Please welcome Ed Elson and Scott Galloway.
How are you doing?
That's pretty good. That's pretty good. We're finally here. It's good to be here, Scott. It's great to see you in a Patagonia vest. So am I. Dress the part.
Yeah, I look like the chairman of a VC firm that's been asked to retire for the last 40 years. Look at me. Can we get rid of this? By the way, first and last time I'm wearing a Patagonia vest.
Ed, Ed, Ed, where did you go to school? I forget.
So, Ed, I don't know if you know this, but I have a little bit of history here in San Francisco. That's right. That's right.
Lived in Potrero Hill, then in Noe Valley, bought the house next to where Mark Zuckerberg lives now. And in addition to the fact that I sold it for $900,000 and it's probably worth about $14 million now, I would have given up the money just for the opportunity to live next to him and be just out on my porch every day showing a little midriff like when he comes home.
It had to happen when he drives.
Hey, still depressing teens.
Yeah. Yeah. Clap for that. That was impressive.
All right. And I don't know if you know this, but the real seminal experience for me in the Bay Area is while you went to Princeton, I didn't go to Princeton because I didn't have a lot of money and my SAT scores were really, really high. First part of that is true. Anyways, I don't know if you know this, but I went to this school that has in addition to... well, you may know this. What school has the most startups of any school in the world?
Most startups of any school.
Uh, that is not correct. Wrong. It's the same school that not only has won 248 medals of the Olympics, but has also graduated more people into the Peace Corps than any school in the world. It's also the school that will graduate more low-income kids than the entire Ivy League combined. In addition, I'll give you one more hint.
There we go. There we go. That...
That is so emotionally manipulative. Meant to get you to like me more, isn't it?
They're not nearly as cute now. They've developed these awful things called opinions. They're literally awful now. Anyways,
But based on the image, I'm going to guess that the school is Cal Berkeley.
You still don't get it. I'm going to give you one more hint. One more hint. Hit it.
Heat. Heat.
Heat. Heat.
Hello to our first Prof G Markets live tour here in fantastic San Francisco.
You look great.
Today's number is 49. That's the percentage of billboards in the Bay Area that are advertising AI.
Ed, true story. I went into my doctor's office with a shoulder problem. And he said, 'Well, I need you to pee in a cup and then we have our AI look at it.' The AI looked at it and said, 'Your labrum's damaged. You need to take this medicine, and then when you come back, you're going to pee in another cup, and the AI is going to tell you how you're doing.' So, he came back and he said, 'You're not taking your meds. The AI is pissed off at you. Take your meds.' I started to get pissed off. So, I went home and I had my wife pee in a cup. And also, and I'm not proud of this, I jerked off into the cup and I came back and they gave it to the AI and the doctor came back and said, 'Your wife is pregnant and the father is your friend Brett and if you don't stop masturbating, your arm's never going to get better.'
Welcome to Prof G Markets Live.
It never ever gets old. It is so good to be here in the global capital of technology, the capital of venture capital as well. And I'm really excited to get into this show. But before we start the show here, Scott, I just want to read you a couple of quotes that I've collected over the years that you have said about the venture capital community because I know that there are probably a lot of venture capitalists in the room right now. So, I just want to make sure that we're all on the same page and I just want to hear what you have to say about this. So, I found this from a podcast we did a couple years ago. You said, quote, 'I've worked with a ton of venture capitalists. They're not the sort of loving, caring people that are depicted on the website.' Okay. You later said that there are, quote, 'very few cohorts less pleasant, more self-absorbed, and more convinced they're changing the world than venture capitalists.' And then a few months later, you said that venture capitalists are, quote, 'generally speaking awful people.' And then you later clarified in the same episode that actually they are, quote, 'the absolute worst people in the world.' So, Scott, just before we start, I just want to ask you, what do you mean by these statements? What do you mean venture capitalists are the worst people in the world?
Yeah, but you left out the brightest people you've ever met that know absolutely nothing about your company would sleep with their sister for a nickel. If you meet a guy in a blazer and he brightens up a room by leaving it, chances are he's a venture capitalist.
They're already leaving out the doors. I see them now.
Yeah, this is 70% VCs. So just another thing about the Bay Area, and I love so many things, but there's a few things I don't love about the Bay Area. One, venture capitalists. But two, and this isn't in the script, I am so done with this optimization of men my age trying to optimize for their health. This is how you optimize.
And I'm being very serious here. So the fastest zero to a billion dollar companies in history. I think everything in life reverse engineers to essentially biology and astrology which is manifested in business. So I think there's a lot of life lessons in business. Fastest zero to billion dollar retailer in history was Old Navy. And it's got a very powerful axiom. It's 80% of the Gap but for 50% of the price. The fastest zero to billion dollar revenue airline, Southwest, 80% of the market leaders for 50% of the price. And I think, and I'm being serious now, that these guys who are trying, it's mostly guys trying to optimize to 97% with all these cold plunges and red light and measuring their sleep, which would just stress me out so I couldn't sleep. This is, trust me, I'm looking for all the people who do that in this audience. I think it's most of them. This is the axiom. Optimize to 80%. And I'm serious. And that is all right. We all know you're supposed to be healthy. You're supposed to eat well. Manage your sleep, be fit, but manage to 80. In the other 20%, enjoy your life. Have dessert. Drink a little bit. Approach strangers and make an ass of yourself. Hang up the condom you never used. Just like have the right go to 80. Anything above that, trust me on this. It's not about lifespan. It's not about health span, it's about fun span. 80% Old Navy your life. I'm sorry. Back to the original program.
Fun span.
Great way to start the show. I totally agree. Without further ado,
Let's start with our first story. So, it has been a sleepy few years for the IPO market, but it is about to come roaring back. SpaceX, OpenAI, and Anthropic are all set to go public this year at a combined valuation of roughly $4 trillion. Just for context, that is more than every dot-com IPO put together, inflation adjusted, and also equal to half of the combined value of every IPO in the 50 years before it. So, the last time that we saw an IPO frenzy this dramatic was in 1999, which made a lot of Silicon Valley investors a lot richer, right before it made them actually a lot poorer. IPO mania was in many ways the beginning of the end. The NASDAQ began its collapse in March of 2000 and it eventually lost 78% of its value in two years. So, we sit here tonight in San Francisco on the eve of the next IPO mania and the question that I will pose to you, Scott, is will it look like 1999?
So, there's a lot of analogy. There's some similarities, but there's also some pretty stark differences, right? So, there was a confusion around how this is all going to manifest or play out. So, there's a digression to investing in the technology and infrastructure layer. We did it with Global Crossing and Cisco which lost 90% of its value. There was momentum euphoria. A certain technonarcissism. Back then it was the internet's going to change everything. Now it's AI is going to replace everyone. But there was a certain belief that this region and these companies were going to be the operating system for the world moving forward. There's some pretty stark differences though and that is while you had about 60% of GDP growth was from infrastructure spending back then or growth or investment in internet companies, it's now about 90% of GDP growth is from the infrastructure buildout. So it's even scarier. And typically whenever you get over 3% of GDP is being invested in any infrastructure, railroads, electricity, electrification, the highways, again, telco in the '90s, within 24 months there's a crash. But where it's different is I don't think there'll be a crash this time. I think there'll be a pretty vicious recorrection or price recalibration. But where things are different is the following. The companies now are cash juggernauts. They're incredibly profitable. Whereas in '99 it was just, I don't know if any of you remember this, the Globe that went up eightfold on its IPO. Pets.com. I mean, there was just all of these ridiculous companies and...
I had to.
Dude, you were an intern here like 24 months ago. Anyways,
You found me today. You got the clips.
But these are really profitable. These are incredibly profitable companies. They're financed with their own cash flows, not with debt. But if you look back and walk down memory lane, Google was still sort of this PhD project that was run by two guys that look like Czech and Molly dealers. Amazon. Amazon was a book company that was losing a lot of money and a ton of smart internet analysts were convinced it was going to go bankrupt because it had too much debt. eBay was considered a really powerful company. It was making money selling to people in Ohio. And probably the most important tech media company, maybe even the most important media company in the world at that time was a company called Yahoo, which bought a company called Broadcast.com from Mark Cuban for $5.4 billion. So, I love Mark. I think he's very smart. He's also one of the luckiest people ever. And then you had just a ton of companies that got swept off the planet. So, it feels as if this time it's similar but different. But what is the same is a group of young men who are socially awkward, who are self-absorbed and think they're going to change the world and have a totally inflated sense of self. So I think that there's a certain kind of narcissism that infects this type of movement. Whereas back then it was going to change everything. Now the kind of narrative is that AI is so impressive and powerful that it's going to replace all of us. And in '99 to their credit they got it right around the internet. They just got the arc or the time span wrong. And I think the same thing is true here. I think AI will in fact replace a lot of costs and increase productivity. But again, I think we got the time or the arc. I don't think it's going to happen as quickly as everybody thinks. But more importantly, back to me, in '99, this guy named Frank Quattrone from Credit Suisse First Boston was going to take the company I'd started public, Red Envelope. And I remember a bunch of internet CEOs, we were flown to an airfield to look at Bombardier jets because they said they would take stock in a private company in exchange for a jet. And it was a bunch of 30-some-year-old, speaking of self-absorbed people who weren't, you know, couldn't get dates to the prom. We were all out looking at these jets and picking out our jets. And even then, I had enough mindfulness to know this is not right. This doesn't feel right. And within three or four months, we were no longer looking at jets. And I remember I was in a board meeting of my company, Red Envelope, and I accused the chairman of our company, and it's been a long time, so I don't hold any grudges, Mike Morris. And I said to Mike, you're using Red Envelope as a dumping ground for the failed products of your portfolio companies. And on the way to the airport, they called me and said, 'We're kicking you off the board.' And so I got kicked out of the band I'd started. And I remember being at SFO and I had this flashback tonight. And getting out of the car, we used to rent cars back then. And I remember just being frozen. Like I had never in my life, I was 34 at the time. I'd never in my life had that kind of professional punch in the face. And I remember getting out of the car and just being paralyzed for a good five or seven minutes. Like I literally just didn't know what to do. I just didn't know, do I call a lawyer, like what do I do? I remember just sitting outside of my car and finally the lady who gives you checks in the cars came out and said, 'Sir, are you all right?' And then just to be serious for a second, for those of you who, I don't know how many of you are here living in the '90s, but it wasn't the internet that was the most dramatic thing. At least for me it wasn't in terms of what I think of as being the thing I remember most about San Francisco in the '90s that really has stuck with me. Does anyone want to guess what it is? This is not light at all.
It was, if you're under the age of 45, you probably think of COVID as being hopefully what will be the most dramatic health scare. You are literally walking around this neighborhood and there were these beautiful young men everywhere dying. I mean it was just like it was catastrophic. So and you know fortunately the warm hand of science pulled us out of that. But if you lived here in the '90s, I mean, it literally was a plague. And it was like the best and the worst of American science in terms of how we responded to it. But that's how I think of San Francisco. That's like what I remember most. Get me out of this, Ed.
Yeah, I have all of these numbers and all of these notes and now I'm not sure what to talk about.
You still ain't Mike Morris.
Well, I am going to talk about numbers.
Yeah, go ahead. Go for it.
Because that's what we're here to talk about. So when we think about what are some of the differences to today, I think that you make a lot of good points. One thing that we should point out though is that we have these three companies that are literally combined they're going to be worth $4 trillion. I mentioned some of those stats. It's going to be 6% of the global public equity markets is these three companies.
Yeah. And you talk about profitability, which for the longest time I wasn't so worried about myself either because I looked at these companies like Google, like Meta, like Amazon, which are these cash juggernauts. They're spending unbelievable amounts of money building these data centers, setting up AI, and everyone was saying the AI bubble is going to happen because they're spending so much money. We haven't seen the ROI, and we'll get to that in a moment. But I think something that you and I were saying was, well, they have the cash to do it and they've been saving up this cash for years and now is their moment and here they are, they're doing it. However, let's look at these three companies that are going public. Let's look at SpaceX.
Yeah.
Which is going to go public supposedly at a $2 trillion valuation, which is going to be a more than 100 times price to sales multiple. The most expensive stock in the S&P today is Palantir, which is way out over its skis, and it's trading at 64 times sales. This is trading at 107 times sales if it goes public at $2 trillion. Its losses grew 700% last quarter. It's on track to lose $20 billion this year. So, I look at that, I say, 'Okay, well, that's not really a great business.' By the way, its revenue grew 15% last quarter. And some say, 'Okay, that's fine.' Actually, if you're an AI company, which they claim they are, that's not fine. That's six times lower than Nvidia's growth rate. And also, it's half the growth rate of this podcast. So, we're growing faster than SpaceX. Just putting it out there. So the idea that you're going to have this company and then you're going to have OpenAI which is expected to burn $25 billion this year. These are all again we don't know these financials because they say this to reporters and then we hear people who are familiar with the matter who tell us this is what the financials look like. All I can tell you is whatever's going on at OpenAI, it probably ain't that good. And we also know that because we saw this article from Ronan Farrow who came on the podcast and told us that Sam Altman is, quote, 'unconstrained by the truth.' That was according to a board member. So I'm a little worried about that too. And then you got Anthropic which supposedly is about to hit operating profits this quarter. So maybe that's a little bit safer but still it's losing a lot of money and supposedly paying billions of dollars to SpaceX. Okay, those companies are now going to be a part of the market. And not only that, the NASDAQ is changing its rules. It used to be that you had to wait 12 months after you go public to join the NASDAQ, one of the most popular passive index funds in the world. They've changed the rules. They said you only have to be public for 15 days if you are a mega cap company. If you are SpaceX, OpenAI or Anthropic. They have literally changed what it means to be part of the market for these three companies, none of which are profitable. That part makes me a little bit more worried and I wonder if that feels more similar to '99 when you saw a lot of these companies that were losing billions of dollars. These ones are going to be worth 6% of the global stock market.
Yeah. Well, oftentimes the technology survives evaluations and I would say I mean if you look at for example SpaceX, three companies, a rocket company, a satellite company and an AI company that's playing catchup. If you price each of those three companies at a similar ratio at the high end of the market leaders in those respective categories, you get to about a 7 to 800 billion market valuation. There's an Elon effect absolutely, so even double it to 1.6 trillion.
Well, it's true. He does bring a certain vision that shareholders absolutely love. But the way I would describe right now SpaceX is Snow White and the Seven Dwarfs, and that is Snow White is ridiculously hot. SpaceX is an incredible company. It's got incredible moats. It's growing, you know, about 30% a year, $16 billion in revenues, $8 billion in operating profits. An incredibly robust company. Probably the biggest moats I think of any business in the world. 90% launch capacity, two-thirds of low Earth orbit satellites. But what he's done is he said, 'Okay, if you want to marry Snow White, you've got to take these seven dwarfs that are just dysfunctional and awful people and expensive and add no value,' because he's basically attached. He said, 'If you want to hang out with Snow White at SpaceX, you have to also invest in this money furnace called xAI.' And if you look at, and what's really interesting is he clearly doesn't believe as much. He's made it, and granted he's a visionary, there's no getting around it, but he looks at AI as the future and that he needs to catch up fast. So, he's going to take his hot property and use it as a means of trying to raise incredibly cheap capital to try and play catchup. The other two I believe are incredible companies. But my prediction is that similar to, you know, if you look at these cycles, typically what you have when you have this type of spend, you have a dramatic repricing at some point because the public and the capital markets are impatient. And I think the way this is going to play out in the next 24 months is that we're already seeing, and this is our next story, that a lot of companies are starting to question the kind of return they're getting on these increasingly exorbitant bills they're getting from their different site licenses around AI. And then I think geopolitics is going to come into this in the next 24 months. And that is if I was Xi, I would engage in AI dumping and I would start flooding the US market and going to CFOs of companies sick of spending five, seven, ten million on AI and tokens and they're not really understanding why, and dumping the market with incredibly cheap LLMs out of China. And I think you're going to see a dramatic repricing of the AI trade. As a matter of fact, my prediction is in the next 24 months, AI is going to be dramatically repriced down because I haven't seen, nor does anyone see, a lot of like AI moisturizer, or you could argue autonomous is maybe a use of AI, but there's not a lot of new products that you would say are creating incremental revenue other than the LLMs themselves from AI. There does appear to be a lot of smart people saying we're going to get dramatic efficiencies and we've all probably seen hints of that, right? We're not sending stuff to our lawyer as often, customer service, etc. But if you think in America, there's 155 million people who actually work. Assume half of them are AI vulnerable. That's 75 million. Say $100,000 per employee, that's $5 trillion. That means you would need somewhere around 5 to 7 million layoffs across the 85 million that are in fact AI vulnerable. So you would have in those industries about a 10% labor destruction in the next two to three years. That would be chaos in labor markets. So one of two things is going to happen. Either the valuations of AI are going to come down by 50 or 70% or we're going to have labor chaos in these industries. And I think it's going to be the former. I think that you're not going to see nearly the job apocalypse. You know, the way I would describe it is apocalypse. No. And that is just as you were trying to raise money back in the '90s on changing the world, now they're basically catastrophizing and fear is the product and capital is the outcome. And unfortunately for them, I don't think the job apocalypse is going to come as quickly as they're predicting. And so if it's either going to be labor chaos or valuations coming down by 50, 60, 70%, I absolutely think it's the latter. In addition, if you just look at the biggest companies now that we're all so intoxicated with, whether it's Meta or Alphabet, in the last five or seven years, all of them have gone peak to trough, down 40, 50%. Meta was down 72% in 2022. So, it just wouldn't be unusual for these companies to have that kind of drawdown. In addition, I think this is effectively the end of the IPO markets as we know it. Because the way I look at it is the IPO market is now the last stop on the chump train. And that is what they're saying is there's no reason to go public because if the VCs still thought there was juice to squeeze. You used to have to go public to raise the 10 or 15 billion you needed. Now these private VCs, if they still see upside, they can find the capital. So effectively, when these companies go public, it's effectively the smartest people in the room who know the company the best are saying we've squeezed as much juice out of this as we can. We got to find people stupider than us to invest at this valuation. I think retail investors are going to figure this out in a painful way over the next two years. Tokenization of private companies. I think this effectively might be the end of the traditional IPO market as we know it. The question is, are these companies or are these investors, are the employees of these companies, are they all just going to sell? And what we have seen is that SpaceX is looking at shifting the lockup periods so that they can sell earlier. And I think you have to ask yourself, if you were an investor in Anthropic, if you're an investor in OpenAI, if you're an investor in SpaceX, these companies go out at a trillion dollars, $1.5 trillion, $2 trillion, the question is, would you sell? If I'm an investor in SpaceX, for me the answer is an immediate sell right now, today, easy, no questions whatsoever. And I think that will be the question for investors in this round. Two, just before we move on to the second story here, would you sell in any of these companies?
Oh my god, sell it. If any of you hold shares in any of these companies, just trust me on this. As a guy who was looking at jets when he was 34. Sell everything. And there's always going to be pressure from the VCs and your managers. 'Aren't you in it to win it?' Yeah, fuck you. I need a house. Sell everything. So, and I hope I'm wrong. Come back to me and tell me you only made $11 million on your shares as a junior product manager and now they're worth 15. But there's going to be some really interesting second-order effects. 11,000 people of these three companies go public at their valuations. It's going to mint 11,000 new millionaires just in the Bay Area. 60% of whom are under the age of 40. Last month you saw rents on a one-bedroom in San Francisco increase 24%. Pending sales of luxury homes in the US were up 4% the last quarter. They're up 48% in the Bay Area. It's not all bad. You're also going to see philanthropy absolutely surge in the next three to six months with these people, especially the bigger shareholders who will start their own foundations and things like that. You're also going to see, I think, a baby boomlet in the Bay Area because what people generally do is they move houses and they think, 'Okay, let's start having kids.' But there's going to be, I mean, the second-order effects of this type of wealth are going to be dramatic. But I can't, I mean, again, and I've been wrong in this stuff before, but when you look at just as a general metric, when you look at for example a company like SpaceX, when Google went public in I think it was '97, it was growing 240% a year and it went out at 10 times revenue. SpaceX is going out at 100 times revenue and is growing 24%. So you literally have a ratio that's like a thousand to one in terms of the valuation metrics here. So this feels, they're much better companies granted, but the valuations here feel absolutely, absolutely insane.
Well, there's your instructions, your homework. Go sell all of your stock in these companies.
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Let's move on to our second story, which is about a really interesting topic that not enough people are talking about. We're going to talk about a topic called AI. So nearly 50,000 workers have been laid off this year supposedly because of AI. And that's almost as many as in all of 2025. For companies adopting AI, the thesis is simple. AI is supposed to do much of the work that humans do. In recent weeks, however, that thesis has hit a roadblock. More and more companies are reporting that despite the enormous power of AI, the technology is actually more expensive than the humans that it is supposed to replace. Uber, for example, just blew through its entire 2026 AI budget in just four months. According to the COO, it is now getting harder to justify AI costs within the company. Microsoft is cancelling its Claude Code licenses across multiple divisions because it's simply gotten too expensive. And over at Nvidia, one executive said that the cost of compute is now, quote, 'far beyond the cost of employees,' which all raises a crucial question for the AI industry, which we just hinted at earlier, and that is at what point does AI actually stop being worth it? So this has blown up basically in the last 48 hours where many companies are now coming out and saying we're actually not as confident about this whole AI thing as we used to be. ServiceNow is another company which just blew through their entire Anthropic budget. Technical staff at Stripe are reportedly spending nearly $100,000 on AI tokens every day. And Salesforce is on track to spend $300 million on Anthropic tokens this year. Shopify said that their earnings were, quote, 'partially offset by increased LLM costs.' We heard similar things from Meta and Spotify and Pinterest. One Anthropic employee said that his Claude Code bill came out to $150,000 in a single month. In sum, it's getting very, very expensive. And we have seen in the past that there has been an incentive especially among tech companies to use AI as much as possible. And there was this idea that employees will engage in what we call token maxing, where you use as many tokens as possible from your AI API. And they'll create even leaderboards at these companies like Meta, like Amazon, where they will track how many AI tokens you're using. And the people who are using the most tokens are the ones who are the most AI deployed, the most AI forward. Those are the ones who are going to get recognized. Maybe they'll get a promotion. And this has resulted in unbelievable and extraordinary costs on the AI front. And now we're starting to see, Scott, the next phase of this, which is companies and their executives are starting to realize this is a little expensive. And now the question becomes at what point will AI actually pay off? So I will pose that question to you. At what point is it too much?
