Yeah. Look at all the gangsters in the chat. Michael, you see them?
Everybody's here. All the pounders are in the house. Quick shout out. Derek Sip says, 'It is time.' You're damn right. We got people from Portugal in the chat. Micron Millionaire is here. Jerry Jinma is here speaking French. Okay, who else? John Mel says, 'Let's get down to business.' Good idea. We have a lot to get through and we got to get Michael out of here on time because he is going to the banner raising at Madison Square Garden. Um, is this like one of the best days in your life potentially? It's
Are you going to cry? I know you. You're going to cry. Oh yeah, I saw this. I saw this. I thought it would make you laugh, John.
LeBron James squeezes eyes shut to avoid catching glimpse of Philadelphia during commute.
So, it's pretty perfect except they show him in the back of a car when in reality he's commuting via helicopter as one does for their home team, for their home city. What a joke. Uh, I was asking you before, do we have a rivalry with Philly? You said not really. I agree with that, but tonight it's on.
All right, let's go. All right, let's do business. We got a sponsor. Let's do the sponsor.
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Well done. Great read. So, I have to be honest. Um, last couple of hours I spent in the pool, so I'm just getting caught up on the news.
Don't worry, I got your back.
I'm wondering if those French school children found their textbooks in the Louis Vuitton store or not. I'm not sure. I also wanted to check in on how Netflix was doing because, like an idiot, I have ridden the stock down from 100. I've averaged down and then today I had a mea culpa on CNBC. I sold half my position at about 70. Um, just you know what, I'm comfortable in the fact that things changed last week and that was the reason. All right, fine. Let me lighten up. I did not have like a real prediction about tonight's earnings report, which we'll get to. I just said, you know what, this company, it's under siege in the stock market financially. They're doing great, but they clearly have a problem with keeping the public's attention. You could blame the shows. You could blame competition. Whatever it is, in the end, they fired Bela Bajaria, who's the head of content. They fired Daniel Lin, who's the head of the studio. They fired Daniel Lin's second chair, and then they did a thousand layoffs. And you probably don't do that ahead of a quarter where you have great things to say. It just seemed unlikely to me. So for better or for worse, I lightened up on Netflix. I see it's down three sticks in the after hours. No big deal. Um, not down enough for me to want to buy it back, but down enough to make me feel less dumb because I went in a little bit lighter. I'm still wrong. I still hate myself.
The bright side, at least for me. I also whacked it off for a 20% loss, but I did
Well, whatever. I took a 20% loss in a taxable account, so at least I got a write-off.
So, can I ask you this before we get into the results? Do you think there's actually anything they could have said on this call? Um, well, what they said wasn't good. So, do you want to get into it?
But, but, but, but like what could they have said?
Well, what were they going to say? We're on fire. No, you're not. We know you're not.
Yeah, that's it. That's what it is. Like, so the only question going into the quarter for the bulls was, 'Is this it?' Like, is all the bad news in? No, there was no, there's not going to be a saving grace from them coming out and being like, wait till you see our next engagement metrics, which by the way they now only publish once a year. It used to be twice a year. We have no idea what's going on here. So we have the, but we have the results for the quarter. So let's do it. Walk us through what they said.
Uh, let's just start with the top line. So listen, it's a maturing company. We don't expect the growth to be accelerating and this is not like a cloud computing company. But four straight quarters of deceleration, not great. On the revenue side, 11.8% year-over-year, the slowest since 2023. I guess on the good news, the margins are pretty healthy. If the margins are fine, but uh the guidance, this you just can't do this. The guidance is 0.2% below the midpoint. Okay. Uh, the advertising platform, they currently expect 2026 ad revenue of $2.7 billion, down from approximately $3 billion previously. It's just not good enough. They said, we know there's some investor concern about our hours, about our view hours growth. Yeah, there is. Chart on, please. We've been sharing this chart, not you and I, but just the street has been sharing this chart forever and it just keeps getting worse. Like YouTube is absolutely eating their lunch and unfortunately this says a lot about where we are. It's all short-form stuff. Like
I don't even know what, what could, can you imagine what would reverse it? Like the reason Netflix doesn't want to talk about this metric anymore, time spent, hours spent, is because they can't win. It's better off to not even talk about it. It's one thing to compete against Paramount and Disney for like streaming content hours on a streaming app.
right. But the problem is the conversation has pivoted away from that. And now it's like, well, let's compare Netflix to TikTok. Let's compare it to Instagram and YouTube. And what else do people do? Reading books, playing pickleball. They can't win. You cannot win that narrative if you're Netflix. You just, you simply can't.
Okay, so the bull case, and it's not a very convincing one. I sold the stock, you sold half of it. The stock is down 52%. Uh, they bought back a record number of shares, obviously at higher prices. Sentiment, sentiment cannot possibly be worse. I don't know how it can get worse, right?
Well, they brought in, they brought in someone with extensive experience in all forms of content, streaming and otherwise, and sports, and he seems to be very well-liked around Hollywood. He's an ex-Disney. He's involved with Fox. Uh, has done big sports deals. Um, and he seems to be there to start bringing in his people to fix this thing. And maybe that's the bull case is that look, they're probably not going to beat YouTube, but they're still going to make a lot of money. And they do make, and they do make a lot of money
and the margins are good.
It's crazy that people don't care. Like, I shouldn't say they don't care.
It's not the thing they're focused on is how profitable
It's, what have you done for me lately on growth? And if you don't have a good answer, you could report earnings per share and buy back numbers till the cows come home. I'm a seller of the stock. That's the way people act.
Will they always? I'm not sure.
No, I mean, listen, there'll be a bottom eventually. I just, is it 64 or 44? Who knows? Um, all right. SpaceX.
So, yeah. So, this is, I mean, this is like a whole new paradigm for the stock market to have a company like this. Let's, let's dive in. Elon says that they see SpaceX annual recurring revenue to land between $500 billion to a trillion by the end of 2027. Not 2037. I don't know if he's going to hit it or not, but by the end of 2027.
He doesn't have to hit it. He just has to get people to believe that it's possible and it's good enough.
Uh, all right. So, what do we do? Uh, revenue of $14.6 billion, up 161%.
And a lot of it was in the superintelligence category, which is obviously welcome news for what was a pretty shitty week for all these neoclouds and all the compute companies.
Yes, this was one of the things that SpaceX did over the last couple of years that changed the story before it even went public. It basically, it de facto became a data center business. Um, when Hero24, people were thinking of it for the most part as a combination of Starlink and launching satellites. And this is the thing that I think has driven the Elon bears or like the knee-jerk short sellers literally into the mental asylum. He has this ability to do this over and over again. It's not just like he launches a new product. He launches a new category and executes enough that people can envision the TAM and they just stop caring about the thing that you were bearish on. So like, think about Tesla. If you were bearish on auto deliveries in continental Europe, he's like, 'Okay, what if we don't even say the number anymore? What if we start talking about churning out robots? What are you gonna do now?' And he has done it again and again. He's done it with SpaceX now. Um, and people that have tried to conventionally compare this to either like an aerospace and defense business or look at the Starlink piece and try to come up with an analog to AT&T and Verizon, you're already screwed because that's not where the story is going. The story is now going to the data center business, which turns out he's pretty good at.
Dude, it went from $2.5 billion in revenue last quarter to $7.5 this quarter.
Yeah, it's quarter over quarter.
It's super impressive. Uh, I think this is really important for the market that this stock is not $80 totally because, you know, as we've talked about a million times, including with Steve Eisman last week. By the way, uh, let us know in the chat what you thought of the Eisman interview. I thought it was really good. Not that we did so good. I just thought Steve was really good. Um, if we don't get the banners flying and the trumpets trumpeting for Anthropic either later this month or next month, um, that's problematic for everybody's earnings estimates. Uh, and Anthropic's revised, I guess, S-1 came out today. The Journal published it. The numbers that they've committed to, like the hundreds of billions of dollars in GPU rentals and data center spend. Some of these are guaranteed, like their contract with AWS is like guaranteed. We need those numbers to happen market-wide. And so the fact that this stock is not 80, it's 150, I think bodes really well for a year-end rally, especially in tech and all of the related data center sectors. What do you think about that?
Let me quote the Wall Street Journal. So, you shared this with me an hour ago. Anthropic plans to spend $111 billion on Google Cloud computing contracts, $110 billion with AWS, and $31 billion on Microsoft regardless of actual usage.
They also agreed to spend up to $86 billion renting Nvidia chips from smaller AI cloud providers. Um, including its more than 100. I mean, it's just the numbers are astounding. So, I know we're going to get to this later, but their revenue is growing faster than their expenses, which to me, so the big headline that the media leads with, $80 billion in losses the first half.
The more important number, first of all, that $80 billion, some of that is accounting, like the way they account for their liabilities. Okay, but put that aside. Let's just say it's a lot of losses. Their revenue growth is starting to outpace their growth in their expenses, which is like exactly what they need to show in order to float this thing in a couple of weeks. And they showed it. And I thought that, to me, that's the headline. The thing is, I don't write for clicks. I don't have to come up with a headline that casts it in the most negative light. Well, so to your point, Josh, all of the, not all, let's say 80% of the loss was change in fair value of convertible notes and other instruments, right? So, I mean, is anybody investing on that basis? How the accounting treats... We all understand this company has lost a ton of money, but they lost it on purpose. They didn't lose it because all of a sudden the thing they make is out of favor and they're sitting with a warehouse filled with cans of Red Bull. That's not the nature of this loss. This is a spend because the revenue is growing so fast and they, I think, were able to make that case in this S-1, including all the risk factors that of course make up like 90% of the document. And I thought that was really helpful. So SpaceX also helpful. From a market-wide perspective, I think we need SpaceX to hold up and we need Anthropic to go public and raise the money that they need to honor these spending commitments. And right now, nothing that we've heard today from either company tells us that that is off track. Is that a good way to sum it up?
That's exactly right. One last thing before we move on. Um, in much less sexy news, but important read on the consumer, Capital One reported after the close and the stock is doing pretty well. So I haven't done the report, but like to see that because that is a company that serves everybody.
That's your bread and butter. That's your bread and butter consumer at large.
All right. So I titled this next topic doubt, not fear. It's something we've been talking about over the last couple of weeks that there was a lot of doubt in the market. Not a ton of fear. I thought we got, I felt the fear last week. I thought we got it. You had the SMH falling for nine straight days. Did you know this? Longest losing streak in 10 years.
And it wasn't quite indiscriminate selling. I mean, mostly everything went down, but the market was separating winners from losers. Next chart, please. So, I had Claude help us with this, break down the returns of different baskets of AI-related stocks. So, for example,
look at all the detail in this.
So, for example, like the software names relatively unscathed. Hyperscalers fell, not so bad, that's the black line, but the semi-equipment
and I think this was directly related to interest rates, the supply that is coming to the market with interest rates on core debt and the shittiest rated bonds going up to 17%. We spoke about this with Eisman. You're probably going to see a slowdown in new capital formation, but the demand equation isn't changing at all.
Well, that's, I think you and I nailed that idea, like regardless of who finances it and at what price, the tailwind here is that the usage is not going to stop. So, Eisman was concerned about a potential price war where the labs start cutting the price that they're charging the consumer of AI, which then leads to some sort of spiral. That may yet happen, has not really happened yet. But nobody is suggesting that the usage, like the opposite of the Netflix problem. The Netflix problem is people are literally not turning it on or they're not leaving it on the way they used to.
That's a demand problem. There's no demand problem for AI anywhere in sight.
Thank you. Um, Allar One in the chat has a question for you.
Are we giving Josh credit for the VIX spike? Oh, it's an interesting... Yeah, I'll give... Can I have it? Uh, yes. We got to 18. It qualifies. Qualifies. Uh, no. I think we got to 21 intraday. Uh, yeah, sure. I'll give you credit for that. I'll give you credit for that.
Um, speaking of fear, uh, all right. So, when we were on with Yuri Timmer, I shared the chart of RSP divided by SPY, and I said this rubber band can only stretch so far. It's not like we're comparing the 10-year divided by the price of Johnson & Johnson, right? Completely unrelated. Chart on, please. The ratio of RSP to SPY, and we had a massive rip just as we got started talking about how terrible breadth was. You had a pretty decent rebound. Uh, Ryan tweeted last week, you had 378 stocks in the S&P 500 that were higher, which was the most since June 12th. And also today we had another very strong breadth day. Uh, 304 stocks were up, and yet this is sort of the be careful what you wish for because the S&P 500, the index, was not even up 30 basis points. So Adam continued to dispel the myth that more breadth is necessarily bullish for the stock market. It's intuitive. It's just not true. I said on TV today actually, the high oil and high interest rate thing is like the best thing for the stock market because when people get nervous, they sell all the little stocks that don't matter and they buy Apple and Microsoft, which make the market go up. So, it's the strangest, it's the most perverse idea in the markets right now. But that's like literally what's gone on this fall, which I think is why the bulls are sort of unsatisfied. But then also the bears are just not getting their satisfaction because rates spike, people dump all these $20 billion market cap companies and it doesn't matter because the big guys are the recipients of those flows and those stocks hold up and the S&P is like, it's fine. So, it's a really weird situation right now.
It's a very bizarre dynamic. We were waiting, watching the breadth continue to deteriorate and waiting like, when is the index going to fall? And you got hot inflation on Tuesday, hotter inflation on Wednesday, rates came in and bad news marks the bottom. I guess that's sort of how it normally works. But with the S&P only off two and a half percent, very strange dynamic.
Let's do this Adam thing to finish this topic. So Adam wrote about, Adam Parker, Triari at front of the show. He will be with us on Broadway, which by the way, we sold out. Thank you to everybody who bought a ticket.
We love you and appreciate you. And if you were lucky enough to have snagged one of these tickets, I promise you we're going to have a great time. Adam said, 'Many investors have been lamenting the fact that while the index has remained elevated, market concentration has been high and breadth has been weak.' Um, he says that sounds intelligent but again it's demonstrably false that you need good market breadth. So he looks at something called, and I remember people talking about this like 20, 25 years ago when I was a young broker first learning about technicals and I haven't really heard a lot of people talk about this since, the McClellan Summation Index. It's a what? You agree? No. Yeah. Nobody talks about this.
Okay. It's a market breadth indicator that measures the cumulative direction of market participation over time.
So, look, there's a million breadth indicators and they mostly stand in for each other, but he's using this one. And let's put up this first chart. This is like a little bit over, almost over my head.
Josh, you're a mathematician. Please walk us through this. The general idea here is he's looking at the summation index and he's doing a rolling 120-month, that's 10-year, regression versus the forward returns on the S&P over the next month. So if you followed me on that, he's basically saying it works in the opposite way that you think. It's not actually the thing that matters to the market. Um, so he says breadth is actually good at predicting volatility, which makes more sense. And so here's the second chart, which I will also barely be able to explain. This is a regression between that McClellan Summation Index and market volatility. And he says this remains statistically significant and negative, meaning low breadth is associated with high volatility and high breadth is associated with low volatility. So if you want to prod... So chart off. The point is, and I love that Adam did this work, if you want to use internals in the form of the McClellan Summation, whatever indicator, right, or any other thing that you want to say, a better use of it rather than predicting forward returns would be to say, oh, if we have this many stocks not participating in an uptrend or dragging the market down, volatility is probably going to be higher over the next month. There's something there. I don't know what you do with that. What you don't do is go out and sell JPMorgan, Berkshire Hathaway, and Cisco. That's not what you do with that information. And scene.
All right. So, yes, to tie a bow, I would say in plain English that good breadth has been good for stock pickers. It has not been great for index owners. And most people want the index to go up.
That's actually a great way to phrase it. Bad breadth in the market really sucks if you are underweight the Mag 7 because you're trying to outperform. It does not work in your favor, but it does not prophesy some sort of market-wide disruption. I'm sorry. I know you wish it does. It really doesn't. And we've made this point in 15 different ways. So we
we'll, yeah, we'll put a pin in that one for now.
All right. AI bond vigilantes. Um, what was the thing that you learned from Steve Eisman about the AI trade or what was like your biggest, what was your biggest takeaway from the points that he made?
Um, to me, I think it was it's either all going to work or none of it's going to work.
Like you better hope this holds up because it's the whole economy. That's what I think about the nuance. It's all going to work or none of it's going to work and nobody knows. Uh, I like that take and that does not require CoreWeave stock to go up. That's not the thing that's important. The thing that's important is the labs have to go public and raise money and the hyperscalers have to continue to put up big revenue growth numbers in their cloud division and that's it.
