The Great Sloppification of OpenAI

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Today's number, $30,000.

That's how much barrier consultants charge to help parents name their babies.

Ed, true story.

When my partner was giving birth, she was screaming at me, saying, oh my God, this is so painful.

And I said, hey, look.

I wanted to put it in your ass and you said it would be too painful.

Now look at you.

Is this the bridge bridge too far, Ed?

Is this the red line?

I don't think this is the red line.

Is there a line for just strangeness and weirdness?

Is there a line for that?

Economically independent.

I'm the largest shareholder here.

I'm not sure I can be canceled.

I'm not sure I can be canceled.

Independent media.

This is what we get for trying to break away from the mainstream.

How are you, Ed?

I'm doing very well.

How are you?

Why is that?

What's going on?

Why am I doing very well?

Yeah, what's going on?

What's going on?

What's going on?

I don't know.

I had my coffee.

I had a good night's rest.

I've actually got a

party I'm going to tonight hosted by the one and only Mooch, which I'm pretty excited about.

The Mooch?

He's celebrating his book, the 15-year anniversary of his book, Goodbye Gordon Gecko.

I'm sorry.

They have parties to celebrate anniversaries for books now.

Which I respect because he's figuring out ways to bring people together and to rent out a nice place.

I mean,

I think it's good stuff.

I know you're going to shit on it, but I just want to get my opinion out there first.

I didn't get invited, so I'm not a fan of this party.

How's things on the home front?

Are you living with your girlfriend yet?

I've been living with her for a while.

I knew that.

How's it going?

And how's it going?

Have you guys got a dog yet?

No, I think I've told you this before.

I'm not the biggest dog person.

Okay, so all you need to do to fix that is to get a dog or get another dog.

Your dog sounded awful.

Occasionally, get a bad dog.

That's good.

You remember I had a bad dog.

Public service announcement, and I'll link this back to our show, The Markets.

We talked about how sales of hamburger helper and rice-aroni are up, which is a negative forward-looking indicator for the economy.

Another negative forward-looking indicator is that people surrendering their pets to shelters has spiked.

All these people who thought it'd be a good idea during COVID to get a pet and now they're struggling economically turning their dogs back in.

There are so many amazing dogs at shelters right now.

If you just go to Google and type in or go on Instagram, type in Brooklyn Shelter.

And I've had mutts and I've had purebreds.

Actually, I've only had one purebred and she's a total neurotic bitch.

But the

mutts you get at shelters are just amazing.

Are they not a little crazy themselves?

I mean, you're kind of signing up for an emotionally damaged animal, no?

No, dogs out of shelters, mutts are, I mean, first off, it kind of makes sense.

Purebreds are literally like the Norwegian family monarchy in the 18th century.

Like half of them are, you know, have three legs and are, you know, no teeth because there's so much inbreeding.

When a dog gets popular, they become shitty dogs because they get overbred.

Mutts are absolutely the way to go.

They're outstanding.

Do I have to go for a rescue dog?

I mean, that's really what I'm zeroing in on here.

Someone who's sort of abandoned their dog, and then the dog is definitely very damaged and very upset.

It's probably going to be a little weird.

Like, I'm looking for something very simple.

I want to basically not have to deal with my dog very much if I'm getting a dog, which I'm not going to.

The premise of your question is factually incorrect because the dogs, dogs are surrendered because usually for economic reasons, or people are moving, or people get a job and they can't be at home.

But mutts, it's almost as if they know, especially I got my last R from a shelter.

It's almost as if they know you've saved their life and they're really grateful.

Whereas my great Dane is a total expectant bitch.

She expects to fly business class, wants jewelry on her birthday.

I mean, and this is a great Dane.

Whereas the rescue pup that I picked up,

our Puerto Rican rescue hound.

She's writing thank you notes when you take her on the net jets.

I'm pretty sure she's a sewer rat.

I'm not even sure she's an actual dog,

but she's, or she, he is, uh, and he's awesome.

He tries to hump everything.

He's awesome.

He's,

he's really, I'm telling you, rescue or dogs from shelters are absolutely the best dogs.

One, they're usually already spayed or neutered.

Two, they're already trained.

And they're, and you're, you know, you're saving a dog's life and they're just, they're fantastic.

I've had such such good luck with dogs from shelters.

And you can go down.

And right now, you can find so many amazing dogs at shelters because they're just brimming.

There's just too many dogs.

Anyways, and one, Annette, I think you need this.

They're very good for your mental health.

They're very calming.

And I'd say next to working out, it's been my antidepressant.

I've been my dogs.

My kids come home and then, you know, really bum me out, but then I hang out with the dogs and I'm fine.

And then

they're a fantastic security system.

So all the surveys of incarcerated people who

commit crimes say the one thing that always turns them off is they never go into homes with dogs.

So it's an incredible security system.

They teach your kids, which you will eventually have.

I'm convinced you're on the verge of procreation.

They teach your kids about loss and responsibility, and

they make you more interesting.

Like you're a little rough around the edges.

You're a little rough around the edges.

That's what I need.

I need to be more interesting to people.

They soften the ed.

They soften the ed.

Seriously.

It's a great way to meet people.

I go out in the park and people come up and just start talking to you because they have a dog.

It's really nice.

So basically,

basically,

the steps of mating are, you know, you stop using condoms after you both get STI tests.

That's a big moment in a relationship.

You meet her parents.

That was an awkward transition.

That was an awkward transition.

You meet her parents.

You start kind of commingling money like you don't keep track of it or you do keep track of it.

I don't know.

I don't know.

I never did that.

You move in together and then the next step is you get a dog because pretty soon her ovaries are going to start blinking.

You notice how I've been silent for maybe six minutes.

I've just let you dig yourself further and further into this hole.

And by the way, the thing I still cannot get over,

I'm still getting over the fact that the thing that is awesome about your dog, the thing that you love, the first thing you reference, is that he tries to hump everything.

Everything.

Even though we chopped those nads off a while ago, no one told him.

That's what Scott loves about his dog.

That, and it's a good security device.

He breaks in every visitor and pillow with

a little hello in the form of a tiny dog going at it.

But what I was going to say is, the dog is the way to put off the baby for 12 to 24 months.

It doesn't solve the problem,

but it's how you practice.

Why do you want to do it?

Why do you want to put off the baby?

I mean, I like the idea of getting some practice in.

You don't want to have kids.

You're a dude.

It's like getting married.

No dude wants to get married.

And I secretly believe deep down no dude really wants to have kids.

We get forced into this shit.

It's so wrong.

Wake up.

Wake up.

Just totally, totally off base.

Dudes love children.

Yeah, once they have them, because this instinct kicks in and they look, smell, and feel like you.

So all of a sudden, they start getting less.

I wouldn't say you love them.

They get less awful every day.

But yeah, you do wake up at some point and think, okay, this isn't that bad.

This isn't that bad.

A lot of wisdom.

First six minutes of this podcast.

Just make sure you're taking notes, everyone.

Little soulful dad advice.

Sorry, Dad, let's get to the headlines.

Let's talk about the stuff that you're actually an expert in.

Let's talk about business.

Now is the time to buy.

I hope you have plenty of the wherewithal.

OpenAI just unveiled Sora 2.

That is its latest audio and video generator.

The tool lets users create digital cameos of themselves and others in videos and even generates speech.

Alongside it, they launched a new social platform for sharing and discovering these AI-made videos,

trying to position itself as a competitor to TikTok.

Meanwhile, Meta is rolling out its own version of these short-form AI clips, and it is called Vibes.

This is going to be essentially like TikTok as well.

So what we have here is two big AI companies, two of the biggest players in AI, both getting into the same game, and that is they're getting into AI-generated videos in a feed that will look almost exactly like TikTok.

Now, some people have been very excited about this, especially so are two, which I don't know if you've seen these videos, but it's pretty incredible how realistic these videos are.

You basically just type in your name, Ed and Scott riding a dragon, and you will get it, and it will look pretty spectacular.

So, some people are very excited about it.

Others are less excited about it.

And the reason that people are less excited about it is because what we are beginning to see

is this

massive inflow of what people are calling AI slop.

And what is AI slop?

I'll just read you the Wikipedia definition, which I think is a pretty good definition.

AI slop is a term for low quality media made with generative artificial intelligence.

It is characterized by an inherent lack of effort and is currently being generated at an overwhelming volume.

So that is sort of the downside of these two potential social media platforms, Vibes and also Sora.

Scott, I'll stop there.

Let's get your reactions.

Claiming this is going to be some sort of internal social media thing, and he used the word, oh, we want to connect people.

That's nothing but a false flag and a head fake from what they're really trying to do.

And that is show every movie producer.

executive at a studio that think about what you can do and for how much less you can do it using this technology.

That there's just not going to be

an intra-network TikTok for families.

That's not where they're headed.

When I first saw it, I thought, okay, they're trying to be the everything app.

They're announced they're getting into shopping.

They announced they're getting into content generation or video content generation.

Fine.

They have to say, at least give people the perspective that at some point, as Justin Wolfers, The Economist said, the leading AI company might be able to skim off.

It might be almost like a credit card.

If everyone in the world had a a credit card and every transaction they ever made for anything was through that credit card and they could take 2% or 3%, that company would be the most valuable company in the world.

And so what they're saying is, hey, we might be in shopping, we might be in content creation, but what they're essentially saying to the world or the content creation or the movie studio world is like, imagine what you can do if you learn these skills and imagine how less expensive it'll be.

And I don't know if you saw, but also they've announced, and this is just fucking ridiculous, that you're going to have to opt out if you don't want them to steal your IP.

So, Sam, use this as official notice.

I am opting out.

I do not use my shit without my permission or paying me.

And this was

so this, I think, was just an attempt.

I think it was a branding event to say, wow, studio executives and commercial producers, you know, and advertising agencies, get your greed glands.

Gentlemen, start your greed glance.

Because if we can do this fairly easily for cents or just just a couple hours of time and show Family Guy talking to Wednesday

and it looks real and it's kind of cool, imagine what you're going to be able to do for how little money.

What they're clearly doing is already illegal and in violation of all sorts of IP laws.

But what they're doing is they're taking a note out of the big tech playbook, and that is, why go through the hassle of establishing business licenses and standards if you're launching your ride-hailing app in Argentina.

sign up people, start giving rides, and the fines are much less than the market cap accretion when you continue to demonstrate growth and momentum.

And essentially, OpenAI has probably put a billion dollars aside.

They will eventually lose the case.

You are not allowed to use people's likeness like this.

Eventually, it'll work its way through the courts, but meanwhile, they'll keep violating people's IP.

and the increase in stock price will go up.

And the analogy I always use is that if you had a parking meter in front of your house that cost $100 an hour, but the ticket was was 50 cents, you too would make a conscious decision to break the law.

So I'm increasingly believing that Hollywood,

that the Panzer tanks with David Ellison helming them are rolling over the Sepulveda Pass.

into over the Hollywood Hills and have the Beverly Hills Hotel and the Waldo Frestoria in their sights or Burbank.

I don't know what the right analogy is.

They're coming for Hollywood and ad agencies and content creation because some of these things are just remarkable and they don't they don't cost very much your thoughts Ed?

Yeah, I think the real opportunity is in the technology and what it can use be how it can be used for the entertainment business So for those big production studios, I think for ad agencies as well What is interesting though is the way that they are presenting this product

I mean They released the technology, they put out this incredible video where you can see how it works.

And I mean, let's be real, it was a great ad for the product and for the technology.

But I'm just fascinated by the fact that they are so dialed into this idea that it has to be a social media app.

And we saw the same thing with Meta.

Meta is putting these AI generated videos and they're calling it Vibes AI, and it's its own TikTok feed that's going to be social media.

And just to read you some of the quotes from OpenAI, so they in the in the release statement.

for Sora 2, they said, quote, we see this as the beginning of a completely new era for co-creative experiences.

They said, quote, a lot of of social media has moved away from the idea of friends and family connections.

We believe that SOA can lean into this because it's just so easy to create.

So they have this strange obsession.

I think it's strange at least with making this about socializing with other people and creating stuff with your friends.

And I'm going to, you know, oh, Scott, I'm going to make a video of you.

I'm going to send it to you and then we're going to make stuff together.

Strengthen our relationship, yeah.

Strengthen our relationship.

And this to me is a, it's just sort of not really on the right track of what they're supposed to be doing as an AI company, which is they're supposed to be selling the technology for the actual creators, the entertainment studios, to entertain us.

But instead, they're taking this social media route.

And same with Meta.

And I wonder if these

CEOs and the management team behind these companies, I wonder if they're too obsessed with this idea that we have to be social media, we have to put it in some short-form content form.

And ultimately, I don't think that's going to work.

And we're already seeing the backlash where people are correctly saying this is just an endless stream of slop.

And I love that word slop.

It really does describe these videos quite well.

They're photorealistic, they look pretty amazing, but then after about two seconds, you're like, okay, I've seen enough videos of dragons flying through the air or AI cats wearing tuxedos.

I mean, at a certain point, it becomes very boring.

Anyway, I just want to get your views on this social media angle that both companies are really driving towards.

So I actually think they're doing the right thing.

They're just lying about it.

I don't think they're headed down social media.

Look at.

So this is what OpenAI wrote of Sora One.

Open quote.

Sora is becoming available to a number of visual artists, designers, and filmmakers to gain feedback on how to advance the model to be most helpful for creative professionals, which is Latin for you can make a movie or a commercial for 90% fewer people.

I think what their objective is, is when putting these things out, is studios are, and again, agency executives are, their reed glands are going, but I don't think Sam wants to freak out the creative community and get a ton of pushback.

I don't think he, I think the more honest thing would be to say, hey, SAGAFTRA and the WGA, we're coming for your bitch asses

your

you know your member your membership to San Vicente bungalows and your BMW

and your vacations in Cabo are my opportunity you're you're not going this industry is ripe with fat waste or

They're coming for them.

And I think what they're doing is saying, effectively putting out an ad that will accomplish what they want, and that is demonstrate what can be done while pretending it's about connecting people.

If that is the case, I think that's the right decision from a business perspective.

I mean, you look at like image, AI image generation, just as an example, where, I mean, you might remember when ChatGPT's image generator came out and everyone went absolutely crazy about this thing

because it was pretty remarkable.

And you looked at these images and I'd type in, you know, Scott and Ed recording a podcast in the style of Studio Ghibli.

That Studio Ghibli trend was like the huge trend.

Everyone was playing with this thing and it seemed like everyone was going to be a creator.

But then eventually, within about a few weeks, three, four weeks, suddenly no one was really generating these images anymore.

And then we actually looked into the data here.

And actually, ever since that image generator was released, search interest for AI image generation has fallen by nearly 80%.

You have another study showing that all of this AI art that exploded online, suddenly that's plummeted as well.

Searches for Mid-Journey, that was a big name as well in the AI image generation community.

That's also fallen off.

Fun fact, at one point last year, searches for Scott Galloway almost overtook searches for Mid-Journey.

And this was an illustration of this theme where

It's not really it might seem as though everyone's going to be a creator.

And that's that might be the way you think about things at first, but ultimately, these platforms are for the consumer.

And we're not interested in using the product because we want to be creating content ourselves.

Some of us might be interested in creating content, but ultimately, the vast majority of us who are using the platform, we're there to consume.

We want you to do the work, you being the company or the production studio or the content creator, and we're going to do the consumption.

And Ben Thompson talked a little bit about this in Stratekeri.

There's this old internet adage called the 1% rule, which is basically this rule that it's only 1% of the users who actually create stuff, the other 99% of the users consume.

Point being, if it is the case that this social media angle is just

basically an advertisement, or a distraction from what the real goal is, I think that is actually the right direction because the real real goal here shouldn't be trying to get everyone to create AI videos.

It should be trying to sell the AI video technology to the companies who are going to create the AI videos, which are going to be distributed to all of us users.

That's where they should really be headed with this.

Well, there is a non-zero probability that the anodyne nature of

what these LLMs produce work for data, maybe even more for narrative, but don't work as well for creative.

And that is, if you look at

design, mid-journey,

you would have thought initially a year ago, we were saying, oh, poor design firms and poor designers, they're the first to go.

What you've seen happen at tech companies is the ratio of designers to programmers has actually gone up because as coding and the architecture of a site become less differentiated because they can all be reverse engineered and everyone's using AI to build their sites and reduce the amount of code, the one way you can differentiate is with great

UX and great design, which still requires humans.

So actually design,

you know, these companies, OpenAI is hiring a ton of designers.

OpenAI paid,

so fucking stupid, five or seven billion dollars for Johnny Ive to cosplay his younger self.

Meet Sam Altman for coffee on camera.

I'm just a billionaire looking at another billionaire, asking him to make me a trillionaire.

Sam is a revolutionary.

Good God, just get a room.

Anyway, but so far, designers have not only not been replaced, their role in all of this, they're the salsa on the chip of AI, which is highly anodyne.

Feels, you watch it and you just feel like,

it's like, what's the opposite of horny?

You're just like, ugh.

Depressed.

Yeah, you just feel kind of, huh.

And you know it's AI.

That's the other thing that's so interesting.

Everyone thought that we wouldn't be able to tell.

You just always know there are all these little signals because, as you say, yes, it is so anodyne in a way that reality somehow isn't.

But I feel that way with these superhero films, so much CGI and shit that I feel like.

Agreed, AI could make those movies.

All these things lead to one, really one place, and that is you should go to a shelter and adopt a rescue pit and name it Mid Journey.

Your new dog, Midjourney.

But just going back to open AI as a business, I mean, I look at this Sora social media feed and I think you guys are kind of focusing on the wrong thing.

I mean,

if what you say, your theory is true, that this is a distraction, and mostly they are focusing on the B2B and going to the production studios and the TV networks and the ad agencies, good, all for it.

That's a revenue driver.

But I think the thing that OpenAI needs to think about is they need to start making money.

Like they've got millions and millions of users.

Everyone knows about ChatGPT.

They figured out all of the marketing.

They figured out how to become a household name.

Now is step two.

Now you need to start becoming profitable, especially if you're going to spend hundreds of billions of dollars over the next several years, especially if you're going to have to raise hundreds of millions,

excuse me, hundreds of billions in debt.

And you don't want to get a shitty interest rate.

You need to start getting profitable.

And that means monetizing the product.

So go to the production studios and sell the AI technology.

But there are other things that they should be focusing on.

As an example, they just released the shopping feature, Instant Checkout, which will allow you to buy products directly on the platform.

That's a good idea.

I think we should be seeing more emphasis on that.

But the other thing that I think we should really be seeing more emphasis from from OpenAI on is turning on the ad switch.

Now, we've talked about this several times.

That's the way they're going to do it.

But we've we've seen no indication that they're doing anything to build their ad network and to build a solid ad stack.

And if that's, I mean, that's the way they're going to have to make money here.

I don't see any other way they're going to do it unless they're going to go crazy with the subscriptions.

But

it seems to me that that's where they should be putting all of their creative energy.

Go, go.

do what Google did, where Google bought DoubleClick, which was their most expensive acquisition ever, and it was just a giant ad network.

And that's what really took Google into light speed.

So I feel like that's where OpenAI should be taking this business if they want to start getting profitable.

But

what do you think is the right strategy ahead for OpenAI?

I agree with you.

They're likely to go shopping and make some tuck-in acquisitions and maybe a couple of major acquisitions now that they have this currency worth half a trillion dollars.

And any, when you're trading at whatever it is, 40 times revenues, any acquisition you make is accretive.

It increases your earnings per share.

Where I disagree is they need to get profitable.

If I were on the board of OpenAI, I would be saying we need to show growth, massive growth, massive customer acquisition, and

disruption of certain industries, if you will.

But no, no, no, no.

We don't want to be profitable.

We just want to show massive top-line growth.

I don't think this company, quite frankly, I don't think this company needs to be profitable for five or 10 years because

it took, I forget how long it took Amazon, 15 or 20 years.

The playbook is disruption and growth, not profitability.

And this does,

there is an argument that the best AI,

that there can only be one, that there's going to be one AI kind of running everything.

And so leadership and growth and raising massive amounts of capital are kind of the whole game here.

I would put profitability way down on the totem pool.

So I don't think because all of the margins, if you look at the gross margins on the things they do, they're usually 99%.

There are no costs here.

Once you've set up, there's tons of CapEx, massive capex,

but the processing power is what the energy costs to power these data centers.

But the gross margins are just near 100%.

Essentially, AI has become the, you know, has become the mother of all capital wars.

Like who can,

they don't want to spend stupidly, but as long as they can grow, show that type of top line growth.

I mean, just the numbers here are just staggering because they realize, I think they realize whoever's number one is going to trade at 10 to 30x what the number two player is.

Do you want to hear my moral dilemma that fits into all of this?

Please, yeah.

Have you used my

Google Labs profile yet?

No, I haven't.

Well, thank you, Ed.

It's nice to see you're investing in this relationship.

So just some headline news here.

I get a lot of emails from young men looking for advice, usually professional advice, sometimes advice about investing, and I can't answer them all.

And so about 18 months ago, the team here at ProfG built a thin layer of innovation on top of an LLM and built Prof AI.

And we were getting two, 300 queries a day.

Google Labs approached us.

Specifically, I had a graduate student instructor, or it's a fancy word for TA, who's just a super impressive woman who now works at Google, approach me and say, we can do much better.

We're working with a bunch of thought leaders and do you want us to, do you want to be one of them?

I said, great, I would love to do that.

They spent a lot of time on this thing and it launched last night.

And in the last three months, I have become increasingly uncomfortable with character AIs and synthetic relationships.

Now, the upside is a lot of young people who don't have access to my content and have a specific question can get access with this thing.

And I've tested it, and it's actually pretty good.

I'd say it gets 70 to 90% of what I would say in the tone I would say it.

In the last several months, there's been some really ugly instances of suicide and people having psychotic breaks because they thought they were in relationships with these synthetic character AIs.

In addition, I hate the idea of a young man slowly but surely spending less time or taking less risks to try and establish his own mentorships and friendships in real life.

And so this thing launched yesterday and I said, well, anyways, I'll stop there.

What would you suggest if you were me?

Would you leave it up or would you take it down or what would you do?

I don't think that it's actually that valuable to have an AI giving you the answers to things.

And I think a lot of the idea, the thing that is inspiring to people when they ask you questions isn't just the answer that you give, it's the fact that they actually connected with you.

I mean, that...

That to me is a big piece of reaching out to people and getting advice.

I mean,

the content of the answer itself is only one part of the equation here.

A lot of this is about the actual connection with the individual and realizing that this person

thought about it, thought about my situation, recognized me as a person, and gave me a response as a human.

So

I don't know about taking it down, but my view on these AI avatars is

I just don't think they're that valuable.

I mean, I think Google as a, if you want the answer to something and you don't really even care about connecting with the person, just go on Google and like see what Google has to say about it.

I don't think that means you need to take it down.

I don't think it means that you need to delete the thing.

But I just, I, I struggle with the value of these things from the get-go.

I think that's a really thoughtful answer.

Um,

and uh Yeah, you summarized a lot of the way I'm feeling, I feel like the ground has shifted beneath us the last six months.

And I'm really freaked out about the idea of young men men establishing synthetic relationships and using them as a replacement for organic relationships.

Anyways, long story short, I pulled it down.

Oh, you did?

Yeah.

I just,

something Naval said, the Twitter philosopher, I don't know what he does, but I think of him as a philosopher.

VC.

They're all VCs.

He's a VC?

Yeah.

Oh, God.

Angel Investor.

He's started companies as well.

Really?

Anyways, he says something that really struck with me, and that is,

if you're spending a lot of time trying to decide something, the answer is almost always no.

And I thought, yeah,

there might be some missed opportunity to get good advice, but I'm like, they can read a book, they can dial into office hours, they can read one of my newsletters, but I just hate anything that reduces a young man's fire to go up to a teacher.

a boss, a potential boss, or whoever, or email me and try and make some sort of personal connection.

We'll be right back after the break.

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Deal making surged in the third quarter with Global MA topping $1 trillion for the second time ever.

The main standout was EA's $55 billion buyout, which we covered on the daily show.

But beyond that, there were also 13 mega deals that surpassed $10 billion each.

What is also surprising is how the landscape has shifted.

The scale of the deals is getting bigger, but the total number of deals hasn't budged.

Total deal value jumped 27% year over year, even as deal volume stayed flat.

So, Scott, you actually predicted that M ⁇ A would be the business trend of 2025.

You also predicted that we'd see the largest take-private ever.

Let's play the clip of your prediction.

Corporations have record profits.

They're running out of growth.

And if they're in challenged industries, they want to bulk up.

You're just going to see tons of M ⁇ A here.

There's There's been M ⁇ A has been largely moribund because the Biden administration was enacting more FTC and DOJ reviews, which by the way, I think was the right thing to do.

But you're going to have a much more M ⁇ A-friendly head of the FTC and the DOJ now.

And these companies have so much money on their balance sheets, they're just going to go shopping.

So we have got trillion dollars in M ⁇ A in the third quarter and $3 trillion so far this year.

That total number is up 35%

year over year.

Crushed it on that prediction.

What was the incentive or what was the impetus for that prediction?

So, the way I would describe it is:

for a small set of companies, everything's 50 or 80% off.

And that is,

if you're Palantir Technologies and you're worth $440 billion,

and just

five years ago, right,

you were worth

$20 billion,

Everything is on sale for 95% off.

Because when you buy a company, you issue shares to buy it.

So

let me put it in another way.

Like when I raise your salary from 10 bucks an hour to 20 bucks an hour, technically your rent gets cut in half as a percent of what would be required for you to sacrifice.

So when Open AI goes from being worth $20 billion to $440 billion in five years, the universe of potential acquisitions goes up a thousand fold.

In addition, when they're trading

at 50 times revenues or whatever it is, any acquisition they make is technically accretive that increases their earnings per share.

So when a banker, you know, bankers meet with CARP every few weeks and they're really smart people.

They look at different channels, distribution strategy, understand your strategy.

Wouldn't this be a great tuck-in strategy?

Because they're trying to figure out a way to generate fees.

The book of potential strategic options now in terms of acquisitions has gone from two pages to 200.

And so what are we going to see here?

I think, so the prediction was we'd see the biggest take private.

That's happened.

What we're going to probably see in the next six months is the biggest merger or acquisition in history.

Because if you're NVIDIA and you're trading at a $4.5 trillion market cap, you can go buy a $100 billion company for a 2.5%

bet.

You can bet the bankers are working overtime and the selection set and the opportunity to go buy a company worth $50, $100 or $200 billion.

That wasn't even thinkable before.

It all spells one thing.

We have not seen anything yet.

We are going to see some just titanic deals.

In addition, you Elier, on top of the fact that essentially

the DOJ and the FTC have somewhat been anesthetized, you know, they're just under.

They're just not awake right now.

So all of these moons are lining up to where this is banker Lollapalooza.

You're going to see the largest banking fee ever registered on a deal in the next six months.

It'll be because the wonderful thing about M ⁇ A,

when I was working at Morgan Stanley, it's all perspective.

The deal doesn't close, you get zero.

But if the deal closes, the fees are outrageous because if someone is pitching open AI and says, all right, Gartner's stock is down.

They have some good IP around technology.

You should just acquire them.

And they're worth $12 billion.

You can acquire, I don't know, you can acquire them for $15 billion.

They're not going to argue over whether the fee is $140 million or $170 million.

They brought us the deal.

They have to rally 40 people to work day and night for 90 days to close this thing.

So your margins are just extraordinary.

There's very little pricing pressure in MA.

The lawyers rack up their bills, inflate their bills.

Everyone just makes a shit ton of money because there's, you know, it's like, it's almost like the real estate business.

That is an incredibly inefficient business where

your friend Marge, who's very friendly and went to junior college and

knows everybody, can get 5% or split with another person 5% of the value of your home by figuring out a a transaction.

And it's all based on relationships.

Anyways, we're going to see more of this.

In my opinion, it's only getting started.

Yeah, and that's the bank earnings when earnings season comes up will be so interesting.

But if you're wondering why is JP Morgan up 30% year to date?

Why is Goldman up 37% year today?

Why is Citigroup up 41% year today?

Why are all the bank stocks absolutely ripping in 2025?

This is the answer.

It is MA.

Banks have generated $95 $95 billion in investment banking fees this year.

And that is the second highest in this timeframe ever.

So these banks are absolutely printing money on these gigantic deals.

And we've seen a ton of these mega deals.

We saw, I mentioned the EA take private $55 billion.

We saw Palo Alto networks buying CyberArt for $25 billion.

Anglo-American buying tech for $50 billion.

We're seeing these gigantic deals.

Now, the one thing that I find very interesting, I'd like to get your reaction to

record MA market in terms of dollar value, deal size,

but not a record MA market in terms of deal count, the actual number of deals that are happening.

So what is actually happening here when you dig into the numbers, basically what's happening is you're seeing a ton of deal making among really big companies, large caps, and then the opposite is happening among small cap companies so just the numbers here deals worth less than half a billion dollars are down 18 this year deals worth less than two billion dollars are down 25 percent this year

deals worth more than ten billion dollars are up twenty six percent this year so what you have is the the gigantic companies are getting acquired and no one's really touching the small companies.

And this reminds me very much of the discussion that we've been having when we look at the GDP data and we look at the underlying economic data among consumers in America.

The numbers are going up, but then you dig into it and you realize, okay, actually, let's look at it by bracket, by income.

Hold on, the very top are the ones that are creating all of this activity.

And when we look at the bottom,

actually, the activity is in decline.

So we saw that in the consumer market and we're seeing it as well in M ⁇ A.

The small companies are not really being touched when it comes to these big acquisitions.

Your reactions?

So first off, two-thirds of acquisitions fail.

People get excited about them.

They have to pay a premium.

Integration is always more costly and timely than you thought.

Two-thirds of them end up not working.

And also,

you know, integrating a billion-dollar acquisition isn't much easier than integrating, you know, a $20 billion acquisition.

So you have, and then the companies making smaller acquisitions are the SP 490, right?

Meanwhile, the big guys have made so much freaking money.

And it goes back to what we were talking about before, the opportunity set or target market has expanded exponentially because now they can afford to buy almost anyone.

So it would just make sense that the SP 490 who have not registered the same returns, don't feel as flush or as rich, and are, by the way, usually dodging incoming projectiles in the form of tariffs and all this other nonsense, are not out shopping because they don't feel like their stocks are inflated.

They don't feel like they have their preloaded credit card.

Whereas the big guys are like, yeah, fuck, I could go buy Ford Motor right now.

Like pitch it to me.

I mean,

or

whatever the company is.

So it would make sense that it's the big game.

If you saw a run up in the Russell that tracks small business, you know, or small caps, you would see, and oftentimes small caps, traditionally small small caps have outperformed the big guys because they're supposed to be more nimble.

That dynamic has entirely changed the last couple of decades.

Of the 500 companies that were unacquirable because they were so big, like, you know,

no one would have thought of buying Chevron.

They could have merged with them, but they couldn't buy them.

Now,

it's acquirable.

There's companies out there.

There are pools of capital.

And there are companies with market caps that now make these companies acquirable.

So I just think it's just a function of the haves and the have-nots.

The haves have preloaded credit cards, the likes of which they've never had before.

The have-nots, the mediums and the smaller cap guys are kind of licking their wounds, waiting to see if their tariffs on Brazil is going to go to 100% based on the blood sugar level of the president.

I just find it remarkable how every

story we dig into on this show,

The more you keep digging, ultimately there is one trend that just runs through all of it, and it's inequality.

Like,

we see it in the consumer economy.

We see it in the stock market.

I mean, the fact that the Mag 7 now makes up 35% of the entire market cap of the S ⁇ P right now.

You look just a few years ago, 2019,

it was 19%.

So you've gone from a fifth to a third in just about five years.

And the downstream effects of that inequality are spreading out everywhere, including MA of all markets.

I mean, the fact that if you want to get bought as a company, you need to hope that you are worth at least $10 billion.

Otherwise, the chances of you getting acquired are actually lower than they were a year or two years ago.

And then, what is even more interesting is the fact that because the dollar amounts are so big on those big deals, it distorts all of the data and it makes you think, oh, this is this giant MA market.

Everyone's making deals.

And then if you're a small company, you're like, well, why isn't it, why isn't it happening to me?

And the reality is you're not an exception, actually.

You and the rest of the other small cap companies are not getting acquired.

It's just the big dogs at the top.

And we see this everywhere.

And I think the other interesting question that we have to go to then is, what does that mean?

I mean, what are the implications of that?

What does that mean for

smaller companies?

What does it mean for a company like us, like Prof G Media?

We're not a large cap.

We're not a mid-cap.

We are a small startup.

What does it also mean for entrepreneurs and founders who are probably going to realize that there is just simply not a lot of exit opportunity unless you are a 10, 20, 25, $30 billion company?

What you have is, is a situation where a small number of companies are going to garner the majority of the spoils and the 99% of the rest of us and companies are going to have the oxygen sucked out of the room.

What do you do?

What does it mean?

It means it's a winner-take-all economy, which plays into an unfortunate or a double-edged sword of American society, and that is our superpowers, our optimism.

We all believe that our kid is at 1% or that our company is going to be the big winner.

And the downside is we don't recognize that it is getting harder and harder to break through.

The spoils are greater if you break through, but it's getting harder.

and harder.

So I think where we're headed is the following, civil unrest or just, you know, unrest of the ballot box.

And I do think the opportunity is really ripe for massive antitrust that comes in and says, okay, Apple, you're not Apple.

You're five companies.

Why does the App Store have to live with you?

Oh, Google, why on earth do you own the largest streaming video service and the largest autonomous automobile company?

And you share, you coordinate and cooperate with each other, making it hard for smaller companies to break through.

So I think you're going to see, I'm hopeful that at some point,

it's not going to happen in this administration, but in the next administration, I think you're going to see a lot of mojo and justification to go in and oxygenate the economy with a massive breakup of the big guys, the winners, because some of these companies, you just, how do you compete with them?

And I think there's the question of when people are going to wake up to the fact that this administration lied to them about all of this.

I think the funniest lie that we saw was at the beginning when Scott Besson said, it's Main Street's turn.

It's not about Wall Street anymore.

It's about Main Street.

I'll just point you right back to what we said at the beginning.

JP Morgan up 30%, Goldman up 37%, Citigroup up 41%, $95 billion in investment banking fees this year, the second highest in the history of Wall Street.

The fact that

The Mag 7 is ripping right now.

I mean, this is the same thing again.

It's just the only difference with this administration is that we were promised something completely different.

To your point, the big guys, right, up 30 to 40% off of huge market caps.

I just typed in Regional Bank Index and there's something called the KSW NASDAQ Regional Banking Index.

It's up 1.5% this year.

It's flat.

So it's pretty simple.

How are you doing?

Are you small?

Are you big?

And

anyways, there needs to be, I I believe what Vice President Mike Pence said, you know, he and I run at the same Atlantic festival together.

Oh, wow.

Yeah, me and Mike.

Me and Vice President Pence,

he said, the best economies are refereed capitalism.

And right now,

we've never had bigger, meaner players on the field.

The referees nowhere to be found.

We'll be right back after the break.

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Last week, Charlie Javis was sentenced to seven years in prison for defrauding JP Morgan.

Back in 2021, she convinced the bank to pay $175 million for her startup, claiming it had 4 million users.

In reality, the platform never had more than 300,000 users.

This case raises a bigger question.

A question we've asked on the podcast before, and that is, where is the line between visionary storytelling and outright fraud and we've seen this question before when it came to elizabeth holmes when it came to sam bagman-fried and we might even be seeing it today in ai where many investors are worried about these creative accounting issues where i mean one of the biggest things we're seeing is these this arr accounting magic where companies are signing these one-off contracts and then they're annualizing those numbers as ARR to make it seem like they're making more money than they actually are.

That's probably another talk track.

But the point being, we have here yet another example of a founder who

flew too close to the sun, crossed that line.

It was storytelling and then it was fraud and now she's in prison.

So Scott, you've spoken about this before.

You've built many companies.

Your reaction to this news and your thoughts on where do you draw that line as a salesman, as a storyteller, and as a founder?

Well, I empathize with her because in college, when I'd go on a date, I would borrow my mom's accurate legend and I would say it was mine.

Because no woman can resist the Acura Legend, the smooth, clean lines, and the mellow acceleration of the premium brand from Honda.

Look, there's

she committed outright fraud.

If you're in due diligence and you're asked to put into the data room a list of your clients and you work, I guess she was working with some academic who figured out a way to manufacture like sort of accounts that look sort of real, that's fraud.

You should probably go to prison.

There is a fine line, though, and this was not a fine line,

but

really being out there and embellishing

the prospects of your company and their performance and recategorizing what's ARR and what isn't regular revenues, what is services revenue,

what is technology revenue to try and increase.

Remember that company we called out and eventually went bankrupt?

I think we were one of the first ones.

A bunch of my buddies invested in LA and called me and got angry.

Remember that credit card that was claiming to it was claiming to solve the climate crisis and it was just a fucking credit card?

Aspiration.

You can say that you're raising the consciousness of the planet and it's buyer beware.

But if you start lying about specifically financial results, that's when you get into trouble.

What there is some political and brand issues, though, and that is I think the difference between Elizabeth Holmes and Adam Newman is that Adam Newman's board wanted to save face and gave him, no one has ever gotten a $10 billion commission on losing, or a billion dollar commission on losing $11 billion of other people's money.

And I think the board, if his board had been angrier, I think he would have been a world of hurt.

Elizabeth Holmes, Theranos' board was angry.

And I always thought it was just sort of uncomfortable that the first person that got sentenced to a decade-long prison membership happened to have ovaries.

2% of unicorn founders are female, and the most famous one got stuck in prison.

And there was some misinformation around that.

No one ever got a false diagnosis.

What she did was she lied about the capabilities of the machine.

And she did lie about some of the order volume, I believe, but it wasn't people saying, well, it's different.

It's health.

No one was getting like...

HIV negative results when they were HIV positive from these machines.

She was exaggerating the capability of the machines.

Anyway,

I think that there is a fine line between,

well, let me go.

I think when you say

I'm taking the company private for $420 a share and funding is secured, funding secured.

And you're like, wow, the stock goes to $400, but it's going to be at $420.

So you buy in at $400.

And then you find out that the guy was either on ketamine or lying and the stock plummets.

This is Elon a few years ago.

You're lying about about finance.

You're lying about numbers.

There's an objective truth around what he said, and that was not it.

That was a lie.

So, yeah, look, the whole thing is a cautionary tale that if you're the CEO of a startup, you have to be able to spin a narrative that gets people's greed glands going.

And sometimes there's a thin line between exaggeration and downright lying.

But what you should never, ever lie about is the numbers or number of customer accounts, the revenues.

They all play with like categorizing or recategorizing revenues as a certain type of revenues or pulling revenues forward, all that bullshit.

Public companies do it all the time.

I think AI is going to serve a really valuable role in terms of issuing sort of a diligence or a good housekeeping seal of approval.

Now, projecting the future is not lying.

You can just be wrong.

But this is, I think it's a real cautionary tale.

And

she's going to spend the majority of her younger years in prison now it's a real it's a real tragedy for her for the firm um but she picked the wrong company to with because if it had been a smaller company that just wanted to ignore it and not be embarrassed they might have just let the whole thing go yeah i think the thing that's a shame is that it it's

i mean your point about elizabeth holmes and perhaps the justice system and the world was too harsh on her

it's almost like on the way up when the stock's up you're a visionary

When the stock's down, you're a fraudster.

And that's the part that is, I think, a little bit unfair.

Is

why is it that we're down to accept the lying when things look like they're going well?

It's because we're all down to buy into the lie because there's the prospect of making money on it.

And the perfect example of that is Elon.

I mean, Elon is committing, as you say, fraud when he says, you know, funding secured, $420 or $410 a share.

share, he's kind of committing fraud, again, sort of blurring the line.

But when he says that

we're going to have a million robot taxes on the road by next year, and then 10 years later, they have two.

I mean, that's another form of lying that, you know, is something we should look down upon.

But the reason that we don't, or the reason that we turn a blind eye, is because we look at the stock price and the stock price is up.

And so people decide, oh, whatever, it doesn't matter.

He's a visionary.

But as soon as that stock comes crashing back down, suddenly people get very sensitive about the difference between fraud and lying and exaggeration.

Same thing happened with Sam Bagman Freed.

Everyone was down for it while that FTT token was going up.

As soon as it came crashing down, suddenly everyone got their investigative hats on and they decided that they were investigating fraud.

But it's like, okay, well, where was that energy when he was out raising money from Sequoia and all these other big VCs and

making billions of dollars on this FTT token.

And by the way, I think the perfect example of this, which we talked about in one of the episodes, what is the next aspiration?

What is the next we work in my view?

It's this company, Fermi America, which just went public last week.

And one of the things I predicted on the episode is that we would see a big pop in the stock because it would have this AI feel to it.

It's sort of got this meme stocky potential.

That is indeed what happened.

Shares closed up 54% on their first day of trading.

it's at a 15 billion dollar valuation right now um but i mean this is a company that has zero revenue and they say that they're going to revolutionize ai because they are building a power grid and they're going to have nuclear power plants and they're going to bring 11 gigawatts of energy to ai companies which is five times greater than the output of the hoover dam it's two and a half times greater than the amount of energy consumed by all of manhattan i mean they're pumping this story and yet they have zero revenue.

They also don't even own any infrastructure.

All they have is a contract to have some gas turbines that are currently sitting disassembled all around the world.

And so, again, perfect example.

In my view, this company comes crashing down the same way as Aspiration.

That's my prediction on Fermi America.

But the stock's up, so people don't care.

I love this.

By the way, it sounds 7% today.

When I, I remember right in 99, after I'd sold profit, I came to New York and I said, I'm going to be the idea labs in New York, one tech team, one engineering team, one office space, one legal team, one corp dev team, and I'm going to punch up e-commerce concepts.

And I raised 15 million at a pre-money of 35 million.

So me and a PowerPoint presentation were worth $35 million.

And I remember thinking, this feels wrong.

Like, this, could I, I remember I call my lawyer, like, can I get in trouble?

And that, no, these are credit investors.

They're smart people.

Goldman invested, JP Morgan invested.

Anyway, this is essentially this company right now has a $14 billion market cap.

This is a company with a management team and a business plan that is worth $14 billion.

And I mean, unfortunately, they're not trading options yet.

I think something has to be out for 30 or 60 days.

This company, it's at 30 bucks.

This thing's going to be single digits in 30 days.

I mean,

this company at 18 billion, you're right.

This is look out below.

Look out below.

Let's take a look at the week ahead.

We'll see earnings from Constellation brands.

That's the distributor of beers like Modello and Corona.

We'll also see earnings from Pepsi and Delta.

We likely won't get any of the scheduled economic data because of the shutdown.

However, we should still see the minutes from the Federal Reserve September meeting, and we'll be watching that release for signals of the Fed's path forward.

Scott, any predictions?

Well, it goes along the lines of the biggest M ⁇ A and mergers in history.

All the moons are lining up.

And this is one that is a little bit out there, but I see the industrial logic behind it.

And that is, I think Netflix with a $440 billion market cap

is likely to make a tectonic acquisition.

And my thinking is that

there are a lot of existential threats right now around Netflix.

Specifically, I think we're raising a generation of consumers who can't sit still for

90 minutes or 60 minutes.

I think the TV screen is getting turned on so little

that it's going to start impacting their business.

I don't know about you.

It's really strange.

In the last six months, I've stopped turning on the TV.

I don't watch TV anymore.

It's really weird.

I used to watch, it used to be appointment viewing.

It used to be just always on, then it went to appointment viewing.

Now, my TV is never on unless occasionally I have a Premier League game on.

And my kids never have the TV on.

In addition, when you look at what AI is doing around content creation, it could work for Netflix.

It might not.

And it's trading at a market cap

of $490 billion.

$490 and a PE of $50.

So my favorite is, and

they wouldn't call it an acquisition.

They'd call it a merger.

But I think if Netflix were to merge with and or acquire Disney,

it would make all sorts of industrial logic.

Why?

Disney has a management and succession problem.

Right now, the person running Disney could best be described as Neville Chamberlain in a cashmere sweater minus the dignity.

He's a 73-year-old man who has fucked up and shown incredibly poor judgment around some key decisions.

The person who was supposed to be a successor, one of his successors, has gotten caught up in this Jimmy Kimmel nonsense.

Netflix has an enormously talented management team.

The co-CEO who you never hear about,

you hear about Ted Sarandos, who's like,

probably demonstrates more aplone than any media executive in history.

It's just hard not to like a guy who's built a half a trillion dollar company.

Actually, you'd say, well, the vision of Reed Hastings, who started working in video stores, right?

His co-CEO is extraordinarily talented.

They have two great CEOs and an unbelievable bench there.

So that solves a management problem.

In addition, if Netflix faces these existential threats of being totally focused on this one business called streaming,

Disney has this singular business: parks and cruises, PlaySpace Entertainment, nothing like it.

Their Broadway shows of the Lion King,

their parks, just singular.

Open AI and

whoever it is, Snap or

name NVIDIA,

These companies can't replicate Disneyland and Disney Cruises in Disney Broadway theaters.

Where they're getting a little bit long in the tooth is the IP in those parks.

Darth Vader, Cinderella,

the Muppets.

This shit's getting a little tired.

What does Netflix have?

Oh my gosh, the Stranger Things Ride at Disneyland?

Can you imagine the wait for that shit?

The Squid Games competition, the wednesday broadway show

the two of these together the ip and the parks accretive from a management standpoint and then you have one streaming platform that is netflix disney and hulu it's game over and streaming now

This this merger should not be allowed to happen because it would be so fucking dominant.

It would create the first $1 trillion true kind of old Hollywood media company, but it could get through through now because, again, see above, the DOJ, and the FTC are asleep at the switch.

So Netflix has a stock that is so fully valued, I think their bankers are probably getting some reception from the management team thinking, how are we going to grow Netflix to justify this position given some of the threats on the horizon?

We have this amazing company where the C-suite, you know,

is five years past their expiration date, and we have a huge management team.

We have all this IP we could monetize downstream, which we aren't monetizing right now in the form of PlaySpace Entertainment, which is much more enduring than the streaming war.

I think that Netflix is going to make a tectonic acquisition and my favorite candidate is Disney.

I really like that prediction.

I just want to add on to it.

You know, I agree with you.

They need to do something to justify this valuation, half a trillion dollars, 50 times earnings.

If they don't,

the stock's coming down.

And this is all to say, I'm very bearish on Netflix.

I really don't think it has any business trading in half a trillion dollars.

So we'll see what happens in terms of M ⁇ A, but I'll just add my prediction on bearish Netflix.

Perhaps we should dig into that next week.

Let's do it.

This episode was produced by Claire Miller and engineered by Benjamin Spencer.

Our associate producer is Alison Weiss.

Mia Silverio is our research lead.

Our research associates are Isabella Kinsel, Dan Shallan, and Kristen O'Donnecue.

Drew Burroughs is our technical director, and Catherine Dillon is our executive producer.

Thank you for listening to Profit Markets from Profit G Media.

Tune in tomorrow for a fresh take on the markets.

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