So every episode we get an expert question.

Speaker 1 Let's hear your expert question.

Speaker 5 Hi, my name is William D. Cohen, best-selling author and founding partner of Puck.

Speaker 5 Professor, my question is for you is that everybody thought 2025 would be a year of

Speaker 5 for investment banking bonanzas, but we're two months in now and it doesn't seem to be happening in that way. Why is that, do you think?

Speaker 5 Why hasn't the investment banking business taken off so far this year? And what's it going to take for the deal business to really get humming?

Speaker 1 Thank you.

Speaker 3 I mean, I think in a sense, you put your finger on how investment banks make money. They get money from deals getting done.

Speaker 3 Deals get done because companies feel secure enough about the future that they only need to spend 10 billion, 50 billion, 100 billion acquiring another company, raising financing.

Speaker 3 Right now, that uncertainty that markets have kind of been resilient about is, it shows up much more in corporate boardrooms. Companies are run by people who are risk-averse.

Speaker 3 They don't want to take big risks if they don't know what's coming. So I have a feeling that a lot of the deal making has gone into hibernation while people wait to see how the uncertainty plays out.

Speaker 3 And that could be a long wait if, in fact, you're going to continue to see change happen over the next four years. If If this is the way every week is going to play out for four years,

Speaker 3 a lot of investment banks are going to be sitting around with nothing to do because the deals are going to stop rolling through.

Speaker 1 Because of chaos or feeling of you don't know what he's going to do?

Speaker 3 It's the uncertainty. I mean corporate decision making, it's less about chaos as about can I build in expectations that I feel comfortable about, about the macroeconomy and how it affects me.

Speaker 3 So it's it's if you think about the decision making at a corporate level, it's driven more by projecting out things and saying, is this a good deal?

Speaker 1 Aaron Powell, what is Trump doing there? Because the expected IPO wave that was supposed to come after he took office also hasn't materialized.

Speaker 1 What is he doing that's causing this? And is that the IPO wave similarly to the MNA activity?

Speaker 3 No,

Speaker 3 IPOs went into hibernation in 2022 and they haven't come back. And you know what? I don't think that's a bad thing.
Why is that?

Speaker 3 I mean, because part of it is when you're looking at the kinds of companies going public, many of them were companies we looked at, which were bad businesses that had scaled up.

Speaker 3 And they were scaled up bad businesses because venture capitalists had so.

Speaker 3 So I think part of this adjustment is much of that IPO way was driven by companies that really, I don't think, should not, were not ready for public markets. So some of this I think is healthy.

Speaker 3 You're going back. Some of it is just, you know, to go public, you need some incentives to go public.
And we've reduced those incentives over the last 15 years.

Speaker 1 By paying, they get the money anyway, by being paying.

Speaker 3 They get the money.

Speaker 3 There's a gray market now where you can stay private, get almost all of the advantages of being a public company in terms of being able to raise capital with none of the accountability.

Speaker 1 Right.

Speaker 3 Uber was quasi-public for five years before it went public. It was raising money from Fidelity and T-Row Price and the Saudi Investment Fund before it went public in 2019.

Speaker 3 And I think you're going to see more companies choose that option because why not?

Speaker 1 Why put yourself?

Speaker 1 I've heard that from a lot of tech people. Like, why bother? Like, why talk to people publicly? And I can do what I want and raise the money I need to.

Speaker 1 But on the whole, do you view Trump's policy changes as truly pro-business enough to accelerate the economy or risky enough to drive higher inflation, ultimately hasten a bear market?

Speaker 1 Or a little bit of both?

Speaker 3 I think it's a bit of both. I mean, if he plays his cards right,

Speaker 3 he can make the former dominate the latter.

Speaker 3 But I think that he's got to kind of rein in the change and the change a week, a chaos a week, and kind of get to a point where you say, okay, we're done.

Speaker 3 Now we're going to talk about, you know, the things that you elected me for as business people. You know, the lower taxes, the less regulation.
So they're waiting for that pivot to happen.

Speaker 3 And maybe the pivot will never happen. Maybe we'll have four years of this, in which case, businesses are going to look back and say, we got nothing of the stuff that we thought we were going to get.

Speaker 1 What is your instinct?

Speaker 3 My instinct is that at some point in time in the next few months, you will pivot. But the pivot's got to happen before the public turns sour on the process.

Speaker 3 Because you've got to pivot when you still have some degree of voter goodwill on your side saying, we voted for change, this is the pivot. So if I, you know,

Speaker 3 I'm not a political advisor, but if I are in the White House, I'm looking to say it's got to be in the next few weeks, not in the next few months, that the pivot has to happen.

Speaker 3 Because it's almost like we're all waiting for what's really going to happen.

Speaker 1 And the focus is on one person, which is Musk and not the president. So speaking of which,

Speaker 1 wrapping up the section on Trump's policy of asking you about his plans for mass deportation, they would be both expensive and inflationary.

Speaker 1 It would hit some industries like construction, agriculture, hospitality especially hard. Does that reality constrain his ability to actually pursue it?

Speaker 1 Or that's another wild card sitting out here which still has to happen.

Speaker 3 On that one, I think he will barrel ahead no matter what. Because if there's one issue that he won the presidency on, it was immigration.

Speaker 3 It wasn't lower taxes, it wasn't less regulation, it was immigration.

Speaker 3 And I have a feeling that that's something where he is so bought into the issue, and the people around him are bought into the issue, that they will do it no matter what the economic consequences are.

Speaker 1 So, how does that play out in the markets then?

Speaker 3 It plays out in markets. Companies that are especially dependent on immigrant labor or on consumers who are.
So, it's more, I think, that it's not going to be the luxury products.

Speaker 3 It's not going to be big tech companies. It's going to be smaller manufacturing companies which are going to feel the pain.
So the pain, again, is going to be disparate.

Speaker 3 It's not going to be across the board.

Speaker 3 It's going to be a subset of companies where that is going to affect either their revenues, because they don't have as many consumers to sell to, or their costs, because their workers have all left.

Speaker 3 So I think those companies have to prepare for the worst because I don't think that's something that is going to be walked past.

Speaker 1 Is that the most dangerous thing for the economy or just a part of it?

Speaker 3 I think it's a part of it, but I don't think

Speaker 3 it has a capacity because we're so top-heavy now as an economy in terms of where we get our market value.

Speaker 3 If this were 1985, I'd say that the immigration issue is going to make or break the market in the economy.

Speaker 3 I don't think it's going to be the issue that makes or breaks the entire economy, but it is going to have some pretty substantial cause for a subset.

Speaker 1 All right. So let's pivot and talk specifically about the tech industry.
We'll start start with Tesla. It's not a tech company.
It's very tech-forward.

Speaker 1 You could argue it's valued like it's valued like not even a tech company, even more.

Speaker 1 The stock is down roughly 13% year to date, but is still by far the most valuable car company by market cap, even though its sales are declining.

Speaker 1 So talk about Tesla in light of your most recent book, The Corporate Life Cycle. You said it's in a high growth stage.
When do you see it transitioning to the next stage?

Speaker 1 This is the mature growth stage, which you say is like a midlife crisis. Last year, the company had its first sales decline in a dozen years.
Sales are down 45% percent across Europe.

Speaker 1 Last month, it's gotten worse. Talk a little first about Tesla, and I'm going to ask you a quick question about X.

Speaker 3 I mean, three issues with Tesla. The first is the macro focus on everything's going to shift towards electric cars has hit some road bumps, especially in the last year.

Speaker 3 You know, people are, in a sense, going back to hybrids. People thought, oh, that's never going to happen.
Hybrids are becoming, again, more popular than they used to be.

Speaker 3 The second is the growth of BYD.

Speaker 3 I mean, for the longest longest time.

Speaker 1 This is the Chinese company.

Speaker 3 The Chinese electric car company. Because the longest time, the question you had with Tesla is: who's going to, I mean, who else is in the game? Right?

Speaker 3 The lucids, the vivids of the world, they're never going to make it. The legacy automakers had no idea what they were doing.
They still don't. So there's nobody else in the game.

Speaker 3 BYD has filled that gap.

Speaker 3 It is actually a company that's making decent electric cars, selling at mass market prices, and essentially going after the biggest market potentially in the world, which is the Chinese market.

Speaker 3 So that's the second. And the third, of course, is Tesla has become a political stock in terms of, you tell me what you think about Elon Musk.

Speaker 3 I can tell you what you think about Tesla as a company. Is it undervalued, overvalued? And that's a dangerous place to be as a business, right?

Speaker 3 No matter which side of the political divide you're on, you don't want to get identified too much with one side because that means half the country doesn't like your products, doesn't like your stock.

Speaker 3 You know, the sales in Europe are dropping might be because they don't like Tesla cars, or maybe they because they don't like Elon Musk. The effect kind of gets mixed in.

Speaker 3 So, from that perspective, those are all things that affect the Tesla narrative. I still think that in this market, BYD will

Speaker 3 stay with the mass-market electric car company with a base primarily in China. And Tesla will continue to be the dominant electric car company outside China.
So,

Speaker 1 is this company in a mature growth stage?

Speaker 3 I think it's approaching more mature growth. The problem with Tesla is you're never sure what business it's in.

Speaker 3 I mean, it's an automobile company, it's an energy company, it's an automated driving company. So

Speaker 3 with Tesla, there's always another rabbit to chase down another hole. There's another story that opens up.
And for the last few years, it's not been the electric car story that's driven Tesla.

Speaker 3 It's the automated driving and the money you can make if you can create an automated driving car and think of all the right-sharing you could do and claim the entire 100%.

Speaker 1 Yeah, Google's doing that. I'm sorry, someone else is doing doing it.

Speaker 1 I still haven't written in a Tesla Robo-Taxi yet. Still waiting.

Speaker 3 I've driven in a Waymo.

Speaker 1 I'm always in a Waymo.

Speaker 3 I love them. In New York, you don't see as many.
In San Francisco, of course, you have a lot.

Speaker 3 So I think that

Speaker 3 the question is whether Google has the stomach to be a ride-sharing company.

Speaker 3 My end game for this is that neither Tesla nor Google is going to be a ride-sharing company. Uber and Lyft are going to continue to be the ride-sharing companies.

Speaker 1 And then they'll do deals with the Tesla.

Speaker 3 But

Speaker 3 they'll do deeds. There's a big end market here.
So there's always another story with Tesla, which kind of distracts you from the business.

Speaker 1 What's the next story then?

Speaker 3 I don't know.

Speaker 3 Elon will come with. See, that's the problem with Elon spending his time on Doge is.

Speaker 1 He's not focused. I think he doesn't care anymore.

Speaker 3 There would be something else in the process. And that's what's driven Tesla.
It's a personality-driven company.

Speaker 1 And for everybody. He's not interested in it anymore.
He's left this girlfriend.

Speaker 3 And that's part of what Tesla shareholders feel abandonment, which is where did our CEO go? I know he has other things on his plate.

Speaker 3 So I think that that's something else that needs to be ironed out of the company as well.

Speaker 3 If Elon's full-time job is going to be running something in the government, even though it can't officially be a job, then who's running the company? What's happening?

Speaker 1 Because there's nobody.

Speaker 1 I always look at the product. It's not an exciting product anymore.
That's one of the things I tend to focus on. I have to ask about X, if only briefly.
I hate to talk about it.

Speaker 1 Elon is in talks to raise money at the $44 billion valuation that

Speaker 1 he originally bought it for. It's obvious his proximity to Trump has affected how investors are valuing the company.
It's not a great business. It was never a great business.
It's less so now.

Speaker 1 Even though advertisers are coming back, some of them are reporting being threatened to come back.

Speaker 1 What implications can you draw from that as you look at other companies and CEOs that are perceived as being close to Trump or disfavored by him? Is that really a thing right now?

Speaker 3 Not yet, but it could. I think

Speaker 3 historically in the U.S., this has never been a driver of how companies operate and how they get priced is how close are you to the government.

Speaker 3 This is more the rule than the exception in some parts of the world, right? Where how close you are to the government is going to determine success or failure.

Speaker 3 I hope we don't end up with that being the end game in the U.S. because it's not healthy.
It's not healthy because then the success of a company doesn't come from the great products it makes.

Speaker 3 It's who's in power right now and are you close to that person? Now, I think that for the moment it's fairly narrowly in the U.S., it's a narrow set of companies where this is an issue.

Speaker 3 But if others take the Musk playbook and they say, well, I can pull that off with my company if I can, then I think you might see a whole host of companies doing what doesn't make any sense from a business perspective, but it's entirely driven by politics.

Speaker 3 Right.

Speaker 1 And if he's on the outs, then if he gets on the outs, then it's the other director.

Speaker 3 And that's the problem with anytime you have a politically connected company, you lose the connection, there goes your entire competitive advantage.

Speaker 3 Your moat was built upon, I'm close to whoever's making the big decisions. And that's not a great moat to invest based on.

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Speaker 1 Let's move to NVIDIA. You bought it by accident before AI was really a thing, but you recently sold half of your remaining NVIDIA stock.

Speaker 1 You'd already sold half, so now you're down to a quarter of where you started. Talk to us through your reasoning for selling and the larger implications.

Speaker 1 A lot of people think the run-up here has been unsustainable.

Speaker 3 You know what? NVIDIA has become what Tesla used to be. Every time I valued Tesla, I would get this immense backlash from both sides of you overvalued.

Speaker 3 NVIDIA is today's Tesla in terms of drawing very strong emotions on both sides. It's an awesome company.
It's an amazing company. Let's get it out of the way.

Speaker 1 It's not a crazy owner, though.

Speaker 3 But go ahead. It's not a crazy owner.
It's got, you know, I like Jensen Wong. It's been an amazing company.

Speaker 3 That said, though, at $3 trillion or close to it in terms of market cap, I don't see how the company delivers enough in terms of earnings and cash flows to justify it.

Speaker 3 A company can be both an amazing company and not a good investment at the same time. And NVIDIA is there for me right now.
It's a company I love.

Speaker 3 I am immensely grateful to the company and Jen Sun Wong for giving me the profits that it did from 2018 on. But as an investor, it's very difficult to pay the price.
If I had to buy

Speaker 3 NVIDIA right now at today's prices, I would have a very tough time sustaining the decision based on the business prospects for the company.

Speaker 1 Right. It's just too big.

Speaker 3 It's just too big given the potential market. Because in spite of all of the good stuff, it makes chips.
It makes chips for the AI architecture.

Speaker 3 And how much you spend on AI architecture is entirely dependent on how big you think the AI market is going to be.

Speaker 1 Trevor Burrus: And there will be competitors.

Speaker 3 And there will be competitors eventually.

Speaker 1 So you also told Scott Galli you won't value Palantir because, quote, you have no idea what they actually do.

Speaker 1 It's funny when you put it like that, and the stock has become a darling among retail investors, another sort of meme-y stock.

Speaker 1 It was up over 500% since last January, but in the past few days, it's been sliding quickly. Do you think of it as a meme stock if we take a step back?

Speaker 3 I think Palantir has some really good qualities. I mean, I don't understand what it does.

Speaker 3 From people I've talked to who are aware of its products, it's one of the few companies that actually is producing AI-related products and services that I value.

Speaker 3 So I've talked to commercial establishments that have been very impressed with the kinds of the integration of AI.

Speaker 3 So it's not like, you know, a lot of companies throw AI in on a product they've had for 10 years. They call it AI because it's kind of buzzy right now and you can sell it.

Speaker 3 Palinter is one of the few companies that's actually taken AI, which is powerful computing and data to the next level.

Speaker 3 So from that perspective, I don't think it's like GameStop or AMC, which were empty companies to begin with that became vehicles for people playing speculative games.

Speaker 3 That that's what the essence of a meme stock is. There's not much there.
I think Palantir is a lot more than

Speaker 3 just that name. There is substance of company.

Speaker 3 What makes me wary about the company is if you ask how big is the market for what they do, since I'm not quite clear what they do, especially on their government slash defense side of the business, I can't even tell you how big the market is.

Speaker 3 I do know I've talked to people

Speaker 3 who are on that side, who bought Palantir products, who are very impressed by what they do with AI that can help the Defense Department. But I'm not sure what that

Speaker 3 market is. And if you don't know what the total market is for a young company, it's very difficult to gauge a value for the company.

Speaker 1 So you'd rather stay away.

Speaker 3 That's where I'd rather stay away.

Speaker 1 So let me move on to another one. Apple just announced a $500 billion investment in the U.S.
over the next four years.

Speaker 1 It sounds impressive, but it's what they also dovetails to what it said it was doing and what they spend in the normal course of business. I think it was just a press release to please Trump.

Speaker 1 Compared to other tech companies, they're very disciplined with their spending. They're still the most valuable company in the world by market cap.

Speaker 1 But iPhone sales are down, and there's a perception they're playing catch-up in AI, although some people say they're a great gatekeeper for AI and they haven't overspent like other companies, like Microsoft and Meta and others.

Speaker 1 How should investors look at Apple stock?

Speaker 3 You know how they say companies are reflections of the CEO's personality? Tim Cook is a very measured man. He doesn't strike me as somebody who's going going to go chasing after a dream.

Speaker 3 He's an operating person, guys. He's not a vision person.

Speaker 3 So, you know, the part of the 500 billion, I think, is a reflection of a long-term shift that Apple has made, where they want to regain control of the production processes, which they turned over to Chinese companies or companies in Asia.

Speaker 3 So whether

Speaker 3 they might have made that decision well before Trump was elected, so this might just be a PR, which is, you know, doing something they plan to do.

Speaker 3 On AI, though, I think they're actually playing their cards just right. I mean, I have an Apple smartphone.
They finally added Apple Intelligence.

Speaker 3 I'm not particularly impressed with what it does for me. Not yet.
But then again, I'm not a techie person. So the fact that my emails get sorted out, it's nice.

Speaker 3 But I could say that about almost every AI product and service I see as a consumer, it's neat, it's cute, but I'm not paying $10 a month for it.

Speaker 3 But I think when I look at Meta kind of spending $60, $80, $100 billion building data centers and AI,

Speaker 3 I'm not sure that there is a market for it. So I think Apple actually has played its cards right on AI.

Speaker 3 And with DeepSeek on, maybe you don't need the AI chips and the huge data centers to actually produce good AI products. So on that front, I think caution has kind of won out.

Speaker 3 Just as I think caution has served Apple well for much of the last 15 years, because I've heard people say, you know, Apple should go out and buy Netflix. Apple should go out and buy Tesla.

Speaker 3 I mean, it's because they had the cash to do whatever they wanted. The restraint they've shown has always been the reason I've held Apple stock.
But I'm also realist.

Speaker 3 I don't buy Apple stock expecting 10%, 15% growth a year. I expect 6%, 8% growth, and a cash machine.

Speaker 1 Of all the tech companies, which one are you most worried about? Obviously, regulatory issues have taken a backseat. They're not as worried.

Speaker 1 There are cases still going around Meta and other companies. Is there any you're particularly worried about?

Speaker 3 Not really, because I have them all in my portfolio.

Speaker 3 I'm going to be worried about the regulatory because they're going to, it'll be, you know, for the grace of God, go I, every tech company is going to be under some regulator's

Speaker 3 microscope, either in the U.S. or outside the EU or in Asia, you know, at some point in time.
So I kind of expect that, given how big they are and how much they're a part of our lives.

Speaker 3 So that's built into the cash flows, the costs that they have. I don't see anything catastrophic lurking around for any of the companies.
I think the biggest worry you should probably have is

Speaker 3 when you have a company that gets almost all of its revenues from a single business, Google with online advertising, you hold your, you know, you cross your fingers and you say, let's hope that AI somehow doesn't create a different model for online advertising, but the search box goes away.

Speaker 3 So

Speaker 3 if you're thinking about catastrophic risk, it's something that can undercut a core business. People stop buying smartphones.
Why?

Speaker 3 Because there's some other device that does what smartphones do, which doesn't exist right now. So at the moment, I'm okay with where they are.

Speaker 3 But technology being technology, I've seen things change at the drop of a hat. So that's true.

Speaker 1 Yeah, nobody expected the iPhone.

Speaker 3 I've got to stay connected to my kids and my grandkids because they're the ones who are going to be at the front end of those new devices when they show up.

Speaker 1 Nothing yet. I can report.
Nothing yet. Nothing yet that I see.

Speaker 1 Two final questions. If we take a big step back, American stocks are made up roughly two-thirds of the global value.

Speaker 1 To some investors, that means American stocks are overvalued and other markets are undervalued.

Speaker 1 But you said earlier the magnificent seven companies are the best thought of as global companies that are based in the U.S., not necessarily American companies.

Speaker 1 I would love you to sort of go deeper into that insight.

Speaker 1 Explain how it affects the way you think about potentially unbalanced valuations of American stocks compared to the rest of the world. Is there an area of the world you are very interested in?

Speaker 3 In terms of economic growth and prosperity, I think Asia is going to see a lot more of that, partly because they have a lot more room to grow.

Speaker 3 That said, though, it's almost like the rest of the world in terms of the market cap side, the investing side and the company side is stuck in the 20th century.

Speaker 3 One of the things I do is I take the top indices in every market. I go to the Sensex in India, the Bo Vespa in Brazil, and I look at the companies in the index.

Speaker 3 And what I see are old-time manufacturing, mining, financial service companies, even in countries which are high-growth countries like India.

Speaker 3 For whatever reason, the systems within these countries don't seem to allow entrepreneurial young companies to scale up and become one of the largest players. It's got to be structural.

Speaker 3 It can't be cultural. It can't be that Indians are not entrepreneurs because when they show up in the U.S., they manage to become entrepreneurs and build these big companies.

Speaker 3 So there's something structurally in much of the rest of the world that causes young companies, once they start to scale up, to either have to sell to bigger businesses or hit caps. The U.S.

Speaker 3 does not, in spite of all of its faults, the U.S. allows young companies to not just grow, but scale up to become the largest companies.
I mean, think about it.

Speaker 3 Meta is 13 years old as a publicly traded company. That's a child by corporate age standards, but it's one of the largest companies in the world.

Speaker 3 And you take the Mag 7, Apple and Microsoft might be the ancient ones there, but even they're 50 years old and they're companies that have found new lives with new products.

Speaker 3 So I think that

Speaker 3 the fact that U.S. companies are such a high percentage of market cap, some of that might be overpricing, but a lot of that has to reflect the fact that the U.S.

Speaker 3 is where the 21st century companies, the companies that are delivering the product and services where dependent is being produced.

Speaker 3 So much as the EU might point at these tech companies and say, you're terrible, you're violating privacy, I'm looking for the next great European tech company. Yeah, good luck.

Speaker 3 And they'd say Spotify. And they'd say, if that is your definition of the next great tech company, you set your standards really low in terms of what you think as big tech companies.
That's right.

Speaker 1 100%.

Speaker 3 And China had a chance, right? In 2019, you had Alibaba, you had Tencent JD. But then the Chinese government broke their knees because they were worried about...
the threat they would be to control.

Speaker 3 That's correct. So in a sense, China kind of handicapped itself in this race, leaving the big tech companies.

Speaker 1 And Israel is sort of in a real flux right now in terms of political. Yeah, there isn't a

Speaker 1 U.S. dominates, which is interesting.
Is there an industry besides tech you're super interested in that you're like, huh?

Speaker 3 Healthcare, because there's a lot of shaking out to do. I mean, it's not good.
It's not, I'm not interested because there's growth and prosperity, but... The system we have just doesn't work.

Speaker 3 I'm talking about U.S. healthcare in particular, but you could probably say the same thing about much of global healthcare.
We have a system where everybody is unhappy. Doctors are unhappy.

Speaker 3 Patients are unhappy. Insurance companies are unhappy even when they make money.
Governments are unhappy. Politicians are unhappy.
That's my definition of a system that deserves disruption.

Speaker 3 And

Speaker 3 the question with healthcare is why hasn't it happened yet? Why hasn't there been an Amazon healthcare? Mark Cuban is a startup, but it's still a very small player in the game.

Speaker 1 Amazon did buy one medical. Yeah.

Speaker 3 And I have a feeling that the next decade is when you're going to see the disruption because the amount of

Speaker 3 disappointment, of anger you see among every layer in healthcare is so great that something has to give here.

Speaker 3 So I'm keeping my focus on the healthcare and trying to figure out who the winners of this disruption will be.

Speaker 1 Remember Google Health? Google Health? That didn't work. Anyway, last question.
Now, most people are in these larger funds, right, of the market basket markets.

Speaker 1 They don't have the time and intelligence that you have to individually pick stocks. So if there's an 80% chance that American equities are overvalued, what is advice do you give to people?

Speaker 1 When do you expect prices to come back down and what should people do? I mostly ignore everything, Aswath. I just ignore it.

Speaker 3 I do too. And here's why.
Because

Speaker 3 a few years ago, when people were talking, because this notion of a bubble, markets being in a bubble, especially with U.S. equities, has been around for the last decade.
Yes, indeed.

Speaker 3 And I took the Schiller PE, which is every market timing person's favorite device to show you markets are overpriced. You know, look at the PE.
It's much higher than it used to be.

Speaker 3 And I ran an experiment. I went back to 1871, which is when Robert Schiller started, you know,

Speaker 3 looking at U.S. data.
So I took his data, so I couldn't be accused of playing with the data. 1871 through

Speaker 3 2017. And I said, I'm going to play a game where I'm going to buy stocks when you tell me the Schiller PE is low.
So they have this range between 12 and 16.

Speaker 1 This is for people who don't know.

Speaker 1 If it gets out of whack, that's something they're going to do.

Speaker 3 It's a metric you use to say markets are overpriced or underpriced.

Speaker 3 So you buy when

Speaker 3 the PE is low, you sell when it's high. And I said, okay, I'll put this into play and let's see whether I can beat the market by trying to sell when that timing indicator tells me to sell and buy.

Speaker 3 And it turns out that I actually underperform the market unless I can predict a correction within six months of it happening.

Speaker 3 It turns out that the cost you pay of going out of markets and waiting for the cleaning up to happen is far greater than the benefits of actually being out of the market when the correction happens.

Speaker 3 So, if you went out of the market in 2005 expecting a correction and in 2008 it happens, it doesn't do you much good because you gave up too much money waiting for the correction to happen.

Speaker 3 So, my advice to people is: you say markets are overpriced. I might agree with you on that because that's, you know, I value the market and I said it's 12% overvalued.
So, what should I do about it?

Speaker 3 Nothing. My advice is do nothing unless you have some special conduit that tells you the correction is going to happen in the next two weeks.
Right.

Speaker 1 Or you need the money.

Speaker 3 Or you need the money. If you need the money, of course, this is the time to take it out.
You've made a lot of money over the last four or five years, cash out.

Speaker 3 But if you don't need the money, you're going to be sitting on cash for a long time waiting for the market to come back.

Speaker 1 Yep. Very good point.
All right. Aswat, as always, you're a genius.

Speaker 3 Not quite.

Speaker 1 Thank you.

Speaker 1 Thank you so much.

Speaker 3 Thank you.

Speaker 1 On with Carrouse Wisher is produced by Christian Castro, Rousselle, Kateri Yoakum, Dave Shaw, Megan Burney, Megan Kunane, and Kaylin Lynch. Nishak Kurwa is Vox Media's executive producer of audio.

Speaker 1 Special thanks to Kate Furby. Our engineers are Rick Kwan and Fernando Aruda, and our theme music is by Trackademics.
If you're already following the show, there's a 0% chance you're overvalued.

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Speaker 4 Rootmetrics rankings are not an endorsement of AT ⁇ T. When you compare, there's no comparison.
AT ⁇ T

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Speaker 7 AgentForce, what AI was meant to be. Learn more at salesforce.com/slash agentforce.