GameStop & Market Manipulation + Is AI Becoming a Bubble, and Is Nvidia Safe? | Prof G Markets

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Summary Notes


In this episode of Prof G Markets, Scott Galloway discusses the potential AI bubble, comparing the current hype around AI and infrastructure investments to the late '90s Cisco situation. He highlights the staggering $2.5 trillion increase in market value for the big three cloud providers—Alphabet, Amazon, and Microsoft—against a mere $20 billion increase in AI revenue. The conversation also covers the dynamics of meme stocks, with a focus on GameStop's volatility and the implications of Keith Gil's influence on its stock price. Galloway questions the sustainability of AI's valuation and suggests that if medium and large businesses cut AI spending, the market could experience a significant downturn. Additionally, the episode touches on the Fundrise Innovation Fund's mission to democratize Venture Capital, the new Prof G Markets feed, and the potential impact of AI on media consumption and traditional media outlets.

Summary Notes

Introduction of Fundrise Innovation Fund

  • Fundrise Innovation Fund aims to democratize Venture Capital investments.
  • It provides access to pre-IPO tech companies.
  • Investment details are available in the fund's prospectus.

"The Fundrise Innovation fund is democratizing an asset class that used to be available to a tiny subset of investors with over a 100 million raised and holding some of the biggest and baddest pre IPO tech companies in the world."

  • This quote indicates the Fundrise Innovation Fund's goal of making Venture Capital accessible to more investors, highlighting the significant amount of capital raised and the caliber of companies in the fund.

New Property Markets Feed and Format Changes

  • The podcast introduces a new property markets feed.
  • The podcast will refrain from profane and inappropriate jokes.
  • The new Prof G markets feed will have episodes every Thursday.
  • Subscribers should switch to the new feed for exclusive content.
  • The podcast teases an upcoming guest from the "biggest hedge fund in the world."

"This is our first episode on our brand new property markets feed... Ed. I've decided to class it up a little bit no more profane inappropriate jokes."

  • The quote indicates a change in the podcast's content approach, aiming for a more sophisticated presentation.

Market Analysis and Economic Indicators

  • S&P 500 hit a record high.
  • The dollar fell, Bitcoin rose, and yields on 10-year treasuries declined.
  • Consumer Price Index (CPI) showed a cooling inflation rate in April.
  • All three major indexes closed at record highs after the inflation report.
  • Google's IO conference introduced AI to summarize search results.
  • OpenAI announced GPT-4, an update to ChatGPT, which will be faster and cheaper.
  • Comcast is launching a new bundle with Peacock, Apple TV+, and Netflix at a discount.

"The S&P 500 hit a record high, the dollar fell, Bitcoin Rose, and the yield on 10-year treasuries declined."

  • This quote summarizes the state of various financial indicators, showing a strong stock market performance, a weaker dollar, rising Bitcoin, and declining treasury yields.

Inflation and the Economy

  • Inflation cooled in April for the first time in six months.
  • Analysts expect two rate cuts.
  • The S&P 500 surged over 20% since October of 2023.
  • Discussion on the Biden campaign's messaging on the economy.
  • The CPI showed a slight decrease in inflation, but accuracy is questioned.
  • Rent, as part of the CPI, shows high inflation, but alternative data from Zillow suggests lower increases.
  • CPI data is based on surveys and may not reflect exact measurements.

"It feels like inflation... cooled in April for the first time in six months... Analysts now expect two rate cuts."

  • This quote discusses the recent cooling of inflation and the anticipation of rate cuts by analysts, reflecting changes in economic policy expectations.

AI Announcements and Implications for Media

  • Google's developer conference showcased AI summarization of search results.
  • OpenAI's ChatGPT-4 will offer real-time voice chat capabilities.
  • Concerns about the impact of AI on media organizations and the potential for greater power consolidation.
  • AI could replace traditional media voices with customizable content.
  • Niche media with unique insights or large-scale reporting may survive the AI shift.
  • AI-generated content could create a self-contained ecosystem, reducing the need for external data.

"What's super interesting here... is that essentially it's going to become more humanlike... it's going to fulfill the dream of these big Tech firms that are increasingly Consolidated."

  • The quote reflects on the advancements in AI, particularly the human-like capabilities of ChatGPT-4, and the potential for big tech firms to consolidate further power in the media landscape.

Taxation on Compute as a Solution

  • The podcast proposes taxing compute power similar to gasoline taxes.
  • The idea is to address deficits and externalities from AI and the concentration of wealth and power.
  • The tax could be applied to big tech companies, equating them to energy companies.

"What if we put similar to the way we put taxes on gasoline if in fact big Tech are the new sort of compute energy companies providing energy to four or five or there's basically Saudi Aramco, Chevron, Exxon, Shell... what if we just as we do with gas we tax compute."

  • This quote suggests a fiscal policy where compute power is taxed to manage the societal impacts of AI and the dominance of large tech companies, drawing a parallel to the taxation of traditional energy sources.

Data as a Commodity

  • Data is often referred to as the new oil.
  • The concept of a data dividend was proposed in California by Gavin Newsom.
  • The idea did not gain traction, possibly due to lobbying power.
  • A compute dividend is suggested as a logical progression.

"There was this idea of the data dividend and that was put forward in California by Gavin Newsome it didn't gather steam."

  • This quote explains the proposal of a data dividend by California Governor Gavin Newsom and its failure to gain momentum.

GPT-40 and Language Translation

  • GPT-40's capabilities are highlighted, particularly in real-time translation.
  • A demonstration on YouTube is recommended to witness the technology's potential in breaking language barriers.
  • The example given is a conversation between the CTO and a researcher in English and Italian, translated by GPT.

"I want to shift over to GPT-40; it's pretty incredible."

  • This quote introduces the topic of GPT-40 and suggests its significance in the field of artificial intelligence and language translation.

OpenAI's Leadership Changes

  • Ilia Sutskever, OpenAI's chief scientist and co-founder, is leaving the company.
  • Ilia previously participated in board actions that he later regretted.
  • The dynamics between Ilia, Sam Altman (CEO), and Satya Nadella (Microsoft CEO) are discussed.
  • Ilia's future prospects are speculated upon, with an expectation of continued success.

"Ilia Sutskever, who's the chief scientist and the co-founder, he is leaving the company."

  • This quote informs us of Ilia Sutskever's departure from OpenAI, indicating a significant change in the company's leadership.

"He stabbed The Prince and then the true owner of OpenAI, Satya Nadella, said no I want Sam back."

  • The quote metaphorically describes the power struggle within OpenAI's leadership and the influence of Satya Nadella.

Streaming Service Bundles

  • There is a trend of media companies creating streaming bundles.
  • Apple TV+, Peacock, and Netflix are forming a bundle.
  • Disney and Warner Brothers Discovery have also announced a similar bundle.
  • The strategy is seen as a response to unit economics problems and subscriber saturation.
  • Bundling is compared to traditional cable packages, making it difficult for consumers to cancel unwanted services.

"This streaming bundle, Apple TV plus combined with peacock combined with Netflix."

  • This quote highlights the emergence of new streaming service bundles combining multiple platforms.

"It just feels like cable all over where they're bundling and pretty soon you're not going to be able to cancel."

  • The quote draws a parallel between the new streaming bundles and the traditional cable model, emphasizing the difficulty of canceling services.

Venture Capital and Investment Opportunities

  • Venture capital has played a significant role in the growth of major tech companies.
  • Historically, venture funds have been accessible mainly to institutional investors.
  • The Fundrise Innovation Fund aims to democratize access to venture capital investments for individual investors.

"Venture Capital has been one of the unsung heroes of our economy for decades."

  • This quote acknowledges the impact of venture capital on the economy and the growth of tech companies.

"Now you can get in early."

  • The quote suggests that the Fundrise Innovation Fund is offering individual investors a chance to invest in technology leaders at an early stage.

GameStop Stock Fluctuations

  • GameStop's stock experienced significant volatility following a social media post by Keith Gil (Roaring Kitty).
  • The post led to a temporary surge in GameStop's market value, with subsequent losses.
  • The situation raises questions about market manipulation and securities fraud.
  • The distinction between insider trading, market manipulation, and free expression is discussed.
  • The legality and ethics of influencing stock prices through social media are debated.

"GameStop's price swung so violently that trading was halted nine times in just over an hour."

  • This quote describes the extreme volatility in GameStop's stock price following Keith Gil's post.

"You have a guy who has no actual affiliation with GameStop but who is through the internet and through live streaming just sort of culturally affiliated with the company."

  • The quote discusses the influence of Keith Gil on GameStop's stock despite having no formal affiliation with the company.

"I think it'd be a pretty serious leap legally to say that a picture of a guy leaning forward is saying to the market I'm doing something."

  • The quote reflects on the challenge of legally categorizing Keith Gil's actions as market manipulation based on a single image post.

"It gets into intention and state of mind which would be really difficult to prove."

  • This quote explains the difficulty in proving intention and state of mind in cases of alleged market manipulation.

Securities Fraud Allegations

  • Discussion about the potential for securities fraud in the case of a person with internet influence manipulating the stock market.
  • The scenario involves someone with financial interest in a company potentially selling shares while spreading information that could affect stock prices.
  • The difference between a benign act and one with intent to profit is highlighted.
  • The harm to investors and the erosion of market faith are considered as factors in determining criminality.

"He threw a fit and he started saying she was stupid or crazy in my view that is closer to securities fraud given he obviously has a financial interest in the company and my guess is he's been selling like crazy since it peaked whenever two years ago."

  • The quote suggests that someone with a financial stake in a company, who disparages others while potentially selling shares, is closer to committing securities fraud.

"If somebody claims they're about to put in a bid at $14 a share for a stock that's trading at 8, it goes to 12, and it ends up they weren't sincere and didn't have the funding, I think that is securities fraud."

  • This quote describes a hypothetical situation where false information about a potential bid on a stock could constitute securities fraud if it was insincere and manipulative.

The Definition and Implications of Market Manipulation

  • The conversation explores the definition of market manipulation and its implications on the financial markets.
  • The role of intent and the impact on investors are considered in assessing whether an action constitutes market manipulation.
  • The difficulty in proving harm and the significance of a person's influence on the markets are discussed.

"I think the argument to criminalize this would be that it generally erodes our faith in markets if a dude who has all of this internet power can become a centimillionaire overnight just because he's associated with GameStop and he has a large megaphone on his Twitter platform."

  • The quote discusses the potential for criminalizing actions that undermine market integrity, especially when someone gains significant wealth through their influence on social media platforms.

"I think this is really a tough one, the leap that a drawing of him being interested again in a stock would naturally take it up, and he knew that."

  • This quote highlights the challenge in proving that someone's expression of interest in a stock was intended to manipulate its price.

The Phenomenon of Meme Stocks

  • Discussion about the emergence of meme stocks during the pandemic and their impact on the capital markets.
  • The role of technology, social media, and market access in the rise of meme stocks.
  • The permanence of meme stocks in the financial landscape and the ethical considerations surrounding market manipulation.

"I think meme stocks are here to stay and I think what people are looking for here, I don't think we should infantilize the people buying these stocks."

  • The quote suggests that meme stocks are likely to remain a fixture in the market and cautions against underestimating the awareness of investors participating in these stocks.

"This is gambling, they know they're, this is a pyramid scheme... but there's a really good chance someone's going to get hurt."

  • This quote emphasizes that investing in meme stocks is akin to gambling and carries a high risk of financial loss.

Investment Advice and Meme Stocks

  • The importance of understanding meme stocks for investors and financial advisors.
  • The distinction between gambling and investing when it comes to meme stocks.
  • The criteria for evaluating the competence of a financial advisor in the context of meme stocks.

"If you ask your financial adviser, 'Would you ever invest me or anyone else in a meme stock?' and he says yes, and you've got the wrong financial adviser."

  • The quote advises that a financial advisor who is willing to invest in meme stocks may not be acting in the best interest of their clients.

AI Startups and Cloud Computing Partnerships

  • The trend of AI startups partnering with big tech companies for cloud computing services.
  • The potential benefits of these partnerships for both the AI startups and the big tech companies.
  • The discussion highlights Oracle's deal with Elon Musk's AI startup and its implications.

"The big winner here is Oracle because Oracle is getting a $10 billion deal from xai."

  • The quote suggests that Oracle stands to benefit significantly from the deal with Elon Musk's AI startup regardless of the startup's future success.

"This famous statistic from I think it was around 2018 which is that startups spend roughly 40 cents of every VC Dollar on Google, Facebook, and Amazon."

  • This quote refers to a statistic indicating the significant portion of venture capital that startups spend on services from major tech companies, drawing a parallel to the current spending on cloud services.

Venture Capital Funding and the AI-Cloud Industry Dynamic

  • AI startup is raising $6 billion and plans to spend $10 billion on Oracle services.
  • Venture funding is flowing directly to big tech companies like Oracle, Microsoft, Amazon, and Google.
  • Similar deals are common among AI startups and major cloud service providers.

"Raising $6 billion it plans to spend $10 billion on Oracle which means in this case 100% of the Venture funding is going directly to the big tech company which is Oracle here."

  • This quote highlights the significant flow of venture capital from AI startups to established tech companies, specifically Oracle in this case.

The Magnificent 7 and R&D Investment

  • The "Magnificent 7" tech companies have spent $200 billion on cloud-based AI-driven applications R&D.
  • This investment is equivalent to half of all R&D across all industries in Europe.
  • It raises questions about whether AI is a bubble or if a few companies are monopolizing the industry.

"The amount of money that has been spent in R&D mostly around cloud-based AI-driven applications here across the Magnificent 7 is $200 billion just across the Magnificent 7 which is equivalent to half of all R&D across all Industries in all of Europe."

  • The quote underscores the massive R&D expenditure by leading tech companies on AI and cloud services compared to the entire European industry.

AI's Origins and Profitability

  • People from Cambridge and Germany claim that AI was invented in their regions.
  • Despite these claims, the financial gains from AI have been overwhelmingly realized by companies in San Francisco.

"You realize that AI was invented at Cambridge... and I'm like well smell you boss how come you didn't make any money off of it."

  • The quote humorously addresses the contrast between the claimed origins of AI and the actual financial benefits reaped by Silicon Valley companies.

AI Bubble Speculation

  • There is speculation that an AI bubble may be forming.
  • Concerns arise that AI may not meet the transformative expectations for various industries.
  • A potential reduction in AI spending by medium and large businesses could signal a market downturn.

"I'm starting to believe that an AI bubble is beginning to form because what happens if the expectations around what you can do with AI at your fortune 5000 company... doesn't live up to your hopes."

  • This quote expresses the concern that AI might not fulfill its promised potential, leading to a reduction in spending and a possible bubble burst.

Historical Parallels: The Dotcom Bubble

  • The podcast draws parallels between the current AI hype and the dotcom bubble of the late '90s and early 2000s.
  • Cisco is mentioned as a cautionary tale, having been a safe investment bet during the internet boom but later losing significant market value.
  • The pattern of excitement followed by disappointment in tech investment is discussed.

"Everyone piled into Cisco which became the most valuable company in the world in the late 90s... Cisco and Amazon shed 90% of their market value."

  • This quote recalls the dotcom bubble's impact on Cisco, drawing a parallel to the current situation with AI investments.

Market Valuations and AI Revenue Discrepancies

  • The podcast discusses the disproportionate market valuation increases of the Big Three (Alphabet, Amazon, and Microsoft) compared to their AI revenue.
  • There is a concern that the market is overvaluing AI's potential revenue, indicating a potential bubble.

"The combined market value of Alphabet, Amazon, and Microsoft has increased $2 and a half trillion dollar... but the increase in Revenue has only been 20 billion."

  • The quote highlights the stark contrast between the market value increase and the actual revenue generated from AI, suggesting an overvalued market.

Nvidia and AI Hardware Market

  • Nvidia's market valuation has increased significantly, accounting for a large portion of the overall rise in AI hardware companies' worth.
  • The podcast host contemplates shorting a basket of AI companies due to the perceived bubble.

"Public AI Hardware companies were worth about 1 and a half trillion today they're worth about 5 trillion and Nvidia has accounted for 57% of this increase."

  • This quote emphasizes Nvidia's role in the massive increase in market valuation of AI hardware companies, suggesting a potential overvaluation.

Upcoming Earnings and Market Predictions

  • The podcast predicts that Nvidia will exceed earnings expectations despite concerns about an AI bubble.
  • The discussion reflects on the difficulty of timing the market and the tendency for valuations to continue rising before a potential crash.

"That Nvidia is going to blow away its earnings just based on everything I just said... it's very hard to time the markets."

  • The quote predicts strong performance for Nvidia's upcoming earnings while acknowledging the challenges of market timing amidst bubble concerns.

AI Impact on Business Operations

  • There is skepticism about whether investments in AI, such as GPUs from Nvidia, will pay off in improving business operations.
  • The podcast recalls similar moments of over-expectation from the past, suggesting that the market may be due for a correction.

"What we're going to see over the next 6 to 24 months is when Nestle gets talked into by their Chief strategy officer buying $38 million in GPUs from Nvidia... if that doesn't pay off... I think we're in for that moment."

  • This quote expresses doubt about the return on investment for large-scale AI hardware purchases, drawing on historical parallels to suggest a potential market reckoning.

AI Startups and Consumer Impact

  • The podcast questions the real-world impact of AI startups on consumers, noting that many sales are B2B and the consumer use case is yet unproven.
  • The revenue from AI applications is compared to that of Subway, highlighting the disparity between market valuation and actual revenue.

"All the sales are B2B. but we haven't tested any of this out on the consumer like all those AI startups... I am yet to use AI or pay for AI on a daily basis."

  • The quote points out that while AI startups are generating B2B sales, the direct impact on everyday consumers is still unclear, raising questions about the sustainability of the current AI market hype.
  • The podcast includes an advertisement for Fundrise, which is identified but not included in the study notes as per instructions.

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