Welcome back, everyone. Today on the Joseph Carlson Show, we have a bunch of news to get into that I think is important. First of all, we have news that Microsoft is now talking about doing this $100 billion Stargate Open AI supercomputer. It would be known as the AI Star Wars moment according to Fortune. Now to put this in context, they're they're acting like they're going to spend $100 billion on this last year.
If we look at Microsoft's financials, their entire spend on CapEx, if we bring that up right here and focus just on their capital expenditure, last year it was $28 billion. So they're talking about spending around 3:00 to four times as much as they did all of last year on this new Stargate. So what is Stargate and why is Microsoft talking about spending $100 billion on it with Open AI? Now we also have news that Amazon is ditching their Just walkout technology.
This is the tech where you could go in. You could grab something off the shelf, It would have sensors and cameras determined what you grabbed and then it would charge you as you walked out of the store with no checkout process. And I also want to mention on this subject of Amazon ditching this technology, popular Fintwit accounts and the way that they
twist the news. We're going to be looking at three very popular tweets over the past week and now all of these are incredibly misleading and the way that they intentionally mislead their followers. We have the ongoing vote from the Disney shareholders of whether they should elect Trion and one of their members to the board. You know that there's an activist investor, Nelson Peltz has been fighting Disney to get on the board because he thinks that they're well, their board
has not been accountable. They haven't done a good job. They haven't done well for the stock over the past decade. I happen to agree with Treon and I want to highlight some of the decisions that Bob Iger has made over the past decade to hurt Disney's stock. And then finally, we have Steve Iseman, one of my favorite commentators, coming on to CNBC and saying that he doesn't believe the Fed should lower
interest rates at all this year. We're going to look at his reasoning for the Fed keeping interest rates where they are. And then of course, we have My Portfolio, the Story Fund, which is concentrated into a few companies that I've picked out that I believe will beat the S&P 500. We'll be doing a performance update of the Story Fund in this episode. So we have a lot of exciting news to get to in today's episode.
Now, one thing I have to mention before I jump in, if you have not tried out the Patreon on the Joseph Carlson show before, today's the Day, you can try it out risk free. You get the rest of the month as a free trial, so you pay nothing if you join today. And that gives you time to try it out and see if it's something that you like. We've recently surged to almost 6000 active members on the Patreon. Huge growth over the past couple of years because people really like it.
You get access to qualtrum.com. This is something that I've built from the ground up. It's an awesome tool to analyze stocks. You also get exclusive episodes, you get access to a huge Discord community. There's a lot of things included in this membership that I think a lot of people like. And as a bonus, it makes it so I don't have to take on any sponsorships, which is another
nice thing. Now let's go ahead and jump in and I first want to start off before we get to the big news with Microsoft and their Stargate investment. I want to take a look at the Story Fund because I share this portfolio publicly and I give updates on its performance about once a week. Right now it's surged up to $57,000 in gains. So we're making some significant gains here year to date on a money weighted return, it's up 17.5% which is beating out the QQQ and the S&P 500 and that's
been the same for the past year. If you look at the past one year, the returns on this are astronomical, 65%, 65% returns without owning NVIDIA. So I'm missing the best performer in the market, but still widely outperforming the S&P 500 and the QQQ over the trailing year. Well, how did that happen? It happened through Amazon and Netflix. We also have other big winners, Google, Microsoft and S&P Global. These have all done really well, really well over the past
trailing year. But Amazon and Netflix have done particularly well, especially Netflix. This one has made the biggest comeback. When I look at the performance overall since I started this portfolio, I track it against the S&P 500. We have My Portfolio in blue and we have the S&P 500 in red. And this is as if I put money into both of these at the same time. So you see kind of a virtual reality as if I had put my money in the S&P 500.
As you can see, the majority of the time through 2022 and 2023, I underperformed the S&P 500. That is because Amazon and Netflix sold off huge. And those are two of my largest positions. They are my two largest positions. So that hurt the performance. But then I held on and in fact, I doubled down on the stocks at the low and the recovery has been incredible, making it so that I went up and match the S&P 500. And then year to date, I've surged ahead of the S&P 500 up
here right now. As it stands, the S&P 500 is at 31.71% returns since the beginning. My Portfolio is at 39.88. So we're actually surging further and further above the S&P 500. Now the major point I want to mention when looking at these returns is what earned me these returns. A lot of people like to pretend that it's the research. It's looking at these stocks and doing analysis that earns you the returns. Research is an important
ingredient. I looked at Amazon and I looked at Netflix and Google and I did research on these companies. You know, I I had a thesis for them. But that's not really what earned me the returns. What earned me the returns was not selling during the most difficult point in holding these stocks.
When Netflix plummeted, When Amazon plummeted and Google was selling off because of AI concerns and and Jack Chachi BT ruining their Moat. When Netflix was losing subscribers, when Amazon was just a big retail company that was losing money. All of those stocks going down, all of the sentiment went incredibly negative. People got talked out of these stocks, even good ones. Even good investors like Bill Ackman sold Netflix at the
bottom. Had I done that, had I sold these companies at the Lowe's during a time where there's a lot of panic, I would have had terrible returns. I would have underperformed the S&P 500 dramatically. I would have lost a lot of money. That would have been a disastrous outcome. So it wasn't the research that earned me these returns. It was the research in combination of hanging on to these companies during a distressed time. It's easy to hold them now. The stocks are going up, The
story's good. The coast is clear. Everybody can hold on to Amazon and Netflix right now. So long as things are going really well, it's easy to hold on to these stocks. But the point is, things aren't always going to be easy. Just like we had a panic in 2022 and 2021, we're likely to have one in the future. If you're not fully convinced of holding your stocks during the lows, you're playing a dangerous game because you're going to end up selling out at the worst time possible.
So when I look at what earned me these returns, it wasn't just the research. It wasn't just the analysis. The more important thing was having a strong stomach sticking with these companies during a difficult time. That's the portfolio update. For now, let's go ahead and take a look at the news. The first bit of news is this talk of Microsoft potentially investing $100 billion with Open AI into creating Stargate, a supercomputer.
Now to put that in context, we know that Microsoft is a very big company, but $100 billion is more than the amount of free cash flow they earn per year. So this is more than an entire calendar year's worth of profits. This is also a lot more than they spent on Activision Blizzard. They spent $70 billion on that.
So this would be a massive, unprecedented investment from even the likes of Microsoft. Apparently this is rumored by The Information, but Microsoft have been talking to Open AI because they want this massive supercomputing cluster to support their Open AI models. At one point there was another rumor that Sam Altman was asking for $6 trillion investment to build something that was like a rival to NVIDIA, a chip making company for specifically AI chips. This seems like an extension of it.
It seems like they're going to any company they can and asking for a fortune for them to spend for Open AI future investments. They say to put this in context, Microsoft is known to have spent more than several $100 million to build the cluster used to train Open AIS, current top of the line model for GPT 4, which open AICEO Sam Altman also has said cost more than $100 million
to train. It's also known that Open AI is already training a successor model to GPT 4, likely called GPT 5, on one of Microsoft's existing data centers. And we know that Microsoft's last year broke ground on a new $1 billion data center in Wisconsin the analyst believe is intended to house the chips for training opening eyes next
generation models. The Information reported that the supercomputing cluster in Wisconsin may eventually cost as much as 10 billion once the price of specialized NVIDIA chips used for AI applications are factored in. So Stargate is anywhere from 10 to 100 times more expensive than any of the data centers Microsoft currently has on the books. Anywhere from a factor of 10 to a factor of 100 times more expensive than their existing data centers. That is expensive.
Now they go on giving more context to this, pointing out that a $100 billion investment is a lot of money even for Microsoft, which is correct. They mentioned that their total CapEx last year is less than 1/3 of $100 billion. If we look at it, we know that Microsoft spent around $38 billion in CapEx. The total expenses for the entire company, their research and development, sales and marketing, general and administrative, and CapEx did
not add up to $100 billion. So this is a massive fortune of money that Sam Altman is wanting to spend. It seems a little bit more risky than most of the things that Microsoft does. In order for Satya Nadella to do this, he would have to be completely, 100% convinced he's going to get a great return on this money.
They say that Microsoft has to hope that whatever Stargate is being used for, it is not, in fact, to train AGI, since Microsoft's partnership with Open Eye only entitles the tech giant to commercialize Open AI's technology, that falls short of AGI. So basically, Microsoft can commercialize everything up until AGI, but once Sam Altman says we've accomplished AGI, they keep all the fruits of that
for themselves, apparently. But there's a lot of skeptics, both saying that we're not going get returns off of this because this is an outlandish amount of money, way too much to get any reasonable ROI on it. And then there's other ones pointing out if they get to AGI, Microsoft can't even monetize it. So there's no point for Microsoft either way, they'd be footing a bill for something that they're not going to get a return on.
Now normally when I look at a company and I consider them spending a huge amount of money on some type of investment, that seems like a bit of a long shot. Training an AI model that hopefully you can monetize down the road, that raises a lot of red flags. When I look at this story, it just raises a lot of red flags. There's just alarm bells going off. Most massive investments are not good for companies. Most of them are value
destructive. There's very few instances where you can do huge investments and have it be a creative for the shareholder. For the company, there's a case of Amazon doubling their fulfilment network. That was a massive investment, and investors sold out of the stock because they were concerned about it. But it ended up being, I think, a good return. They're getting good returns on those investments now. They're satisfying their customer base.
And in the case of Microsoft, I realize that this again raises a lot of red flags. But there's few CE OS that I believe I would trust more to only do big investments if he believes fully, you'll get a high return on those investments. Satya Nadella is not one to
waste shareholder money. He's not one to spend carelessly and without any regard to the returns he's going to get, and he's not one to take astronomical long shots that don't have predictable returns that doesn't match any of his history. He's helped build Microsoft into the powerhouse and profitable company it is, so he's someone that I trust far more to make the right decision and exercise the right judgment in this case than most CE OS.
But either way, as a Microsoft shareholder, I'll be following this, looking at it and seeing the direction they're going. If they end up going forward with this, it's going to be an incredible story, an incredible investment for Microsoft. Now moving on, we have news, it's gone viral for probably the wrong reasons for Amazon. But Andy Jassy, the CEO of Amazon, finally decided to pull the plug on their just walkout
technology. Now this is some type of like futuristic technology where you could walk into an Amazon store, you could go and take things off the shelf and just walk out, and then Amazon on your app would charge you for whatever you picked up without you doing any scanning, without any shopping carts, without anything, just walking in, grabbing items and walking out. That's how you paid now. It seemed really cool and futuristic.
It was driven by AI and a bunch of sensors and cameras and technology, and they decided that they're going to pivot. They're going to pivot from the just walkout technology to what other companies are doing. Where they have the dash cards, we have a normal shopping cart. And as you put things in the cart, it scans the item in the cart. So it's not quite as futuristic, but it's still better than having a checkout, right? You just put it in your shopping cart. That's where it scans it.
So that's basically the story. They're doing a major pivot. They're moving away from the just walk out technology to the shopping carts. But that's not where the story went viral. The story went viral for the wrong reasons for Amazon. Let's go ahead and take a look at some tweets here. This is from a tweet that got
viewed 300,000 times. Amazon's Just Walkout technology, which was pitched as a magical AI technology, was actually 1000 contractors in India working as virtual cashiers, identifying what people put into their carts and tracking their purchases. It will likely be replaced with shopping carts with scanners. Let's go ahead and take a look at another tweet here. This is Gurgaon on Twitter. Popular account 4000 likes 593,000 views This is crazy.
A few years ago, Amazon introduced tech that let shoppers just grab whatever they wanted and just walked out. Instead of using AI, Amazon just hired 1000 people in India to manually track their purchases. Amazon today said it's shutting down this business. That's the tweet. Instead of using AI and using the sensors, Amazon just had 1000 people from India watching you shop in these stores and tracking your purchases manually. We have Max Byrne. This is another one that got a
lot more views. This one has 8.1 million views, 40,000 likes. Amazon build. It's just walk out stores as some triumph of AI. In reality, it was powered by thousands of low paid Indian workers manually adding up items in your cart as you shopped. How insanely dystopian. That's the tweet. 8 million views. The reason I go over these tweets is to highlight the type of punchy news you get from
different online sources. These type of tweets not only are completely inaccurate, but in sometimes they're just making up stuff like out of thin air. They make it up, people look at it, they they reply based off of the made-up tweet and they criticize companies based off of things that aren't true. And this type of thing is commonplace. They use the most provocative language possible to get the most engagement, but none of it is actually accurate.
This tweet, for example, says that this whole system, this walkout tech, was powered by thousands of low paid Indian workers. Now, just on a side note, he says low paid, but there's no evidence to suggest that he's just thrown that in because he must assume if they're Indian workers, Amazon must be underpaying them. For all we know, Amazon could be paying them above market value,
so we have no evidence of that. But the other part of this that I think is more important is the suggestion that this entire tech, the just walkout tech, is solely powered by these workers in India, like they were just watching every purchase. And that's how the system works, that there really was no AI, no technology. This walkout technology was in fact powered by artificial intelligence.
That was a system behind it. They hired a firm in India to review some of the footage and make sure that the AI system was working appropriately. The same way you could have manual reviews of Tesla's full self driving data. You have AI be the primary system powering it, and then you have humans reviewing and checking and labeling to help train the AI that is the system they had in place. Amazon said that this entire characterization that people are
trying to make is inaccurate. They disputed how many of the purchases even required reviews. Quote The primary role of our Machine Learning Data Associates is to annotate video images, which is necessary for continuously improving the underlying machine learning model powering. The spokesperson acknowledged that these associates validate quote a small minority of shopping visits when AI can't
determine a purchase. So basically this whole system was powered by AI, but when some purchases were a little bit vague or the system couldn't predict what was going on, that's when they sent it over for manual review. But according to social media people, that's not good enough to reflect reality. They have to say the whole system was powered by people in India. That's the tweet because it gets more engagement.
Now we get to the news that I think is important for Disney shareholders to know what is going on with this company because I've been following Disney for a long period of time as an investor in media with Netflix, Disney's considered one of the primary competitors. And there's a vote going on right now of whether or not Trayon Partners that has Nelson Peltz can get seats on the board.
Every company has a board. They're the ones that are supposed to kind of work for the shareholders, to make sure the executives and the company are working on behalf of the shareholders. So the board of a company is elected in order to keep the CEO in check, in order to represent the shareholders, to make sure they're not being taken advantage of and everything's done in their best interest.
Well, Tryon Partners or Treon, however you say it, they're trying to get board seats because Nelson Peltz has criticized the way that Disney has run the company in the past. Disney doesn't like that. Disney doesn't want to change their board. Disney does not want Nelson Peltz or anyone else from the outside on their board. They want to run things exactly like they have. So Disney's doing everything they can to keep Nelson Peltz
off the board. They don't want this activist investor that's been critical of them to have any type of influence over running the company. So they're fighting this as much as they can. This rumor was released from insiders at Disney that Disney's winning the proxy fight against Trion with more than half the votes. This is another showing of bad behavior by the executive team at Disney.
They intentionally leaked this information that they're winning the vote in order to try to influence the remaining voters saying, look, we're winning, if you don't vote with us, you're going to maybe face repercussions. Once this vote goes through and we win, we'll know who voted against us. So they're trying to unfairly and legally influence the remaining part of this vote by leaking this information halfway through before the vote is
complete. This is something that should be investigated by the SEC to see why this leak happened and how it influences the remainder of the vote.
But regardless, we have Bob Iger running the show now, the CEO that's been with this company since 2005, He's morphed the company into what it is today, and he's trying to protect his influence at the company and get rid of any type of harsh critic of his performance over the past 10 years by trying to get Nelson Peltz out of Disney. Now just to review some of the things that Bob Iger has done. He's extended his contract
repeatedly. You can see how many times it's been extended over and over again. So he's been the CEO from 2005 to 2020 when he stepped down, that's when Chapeck took over. But Bob Iger was still in a position of control. He was looking over Chapeck's shoulder. He was undermining him as he was the CEO. And then he ended up filling back in and firing Chapeck after his succession plan didn't go as well as planned. If we look at Bob Iger's performance in history, Disney stock today.
Over a 10 year period, full decade from 2014 is up 51%. Now if we compare that against the S&P 500, let's just take a look at the market. We can go back 10 years here. The market's up 180%, Disney's up 50% and the market pays a bigger dividend than Disney. So Disney has dramatically underperformed the market. That is the performance of the current CEO. That was the CEO 10 years ago.
Bob Iger owns this performance. This is his performance and he can't blame anyone else for it during this time period. It also wasn't just a mistake that Disney underperformed. One of the best performing stocks in the market during this time period was Netflix. Let's go ahead and take a look at Netflix performance over the past 10 years.
It is 1199%. Netflix has grown from a small company ADVD rental business back in 2007, switching over to streaming around 2013. So the beginning of this timeline, and now it's grown into the biggest media company in the world. It has a larger market cap than Disney without having any parks, any cruise lines, any broadways, all from streaming, all from media alone. Disney is a smaller company than Netflix, even counting its parks. What caused this over the past
10 years? Well, what caused this is Bob Iger. He is the reason that Netflix is the size it is today. You can thank him for helping build up Netflix during the early phases of Netflix's streaming journey. They didn't have any content and they didn't have the budget to create their own content. So they decided they would purchase license content from other companies. One of them, in fact, one of the biggest ones being Disney. Disney licensed Marvel content.
They licensed Star Wars content. They licensed Disney Animation content. All of their key content being put on this small streaming service because Bob Iger thought the best decision was to make a little bit extra cash, just make a little bit extra cash, putting your streaming content on this different platform, some of your key series. Meanwhile, Netflix at the same time period was gaining millions and millions of subscribers every single quarter.
You can look at the numbers every quarter they gained millions and millions of subscribers, of course, growing their reach and their revenue over time. Netflix realized far before Disney did that Netflix was going to grow to a size where the competitors would become scared, where they would take away their content. But by that point, it was too late. By the time Bob has realized his mistake of building Netflix into this unstoppable juggernaut, it was too late.
Netflix was already in position to create their own content. They had a bunch of key series like Orange is the New Black, Stranger Things, House of Cards, all these different shows to finally replace Disney content. But the thing that built Netflix into what it is today is a combination of Bob Iger at Disney licensing Netflix all of the content they needed to build their service. Now he wasn't the only one to
blame. There is also Comcast with NBC content like The Office, but Disney played a huge role. Netflix would not be as powerful and big today without Disney's help. So just to recap, the reason that Disney is in the situation it is today as being the second largest media company behind Netflix, showing that it cannot compete in streaming with Netflix and having this other company surpass them dramatically.
And market cap and performance is because of the actions of the leadership of Disney. Unwittingly building up there would be biggest competitor. That is the leadership and the returns that Bob Iger has earned for his company. And now that there's someone else stepping in, a loud and critical voice, Nelson Peltz, to point out that this has been a disaster. Returns have been horrible for
Disney shareholders. The company has been mismanaged and they're losing to Netflix. Well, Bob Iger doesn't want to hear it. He wants to remain at his leadership position in Disney with no critical voices. Bob Iger wants to assure you that he's got it under control. He knows what's best for the company and its future, and we don't need that. Nelson Peltz, he doesn't have any experience in media. What does he have to offer?
That's not the point. The point isn't that Nelson Peltz is some perfect solution to Disney's problems. The point is that Nelson Peltz represents accountability. Accountability to the shareholders. The point that Bob Iger can't continue to run the company as Aceo indefinitely without getting returns for the shareholders. He either needs to get returns, strong returns for the company or needs to get let go one or the other. And Nelson Peltz brings that
accountability. So in this proxy fight, I hope that Treon Partners wins. I hope that Nelson Peltz gets his board seat because I I think Disney lacks accountability, but it looks like they may not. So far it looks as though Disney's going to win, and that's a shame for the Disney shareholder. Now finally, we have Steve Eisman, the Big Short Investor, going on to CNBC and making his case of why he believes the Fed should just keep interest rates where they are for the rest of the year.
I feel that ever since Greenspan was in charge of the Fed, the Fed has always been extremely insensitive to its own impact on markets. And you know, when Powell said that was it last, I think it was last week. It feels like an eternity ago that financial conditions are tight. I was like, what planet do you want? So I mean, my view is the economy is fine. There should be. I personally think there should be no Fed cuts this year.
He doesn't think there should be any Fed cuts this year, and I must agree with him. the Fed is saying one thing. They're saying financial conditions are very tight, right? We have interest rates at 5%. I guess if you're looking at some parts of the economy with the housing market that's frozen up, the car market doesn't seem to be doing too well. Tesla didn't hit their numbers.
E VS are going down. You have like solar companies that I think are struggling, pool companies selling big expensive things like that are struggling. But the financial markets, if you look at the stock market, it's going up. This year has been a great year. It's one of the best starts to the year of any year in history. So I agree with him. When the Fed is saying the financial markets aren't looking great, what is he talking about? The financial markets overall are doing really well.
You know, the market will do whatever the market does, but the economy is fine. Why would you cut? You know, my my actual fear is that if the Fed were actually to cut rates, the market goes into so it becomes, I guess bubblicious and then and then we have a real problem, so.
So Steve Iseman is concerned that if we have interest rate cuts the end of this year, the stock market will go up ten 2030% and we'll have another bubble territory just like 2021 where stocks are so far above any relevant intrinsic value that you can't even own stocks without fear of the bubble collapsing, of everything imploding which will eventually happen if you're in a bubble. So I agree with them. I don't think stocks going up is always a good thing.
I like my stocks to go up because their free cash flow goes up, because their earnings per share goes up, because their organic revenue grows, because they do buybacks and pay dividends. I do not like them to go up just because investors are buying more and more of them in a a fervourish excitement. So I agree I don't want a
bubble. And if the Fed lowering interest rates this year causes a bubble, I wouldn't think that's the best thing to do. But I'm not convinced that lowering interest rates this year would cause a bubble. I think that's what's already priced in and I think that's what's causing stocks to go up already. In fact, I believe the Fed comes out and says they're not lowering interest rates this year.
The stock market will go down, So what he's saying will cause a bubble I think is already priced in. Investors are expecting interest rates to be lowered. So why? What? What's causing the Fed to talk about six rate cuts six months ago? My personal opinions. I think Powell is as deep down as just a dove. Just he's always been a dove. He, you know, raising rates was out of character for him. He had to do it and he he wants
to cut. Rate. So he thinks the right thing to do is to keep interest rates where they're at. But he believes the Fed will probably lower them just because they're a dove. And a dove is a way of describing a Fed that likes an easy monetary environment, low interest rates and lots of stimulus, the best environment to have business and commerce. And I agree with him. I think the Fed and the
administration is very dovish. And that's part of the reason I believe it's so important to own assets right now because if you have a dovish environment, assets typically go up in value. So that's going to be it for this episode. I hope you enjoyed. Again, if you want to check out the Patreon, today's to do it, you can try it out risk free. That's all for now. See you in the next one.