Prof G Markets: Meta & Microsoft Brush Off DeepSeek + Starbucks Stages a Comeback

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Hey, ProfG listeners, it's Ed. If you're hearing this message, it's because you're still listening

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We've also left a link in the description to make it easier. Thank you very much, and I'll see you over on the other feed.
Today's number 1.5. That's the percentage of global stocks the Norway's sovereign wealth fund owns, making it the world's largest single investor.
Norway, with a dating scene, is a sauna on a hike, and then you jump into a freezing river. And if you survive, you get a second date.
Not really a joke, Ed, just sort of an observation. Here we are.
Just an observation. Let's go Norwegian.
Let's make some cabbage here. This episode is brought to you by Fundrise.
We think we're Norway. We think we're rich and civilized.
Meanwhile, we're arguing over transgender. Meanwhile, we're arguing over chan.
Anyways, never mind. Keep that in.
I'm getting so fucking old i think i'm i think i'm literally think i'm having one of several million strokes that i've been experiencing you get to my age ed a stroke is kind of like i don't know it's like a it's like an erection when at your age it just kind of happens when you're least expecting it every morning don't brag don't rub it in my't brag. Don't rub it in my face.
Literally. Literally don't rub it in my face.
It all comes back to the penis. How are you, Scott? I'm doing pretty well.
I found out I have to be in Orlando for a speaking gig. And at first I was bummed.
And now I'm kind of sick of my kids. So I'm sort of excited.
So I'm headed to Orlando on Monday. And then I go up to New York for four days.
I'm excited about that. I'm going to do our team strategy meeting where you're all going to present your plan, and I'm going to say, you make too much money and you're not growing revenues fast enough.
Just so you know, that's the feedback you're going to get. I'm excited.
What about you? What are you up to? Let's see. I got my sister visiting this weekend.
That'll be pretty fun. You're close with your sister, aren't you? Yeah.
I've gotten really close with her in the past couple years. I've always been pretty close, but gotten really close with her over the past couple years.
So she's visiting. And why do you think that is? I think maybe I'm just mature or maybe we're both more mature.
I don't know. I used to feel kind of competitive with her.
I think that was probably a problem. And I feel like when you're just more secure about yourself, it's just easier to kind of get along with people or something.
Or when you, I don't know, I feel like we just have a very mature, nice relationship. So I hope that continues because I think relationships go up and down as well.
Does she have kids? No, she's not. But she got married a year ago.
So she's definitely thinking about it. You'll be a great uncle.
You're kind of central casting to be an uncle. I feel like I'm going to be kind of awkward with kids.
I think I'm not very good with kids already. Well, you're awkward to begin with, but I think you'll be probably a little bit less awkward with children.
I see it differently. I think I can sort of fake my way through being normal with adults, but when it comes to kids, I'm going to be kind of fumbling about what to talk about.
I don't know. I think you just make fart jokes and threaten to hit them if they don't behave.

That's my approach to children.

But no dick jokes?

I can get you. You can get on the wrong list.
The next time you move, you have to go next door

and tell them you've moved in next door, which is a real inconvenience. It's a real bummer.

All right.

Well, should we start with our weekly review of Market Vitals?

Let's do it, my brother. Let's do it, Uncle Ed.
The S&P 500 spent a week recovering from Monday's drawdown. The dollar rose.
Bitcoin crashed below 100,000, but then rebounded by Thursday. And the yield on 10-year treasuries declined.
Shifting to the headlines. President Trump is adopting a corporate-style buyout strategy, offering federal workers the option to resign by February 6th in exchange for pay through the end of September.
The White House expects 5% to 10% of federal employees to accept the offer. Starbucks same-store sales fell 4% for the fourth straight quarter.
However, revenue beat expectations, and CEO Brian Nichol shared more details from his back-to-Starbucks strategy, emphasizing a renewed focus on customer experience. The stock was up 8% on that news.
And finally, T-Mobile's fourth-quarter revenue exceeded expectations, up nearly 7% year-over-year. The company also issued its strongest start-of-year guidance to date.
That earnings beat coincided with the beta launch of its Starlink program, where it'll be offering its customers exclusive access to Starlink for the first year. So Scott, let's start with this federal buyout here.
Just to be clear, this is not the same as a corporate buyout or a leverage buyout where you're buying out the investors in a company to control the company. This is what's known as an employee buyout.
And the reason companies usually do this is to cut down on costs. Basically, you essentially offer your employees a voluntary severance package.
They can take it or leave it. And the idea is to incentivize your employees to leave the company with that severance package.
So Trump is doing this, except he's doing it with the US government. Good idea or bad idea, Scott? So I think on a regular basis, you need to, it's probably a good idea to have some churn and to have some recalibration of a company.
And especially, I think, with the federal government, where I would think sometimes because of deficit spending and more bureaucracy, I'll probably get a decent amount of emails disagreeing with me. I think sometimes that federal employees aren't subject to the same regular reviews or standards that the private market imposes on the private sector.
So I'm kind of down with the idea of occasionally looking at the federal government or state and local agencies and reviewing it or reviewing the size of it. Having said that, as a percentage of the population, our federal employee base has actually been level or declined over the last 40 or 50 years.
So it's not like it's swelled beyond something crazy, if you will. Now, it's not kind of the decision or what you do, it's how you do it.
I do not like buyouts. And that is, I generally find that the people who take buyouts are your most talented people.
Because who's going to take a buyout? Oh, I'm a really talented 30-year-old that has all sorts of options and and they're going to pay me, and I've been thinking about leaving because I have a lot of opportunities outside of the DOJ or whatever it might be. Boom.
Oh, my gosh, I'm going to get eight months? Okay. Hey, Google.
Hey, Salesforce. Hey, Akin Gump or whatever.
I'm in, and I got an eight-month signing bonus to come to you. So I find it's a self-defeating process buyouts.
And that is, I believe in performance reviews, I would have put more pressure on them to have a thoughtful way to say, okay, let's do assessments. Because there's probably some departments that should be staffed up.
The IRS should probably hire more people. For every dollar you put into the IRS, you get 12 back.
And there's other departments that should probably lose more than, you know, 5 or 10 percent. I find this is just lazy and you end up losing kind of your best.

Is there ever a situation where a buyout makes sense? I guess your argument here is that it's sort of the quickest way to cut down costs, but it's not the most effective. I think the other side to this would be, well, do we really want to build an entire apparatus and do this entire review that's going to cost a lot of money? And we're going to figure out all of these ways to understand which of our employees are delivering the most amount of value versus the others.
It sounds like a lot of bureaucracy versus this very quick and easy way of just shaving down costs and also just shaving down your employee base. So is there ever a situation where it does make sense? When I was on the board of the New York Times, they did a lot of quote-unquote buyouts of different newsrooms.
They owned a bunch of newspapers and local and regional newspapers were just getting the shit kicked out of them. They just didn't have a place in the new economy.
And so they would do buyouts. And the way they would do it was they would go to what I call the kind of critical employees and say, FYI, we're letting you in on this.
We're going to do a buyout, but we have plans for you and want you to stay. I think in any organization, it shouldn't be that hard to identify kind of critical leadership or people who are exceptional.
And I think there's this hallmark version of an organization where everyone's great. And if anyone who's not great, it's about the culture and we just got to find them in the right role.
I don't buy that. I've said for a while, and this is not, again, aspirational, you never say this in all hands.
I've kind of jokingly, but have seriously said 10% of the employees at 120% of the value and the other 90% are negative 20. And you need to identify that 10%, especially as you scale an organization and make sure that they're nailed to the ground.
This is your equity stake. I'm overpaying you.
You have no reason to ever leave. You're going to do really well here.
It's one thing to cut costs, but what you want to do is you want to improve the tensile strength and the effectiveness. It's almost like you could, I would argue, if you had a growth mindset, you'd say, I'm going to give the IRS more money, but I need them to increase tax revenues by X dollars.
I need the Department of Veteran Affairs to increase its customer service or its reviews, its satisfaction reviews among veterans by 5% a year for the next four years, and here's a bonus pool. And we'll keep hiring static, but we need you to be be more productive we need you to be better at what you do i think that says elon musk written all over it that rather than offering a carrot as well they're going at it with sort of a kind of a blunt instrument stick so i don't think this is the right way to go about it yeah it's one thing to offer an employee buyout buyout.
It's another thing to insult all of your employees, call them lazy, and half of them are DEI hires, and then offer them a buyout. Those are two very different things.
And just some statistics to look at here. I think when we think about, you know, this bloated government trope, We're sort of thinking of like, you know, a Gen Z DEI hire who's working at like the DOJ or, you know, the Department of Education.
But when we think about just the actual demographic makeup of the federal employee base, actually half of them belong to one of these three agencies, the Department of Defense, Department of Veterans Affairs, and the Department of Homeland Security. So that's not really the people that you would think Trump is targeting with all of his rhetoric.
In addition, the average federal employee is 47 years old. A fifth of federal workers are already eligible for retirement.
Only 7% are under the age of 30. So I just think the narrative that we're telling ourselves about the government and who works for the government, particularly driven with this DEI or anti-DEI obsession, doesn't really tell the true story of who actually works for the government.
The most likely candidate to get cut is a 50-year-old middle-aged white person who works at the Department of Defense. That's the most likely candidate.
So I just think it's worth keeping in mind. Let's look at the numbers, and then we can compare it to the narrative we're being told.
Let's move on to Starbucks and their earnings. I think the biggest change here, the most important thing coming out of these earnings was this reversal of Starbucks's open door policy.
And basically the open door policy said, anyone can come in and anyone can use our amenities and, you know, come in, hang out, free for all. And this gets back to something that I said on this podcast a while ago, which is, you know, Starbucks used to be the premium coffee chain in America.
You think about the premium brands today, you think La Cologne or Blue Bottle or in New York, we have Irving Farm, these sort of nice, cool coffee chains where you hang out. That's what Starbucks used to be.
Over time, it has devolved into what looks like a fast food chain. And I think a lot of that is, quite frankly, the fact that it has become almost like a halfway house for homeless people.
I mean, practically every Starbucks you enter, you're either seeing homeless people around the side or homeless people sometimes inside of the stores. And this is not a very comfortable thing to talk about, but I find it so interesting because this new policy is directly addressing that.
They now say that you can only use the bathroom if you're buying an item. You can only use the Wi-Fi if you're buying an item.
They're gonna train the baristas on how to handle loiterers, which is gonna be very uncomfortable, but I think it's actually quite important. And the most interesting development I saw was a statement made by this guy, Donald Whitehead, who is the executive director of the National Coalition for the Homeless.
And he said he was, quote, very concerned about this new Starbucks policy. He said, flat out, Starbucks functions as an important buffer for homeless people.
So this is going to be really controversial. I think it's going to get kind of ugly.
This is not a comfortable topic to be talking about, but it does get to the heart of Starbucks' issue. You cannot have a premium specialty coffee brand that is also highly associated with the homelessness crisis in America.
Well, my first question, Ed, is why do you hate the homeless? I'm kidding. I'm kidding.
I think you're exactly right. I don't think Starbucks—I think Starbucks has an obligation to make money, treat its employees well, be good to its community, and then pay their fair share of taxes such that we can have a more systemic approach to homelessness.
And I wonder if that same

person is worried about the Red Lobster, Olive Garden, and the fact they're not letting homeless

people hang out. I saw the earnings, and I thought, okay, Brian Nicole is the CEO, and this guy

is pretty much Jesus Christ in my book, because he spent the last six years at Chipotle. So one, he owes me a lot of money.
And I have eaten at Chipotle. When I'm in New York, I'm going to eat there basically lunch.
Mary Jean, my chief of staff, she knows what I like. And it starts with cha and it ends with Potley.
I love it there. I think he did an amazing job.
The stock was up 9x when he was there. Wow.
So I think that the market just wants to interpret everything this guy does and love it. Because when I looked at the actual numbers, they were fine, but I think the market is looking for reasons to take the stock up under this guy's leadership.
And in the last week, it's up 11%. So he's added 13 billion.
The company's increased his market cap by $13 billion, and people have been saying he's already made 50 or 80 million bucks. That's cheap.
They got a great deal on this guy. because the market wants to love him and the market wants to say, oh, Jesus Christ is here and he's going to figure this out.
The thing that stuck out to me, you did your homework here and your observation is more insightful and has a more interesting overlay around public policy. The thing I loved about it is it is impossible over time or very difficult to maintain the discipline to not add more menu items.
Because you launch one, everyone goes into group thing, people like it, there's some evidence, and we all start saying, oh, it makes sense to have charged lemonades or to have banana bread or to have sandwiches or to have, you just start. And before you know it, what Steve Jobs said to the CEO of Nike

when he was on the board there,

he said, get rid of all the shit.

You know, I think at some point,

Nike was like selling air fresheners in their stores.

And he said, get rid of all the shit.

And the hardest part about specialty retail,

and typically, at the end of the day,

this is specialty retail,

is not what you have, but what you don't have.

And that is you have a very curated,

tight selection of things

that send a very strong signal about the voice.

And my understanding is

they are cutting their beverage and food options by 30%.

That means every three items, one of them's going away.

I think that's a baller move.

And this is what's gonna happen.

In the short run, that'll probably hurt, take a hit to revenues. It's complicated, new signage costs, new training.
But over the long term, or the medium or long term, I would argue it sends a stronger signal about what we do and what we don't do. And the bottom line is, at the end of the day, Starbucks problems are pretty basic.
They were charging too much and delivering too little. and then I go into La Cologne and I'm like, hello, I'm rich Corinthian leather.
I feel like I'm a total Euro trash, which I like. And it's simple, great coffee, and I like the crowd in there.
And it just feels a little less, there aren't as many like, you know, napkins and shit on the ground, right? Yeah, absolutely. Yeah, it's, the market's basically reacting to him addressing the elephant in the room, which is that Starbucks is no longer a nice place to hang out.
And I think that's basically the entire game plan. It's like, we're going to make Starbucks a nice place to hang out again.
We're going to do free refills for our customers. We're going to make sure that we don't have homeless people hanging around.
We're going to make it sort of nice and just an enjoyable environment to be in. And that suddenly solved all of Starbucks's problems, at least from a stock perspective.
But your point about he is the new Jesus Christ, I just want to point out they have awarded him $96 million in compensation. He's been on the job for four months.
So the market thinks he's Jesus and so does management. $90 million in stock awards, a $5 million signing bonus, plus buyouts from his former company, Chipotle.
So he has some serious expectations going into this that he we hope

he'll meet so far it's been worth it and i don't i have no problems with out of control co compensation

i just think that should be taxed at 70 once you get above kind of 10 million but that's a another

podcast shit hold on a second i had just a fucking fascinating insight and it slipped

it slipped by hold on it's gonna be so worth it. Oh, my God.
Hold on. It's going to be amazing.
Oh, essentially what they're doing is they're taking money, the capital they were spending on non-customers, and pouring it back into customers. That wasn't as good as I'd hoped.
We need a mic drop. Blinding insight.
Really rocked my world. Should we move on to T-Mobile? Yeah, let's move on to T-Mobile.
We'll just go over the quarter really quickly. They beat on earnings, beat on sales.
Sales grew 7% to $22 billion. Most important number, though, was their guidance for new customers in 2025.
So T-Mobile expects to acquire 6 million new customers this year, and that is their largest projection for net new customers ever, which I think is kind of remarkable. I mean, T-Mobile is sort of an old, slow conglomerate, and then 2025 is, for whatever reason, going to be this breakout year for them

in terms of net new customers. Why do we think that's going to happen? I think the answer has to be Starlink.
I mean, T-Mobile suddenly has this incredible competitive advantage this year, and that they will be the only mobile network carrier that offers Starlink's new direct-to-sell service. Now, I don't know that

much about the product. I've never tried it.
But, you know, supposedly Starlink is the greatest thing since sliced bread. You've said it, Scott.
I've heard other people who've used it. They've said it.
Supposedly, with Starlink, you will never not have coverage. You could be in the middle of the desert, you could be flying on a plane, and you will always be connected.
So, you know, I look at this, and I'm really excited. And then I see that new customer guidance number.
I'm like, okay, maybe this makes sense. Starlink is amazing.
I heard United is doing a deal with Starlink. I would fly one airline over the other for Starlink.
It's incredible. And I had one of those moments, you know, you had one of those technology moments, the first time you bought something on your phone or the first time you used Google Maps.
You're like, Jesus Christ, this is incredible. Yeah, the first time I saw porn.
Wow, Ed. And nothing will ever be the same.
Nothing will ever be the same. By the way, Ed, no one can make sweet, sweet love to me like me.
All right, where were we? Where were we? Oh, yeah, T-Mobile, AT&T, differentiation for telcos. So I can't imagine the pounds of flesh that T-Mobile was able to.

That must have been so fun.

Whoever was the Starlink representative negotiating these deals, they sat down with Verizon, AT&T, and T-Mobile and said, okay, let's be honest, this is going to be ugly. Who wants it? And we're going to give one of you a two or three year exclusive, which is going to give you tangible differentiation, which is nearly impossible in your category, which will add billions, if not tens of billions of dollars in shareholder value, and we want it all, bitches.
So them making these projections is saying to the market, we think this is going to be a tangible point of differentiation. What'll be interesting is when in their earnings or if they have to disclose the terms of this deal, because I bet...
Exactly. Yeah, T-Mobile is a winner here.
The biggest winner, I bet, is Starlink because. They're projected to hit $12 billion in revenue this year, which is a 50% year over year increase.
You got to think that number is just going to keep exploding. I mean, they've barely even started yet.
This is hardly in the hands of consumers and they're still printing money. I mean, most of it is just like military demand at this point.
One loser I mean, they've barely even started yet. This is hardly in the hands of consumers, and they're still printing money.

I mean, most of it is just like military demand at this point.

One loser, I will say, from this whole thing

is going to be like Ryan Reynolds and Snoop Dogg,

because from my understanding,

the only point of differentiation

in the mobile carrier service industry

is which celebrities you can hire to be in your Super Bowl ads.

And suddenly T-Mobile has Starlink

versus having Snoop Dogg like dancing on camera.

We'll be right back after the break for a look at earnings from Microsoft, Meta, and Tesla. If you're enjoying the show so far and you haven't subscribed, be sure to give Prof G Markets a follow wherever you get your podcasts.
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Meta, Microsoft, and Tesla kicked off big tech earnings last week with investors watching how they addressed DeepSeq's AI advancements and the impact of Trump's new policies. We will start with Meta, which posted record fourth quarter revenue, also issued weaker than expected forecasts for the current quarter.
Mark Zuckerberg framed DeepSeek's rise as validation of Meta's open source strategy. He also said that 2025 will reshape the company's relationship with the government.
Shares were up more than 2% in after hours trading. Just a few little statistics that stood out to me.
Sales up 21% to $47 billion. I'm always just shocked at how big the numbers are for Meta's revenue.
Operating margins expanded 700 bips to 48%. And when you look at the family of apps, which is their main business, the operating margins are even stronger.
It's 60%. So this was another really strong quarter.
I'm just so bullish on Meta. I have been for a while.
Scott, your reactions to Meta's earnings? Addiction is a great business, and they're executing well against it. They've taken technology, addiction, network effects, monopoly.
I mean, two thirds of social media globally is on Meta, really well-run company. I'm addicted to Instagram.
I love it. I think it's fantastic.
I can't stand Mark Zuckerberg and I'm not getting off Instagram. They continue to perform really well.
I wonder if their hardware appears to be on a roll right now. They're sold out across the Utes, the number one product in 60% of Ray-Ban stores, which obviously isn't a big revenue item, but they might finally have their own hardware point of distribution so they don't have to kiss Sundar Pichai or Tim Cook's ass.
Have you tried those, by the way, those new Ray-Ban Meta glasses? I tried them about a year and a half ago. My son, I was speaking with my son and he kept saying, Meta, take a photo.
I'm like, what are you doing? It's like, I got these Ray-Ban glasses. And they're actually, I mean, this was a year, year and a half ago, and I thought they were pretty good.
So headsets make no sense, but smart glasses, I think there's a future for. And I think that the Zuck is probably going to get some spillover effect from the massive investment he's made in these headsets.
But they have capital. They've increased their CapEx 60% to $65 billion around technical talent and AI infrastructure.
MetA.ai is used by more people than any other AI assistant with over 700 million monthly active users. It's integrated into Instagram, Messenger, WhatsApp.
Yeah, I think that's kind of a bullshit statistic because, I mean, I don't know how many people are actually actively using the Meta AI tool on those platforms. I think they're probably saying that when you search something into the search bar on instagram meta ai is being used i actually don't i agree i don't i don't i mean i don't mind it when you disagree with me despite the fact you hate the homeless um but what they have is distribution and control of consumer they do own the rails in a way that chat gpt doesn't right totally and their ability i mean we're talking about those moments those technology moments i've had some chilling moments where i'm going to see a paris central man game and i have a real pop-up and it's on hotels in paris i'm like how the they? I mean, it's incredible the targeting they could

use. And it goes to the notion that Meta, more than I think almost any organization, maybe with the exception of Uber, has shown that if you can provide utility, you can violate everyone's privacy.
That for all the bullshit and all the whining in Brussels and DC, young people have said, violate my privacy. Just as long as there's a coupon or I can see where my QX60 is if it's coming around the block.
Arguably, Mark Zuckerberg right now is the most talented. I mean, he's one of the three or four most talented business people in the world.
If you just look at it from a shareholder perspective, they made huge investments. They're running away with it.
And they're monetizing the fact that I said that the core Facebook platform and now Instagram is the most successful thing in history. Communism doesn't have this many people.
Capitalism doesn't have this many people. Democracy, you know, there's no product.
The Kardashians, nothing is as successful as Instagram right now. It's a product coupled with a Facebook core platform and then WhatsApp.
These are the most successful things in history, as far as I can tell. Someone might say, well, no, actually, it's Google search.
And he has been outstanding. They have been outstanding at monetizing it.
Anyways, couldn't happen to a more mendacious fuck group of people but yeah they're they're doing they're doing outstanding let's just point out when when you recommended meta or you chose meta as your stock pick at the end of 2022 the stock was at 90 dollars per share it's up to 690 dollars so if you would would have followed Scott Galloway's advice, and nevermind some of his other advice, but just this one, one stock pick. This one? You'd be up 7x, almost 8x.
It's just insane, this comeback they've searched. Well, what was my stock pick at 2024? What stock? Now I'm really patting myself on the to, I'm going to elevate your praise on me.
What stock did I say was going to be the biggest IPO of 2024, Ed? Reddit. Yeah.
By the way, uh, went public five or six months ago. It's up six fold since it's IPO.
Incredible. I am so angry.
I invested. I'm so angry.
I didn't back up the truck fourth or fifth most traffic site in America. and it went public at a $5 billion market cap.
And every other company on that list trades at somewhere between $800 billion and $3 trillion. Anyways.
Give the applause. Thank you, thank you, thank you.
I'd like to thank my agent. Exactly.
Just a few more things to go over here on these meta earnings. And we should probably talk about Threads, which has grown to more than 320 million monthly active users.
I find that astounding when you just consider the number of companies that

have tried to create their own Twitter alternatives and then meta does it. And then within about a

year, he's at 320 million MAUs. Just to put that in context, last year, we don't know the official

number, but last year, Elon said that X had 550 million monthly active users. So Meta says they're adding a million MAUs per day.
So assuming that growth continues, Threads could very well be bigger than X from a user perspective by the end of the year. So I just think we should just give credit to Threads as well.
Their AI play is paying off incredibly well. You mentioned that you're getting those great PSG ads.
They're saying the ad quality has dramatically increased because of this new AI-powered ad ranking system. In addition, they are putting out these Gen AI tools that they offer to their advertisers.
Six months ago, there were roughly 1 million advertisers that were using Meta's Gen AI tools. Today, that number is 4 million.
So when we just think about the use cases of AI, examples where AI is providing real, demonstrable value in the marketplace, Meta is capturing all of that. They're building value in AI, they're building the data centers they're building models but they're also receiving the value of the ai in the form of their really high quality ad targeting so i i just think meta is absolutely crushing it aside from zuckerberg's uh adventures on joe rogan where he's kind of ruining his reputation in my opinion i Meta is just doing an incredible job.
I will move on to Microsoft unless you have anything else you want to add. Nope.
So Microsoft's cloud business saw slow growth last quarter due to limited data center capacity during the owner's call. Satya Nadella said DeepSeq's innovations will benefit Microsoft in the long run.
Despite beating expectations with a 12% revenue increase, that growth was the slowest since 2023, and shares fell nearly 5% after hours. I was a little bit surprised to see the market's reaction to this.
I mean, they did beat on revenue, they beat on guidance, they beat on earnings, but the stock fell 5%. And I think what investors are mostly concerned about here is the cloud revenue, which missed by about 1%.
That's Microsoft's Azure revenue. Scott, do you have any initial reactions to Microsoft's earnings? I don't know.
I think the market is, you know, this is a company that's now,

I think it's the second or third most valuable company in the world. But, you know, the expectations, what you said a while ago, that if you don't blow away expectations, everyone's disappointed.
You know, Azure, oh, right, it grew 31%, not 33%. That's still incredible.
it's also in this kind of arms race. Its CapEx totaled 23 billion for the quarter.
That's almost double what it did last year. And Nadella has said he's signaling a measured approach to capital allocation.
You don't want to buy too much of anything at one time. You want to have the right ratio of modernization and demand.
Very different tone

from before. Yeah.
So shockingly, I've been looking at this, I look at the stock chart and over the last year, it's basically flat, which I find kind of interesting. And over the last five years, it's, it's a three and a half fold, but year to date, it's flat.
So it hasn't registered the same. Is that fair? It's gone flat for kind of the last year, but I don't have a lot of insight here.
Great company, good management. Based in Seattle.
I think one of the big questions we were definitely asking following the DeepSeek saga, and this is a conversation we were having with Robert Armstrong, was will all of these big tech companies keep investing as much money into AI and into AI infrastructure? And if we just look at these earnings from Meta and Microsoft, the answer appears to be yes. I mean, CapEx or their CapEx guidance remains on course.
Satya Nadella said that thing about how we're going to be measured about it, but the investment plan is still the same. And Meta has said it's going to keep its plan to spend $65 billion this year.
That's the same number we've seen before. And so I think this is a really important thing for us to unpack because this big tech AI CapEx thing is basically what's driving the entire market value of all the big AI stocks.
I mean, we've said this before, but roughly 40% of NVIDIA's revenue comes from big tech. So even a slight change in these CapEx plans

could completely transform NVIDIA's business. So it's something that investors and we as analysts really need to dig into.
The question I would have for you, you know, they've said the plans, you know, the plan's going to stay the same. $65 billion last year was the plan, same thing this year.
Is there a possibility, though, that DeepSeek happened too recently for companies like Meta and Microsoft to report any changes in the spending plan? So in other words, could it be that this earnings report, they're reporting something, a plan that they baked, you know, weeks ago, maybe months ago. And, you know, if DeepSeek does change their approach, we're not going to see it in this week's earnings.
We're going to see it in the next earnings report. Is there a possibility, essentially, that the pullback in spending will come next quarter? So there's no way they were going to in any way acknowledge DeepSeek as a threat.
Yeah. Because that would have just taken, that was like that company that said OpenAI, or I think it was Chegg, is having an impact on our stock.
Instead, Mark Zuckerberg, for example, said, this is validation of our open source strategy, right? And, you know, Sayu said it was fine to just almost swat it away like a gnat. He just wasn't worried about it.
They will remain steadfast in their commitment to the spending until they're not. And that is, it's like when you're contacted by the press regarding a CEO and a startling company, you're 100% behind them until you put out the press release saying we just fired him or her.
And they're going to say that, you know, already OpenAI is on a full court press to try and say, move along, no big deal. They used chat GPT and this is bullshit and it's not a threat to us.
They're already trying to create, they're like a defense attorney at a murder trial trying to create muck and confusion about these results that supposedly. I also worry, I was thinking Marc Andreessen immediately came out and said, this is amazing.
Is it because Marc Andreessen hates or is he doesn't like this? He doesn't like open AI. This shit is just so thick, but.
Right. Well, I think he has every incentive to want disruption and to back insurgents.
Having said that, I'm pretty sure Andreessen has a somewhat decent stake in OpenAI. I don't think it's huge.
Andreessen's funding all of them. They're funding all of the startups.
So they just want disruption. So there's a lesson here.
And that is, all right, if you're a consultant or a thought leader or a professor, you make your business in communications, especially around intellectual property or thought leadership, this is how you go about it. You ingest a tremendous amount of information.
It is impossible to digest all of it. what you do is you ingest a lot of information such that you find something that you think is real insight, and then you try and wrestle with it, really understand it, look at it through different prisms, and be able to talk about it and incorporate it into your rap.
As a consultant, all I was basically doing was finding other people's great ideas, finding what I thought were the best and most insightful ideas, and then repackaging them as my own or my firm's own. And that's not entirely true.
We would reference and footnote who it was. I had one of those moments with our guest, Robert Armstrong.
And that is, it just dawned on me that if you look at the airline industry, what he said, it dawned on him, it's added unbelievable value to the economy and to our lives. No one's made any money.
The net income, the net gross income over the last 50 years for airlines and commercial jet manufacturers has probably been negative because there's been so much competition that all of the spoils and capture have been recognized by consumers. I was thinking about, I was on the board of Gateway Computer.
Think about how much PCs changed the world. And we were the second largest PC manufacturer in the world.
Shouldn't we have been worth 100 or 200 billion dollars? But we weren't. It was a shitty business because anybody, including two kids in their dorm at the University of Texas in Austin, could pull together a computer.
And Ted started assembling computers in his barn in South Dakota, which meant that China could assemble them for no money down. And the company that made some money was the brain, Intel.
But basically, PCs, as revolutionary as they were, again, all the capture, all the surplus value was captured by consumers. And Robert's notion that this might in fact be, AI might in fact be one of those industries where everybody becomes more productive.
Everyone's life gets better. It's remarkable.
But you don't have this concentration of capture across a small number of companies. That has just blown me away.
I think that that is such an interesting insight that this might be the airline or the PC business where it changes everything or it changes a lot, but the spoils aren't going to be captured by a small number of companies. It won't be an easy place to invest or make money because why wouldn't you have invested everything in Pan Am back in the 70s.
Oh my God. You can get on a 747 and get to London.
And this is amazing. This is incredible.
And guess what? All those companies, Pan Am, TWA, PSA, Air California, Eastern Airlines. I mean, every airline I flew as a young man, Braniff, Laker Airlines.
I mean, they just, the list goes on and on and on.

They've all gone away. We'll be right back.
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Let's move on to Tesla. Tesla missed profit expectations but expects sales to grow after a tough 2024.

Tesla's CFO acknowledged that Trump's proposed tariffs would, quote, have an impact on business and profitability. Shares climbed more than 4% after hours, and they're up more than 80% since the last earnings report.
I'll run through the financials that jumped out to me. Revenue up 2%.
It was a miss. They also missed on auto revenue by 9%.
They did be on EBITDA, but they missed on earnings. Overall, I look at this.
This is an incredibly disappointing quarter. However, the stock opens up the next morning up 4%.
So I'm trying to think like, okay, well, what are people excited about? I think we can at least attribute some of that excitement to the full self-driving outlook. Elon said, quote, unsupervised full self-driving will launch in Texas in June.
He also added, quote, this is my favorite quote, this is not some far off mythical situation. It's literally, you know, five, six months away.
And I guess that's enough to get the market excited. Scott, your reactions? I wonder when the market's going to realize this is a giant jazz hand.
I think this guy's on his ninth life in terms of coming up with reasons why this company should be valued like a software company when it's not a mobile company.

Its share of the EV market fell from 55% to 49%. Its competitors are gaining ground.
BYD overtook Tesla and global EV production, marking the end of their kind of three-year reign as the EV leader. It's basically flat to down.
If you look at that, I think it was about $2.25 billion dollars in profits. A quarter of those profits come from the sale of, I think, carbon credits to other automobile companies, which are supposedly going to go away under the Trump administration.
So you're looking likely over the next 24 months to decline in profits. Which were already declining.
Margins are already compressing and they're bringing down prices already. Still, even with all this, it's an amazing company and deserves a premium to the rest

of the auto market.

The question is, does it deserve this premium?

The price to sales on Tesla right now, or the market cap to sales, is $14 versus Ford

at $0.29, General Motors at $0.35,, Honda at 0.42, and Toyota, arguably the best run automobile company in the world, who's growing and correctly doubled down on hybrids. Toyota trades at, don't know, wait for it, a price to sales ratio of one versus Tesla at 14.
Granted, they have some software, they have some interesting power products. I mean, it continues to be, oh wait, it's a meme stock.
You're investing a meme on Musk. Okay.
He's managed to keep it elevated. Okay.
We're beneficiaries of the new kleptocracy. We'll figure out a way to get regulatory capture because I spent a quarter of a billion dollars and some people would say I'm the reason that Trump is in office.
All right. The market says this is a kleptocracy.
Boom. We'll bid your stocks out.
This thing is so crazily overvalued that I just, and I always have to disclose, I've been saying this for a long time and I've been wrong, but at some point gravity has to hit this thing it has to

it's so annoying. I mean, it goes on and on and on, but I'm still with you on it.
I still think it's just so, so overvalued. Can we also just talk about how the Tesla is actually just a bad car, in my opinion? You don't like Teslas.
Like, I think the Tesla is a bad, cheap, ugly car.

And I used to think it was cool because it was so novel.

But, you know, I get in a Tesla,

like every other Uber now in New York is a Tesla,

and I'm always disappointed to get in the Tesla.

It feels cheap, it's jerky, you start to get car sick.

Like, I genuinely think it's a bad car.

And the worst is when I'll, sometimes I'll order an Uber Black when I'm trying to feel sexy and a Tesla shows up and I'm like, this is a joke. Like, this is not a luxury vehicle by any stretch of the imagination.
This is like a bad, cheap, and cheap feeling car. I'm wondering if you share the same views.
I know you used to have a Tesla. I do think it's a great car.
I think the Cybertruck is basically a midlife crisis in stainless steel. I think that thing makes no fucking sense.
I think that's just so stupid. The thing that's always shocked me as someone who thinks they understand brands, you know, basically Tesla is turning into a car for crypto brothers with better credit scores.
Crypto bros and Uber drivers is my take. And so he's looking for more jazz hands.

And also Waymo, I was in a Waymo in LA about four months ago.

I think they have a big head start on them.

So I don't-

Oh yeah, they've launched.

They're giving rise.

I don't know why everyone's so excited about full self-driving.

Like it's this massive new thing.

It's here.

Waymo's already done it.

Yeah, it's here.

It was really, really impressive. So at some point we'll be right here.
At some point this massive new thing. It's here.
Waymo's already done it. Yeah, it's here.
It was really, really impressive.

So at some point, we'll be right here. At some point, this thing gets cut dramatically.
Let's also talk about quickly the role Bitcoin played in this quarter for Tesla. So net income hit $2.3 billion this quarter, up from just over $2 billion last quarter.
But $600 million of that net income was because of the rise in Tesla's Bitcoin holdings. So if you get rid of the Bitcoin, the net income would have been significantly lower than last quarter's.
What's interesting is actually Tesla played by the rules here. There's this new accounting rule from the Financial Accounting Standards Boards, which mandates that companies now mark their crypto assets to market each quarter.
And it used to be that you had to report the lowest value recorded during your ownership of your digital assets. But now you update them each quarter, and that is reflected in your net income.
I'd like to get your take on all of that. My view, just quickly, I hate this because it feels like once again, the actual earnings of companies that is supposed to be showing us how is the fundamental business doing, suddenly it's being corrupted again.
And it's now skewed by these wild swings in the value of crypto. So even if you have a shitty quarter, which is what they had, if Bitcoin goes up, you can come out and say, actually, you had a pretty good quarter.
So what are your thoughts on this Bitcoin wrinkle? Usually special charges or special revenue recognition, usually the markets discounts that. In this case, it just makes no sense and what this is not financial advice because you can stay the markets can stay irrational longer than you can stay liquid and i thought this thing was overvalued at 50 bucks a share and now it's at 400 so we'll see and before we get accused of the elon derangement syndrome i just want to point out i genuinely think I'm calling balls and strikes here.
I think Tesla is way overvalued. I think SpaceX, particularly because of Starlink, is going to absolutely destroy.
If I could put my money in any startup right now, it would probably be SpaceX. So I do not think this is us just railing against Elon.
I think we do call balls and strikes. Heil Elon! Heil Elon! When I walked into, I don't know if it's his kind of right-wing proclivities have impacted the dealer network, but I went in to their retail store in Boca Raton and I said, what colors does the Model Y come in? And they said, Viva Lassa questions! That was great.
Let's take a look at the week ad. We'll see earnings from Palantir, Google, Amazon, Disney, and Uber.
The big earnings season continues. Do you have any predictions for us, Scott? I'm just fascinated with Robert Armstrong's notion of these industries, that the capture here may be captured by 7 billion humans as opposed to a small number of companies and it got me thinking if all of a sudden you can have 80 percent of chat gpt for 10 or 20 or even 50 percent of the price that was old navy's strategy my first consulting engagement out of business school in 1992 was they said, what are the demographic gaps out there? And we did this for the gap.
And we came back and said, single mothers, they're a huge population and they want their kids to feel good about themselves, but they can't afford the gap. And so the basic premise of Old Navy, we came up with a new brand, was 80% of the gap for 50% of the price.
And so we were part of the strategy to launch Old Navy, and Old Navy was the fastest zero to a billion retailer in history. And generally speaking, this 80% of the value for 50% of the price is an incredible strategy.
It's the strategy of Southwest. Southwest said we can be 80% of American, or United for 50% of the price.
And I'm wondering if the old Navy of, of quote unquote, AI has come in and where I think it impacts, I was trying to look for winners here is that I'm trying to do a scan of what companies had put aside a hundred, 200 or $500 million. a pharmaceutical company said, we need to expedite drug discovery in this great era of AI, so we're going to have to put aside $200, $300, $500 million to build our own thick layer on top of ChatGPT or pay them a shit ton of money, or Airbnb or Expedia, which are probably making huge investments and working with open AI and guaranteeing them a ton of money for enterprise-wide access to their LLM, did their costs of incorporating AI just reduce dramatically? Are we gonna see a bunch of companies that are doing really well say, oh, and I've got good news, we're growing, and I've got great news, and that is we're going to get all of the great taste of AI

without the calories, specifically the cost. And that reserve or our CapEx planning of $100 or $500 million over the next three years on AI, it's been reduced by 90%, and that's all going to flow to the bottom line.
So my prediction is there's going to be a new wave of, I don't know if you would even call them, you know, remora fish that are just going to get kind of get free pickings, if you will, because their capex just, I wonder overnight, if it just went down 50, 70, 80 percent, which is going to juice their earnings over the next two or three years. This episode was produced by Claire Miller and engineered by Benjamin Spencer.

Our associate producer is Alison Weiss.

Mia Silverio is our research lead.

Drew Burrows is our technical director.

And Catherine Dillon is our executive producer.

Thank you for listening to Prof G Markets from the Vox Media Podcast Network.

Join us on Thursday for our conversation with the one and only Aswath Demodaran.

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