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Brokered services for U.S.-listed registered securities, options, and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA, and SIPC. Complete disclosures available at public.com slash disclosures. I should also disclose I am an investor. If you think talking about finances in general is hard try talking to your parents about money. What you don't want to do is like, do you have any money? What's going on? You don't want to come at them.
in a more adversarial way. Or as I said, you don't want to come out like you're now the parent. What to do about the ups and downs of your 401k. If you... or someone you care about plans to retire soon. That's on the next Explain It To Me. New episodes every Sunday morning. Hey, Cam Hayward here from the Pittsburgh Steelers.
This week's episode of Not Just Football, we're live from Green Bay for the NFL Draft. And we're talking with 2024 Walter Payton, NFL Man of the Year, Eric Armstead, two-time Super Bowl champion and former offensive tackle for the Pittsburgh Steelers, Max Stark. and NFL Network and CBS NFL game analyst Charles Davis. We're diving into our draft day experiences with Eric and Matt.
and answering your fan questions and getting Charles to share his best go-to phrases from Madden. This episode is now available wherever you get your podcasts and on YouTube. That's not just football with Cam. Today's number, 50%. That's how much more often British people apologize than Americans do. So I'd like to apologize to all our listeners that I have not yet offended. It's coming. It's coming.
Ed, true story. When I started at Morgan Stanley, I was consistently late. And I thought of an interesting apology. And the all-hands meeting said, I want to apologize for being late. I was at home not being miserable. Yeah, it's not very good, is it? I've got to come up with something better. All right, you talk. I'll find something better. What do you want me to talk about? I apologize for slapping you twice, but I needed to slap both faces. Get it? Two-faced? Yeah. This is going nowhere, Ed.
This is going nowhere. Keep throwing. See if anything sticks. I promise to do a better job at hiding how much you annoy me, Ed. Finally some truth. I'm like Don Rickles minus the talent right now. I do love that statistic. I think it's very true. We apologize way too much. You think? In fact, just before we recorded, yeah, I went to the bathroom.
And then I came back into the recording session. I was like, sorry. And everyone laughed at me. I shouldn't be apologizing for going to the bathroom. No, they were laughing because as soon as you said, I want to go to the bathroom, I'm like... I said to our technical director, can you make the mic more sensitive? I'd like to hear his stream because I bet it's like a fucking Niagara after a big rain.
I'm telling you, Ed, you should literally hold it and then go into the bathroom and literally let that flow run wild, my brother. Make it like the Amazon River. Because I'll tell you, you get to my age, and it's like a baby bottle dribbling. It's just so upsetting. Okay. I'll send you a recording next time. How's that? I'd appreciate that. I'd appreciate that. But before we do that, let's get to the headlines. Finally, banter is over. You have permission to do what we're paid to do here.
preparing to test a new AI processor designed to rival Nvidia's H100 chip. This move comes after China's President Xi Jinping pledged to make self-reliance a top priority as China ramps up its AI development. Apple plans to source all US iPhones from India by the end of 2026. The move will double its production output in the country as Trump's tariffs drive Apple out of China. And finally, Spotify's monthly active users rose 10%.
to 678 million in the first quarter. However, the stock fell 7% after its user forecast for the current quarter missed expectations. CEO Daniel Ek warned that broader economic uncertainty could bring some, quote, noise. So let's start here with this Huawei news. Huawei, which is the Chinese company, they are building a new chip that will supposedly rival Nvidia's best chip, which is the H100. and Nvidia stock fell more than 2% after that was announced. I just want to point out
because Huawei has made these kinds of claims in the past, and so far, none of them have really panned out. They have the 910C chip, for example. which was supposed to be as good as the H100 as well. And then people started using it, and they started saying, no, actually, it isn't. So here we are again. They're making similar claims. We'll only know if it's true once the chip is actually out. But I think what is...
More important to focus on were those statements by Xi Jinping, where he stated publicly and officially, he said that self-sufficiency in AI is now a national priority. And this is new. You know, it might have been true before, but it was never publicly stated like this. So I think this is kind of a defining moment in the AI race where it's been sort of like a cold war between the US and China.
We kind of knew we were in a race, but never really acknowledged it. Now it's acknowledged. The US is shutting down. all chip shipments into China. And now you have China, which is publicly coming out and saying we're going to be a self-sufficient and self-reliant AI nation. So the AI race is officially on now. NVIDIA versus Huawei. AMD versus SMIC, you name it. It's the US versus China, Scott.
your reactions to this new Huawei chip and what this means for America. Your analogy is the right one. And that is a Cold War analogy. First, it was a nuclear arms race. Then it was a space race. My favorite thing about the space race is they put... The Russians, it was such a brilliant propaganda move. They put up...
something the size of a basketball. But what they did is they made the frequency of which it was communicating back to Earth such that anyone, you know, radio ham operators could hear the beep. Beep. It was sort of basically the most elegant and rudimentary way of saying, we're better than you. We're better than you. You should fear us. And people were just totally freaked out by the prospect that space...
a space-born vehicle could be over their houses. Everyone was so freaked out. The interesting thing here is that it kind of lends credence to the fact that free trade, that when you restrict... trade or free flow of trade, it's not always good for you. You sometimes just create incentives for them to develop workarounds.
And I think that might be true here. Also, the technology is obviously very important. And I believe NVIDIA is going to have the edge from a technology standpoint for a long time, unless that is they can get a bunch of Chinese nationals who are in business schools across the nation to go to work at NVIDIA and then start transmitting or engaging in espionage and IP theft. What people don't realize is that the majority of espionage now is not about James Bond spy versus spy, kill people.
It's a lady who's a very, you know, I don't know, normal pedestrian looking person who's the assistant to somebody who just happens to get plans for the latest NVIDIA chip and somehow it gets transmitted to Beijing. And we did the same thing to British textile manufacturers. In the 19th century, and any economy growing faster than 6% or 8% a year has usually got very, very strong IP theft as part of its core competence. And China's always been really...
Good at that. The thing that will, I think, make Huawei potentially an outperformer here relative to NVIDIA is one NVIDIA's got an extraordinary market cap right now. But also, I think the worm has turned in terms of people's receptivity or favoritism that was biased towards the U.S., and that is the deepest-pocketed companies and countries in the world. No, I wouldn't say unbeknownst to us, but it was taken for granted or we didn't realize how much goodwill we had.
I think you're going to see a lot of European companies take meetings with Huawei. and say we're less freaked out, or we're no less freaked out about Chinese espionage or them having access to our data, but we're much more freaked out about Americans having our data now. And we don't feel nearly the allegiance to maintain... U.S. prosperity given that they're no longer guaranteeing our military. umbrella that they appear to be declaring war on us economically.
So I think Huawei has the wind at their back right now, but I'd love to know the relative valuations because I would think that Huawei is going to get a lot more meetings with Latin American, Asian, and European companies. to discuss their AI and their chips. This is not a public company, so it's hard to know, but I just want to highlight some statistics that sort of...
illustrate what we're up against here. China produces 3.6 million STEM graduates every year, and that is more than four times the number that we produce in America. They also have produced 13,000 granted patents in AI so far, and we have produced less than 9,000. They're also beating us in terms of public investment into AI. They allocated $142 billion to semiconductor manufacturing last year. Compare that to the US where we were at $75 billion.
where China is actually very strong. I don't think you could... make the case that right now China is beating us. I mean, we have the best chips in the world. We also have the best models in the world. We're also leading by far in terms of private investment into AI, 12 times higher. by dollar value than China last year. So I think if we're in a race, and I believe we are, I think we're ahead.
But this will be really interesting to keep track of because you just look at what they're doing in terms of investing in their research institutions, in terms of the innovation that we're seeing in the patent world. They're clearly...
And this is the thing that could easily define the next generation of technology. What I think is going to do real structural harm to America's competitiveness on an economic level are some of the things you're talking about. And that is, if you look at the number of, and Frieza Kari did a great segment on this. If you look at the number of universities in the top 500, in the last 10 or 20 years, China has grown the number of top universities they have by 50%, and in the U.S., it's declined.
And then all of this nonsense around... sequestering or cauterizing the investment in innovation through universities, which has been this, arguably the best investment in history is this private-public partnership we've had with universities where the National Institute of Health. And different defense departments fund different universities.
to come up with just amazing technology. The most amazing supply chain probably is probably the Apple supply chain in China, but arguably the best or the most important was the supply chain that was developed to get to splitting the atom, right? And since then, we've been doing that around everything from diabetes drugs to chips to LED panels. All of these things have flowed through incredible capital to university and our ability to attract.
unbelievable talent. And essentially, I think, and now the Chinese are going on a charm offensive and saying to the best human capital in the world, the best researchers in the world, the best PhD students in the world. Come to China. We have great universities. They're well-funded. You may not like us, but you can count on us. We're consistent. So we're experiencing, I believe you could argue that the biggest structural impact economically on the United States.
is a gutting of the most successful partnership, economic partnership in history, and that's the private-public partnership. And the government. And the weird thing is, we won't even know the specific damage. It'll just be, and it is right now, China is now responsible for about 50% of the patents that are being filed, per your comment. So this is just...
We are in a room of prosperity, but we've decided to open the windows and leak all of the oxygen out to our competitors. Yeah, if you believe that... prosperity and economic growth is mostly a function of technological innovation, which it sounds like both of us agree on this, that it is. then the best forward-looking indicator of your economy is the quality and the strength of your research institution.
I mean, that's the best way we can see into the future. How good are our PhDs? How good are our researchers? I still think we're better than China. Our conclusion here is that the trend is not looking amazing. The fact that this other country is actively, our enemy is actively investing into their research institutions. Meanwhile, we appear to be detracting from them. It's just not a great sign.
when you're trying to model this country out and the economy out 10, 20, 30 years in the future. We should probably move on to Apple though. I mean, they've already been moving their production out of China into India. But this is a new report from the Financial Times, and it clarifies that the plan is to move all of the iPhone manufacturing out of China and into India. And the plan is to get that done by the end of next year.
And so this is like a big deal on multiple levels. It's a big deal for China, where Apple makes 90% of its iPhones. It's also a big deal for India. which is going to inherit a huge business. making these products, making these iPhones. But I think most of all, it's probably the biggest deal for America, where we were told that the purpose of these tariffs was to reshore jobs out of China and back into the U.S. And instead, what we're seeing, at least in the case of Apple,
The jobs are leaving China and they're going to India. They're staying in Asia. And this is going to create 150,000 jobs. in India. It's probably going to add some significant percentage of GDP to their economy. So essentially, America is getting no benefit from this. And in fact, we get punished because the manufacturing costs in India are 10% higher than they are in China.
So, sure, the jobs get reshored somewhere else and prices go up. It was never realistic that we were going to build a $3,500 iPhone, which is what it would cost to produce it in the United States. And so we've gone from kind of one, not even low cost, but an incredible supply chain, innovative culture, which is China, to India. Well done, Donald Trump. You have taken, you've gotten your pound of flesh.
from China and you've given it to India. Was that the point? And more generally, geopolitically, I think India and the kingdom are going to thrive over the next 10 years because they're now the swing votes. If you think about... Team A is the U.S. and Europe, although we seem to be alienating Europe, but U.S. and the West. And then Team B, if you will, or blue jerseys is...
North Korea, China, and Russia, and maybe Iran. The swing votes, the really powerful nations that can play each side off of each other, are the Kingdom of Saudi Arabia and India. And I think they're going to benefit, and India already appears to be. appears to be benefiting. I think the other big macro question is that this news implies is like, who is going to be America's next China? the country that adopts this $440 billion per year business.
that is making cheap products and sending them to America. This news would imply maybe it'll be India, but maybe it could be someone else. Maybe it could be Mexico. And we talked with Ryan Peterson last week. He was very bullish on Vietnam. Maybe it could be Vietnam. He was great. And something I just never thought of was that the internal river network in Vietnam ends up being this.
cheap, natural infrastructure. And he said that India was a nightmare to do business with. He said that logistically, their supply chains are a mess, which was quite interesting. The other potentially sleeping giant here, or stirring giant, is Indonesia. And they're gaining share in EV battery materials, especially nickel and cobalt in India. India commands over 20% of global nickel reserves, and companies ranging from Tesla and Ford have signed sourcing deals with Indonesian firms.
There might be sort of a new, the problem is they need an acronym such that they can market themselves better for investors. It's sort of like Indonesia in Vietnam, Mexico, and India, like MIV or something. They need something such that they get on people's radar screens. But I think you're going to see a dissemination of market cap, and we've talked about this, away from the U.S. And I wonder if...
Some of the tail of the whip and some of the bigger upsides might be in places like Vietnam and Indonesia. Let's move on to Spotify, which reported earnings. The stock dropped 7%. They missed on profits. Operating income came in at 509 million euro. Wall Street expected 548 million. They also gave guidance that Wall Street considered quite soft. So I think, you know, that's certainly part of why you saw this drawdown. But I think this is really just a function of these massive expectations.
It's still up 20% year to date. I mean, it's one of the best performing stocks in the tech sector. But I look at the company and the fundamentals are still really strong. I mean, you've got active users. up 10%. You got revenue up 15%. My takeaway here is the market was a little too excited. It's correcting, but net-net, I look at Spotify, to me, the company's still crushing it. Yeah, there's company performance and there's expectations. And the stock is a function of expectations.
You talked about year to date. In the last 12 months, the stock's up 103%, even after its decline. That's insane. And it trades at a price earnings multiple of 93. So this company's crushing it. Yeah, it's just that the investors, you said something that struck me a few months ago. You said the expectation now is that every company will blow away expectations.
too far over its skis is the bottom line. And it'll probably rationalize a bit. My guess is it'll go flat for a while and then it'll maybe down and then it'll reignite its growth again because this company, there's nothing here. They would indicate anything other than Spotify is now benefiting from what Uber benefited from and some of the big Magnificent Seven have benefited from. And that is it has made the jump to light speed. And that is it has so much scale and so much capital to reinvest.
into innovation that slowly but surely, and also it benefits from focus, it's pulling away from Apple and Amazon and the other music streamers. I can't think of another company that was able to take an entire medium and distill it down to one searchable icon on your iPhone. I mean, even YouTube, as much as we talk about YouTube, there's just certain things, a lot of things I cannot find on YouTube. I can find pretty much everything in terms of music and podcasts.
on Spotify. I think they've been really innovative around the commenting and the video. They're trying to create it into a social platform. I love the branding. It's basically the best managed company in tech, in my view. I mean, every... There have been so many forks in the road for this company. And you look back and they've made every decision has been the right one. And I think one of their biggest decisions, which we're now seeing reflected, was their decision to get into podcasting.
Now we can have a conversation about, did they do it the right way? But what is very clear is that this is now a big leader in the podcasting space. That was a decision they decided to go with. And now we're seeing a lot of emphasis on podcasting, on the earnings calls and in the earnings reports. And one thing that's so interesting, we're seeing it play out in our business. The biggest platform for this show, Prof G Markets, in the audio at least, was Apple Podcasts.
This week, Spotify actually overtook Apple as our top audio platform for property markets. Our growth on Spotify is way outpacing our growth on Apple. And I've been trying to think about why that is. And it's two main things for me. One, I think Spotify is just attracting a younger audience. And I think a lot of that has to do with many of the things you mentioned that I think their marketing is great.
They're leaning into video. They're trying to really focus on engagement by implementing these new comments features. They're doing a lot of stuff that resonates with young people. And you look at this program. This is a largely young audience. Out of the Prof G Media portfolio, Prof G Markets is the youngest. 36% of our audience is under the age of 34. If you look at raging moderates for comparison, that number is 24%. And so that would explain why raging moderates...
as an example, has 86% more followers on Apple Podcasts versus Spotify. And then you look at this program where Spotify is actually leading. So I think that's one explanation there. It's just, it's attracting a young base. And the second thing is the recommendation algorithm. I think a lot of people are finding this show because Spotify is recommending it. At least that's what I've heard anecdotally from people who listen to the podcast.
And this is the real differentiator between Spotify and Apple as an audio platform and the reason it's pulling ahead. The way you find a new podcast on Apple... You kind of just have to find it on the top 10 list. It's basically an entirely editorial recommendation system. It's the same way that traditional media works.
Or, you know, like you look at books. I mean, how do you sell books? You kind of just have to get onto the New York Times bestsellers list. Spotify is really leaning into having an algorithmic recommendation system, not an editorial one.
where they're investing in AI, they're learning what you like, and then they're giving you more of it. And I think that's a big reason why this podcast is doing well on that platform, is it's simply allowing people to discover it. And I think that's so important. in this business. And it's so important for growth. You need to figure out a way to attract new podcasts that have a real incentive to move onto your platform and that have a chance of competing with the bigger show.
So the core demo that everybody wants is people under the age of 44. uh, basically kind of 23 to 44 year olds. spend money on stupid products. They buy fancy cars, watches, coffee, shoes. They buy high-margin stuff because people are young and in their mating years and want to signal their worth or potential worth as a mate to other people, so they make irrational decisions.
They're having babies. They're spending a lot of money. They're high-value consumers. And the reason why cable news is just struggling so heavily is the average age of an MSNBC viewer is 70. That's the average. That start always fucking blows me away. Well, think about this. You just turned 26. Is that right? Yeah. That means if you turn on, get this, MSNBC, that means someone else who's 114 is watching. And what do 70-year-olds buy? They buy health insurance, life alert.
Grifter insurance products because they just sit around worried that someone's going to take their title and own their home. Some criminal game from Albania. you know, sit around in fear waiting for the ass cancer. Is that too much? Never. Whereas young people like yourself are...
you know, coming into their prime income earning years, starting to figure out, you know, they love alcohol. They love all these great high margin products. So the core demo, called the core demo, is under the age of 44. For market... That for us is about 72%. Three quarters of our demo is under the age of 44 as a core demo. Whereas raging moderates, it's about 54%.
Because everyone is chasing the younger person who's irrational, which translates to higher margin and also sets the tone culturally. If you want anyone wearing your product or using your product, you want it to be a 25-year-old, not a 70-year-old. And the kind of the great white rhino of media is the young American male, because the young American male especially.
has become totally numb to advertising and is playing video games, watching Netflix and listening to Spotify. So they have basically extricated themselves from the entire advertising ecosystem. So if you can find those people anywhere, they're gold. And the reason why podcasting is garnering more and more revenue, even relative to its listenership,
is that it is finding the people that you can't find on cable news any longer. And it's kind of heartening when you think about it. I like the fact that younger people seem more drawn. to financial and markets content than political content. I think that's a good forward-looking indicator, actually. It's very exciting. You sound excited. You sound enthralled. it's so exciting it's intoxicating
We'll be right back after the break for our conversation with Mark Mahaney. If you're enjoying the show so far, be sure to give the Prof G Markets feed a follow wherever you get your podcasts. Support for the show comes from public.com. All right. And if you're serious about investing, you need to know about public.com.
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Dire wolves walked the Americas for millennia up until about 14,000 years ago when maybe their primary food source dried up or humans hunted them to extinction. No one was taking notes, but we know they were a bit bigger than gray wolves. They ate a lot of meat and their bite could crush bones. And now we know that apparently direwolves are back.
A startup called Colossal says they've brought these pups back from extinction. They say they've got three of them, but are these direwolves they brought back actually direwolves? And whether they are or aren't, should we be trying to bring... direwolves back like why join us for answers over at today explained
Welcome back. Here is our conversation with Mark Mahaney, Senior Managing Director and Head of Internet Research at Evercore. Mark, thank you for joining us again on ProfG Markets. Thanks for having me. For those who don't know, you've covered internet stocks for almost 25 years, widely known as one of the top. internet stock analysts in the world. So we wanted to have you on to discuss internet stocks, especially with these tech earnings coming out.
And you and I were emailing last night and I asked you what your top picks are in terms of internet stocks right now. And you said Amazon and you said Meta. Now we've got Amazon earnings coming out this week. Also Meta earnings. Unfortunately, those earnings will come out just before this episode airs. But I would like to start with Amazon. Why is Amazon your top pick right now? And what do you think we can expect?
in this upcoming earnings report? Well, both of them fall into what I call DHQ camp. So dislocated high quality. camp or whatever. They're great DHQ opportunities. So I look for the highest quality assets in the space. And that would have to include Amazon, Meta, probably Google. I'll go a little further out on the risk limb. I'd probably include Dash. Uber, Booking, Shopify, Spotify, Netflix. There's about 10 of these that I think are really high quality.
And then the question is, when do they get dislocated? Look, we began this year with multiples that were relatively high. I thought there was only really one DHQ at the beginning of the year. That was Uber. But given the market sell-off, you've got a chance here to buy some of the highest quality assets that kind of, they're not fire sale prices, but they're on sale. And Amazon is one of those. It's trading at one of its lowest PE multiples ever, 23, 24 times.
earnings and i know that there's a lot of near-term issues and we'll talk through those they face the same ones a lot of other companies face they just have a very good execution track record so my guess is that they'll handle them better than others and my same pitch would go with uh with meta which is The stock with the trade-off is trading at one of the, it's not as bad as it was in 2022, but it's one of the more attractive multiple shots you've had.
in i'd say the last two years then i think the fundamental story is very much intact so that that's why amazon and uh and meta would be two of my top picks you mentioned the things that are kind of in the way for Amazon. I assume we're talking about tariffs. We also just had this kind of insane turnaround that happened recently where Amazon said, or at least it was reported that Amazon was going to report the tariff cost on each of their products.
The Trump administration then said that it was a hostile and political act. And then next thing you know, they announced, no, we're not going to put the tariff. cost on the website. So just give us your reactions to what happened there and also... what these tariffs mean for Amazon. I assume that's what you're talking about when you say Amazon has some struggles ahead, possibly. I think last week, the CEOs of Home Depot, Walmart, and Target went into the White House to
express their concerns over what the tariffs would mean for their businesses. I'm actually a little surprised that Amazon wasn't wasn't in that list. They're actually bigger than all three of them in terms of retail volume or they're similar in size to Walmart. I think they may be modestly bigger, but whatever. If you're a major retailer, yeah. You walk around the Walmart store, turn over anything in there. It's all made in China, pretty much.
And so it's an issue for all of these major retailers. So yeah, that's kind of an issue across the board. And these companies are going to have to make a decision. Are they going to eat price? Are they going to eat market share? You know, you've got to do something because your input prices are going up. So how are you going to handle that? Are you going to defend margins or are you going to defend market share?
And so there's an economic issue here for Amazon. And then there's the follow-on impact, which is that. you know, pretty material price increases coming through the system. That is going to dent consumer demand. And so there's kind of a long-term economic issue or maybe even a medium or near-term economic issue for Amazon. And then other things, you know, there's competition.
It's very intense competition in the cloud business for Amazon and maybe some regulatory challenges too. So I throw it all together. I don't think Amazon was going to, there was no act. I don't think Amazon was going to show. tariff prices next to their regular prices. That's what they said. But I also just think Amazon's management team has been pretty darn apolitical i would argue over the last 10 20 years and this is a place that's extremely hard-working environment and
Well, the executives that I've tracked over the many years, I mean, they've been almost entirely profit focused. So I've seen very little political activity really coming out of them for good or for bad. That's what I've sensed. So I doubt that there was really going to be some broad base. showing of what the tariff impact on prices were going to be. But it is real. It is a material impact.
Your other top pick there was Meta. Just tell us a bit about Meta and what you think we can expect from these earnings this week. So if there's a drawdown in advertising span, Meta will be impacted. I just think it's going to be one of the last least impacted of the major ad platforms. I may be wrong on this, but look, it's largely performance marketing.
It's also got highly fungible inventory. So the obvious comparison is with Google. If you're, you know, people are searching for Hawaiian golf package vacations. That's a very specific search item and it's a very specific type of ad you can put against that. If you're in your Facebook newsfeed, Instagram newsfeed, Reels, Stories, whatever. That inventory that they could add inventory they could put against you is very fun.
depending on what your personal interests are, but it's very fungible. And so I just think that they're more resilient in an ad slowdown. None of them are recession-proof. but they're more resilient. And I think meta would be one of the last places to get cut. And frankly, our channel checks so far have shown that advertiser demand has kind of held up for Meta. I'd be surprised if it hadn't, given what Google just reported last week. So I just think Meta sort of holds up a little bit better.
in this environment. Valuation is pretty reasonable and it looks like they're starting to finally kind of cut down the investment spend at the reality labs based on reports. If that's true, that's great. I don't think any of these companies are going to slow down their AI CapEx spend, but I think if they start cutting out some of these.
extraneous areas where they've been spending a lot. And Reality Labs is one that hasn't really shown much return yet. But I think the market would respond positively to that. Mark, it's good to see you. It feels like picking which company will outperform the other amongst these is sort of trying to pick who's going to score more points, LeBron or Kobe here. These companies continue to all just be such well-managed, outstanding companies.
It strikes me that Meta may be kind of the unsung hero of AI, hero is the wrong word, that has the most unrealized potential around AI, and that is that the second largest purchaser of GPUs from NVIDIA. And at the same time, they collect more data than any company, four out of five. that users outside of China are on or people are on meta. So they've got the GPUs, they've got the data.
It feels like this is the AI company that people aren't talking about. Your thoughts? I think they've used AI to dramatically improve. user experience, you know, your newsfeed has got a lot more, has become more personalized, more interesting. i think that's true and it shows up in more and more time spent on facebook instagram over the last two to three years i think they also used ai to rebuild almost completely their ad tech stack post the apple privacy changes two or three years ago
So I think they've already been deploying it. And you're right. They have one huge advantage, which they've got first party data. which nobody else, Google will have to, but those two companies, you know, Facebook is one of the very few that has that kind of level of data. So yeah, I think they're, because they don't have a separate cloud business.
that people have wondered whether they're a real ai play i absolutely agree with you scott i i think they are an ai play they're they're a play at the ai application layer which we don't really have many examples of but they're sitting right in front of us i think they're a wonderful example of ai When I look at the price-earnings ratio, the least expensive is Alphabet.
And my sense is that I'm beginning, you know, I ping back and forth, but now just looking at the Alphabet earnings, I now think that Alphabet is the most undervalued of the bunch because... 353 times the number of queries is open AI, which is a lot of people think is an existential threat. And I wonder if that's suppressing or unnaturally or unfairly suppressing the stock price. YouTube continues to grow like crazy. And the average, I think the S&P 500 trades at a PE of 25 or 26, and here's...
Alphabet at 16, which to me is just so far superior than the average S&P company and has five different businesses of $30 billion plus. It feels to me like the most robust of. of the four and the cheapest. And I'll layer on a second thing. I think the most overvalued is Apple at a P of 34 and isn't growing. Your thoughts? Google is the cheapest stock. thought about two or three overhangs on a stock, which explain why it's the cheapest stock.
It's got a DOJ overhang. It's going to be DOJ roadkill. It's got an AI overhang. Are they going to be Gen AI roadkill? Are we all moving towards Chachi or significant enough of them? moving a significant enough of our queries over to JackGPT perplexity and maybe some other entrants. So those are the two overhangs. And then when Google prints up a quarter like they did last week, but then they disclose that their paid click growth. grew 2% year over year.
It kind of feeds into this thesis that, you know, this company is going to go negative in terms of unit growth soon. They talk about how AI, AI overviews, AIO is really boosting their. search queries. But if that's true, why is your paid click growth only growing 2% year over year? Could you explain what exactly paid click growth is? Because, you know, we look at the Google's business and
When I look at the earnings report, I see search up 10%. So what is that paid click growth and why does it matter? So in their quarterly filings, they disclose two metrics behind search. paid click growth, and then price per search. CPM. And so this last quarter, they did 9% to 10% search revenue growth. And what they disclosed in the queue was that they got there through 2% query growth and 7%-ish pricing growth.
And generally what investors want, growth investors want, is they want more growth to come from units than from pricing. And I know there's a lot of things that go into those metrics and there's a lot of noise behind there. But still, that unit growth has been slowing for a couple of years and they're concerned that.
You know, it could go negative. Why would it go negative? Because it's a very mature business. Not saturated, but it's clearly mature. But the second thing is they may well be losing queries shared to... you know, to perplexity, but particularly to chat GPT. That's the overhand concern. I still like Google as a stock because I think this risk is more than priced in. And I think they're doing a lot of great innovations to make the search product better.
But that explains why the stock is so cheap. Yeah, it's a really interesting point and important. You can't just... You can't grow just by raising prices. It's not enough. You need to actually grow the unit economics. One thing they do have going really well for them, Google, this is... is Waymo, which they are a majority shareholder in. Waymo's doing a quarter of a million rides a week.
up 5x from a year ago. I've talked about how bullish I am on Waymo because they have 100% market share in the robotaxi business. I mean, people talk about Tesla and they talk about Amazon is getting into it with this thing called Zoop. But I sort of look at the revenue. Who's making money? It seems to be only Waymo. Do you think that Waymo could be a significant growth vehicle?
for Google. Is that an important thing to consider when you're evaluating the stock? Absolutely, it is. It's part of the option value in the name. I'm here in Waymo Central. I can look out my window here in San Francisco. see Wemos circling around the financial district. By the way, I can see Uber circling around too. It's just they're not marketing. So, so it's not as obvious, but yeah, you know, I've watched Waymo and written reports on Waymo. I mean, I've just, I'm a huge.
fanboy, fan person of Waymo. But it's still so early stage. This is going to take years before it's truly mass market. But they're seeing great adoption in some of their newer cities. And I think that there's a chance here. for Google to own the AVOS. Autonomous Vehicle Operating System. And there was a company 30 years ago that made, minted a fortune creating the operating system for computers.
And now the open question, I think there's going to be a company that's going to mint a fortune creating the operating system, autonomous vehicle operating system for all vehicles. I think that's where Google's going to go with Waymo, whether they win that or not. My guess is that they probably will. They'll probably beat Tesla just because Tesla's just.
Tesla is going to be focused on one vehicle, whereas I think what Waymo is going to do is develop this technology and then be willing to sell it to all OEMs. And so every car they get. bought and sold, my guess is starting 10 years from now.
There's going to be somebody who's going to make money off the AV functionality in that. And right now, the leading player to do that is Waymo. So it's absolutely interesting for an investor who's thinking the next year or two, however, you got to first deal with DOJ. You got to first deal with this.
this AI, you know, this potential disruption before you can get paid on Waymo. That's the challenge you have. But, you know, I love Waymo as part of the option value. And I don't know of another tech company. I'm sure there are some that have
You know, Meta doesn't have a Waymo, but the most interesting one out there, the most interesting option value I see in Techland that I look at is Waymo with Google. You mentioned now that you thought, or at least Uber was your top pick at the beginning of the year. high-quality company that was also dislocated. Now there's been some more dislocation post-tariffs. But I think you've been highlighting Uber for a long time now. I think you've said that it's underrated for at least several months.
Give us your thoughts on Uber and also the potential for Uber to get involved in RoboTaxiLand. Well, the biggest overhang on Uber stock, it's not really a tariff issue. It's got economic whatever. It's a cyclical stock. But it's also got interesting counter-cyclical hedges too in an economic slowdown. There's just going to be more people needing a side hustle.
there'll be more couriers more drivers so there's actually a little bit of a counter cyclical hedge to uber's business model that i don't see in any of the other models i look at but the real issue here is robo taxis and you know there's a lot of debate on this, and some of it I think is a little bit noisy and unnecessary. Here's your simple action question. I mean, do you think that Uber is going to have robo-taxis? as part of its network in the future, five and 10 years down the road.
I think they will, in part because I think consumers are going to want them, but in part because I think they're going to be multiple AV vendors. That's a risky assumption because we only really have one now. you know, the one that's really commercially been tested. But I think, I think you give me five years, I think we're going to have multiple AV vendors. And then...
Uber sits there as the perfect partner. There's this wonderful blog that put out by one of the Andreessen Horowitz partners two weeks ago. They're an investor in Waymo, and they showed this chart about how well Waymo has launched in Austin. Now, they've launched solely exclusively on Uber's network. And the expression that the investor used was that Uber helped Waymo turbocharge.
into that market because Uber can go to an AV vendor, autonomous vehicle vendor and say, we'll reduce your financial risk. We'll reduce your operational risk. You'll get the profitability faster because these things are expensive. work with us and i think that pitch is going to become stronger and stronger so i think uber is going to be a long-term winner
That's my thesis. If I'm right on that, I think there's a ton of upside in Uber stock here. So I'm going to stay very patient and be a bull on the stock. It's up 30% or whatever year to date. It's actually the best performing large cap internet stock. But that's because it began this year dislocated over these robo taxi concerns. But I think the data points are coming in that shows that there will be robo taxis on Uber's network in the future. And if that's true, you want to buy Uber.
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We're back with Prof G Markets. I saw a talk you gave at Money Show in February, and you made this point, which I thought was... spot on, which was that because the valuations are so rich in tech and in the internet sector at large, The only way you're going to get real growth is not going to be from multiple expansion. I mean, maybe we'll see a little bit now that we've seen this dislocation as a result of the tariff.
but that if you want to get 20% growth, you're not going to get a 20% increase in the multiple. You need 20% earnings growth. You need top and bottom lines to rise. I look at the internet companies we've talked about thus far. It seems as if Uber has the highest probability. of a 20 plus percent earnings growth expansion over the next, you know, let's call it five years. Something along those lines. Do you see it the same way? And if not, who has? the highest earnings growth potential.
out of all the stocks that you cover. So Ed, I like the way you set it up. I'll just, I'll tell you what I'm trying to do is be greedy. I want to find a situation where I can find a stock. That gives me premium earnings growth, you know, 20% to 20 to 30% earnings growth. That's hard to find. I want to find that.
a multiple that can go higher, that can re-rate. I call that kind of a double-barreled approach to making money. You make the most money when the multiple goes up and the earnings growth is premium. Both and, yeah. Love it. And actually, I think Uber is there now. My comment was referring to most of the other companies.
You know, Netflix at 35 times earnings, I just don't think it re-rates much higher than that. I mean, maybe it goes to 37 or something like that, but there's not a huge swing up in the multiple. Same thing with Spotify, 35, 40 times earnings. I like the businesses, but the stocks will go 20% higher because their earnings growth is 20% higher. But I give you Uber, where I think the earnings growth could be 20 to 30%, and I think the multiple.
you know multiple turns from here like it's trading at 15 times cash flow this thing could go to 20 25 times cash flow you compound those and that's a lot of stock upside so that's what i really love to see And that's why I love these dislocated, high-quality companies. High-quality companies give you premium earnings growth, but they all sell off at some point or another. Just be patient. And when they sell off...
then you can get the earnings growth. Plus you can get a little bit of multiple re-rating and boom, that's your big upside. Hey, I made plenty of stock mistakes, but that's what I look for. And that's my approach to picking stocks. You mentioned Netflix there. It's pretty remarkable what's happened to the stock so far this year. One of the best performing in tech, if we call it tech.
I always think that's a little bit debatable, but I think most people would consider it tech. Up 25% year to date. And then we saw these Netflix earnings a couple of weeks ago. They had this huge beat, revenue up 13%, ripped even more. Tell us about Netflix and specifically what is going so right? at Netflix. What is the market so excited about? that, to your point, they don't seem to be that excited about when we look at all these other internet companies.
Well, Spotify and Netflix both share something this year, which is, you know, in an environment where there are rising recessionary risks, like what's recession? There's nothing recessionary proof, but what's recession resilient? what's recessionary resilient and arguably spotify and netflix are spotify 7.99 for a month's worth of access
to the biggest content entertainment collection out there on the planet, that sounds like a great deal to me. And I think it sounds like a great deal to most everybody. And the business has been pressured. It's been tested. through economic cycles. So I just think that they're recessionary resistant. And then there's something else that's happening. Industry's gone through consolidation. 2018 and 2019 where everybody was entering into the streaming wars and then we peaked.
fired at CEO for running up streaming losses too high. And ever since then, we've had nothing but consolidation and everybody wants to sell it. Well, I'm exaggerating. but everybody wants to sell their content to Netflix now. And Netflix at the end of the day is sort of taking share in this market. And then there's something else. They're proving that they have pricing power. Like if you have a media company with pricing power, you know, you don't get too many of those. Spotify has.
They're going to come up with a super fan plan. They got 269 million paid subscribers around the world who pay them. I forget. It's like $13 a month or something like that. You and I both know, we all three know that. We can probably name 10 of our friends who are really passionate about music and would spend 25 bucks a month for some really nicely curated, you know.
early release version of spotify they're just passionate they have all their playlists and their party lists etc so i just think that there's and that's so i yeah i think spotify is the pricing power netflix does too and netflix is gonna I think Scott will appreciate this. Netflix is gonna recreate the bundle. That's their strategy.
you remember how much you paid for your cable bundle i forget 40 50 70 80 bucks a month and netflix has got all of that you know uh high-end production content but they're going to bring in more and more live events more fight more sports, and eventually you're going to get real big league sports on there because they're going to have the ability to outbid almost anybody for them. So I just think they're going to recreate the bundle. So the top price on Netflix today is, I think, $24.99.
I bet, you know, a dollar, big bet for me that within 10 years, that top price on Netflix. for that big bundle that they've got with all this live entertainment, that's going to go to 30. It's going to go to 35 bucks and people will pay for it because they're going to recreate the bundle for you. So I think that's why Netflix and... Spotify today have been outperforming not just year-to-date, but the last 18 months the stocks have done well. Recessionary resistance, that's the most recent thing.
expanding market share, industry consolidation, and then their profit ramps. They both have shown this really nice improvement in margins. I found it so interesting how the how unanimous the market's reaction has been to this Netflix is recession-resistant. You know, it's been... And to me, I think of it as more of a question. You know, a recession is coming. Will people cancel their Netflix subscriptions? To me, that's an open-ended question. The market believes...
wholeheartedly know they will not cancel their subscriptions. Or if they do, they'll downgrade to the ad-supported tier. The market is not concerned about people canceling. And I'm just wondering... Is that a new phenomenon? Do you think that maybe three, four, five years ago, had a recession been on the table? Netflix stock would have reacted in this way? Or are we in a new environment where Netflix is so systemic?
the content is so important to people that it's just recession resistant now. Well, Ed, what's implied in your question is a really useful and helpful warning, which is that These are deep consensus longs, Netflix is. You know, that everybody's cyclical at some point or another. Right. So I'm sure if we had a severe recession, I'm sure that Netflix would be impacted. It does seem like entertainment spending holds up relatively well. I think it's true that, you know.
filmed entertainment spend actually rose nicely during the great depression i've always heard that maybe i saw that on the internet somewhere so it must be true but anyway that um uh and netflix has been tested i mean it's gone through economic cycles this one
Unlike Spotify has been public for 25 years. So we've seen what's happened to it. Now it's much more mature now, much bigger than it was in the past. And so the one scenario that you mentioned, which is what I would watch out for, which is. Are you going to see people stick with Netflix but trade down? I think that's a very plausible outcome. I do think it's deep consensus thinking.
So that could be dangerous that it's recessionary resistant. I'm curious, Mark, do you cover or do you have any thoughts about Reddit? My sense is Reddit might be, I'm always trying to think who's the next, who's...
who joins the Magnificent Seven. And I've always thought, just given its sheer... scale of traffic that reddit is a candidate your thoughts my biggest concern on reddit is uh i think they've got this great growth but at the end of the day you know the revenue comes maybe they haven't rolled out any sort of subscription revenue yet i think i mean i would want to watch that But it's a mid-tier ad platform. And I've never really seen a mid-tier ad platform break through, whether it's Snap.
None of them have ever done it because at the end of the day, you got to go to marketers and you got to say, yeah, spend some of your money, shift some bucks away from linear or break it away from meta or Google and spend it on my platform.
And the marketer is going to say, because your targeting is better or your reach is better, your frequency is better. Why? Other than just simple diversification. And I don't think that a mid-tier ad platform has ever really been able to effectively answer that question. And that's why. Unless you're something really...
out of the blue like TikTok. I just haven't seen anybody really break through and generate $10 billion of ad revenue. I hope I'm surprised one day, but that would be my biggest concern with Reddit. But everything I've seen so far is very intriguing.
My thesis is that Meta could put Pinterest or Snap out of business in about 12 months and decides not to so they can claim to the FTC and the DOJ they have actual competition. And these guys have just, it feels like they've just gone sideways for the last five years. And they're always kind of the little engine that could but doesn't. Do you think that the same is true? Or I'm curious, you have so much... expertise and insight around uber like what happens to lyft what
It strikes me that it's overvalued because people believe someone's going to come in and acquire it and it doesn't happen. Where does Lyft go from here? I don't know. I'm pretty cautious on Lyft just because it's the... uh distant number two in the u.s market now they're trying to expand internationally they just acquired an asset in London, I think, like a taxi service. I forgot the name of it.
And so geographic expansion is a good thing. But, you know, the problem with being a distant number two is that your economics aren't in your own hands. In the December quarter, Lyft stock traded off aggressively on their print because they had a surprise price action that occurred late in the quarter. Uber came in and lowered prices. aggressively, and it caused Lyft to, you know, miss its numbers. And well, to me, that's
That's why you want to be careful about buying second tier assets. And so I'm on the sidelines on the stock. I sort of view it as... as maybe more of a trading asset than an investing asset For really nimble, you know, traders, you know, they want to move in and out of the stock when the valuation gap widens, particularly wide and jump in and sell it when it when it narrows. OK, I understand that. And that's that's a very valid way to make a living.
It's not what I would suggest for retail investors. A few months ago, you said that there were three big wild cards for tech and for internet stocks in 2025, and they were regulation, tariffs, and M&A. A lot has happened since then. Today, what would be your three wildcards? Or perhaps they're the same. Well, there'd be a fourth one, which is recession.
I didn't, that wasn't in my forecast, you know, three months ago. Not that I make recession forecasts, but tariffs. I mean, the tariff wildcard became a lot wilder than I would have thought, and the market as a whole would have thought. I don't know. We still haven't had anything that's meaningful yet to tech. I haven't seen any material deregulation yet. Maybe I missed it. But I'm still watching for that. We've had the tariff wildcard get played.
It's going to get played for a while. And then what's the third one? Oh, M&A. Yeah, it does seem like there's more M&A that's being allowed now. Google buying whiz, security software company. There's smaller acquisitions out there. So I just think that that's kind of more allowed now. But of those three wildcards at the beginning of the year, the one that came through in spades, if I'm not ruining the analogy, is...
is tariffs. And actually, it turns out the market does have a good hand because that's the one thing that's really changed. Administration policy has been a market that said, you know, no mas, we disagree. We're going to tank the markets. The bond market seems to be the king.
Mark Mahaney is a senior managing director and head of Evercore's internet research team. Mark has covered internet stocks for over 25 years and has been consistently recognized by an institutional investor for his research.
including 17 years as a top three ranked analyst and five years as a number one ranked analyst. I want to have that stat. I'm jealous. Thank you, Mark, for coming on. It's always good to hear your perspective. Thanks, Ed. Thanks, Scott. Thank you, Mark. It was good to see you. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate.
Dan Shalon is our intern. 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. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.