Transcript of Nvidia’s Blowout Earnings & Stock Split + Britain’s Damaged Economy

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This week's number, 13 million. That's the number of people in the US who say social media content creation is their full-time job. I actually have no problem with influencers, although I missed the days when they were just called hookers. Welcome to Propgy Markets. Today, Ed, we're discussing NVIDIA's earnings and the UK's Fallen Empire. What's the difference between an influencer and a philosophy major? What? Well, an influencer didn't need a degree to be fucking useless. Here with the news, what are we talking about? We're talking about NVIDIA's earnings, the UK's Fallen Empire, and we thought we'd bring you in as a 19-year-old Brit. You're our expert on the United Kingdom. And Ed, most importantly, I don't know if you heard this, the dog was on the view. The dog was barking today. I heard. How did it go? You know what was really nice is I was nervous about it. I don't know. Somehow I imagined my big moment on the view wouldn't be a good one. I thought, this is so rife with trouble and danger for me to sit down with four incredibly progressive women, except for Alyssa Farah. And then Whoopie is obviously an icon and a legend.

I was very nervous. And I walk into the green room and there's George Khan, MJ, and Miel Saverio. And my blood pressure came down. It actually felt Really nice to have everyone there.

So nice. I saw that picture you posted. I love that.

It actually went. It went really well. What's the term? I killed it, Ed. I killed it. Anyways, here with the news is Prophecci Media Analyst, Ed Elson. But first, everyone Everyone, go subscribe to the Profit G Markets feed. If you haven't already, we have our own feed now, Profit G Markets.

Please subscribe. We put a link in the show notes to make it easy for you, or you can just type it in on your search bar, Profit G Markets. You'll get two episodes a week on that channel, one on Monday, one on Thursday. Our most recent episode was an incredible interview with Josh Brown of Rit Holtz Wealth Management, and we've got lots more interviews, but they're only going to be available on the Profit G Markets podcast feed, not the ProfgPod. So go subscribe now.

There's still time. Get to the headlines.

Let's start with our weekly review of MarketVisals. The S&P 500 hit a record high, the dollar rose, Bitcoin was volatile, and the yield on 10-year treasuries climbed. Shifting to the headlines. Amazon is launching a new version of its voice assistant, Alexa, with new generative AI features. The more conversational version of Alexa will be available later this year for an additional subscription fee separate from Amazon Prime. Walmart and Target reported first-quarter earnings, and it was a tale of two retailers. Walmart sales rose 4%, target dropped 3%. Both companies, however, announced that they're slashing prices to entice inflation-weary customers. Hims & Her's Health will begin offering GLP-1 weight loss injections for $199 a month. That's roughly a seventh of Wegovy's price. Hims & Her's stock rose as much as 38% following that announcement. Finally, former presidential candidate It, Vivek Ramiswami, has acquired a 7.7% stake in BuzzFeed for about $7 million. In the SEC filing, Ramiswami said he wants to speak with the board about a, shift in the company's strategy. Buzzfeed's stock surged as much as 82% following that news. Scott, thoughts?

So first, with respect to Amazon, if you think about the front-end of an LLM, it should be voice, right? That's a logical next place. And every year, I pick a technology that I think is going to be the technology of the year. And I think in 2018, maybe, I said that voice I thought was going to be the technology of the year. And what's interesting is in the last two years, voice assistants have actually lost share. And they got out of the gates really strong. I love voice. I use it for music. My kids love it. They constantly whenever we get into an argument, they're like, Alexa, how many FA Cups has Man City one? They just can't stop hounding Alexa. In a weird thing, I don't know if this is true, it feels like Alexa has gotten stupider in the last 24 months or other things have caught up, but it's lost a lot of credibility, at least in the Galloway household. I'd be curious to know what is the tie in with Anthropic. I like moving to subscription. This makes a lot of sense to me. To a certain extent, it'll be a proxy on how sophisticated and how agile their AI efforts are.

Do you have any thoughts here?

I just find it interesting that everyone's calling this the AI-powered version of Alexa, when in reality, Alexa has always been an AI, and what they should really be calling it, when you mentioned Alexa is getting stupider, they should just say it's the smarter Alexa. But when you say AI, obviously that generates more buzz. Labeling aside, it is interesting to see this resurgence of voice. I mean, this all started, as you mentioned, back with Siri in 2011, which was 13 years ago. I feel like people forget how old it actually is. But the story of voice has not been a very good one. I mean, Siri is considered to be basically one of the worst Apple products of all time. It was not successful. Alexa was successful, but not even close to the way that Amazon Amazon wanted. They wanted it to be basically a tool to boost e-commerce sales on the actual Amazon platform, but it basically had no effect on the top line. It was more of a gimmick. And now here we are again. It's 2024, and we're having the same conversation. The difference is it's the Gen AI generation. Ai is supposed to be smarter, more versatile, more conversational.

It'll be interesting to see if it works, but it is certainly possible that this is just 2011 all over again.

I think it's more of a brand move, right? If the new Alexa is really sophisticated, everyone's going to go, Oh, that must mean that Anthropic and Claude are really solid. The initial thought was that Amazon's vertical integration into devices would be essentially them going vertical to control an operating system, right? And Amazon has 500 million Alexa-enabled devices. So this is everyone wants to control the interface with the consumer. The reason you make such a huge investment in retail is that you get custody of the consumer. You control the interface between you and your company. And these guys are all in a war. This is what Meta has been trying to do for everyone. They launched the portal. That didn't work, right? I think Facebook even had a phone at one point. Is that right? Amazon had a phone. They've all gone into the phones and realized it's really fucking hard and expensive, and they all get beaten back. By Android and iOS. This is their attempt to go, again, vertical. I think it'll be more a brand signal, similar to the way that what a car sounds like when you close the door or when you, quote, unquote, kick the tires or the pillows in a hotel.

There's all these quality cues for a brand.

I think that's exactly right. Walmart and Target.

I'm reading this story and I thought, there's just a few things I care less about.

I think the trouble is that you probably haven't been to a Walmart in about, what, three decades.

The last time I went to a Walmart was when I was speaking to the board of Walmart in Little Rock. I thought, I might as well go see what the nicest Walmart looks like. And I went, and it was quite nice. I actually love Target. I go the Super Target in Boca Ratan. My kids love it. I love it. I love buying a super case of 700 vitamin waters. I like that stuff. I think they do. And I think Target does a good job.

You are an inventory management nightmare.

100 %. But what I'm curious about, and I don't know the answer here, is that the difference between a company going up 4 % and going down 4 % is literally one will trade a double the multiple of the other. If you're going down 4%, that's a four car or a five car alarm among target management. And the thing that people don't realize is that Walmart is essentially a groceries company. It gets 60% of its US sales from groceries compared to just 20% at target. So I wonder if this was more a miss on the soft goods. Year to date, Walmart is up 24%, which is pretty impressive. Any thoughts on what happened here?

I think most notable to me were the price decreases. In Walmart, and Target both lowered their prices on thousands of items. And we're not just talking about one-time purchases, like a TV or an AC unit. We're talking about everyday grocery items: milk, bread, paper towels, butter. We're seeing price decreases as low as 14% on some of those items. This is a big deal for consumers. I think the question is whether those price cuts will proliferate into the rest of the market and help bring down that 3.4% inflation number we keep talking about. I feel like the answer would probably be yes. I feel like Walmart and Target are leaders in consumer, but I don't know, perhaps you have a different view.

So I think you just zeroed in on what probably was the most important thing in this earnings call, and that is the largest retailer in the world is going aggressively around price cutting. And that should have an impact as Walmart goes, so goes a relatively significant part of the economy. It really is the ultimate consumer thermometer for the lower middle class of America. Strategy all comes down to answering one question, and that question is, what can we do that is really hard, really hard, that no one else can do? We look at our assets, our competencies, our IP. Then we look at the marketplace, and we try and cut a swath down the middle and say, all right, what could we do that no one could follow. Even if it's a good idea, you want to make sure it's sustainable and other people couldn't follow because otherwise, people will just copy it. But these companies, whether it's Netflix, whether it's Amazon, they take their capital as a weapon, and they offer value proposition that others just don't have the scale to compete with. This is Walmart leaning back and following their core strategy. And that is every time they cut costs, every time they get scale, they pass on those savings to the consumer.

But this is a great report for Walmart and an ugly report for Target.

Yeah. Thoughts on Hims? Glp-1?

The market loves this. The market says this is the biggest thing in health care and maybe one of the biggest things in the economy the last decade. So embracing this is just a great strategy from an investor relations standpoint. I mean, stocks of 77% in the last three months. I think you got to hand it to these guys. Hims initially, it was like, Oh, I want Viagra, but I don't want anyone to know I have Viagra. Just saying for a friend. Saying for a friend. I don't know. I don't know anything about that.

That's just my hood, yeah.

Just so you know, I do not suffer from erectile dysfunction. Just so you know it. I absolutely do not. Although I will say this, my erections are dysfunctional. It's like, Oh, now you show up. Anyways.

Okay, that was good. That was good.

That was good. Anyways, so I'm totally- It was an ED company, but... Oh, it was an ED company and then went to hair loss. And they've really extended themselves. And they've become this, what I'll call new economy, innovation-ish health care company. And I think it could have easily been one of these dumb ideas that SPACT, I don't know if it was a SPAC.

It was actually, yeah.

That just floated away, right? That once the cheap capital party was over, but they spent it well. This strikes me as a company that's well managed and that they have actually crossed a Rubicon, and they're a real company, and that they're making good moves. I think this is a great move. What are your thoughts?

Well, two things stand out to me about this. One is the price. So Ozempic is $1,000 a month. Wegovy is $1,400 a month. This is $200 a month. It's crazy cheap. So the question is, okay, how is it so cheap? Well, the second very interesting detail should explain it. Unlike Ozempic, unlike Wegovy, unlike Zetbound, this GLP-1 drug doesn't have FDA approval, and yet they can still sell it legally, which is incredible for the business because one, they don't have to deal with any of the FDA approval costs, which are a nightmare, and two, they get to participate in GLP-1s, one of the fastest growing industries in the world. It turns out that there's a provision in the FDA's regulations which says that if a drug is in shortage, then manufacturers can sell compounded versions of that drug. That is a combined alternative mixture of that drug, and they don't need FDA approval. As of today, Ozempic, Wegovy, Zetbound are all on the FDA's drug shortages list because as we've seen, there's been this huge demand that's outstripping supply, and Hims recognized that. So this, to me, again, great management. It's a master class in regulatory arbitrage.

It's added almost a billion dollars in market value overnight. Probably it's estimated it's going to generate $100 million in annual revenue. I think the question for them is going to be, what are they going to do when the drug shortages end? Because I can't see a world where Ozempic is low on supply forever. And when that does happen, Hims won't be able to sell this anymore. So I think if I were an investor, that's what I'd be wary of.

I've often thought if I was young and scrappy and didn't have quite the profile that I've earned by going on programs, including The View, I'm not exaggerating. I would probably be going to the gray market for GLP-1 drugs because you can get these things in Dubai for 160 bucks, and there are a thousand here. I like that type of gray market. I think there's such regulatory capture among pharmaceutical firms that it's just nothing but a tax on US consumers who have the pretty average health care and pay double, pay $13,000 for a capita, whereas Canada, Australia, and UK pay $6,500, despite the fact we have lower life expectancy. I like the idea of people being very Progressive. One of my, I don't call one of my favorite movies, but the movie that Matthew McConaughy won an academy award for was Dallas Buyers Club. He found that the FDA was in the back pocket of the drug administrator or the pharmaceutical lobby and just start going to other nations and finding drugs that... These people didn't have a lot to lose, right? I like the idea of anything that fucks with big pharma, I just love.

I don't know why this makes me so happy, but these commercials, whenever I watch TV with ads, it's basically this show is brought to you by how much it sucks to get old. I mean, that's all it is. It's just a giant... It's like nine minutes I have murder, she wrote or whatever it is. I don't watch a murder show. I'm trying to think what I watch or MSNBC. I watch Rachel Maddow, and then all of a sudden it's like, Oh, do you have opioid-induced constipation? I'm like, What the fuck is that? So let me get this. I'm in so much pain I have to take a narcotic that addicks me, and I get constipated. By the way, I have an Oxy story. I had minor surgery, and they gave me OxyContin, and I totally fucking freaked out. I'm like, Oh, my God, I'm going to get addicted to this shit. And about two, three days into my Oxy, they suggest you wean off after two or three days. And I just felt like, Shit. And I felt gross. And I'm like, I felt just strange and really irritable. And I called my doctor and I'm like, Oh, my God, I'm so fucking freaked out.

He's like, What's up? And I said, I think after 72 hours, I've become addicted to OxyContin. I'm about to be a character in Dopesick. And he goes, Describe your symptoms. And I'm like, I feel bloated. I feel gross. I feel sick, and I really just want oxygen. He's like, Scott, you're not addicted. You're constipated. He's like, When's the last time you went to the bathroom? I'm like, Let me think. One, two, three, eleven days ago. And he's like, Go get some prune juice. He's like, You're not addicted to OxyContin. You're just backed up. Anyways, I don't know where we are. Prop G, subscribe now to Prop G Markets.

We're at the end of that segment, and we will pivot to the vague buying a steak in BuzzFeed. Do you have any insight on that?

Speaking of shit flying out of your ass, whatever, it's $7 million? I mean, who cares? And he wants to talk to him about strategy based on his success, getting his mother to rewrite FDA approval or whatever it is he did to make his money. I don't know. And BuzzFeed has become irrelevant, and it's probably going out of... I don't know if it's going out of business. I don't know if they've cut their costs enough to survive. It strikes me as a fairly inexpensive way to park capital and be in the news cycle. That's all I see here. I don't think he's going to have any... He has no background in media. I don't think he's an original thinker. I just think he wants to be, look at me, look at me, pick me as vice president, pick me as vice president, look at me. For seven million, I could either buy some ads which don't help and that money vanishes, or I buy seven million dollars in stock and people on the Prop G market spot will talk about me. I think this is a big fucking nothing burger.

That's awesome. And on that, let's stop talking about it. We'll be right back after the break with a look at NVIDIA's earnings.

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We're back with Profit Markets. Nvidia reported first-quarter earnings, and once again, it blew past expectations. The company generated $26 billion in revenue, up 262 2% from last year and $15 billion in profit, up more than 600%. The company also announced a 10 for 1 stock split and lifted its dividend. Shares rose more than 7% in offer hours trading and breached $1,000 per share for the first time. Scott, last week we discussed this possibility that the AI boom has become a bubble. We discussed that just you and I and also with Josh Brown on Thursday. I look at these numbers, though, $15 billion in profit, $23 billion in data center revenue, which is basically the AI chip revenue. That's up 427% year over year. These numbers look very real, very serious. Do these earnings change anything for you?

No, I think we predicted they were going to blow away everything. When numbers get this big, it's hard to wrap your head around. So just for relative comparison, this company has added the value in the last 12 months. It's added the value of Amazon. It's now worth more than Tesla and Meta combined. It's worth more than the entire German stock market. And if you took all of the transactions that happen all year in Spain and all year in the Kingdom of Saudi Arabia, their GDP from both nations, that's not as big as the market capitalization now of NVIDIA, which is the third most valuable company in the world. It trades at a price to earnings ratio of 56 compared to 24 for the broader S&P. So you think, okay, that's expensive, but it's not crazy given the growth that you referenced. I think the problem here is not the price earnings multiple, it's the E. And that is at some point I do think people are going to decide, I'm Chick-fil-A, I don't need to rent this type of compute powered by GPUs. And the first sign of a slowdown here is going to freak everyone out.

You'll see multiple contraction. In addition, you'll see earnings contraction. And the thing that I think is going to take the stock... I mean, this is a bubble. The question is, when does it pop? And this isn't financial advice because the company could easily It's just a momentum and hysteria and excitement around AI. The stock could easily double. But I believe this is a bubble. And what I ultimately think is going to be the air coming out of the bubble, if you will, is that there are... What did Josh Brown call it? A self-perpetual motion machine. A perpetual motion machine. There are four companies, Amazon, Alphabet, Metta, and Microsoft, that account for 40 % of total sales. And all of those companies really hate going to NVIDIA and basically being asked to put on a gag ball and grab their ankles. Because the pricing here, they have such incredible power. It's just got to be the worst thing, the worst negotiation in the world for these guys. They're not used to it. They're the ones that are used to abusing people in a third party, in a negotiation. And they are the little guy when they go to NVIDIA.

So all of them are massively investing in developing their our own AI chips. And the first one that comes out with a reasonable chip, you're just going to see... It's like when Apple said, We're sick of these negotiations and one-way conversations with Intel, we're going to develop our own chips. And also what What's really interesting is Aswath made such an interesting comment about the valuation of NVIDIA. He said that built into the valuation is the assumption that NVIDIA will dominate another market the way it dominates AI that hasn't been invented yet, that nobody knows yet, in order to grow into its valuation. And you can see that Jensen either listens to Aswath, and now he's talking a lot about the sciences. He's saying, Oh, the biggest opportunity for our chips, he doesn't say AI, is the health sciences. So he's saying, Okay, at some point we'll run out of steam. Ai does have limits, but don't worry, all these health care companies are going to start buying our GPUs. So this is nothing short of absolutely staggering. Historically, the semiconductor industry is cyclical. I don't see why this would be any different. Kudos to them.

A staggering earnings report. I love that they're creating all of this wealth for their employees and for their investors. I don't know where the stock is going to be over the course of the next 24 months, but I would predict that in, call it 18 to 36 months, it's wealth south of where it is right now. I just don't see how with these types of margins and this type of dominance in a market that so important, so huge, has so many powerful players with their own capital, their own IP, that these types of numbers just aren't going to attract the biggest great Whites in the world. What are your thoughts?

You mentioned Jensen building in new expectations. I think he said that this is going to be on this most recent earnings call. He said that this is the next industrial revolution. But I want to pivot to just this analyst note that I was reading. I found this line that I found pretty funny. It said, quote, NVIDIA generated revenues that were around 5% higher than what the analyst community had expected. While this was a positive result for sure, the beat was less pronounced compared to the previous two quarters when revenue estimates were beaten by more than 10% respectively. In other words, NVIDIA is so strong that we're not even happy with beats anymore. We're measuring how much today's beat beat the last beat. It feels like we're not only building high expectations, we're building totally new kinds of expectations for this company just because of how much it's outperformed. And what I'd ask you is, based on your experience as an investor, have you ever seen earnings growth that is this strong and this enduring? It's been several consecutive quarters of triple-digit revenue growth.

Yeah, you're exactly right. You beat by 20 %, you only beat by 18 %, you only over-delivered by this much this time. So the expectations here, this company is defying gravity. You could argue just on a shareholder ability to create shareholder value. Nvidia, at this point, is probably the most successful company in history. Very few companies are able to add the GDP of Germany in 18 months. There's something about, and to me, it goes to a larger thing. This is a Taiwanese, I think Jensen is from Taiwan. He went to school in Oregon, and then he went to Stanford, and he decided to start the company in San Francisco. He's just There's just no getting around it. There's something very unique about America and specifically the Bay Area when it comes to cold, hard cash. And it's important that we keep doing this because these companies, while they pay less than their fair share, less than your fair share on the GDP of Germany is a lot of money. So these companies pay a lot. I bet that NVIDIA will be responsible for a loan, will be responsible for a budget surplus in California this year.

I bet anyone who's been there longer than three years, who's in a professional track job, has $10 million plus in options equity right now. And then when they exercise those options, those they have to pay short term capital gains on, plus the 13% that goes to the state. That's just a massive amount of tax revenue. I've always said there's very few problems money can solve, and people hate hearing that. But I've always thought, other than health, and even with a lot of health conditions, money can solve it. Most things work out. I have a friend who's going through a divorce. He's really upset. And I know his wife is soon to be ex. I'm like, look, this is the bottom line. It's going to be a lot less painful for you guys because you have money. This company, I don't know what it added. It had a 110th. It probably added 150 billion in five minutes. If you had $150 billion in market cap to the economy in five minutes after your earnings call, you should be able to figure out a way to expand the child tax credit, which cost 13 billion, I think.

So anyways, long-winded way of saying, go, America.

And just quickly investing 101, they also announced a 10 for one stock split. Can you just remind our listeners what a stock split is and why a company would do that?

Well, they want to make it more affordable and seamless expensive. So the stock, what is it out today? 1100 or something?

Yeah, I think 1050, I want to say.

Okay, so let's call it 1100 by tomorrow. So it's 1100. All they do is just go 10 for one. So now each share of stock costs $110. And what I hate is I saw some headlines today saying the stock is about to become a lot cheaper. No, it's not. No, it's not. You buy a stock based on valuation as it relates to its underlying fundamentals. The valuation is not changing here, just the number of shares. As a matter of fact, something I learned from one of the VCs I worked with is I always issued at the very beginning of the company, you issue shares, you incorporate, you have a certain number of shares. And as the founder, at least initially, you own all the shares. And then you start giving options out on those shares to your employees. Hopefully, you get an investor, you give him or her new shares in the company, which dilutes your stake. And what I initially always just formed the company with a million shares. And one of my VCs said, no, form it with 100 million. I said, well, why? He said, Because if you give someone 1% of the company, 10,000 shares isn't nearly as exciting, psychologically, as a million shares.

Even though it's the exact same thing, even though you're just on 1% of the company, it's still, he said, just psychologically, I'm Are people really that dumb? He's like, Yeah. People really enjoy getting a million shares or options on a million shares. And that's exactly what this is, because now with fractional buying, there's really no reason to split the shares other than to signal how strong the stock is and also to psychologically make it easier for someone to say, Well, I'll buy some share. It's only 110. I can buy two shares, as opposed to saying, Oh, my God, 1100 bucks. I missed that boat. So I would argue it's mostly symbolic, and it's mostly just to give people the impression somehow that the stock is affordable. It's really psychological. It has nothing to do with the underlying fundamentals.

We'll be back with a look at the UK and a surprise general election. Stay with us.

Support for this show comes from Fun Fundrise. Artificial intelligence could be the biggest wealth creation event in history. Ai may reshape the world economy as much as the industrial revolution, yet you probably won't be able to invest in it. That's because most of the AI revolution is being built and funded in private markets. Openai, Anthropic, and Databricks are all private companies. The vast majority of AI startups are going to be backed and owned by venture capitalists, not public investors. Until now, the Fundrise Innovation Fund aims to challenge the status quo by democratizing venture capital. With a $100 million portfolio already holding some of the biggest and baddest pre-IPO technology companies in the world, the Funrise Innovation Fund is already well on its way. Ai is going to revolutionize our lives. Should we have the choice to ride the wave instead of just getting swept along? The Funrise Innovation Fund is on a mission to level the playing field. Relevant disclaimers can be found at the end of the show and at funrise. Com/innovation.

We're back with Property Markets. British Prime Minister Richie Sunak shocked Parliament last week and called for a surprise general election on July fourth. For our American listeners, here's what that actually means. In Britain, parliamentary terms last five years, and soon, acts is due to expire at the end of this year. However, unlike in the US, the Prime Minister can decide when to hold a new election during those five years. So why has the Prime Minister chosen now? It isn't totally clear, but it likely has something to do with recent economic data. Before his announcement, the UK reported 2.3 3% inflation, which is its lowest level in three years. Meanwhile, GDP grew 0.6%, which technically brought the nation out of a recession. However, these are small wins. The UK economy is still largely in decline, and the nation is still reeling from the disastrous 44-day tenure of the previous Prime Minister, Liz Truss. Now, after 14 years of being in charge, the conservative Party looks set to lose. Its opposition, the Left Wing Labor Party, is currently leading the polls by more 20 %. Scott, you recently moved to London. I think that gives you a right to talk about this.

What are your thoughts on the general election?

I have really enjoyed understanding almost nothing about UK politics. I One of the reasons, one of the free gifts with purchase in moving to the UK is that discussions around assault weapons, bodily autonomy. They're not even discussions there because they would look at you like, well, of course a woman can terminate a pregnancy. Or why on earth would we have AR-15? They just are remarkably saying, I like Prime Minister Sunak. He, strikes me as a really reasonable, thoughtful guy. It's a parliamentary system, so people are sick of the party. I don't blame them. I think UK is the only country in the EU that hasn't grown in five years. Brexit will probably go down is the biggest self-inflicted wound since probably George W. Bush invaded Iraq. It's like, how do we make things more expensive and make our economy less productive at the same time elegantly? By the way, I remember being in Cannes when it went through, and every Brit was just dazed. They just couldn't believe what had just happened. Anyways, the GDP growth since 2016, this is eight years. In the EU, It's been 24%. In the UK, it's been 6%. Since Brexit, UK goods trade has underperformed other advanced economies by around 15%.

Uk consumer prices have risen more than, get this, at 30% since mid-2016, compared with 27% in the US and 24% in Europe. So productivity down, expenses up. In the pound, in the immediate minutes following the referendum vote, the British pound dropped 8% to a 31-year low against the dollar. The pound has never recovered to pre-Brexit levels. Also, the brand as a financial capital of Europe has suffered. Paris overtook London as Europe's largest stock market in 2022, and the total capitalization of London list equities fell from a high of 4.3 trillion in 2007 to about 3 trillion in February '24. Think about that. The market capitalization of this market in the last 17 years has basically been cut by 30%. Just on an inflation adjusted basis, it would be six or 7 trillion. It means they've lost It's a ton of share. Over the same period, the value of US stocks almost tripled to 53 trillion. Uk from 4.3 to 3, the US from about 18 to 53. The total value of IPOs in London last year was less than a billion. Total value of US IPOs, and this was a slow year, 26 billion. I want to flip this back to you because I don't feel...

I'll give you some comments on... People constantly ask me now, what's the difference between the UK and the US? I have How have you been struck by how overwhelming the business environment has given the pillars and the foundation that the UK sits on. First off, it has incredible universities. It has really fantastic raw talent. I've met so many impressive people there that it's You just can't get around it. This is some of the most educated, interesting group of people. It has an amazing culture. So a lot of very important people with a lot of influence saying, Well, okay, I could move to Seoul, Korea, or I could move to London. Seoul is an amazing city, but the majority of people I would assume would pick London. But at the same time, what I've also noticed is that there's no actual organic value creation. Everyone I meet there has made their money by servicing wealth created elsewhere. The most successful people I know are in investment banking, are in wealth management, and they're servicing the wealth of people who have made their money in the Gulf or in the US. And they're either in hospitality or hotels.

But other than Premier League football, the hospitality and tourism industry, I'm like, Where's the actual mojo here? Where are the companies? Where's the tech? Yeah. And they do have some fintech. But it's really an interesting question. I don't know how to answer it, and I'll turn it back to you. But given the fundamentals, given the foundation of all the things you need or supposedly need for success, what is missing here? Because there's nothing resembling NVIDIA. There's not even... Christ, there aren't even that many buzz feeds there. 7 of 10 IPOs in the last 10 years are below their offering price. So I'll turn it back to you. You grew up in the UK. You came to school at Princeton. You're obviously See, you are the secret sauce. Young, talented, educated people who want to work hard and make money and are good people are the secret sauce in the economy. And the fact that you stayed here as opposed to going back where you have family, where you speak the language, and you decided to stay here. So what do you think is the issue in the UK, and why did Elson, given the option, decide to stay in America?

Well, I'll start with the economics, and I'll return to my read on the cultural differences, which I do believe are important. But let's just start with the economics. And the economics are dismal. In the UK went into recession in the second half of last year. Two straight quarters of negative GDP growth, and the quarter before that, the growth was flat. It's had one of the worst post-COVID recoveries in G7. Stock market has been sluggish. You mentioned some tech companies, for example, Arm, which is the AI chip manufacturer. They are based in England, but they decided not to list on the London Stock Exchange. They went to New York. Valuations are cheap, and the US stocks are trading at around 20 times earnings. In the UK, it's 12. Then there's this national debt problem, too. It's not as bad as the US. The UK has around $2.7 trillion in debt, and that's around 97% of GDP. Nothing like America, but we also have to remember that US is in a privileged position to borrow because it's the US. So everything's, generally speaking, everything is going wrong. The question is why. I think there are two main reasons One, and this is what the Tories will argue, that is the conservative Party, is that this is a Europe problem.

There's a wider problem in Europe. Europe as a whole has been struggling with growth for decades. It's struggling to bring an investment, and that's true. The second reason is specific to the UK. Plane and simple, it's Brexit. At a time when growth was sluggish, along with the rest of Europe, the UK came up with basically the most English excuse in history, which is it's not our fault, it's theirs. As you mentioned, it was a populist movement. It started with Nigel Farage. It played into all these weird emotions of English pride and English heritage and also dismissal of foreigners. Mps in Parliament lacked the spine, really, to speak up about why it was a bad idea. It will go down, I believe, as basically the most disastrous and damaging economic decisions in history. It cost the UK 4% of GDP per year. Remember, this was supposed to stimulate the growth. Tariffs increased, which increased the cost of goods, including food. Brexit is estimated to have contributed to a third of food price inflation. Workers left, estimated 330,000 jobs lost due to Brexit. What's interesting, especially the skilled workers, England was struggling with this thing called Dregsit, which is where all of these young doctors decided to pack up and leave, and now they need to figure out how to revamp the NHS and get doctors back into the UK.

I'll pause there. I'll just say, I think this entire election comes down to this, which is the UK went from a majority voting to leave the European Union, and it's now reckoning with only 30% of the population believing that this was ever a good idea. So the question voters are asking themselves is, who was responsible for the worst economic decision in history? The answer is really the voters, but they will say it was the Conservatives. You ask why I left. I was born and raised in London, but both my parents were American, and they encouraged me to apply to American schools. So I did, and I went to school in the US. That's why I left. The other question you asked is, why haven't I gone back? There's one crucial cultural difference between here and the UK, which really bugs me. And I think it's very well exemplified by the grading system that I grew up with. So in America, I got one grade, A, B, C, D, E, or F. In England, I got two grades. One was your attainment grade, which is ranked one through five, and the other was your effort grade, which was A through E.

So the first measured how well you actually did, and the other measured how hard you tried. Two separate things. Now, all the teachers told us that the best grade you could get was an A1, but all of us knew that wasn't actually true. The students knew that the best grade you could get was an E1, meaning you got 100%, you were top of your class, and you didn't even try. Maybe you even misbehaved. You didn't care. So you didn't care at all, but you still achieved. To me, this is the perfect encapsulation of English culture, where we have this obsession with not trying, not taking yourself seriously, and worse, not caring. I believe that if I'd stayed in London, I don't think I'd be where I am today because I never would have believed in myself or taken myself seriously enough to say, Maybe I'm good enough to sit in the same room as Scott Galloway. That would have been an embarrassing thing to try to do. I think it's actually a real cultural problem in the UK. I think it's why we're seeing this lack of creativity, the lack of innovation, lack of inspiration, and crucially, a lack of leadership.

I mean, you look at Boris. That is the most E1 guy you've ever seen. His hair, his clothes, his demeanor, it all screams, I'm the Prime Minister, I'm talented, and I don't give a shit. I just showed up here, and it just so happens that I'm the most powerful man in the country. This is everywhere in England, and it's rewarded. I think this is why you're seeing the same guys leading in government and leading in business. They all went to the same schools. They all basically went to Eton, and they all went to the same universities, which was Oxford or Cambridge. And they all learned the same thing, which is it's good to succeed, but the best thing is to never try while you do it.

To be accidentally successful. Exactly. The impression of being accidentally successful. Yeah. There's also one thing I've noticed in the limited business meetings I've had is that meetings in New York, people are very much, okay, what are you doing? This is what we're doing. I'm saying, Okay, it was nice to meet you, but I don't see a fit here. Great. Onward. Maybe I'll see you at zero bond or do you know so and so. People are generally capitalist. How can I help you? How can you help me? No, I don't like this. Let's move on. Or This is great. How do we make money together? Let's get on it. And on your way home, you'll start sending them emails. They'll start sending you emails. Whenever I've done anything resembling a business meeting in the UK, it was just so lovely to me. I think every meeting went modestly well. Three or four days later, I'll get a meeting saying, We should definitely follow up. I'll send you some dates for fall. It's like an indefinite maybe. The way I would describe Ed Elson and every other ambitious young person in the UK is, I think you're going to be successful in the UK.

I do think there's opportunity there. But the way I would describe it is you'll reach that level of success at 40 versus 30 here in the US. The flip side is, my father, despite his lack of education, always just had real insight. He said to me, he said, Scott, America is a terrible place to be stupid. What he was saying is this country believes in winners and losers. And if you're stupid here, you're going to fall further faster than in Europe. But at the same time, if you're smart and you're hard working, there's no mowing the long or trimming the daisies or cutting people down, which I think is what happens. You're supposed to to wake up and be accidentally rich in the UK.

That's why they're all children of rich people. That's why they have that opinion.

Dynastic wealth. Exactly. That to step out of your class is uncouth. It's unappealing. You can even feel some of it in the US based on geography. There's a European similar sensibility on the East Coast. I remember when I first moved back to New York and I was single, and people would try and set me up, they would say, She comes from a good family. I'm like, I could give a shit for the family. I don't want to meet the family. I don't care. I'm going to make my own. People on the West Coast, brag about having poor parents. They're proud of the fact that they came from nothing, whereas in East Coast, and I think it's much more European, your background, your roots, your dynasty are much more important. But there's a culture there that I think the route for the most successful people, remember the the Silk Road or whatever Everybody, all these trade routes. There is a trade route in human capital. The most talented people in the world get to the biggest city in their nation. Then they get to London, Shanghai, Singapore. Then the real ballers, the real ballers, end up in New York.

Then when they decide they want to call their life, they end up in LA or somewhere else in America. But the most successful, most ambitious people in the world end up over US airspace at some point.

Let's take a look at the week ahead. We'll see data on the personal consumption expenditures index for April, and we'll also see earnings from Salesforce, Costco, and Dell. Do you have any predictions, Scott?

So I was fascinated by, I don't know if you saw it, but there was a $250 million deal struck between Newscor and OpenAI.

Yes, way bigger than all the previous ones. Yeah.

And I think this is a big deal because basically it establishes a precedence that these companies who have crawlable data or that have the content that would be good gris for the LLM mill These prices are going up, and I think it's essentially establishing or normalizing the idea that a lot of these content companies are going to be able to find an additional incremental revenue stream that will be very high margin. So my prediction is companies, like, strangely enough, are coming like, Gannet. Which has just gotten the shit kicked out of it. A bunch of local newspapers, USA Today, a company like Yahoo. I think these companies are going to... I think you're going to see their stocks appreciate tangibly because out of nowhere, they're going to find them and get 10, 20, 50, $100 million a year. I think you're going to start to see a bidding war. I mean, obviously everyone's... I think the New York Times is being savvy and playing the reluctant bride, and it's waiting for someone to come in to make them a big offer to be the exclusive provider and then sue everybody else who tries to crawl their content.

Yeah, and they're suing them now, right? That's right.

A Hearst, a Condenast, the folks that just produce a massive amount of crawlable high-quality data. So what I'm interested in is trying to find the beaten-down stocks I mean, you could argue the investment thesis around BuzzFeed is just that, although I don't know if they have the volume of high... The 10 Things to Do on a Weekend with your Dog in Brooklyn, I'm not sure that's amazing. That's a valuable data. That's amazing content for the LLMs. But the bigger players that have struggled to find new revenue sources, this could be a bit of a lifeline. And I think you might see, just being very transparent, I was looking at a Gannett stock today. I used to own some of the debt. I sold it, but the stock's off substantially over the last five years. It's actually up this year. But I wouldn't be surprised if they announced, We have a new deal with Anthropic or something, and We're going to make 25, 50, and then it might go to 100 million, and it's going to be 98 points of gross margin, which will quintuple their earnings. Anyway, this prediction is that we're going to see some strange and overdue life in the market of mid-tier media companies that have a lot of content that these LLMs are going to all of a sudden find value in.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producers are Jennifer Sanchez and Allison Weis, our executive producers are Jason Stavers and Katherine Dylan, Mia Silvario is our research lead, and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Lynn Alden, and it'll only be on the Prof G Markets feed. So a reminder, again, subscribe to Prof G Markets if you're still listening to the Prof G podcast.

You have me in kind reunion as the world turns and the dark light in love.

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