00:18:56 · Ed Elson
Now the thing that I think is pulling things back is, as you say, this data center question. And it's really interesting because immediately, as soon as the the results came in, all of the the the the extremely leveraged data center names, so the Neo Clouds, CoreWeave, Nebius, IREN, absolutely tapped, Just fell through the floor, plummeted terrible. I was thinking that you would see the same thing among big tech, among the hyperscalers, but that didn't happen. You actually had significant increases in Google, Amazon, Microsoft rose six and a half percent on the day off the election, all time high. Incredible rally from Microsoft. And that was the thing that I was trying to... What is going on here? And my initial thinking is, okay. This must mean that investors are actually happy that we're gonna see a data center slow down because maybe it means that this is going to pull big tech out of the capital arms race. We don't like how much they're spending on data centers anyway. We're worried about it. We like their existing businesses, and so maybe this will pull them out of it. But then the sentiment shifted, and this is where I think investors are are very confused as to as to what's actually good and what's actually bad. Because suddenly, Google goes down, Amazon goes down, Microsoft goes down as well. And so I'm not sure they fully know how to feel about this, which I think honestly is fair because the jury's still out on AI and if there is a real return there. And we actually don't know if investing hundreds of billions of dollars in these data centers is a good decision or not. If you think that it's a bad decision or if you think that it's a dangerous decision, you should probably be a little bit more bullish on the hyperscalers because this basically forces them to stop spending as much. But at the same time, they've committed to spend so much already, and so maybe this puts them in a at a structural disadvantage. I'm not sure. And there's a lot going on here. So I guess your reactions to all of those dynamics and what you think may or may not be right.
00:21:00 · Scott Galloway
[00:21:00] S0: The kind of simple or lazy observation, and it might not be the right one, is that there's just been a rotation out of... If you think about the Neo Cloud or the the Neo Cloud guys or the compute guys, they're basically levered trades to AI. Right? I mean, as goes AI, that goes them times three or times negative three. Whereas if you still wanna play the AI trade, but you want some diversification, you go into big tech. I mean, Alphabet Alphabet, Microsoft are both AI plays, but quite frankly, AI could end up being vastly overhyped and be like the railroads and they would still be fine. People are still going to be buying Google search ads and YouTube ads PowerPoint. The lazy explanation is people said, the levered AI trade based on one piece of data from yesterday looks a little scary, so I'm going to take my leverage down. I still want exposure to it. I still wanna be, you know, big tech or these names look like great ways to play it with some downside protection. Because the piece of data that I think the market is looking at or the brightest... So the market every day absorbs hundreds of millions of points of light and then tries to make an unemotional decision. Right? But the one I think beam, the laser beam yesterday, was that there were 41 local ballot measures on data centers and 40 of them lost. I mean, Ohio, Georgia, and Texas account for more than 40% of all planned data center capacity. So almost half of data center capacity is in three states, and three, and all three just elected Democratic governors who campaigned on stopping or slowing their development. And I wanna be clear. I think this is a bad idea. I think I was in... We were in Toronto Monday night. I'm... And then I did a podcast with the deputy prime minister, the former deputy prime minister. Then we... Last night... What's the last thing? Last night, we... As our guest on stage, we had a senator and governor elect Amy Klobuchar, and I straight up said, it's cold here. You have energy. You have a shit ton of land. Isn't isn't this... And and you need growth. The basic story of demographic shifts in migration in America over the last twenty years is pretty basic. It's people leaving cold, high tax states and moving to warm, low tax states.
00:23:18 · Scott Galloway, Ed Elson
And I said, as a governor who now is responsible for growth, how do you balance these populist movements against data centers with the need for growth? And isn't Minnesota perfect for data centers? Why wouldn't you want some of that great tasting AI revenue growth and capital formation? And she, quite frankly, dodged the question. [00:23:38] S3: Question. Because, by the way, it is so hard, and this is gonna be the thorniest question for Democrats because there are decent arguments on both sides, which we'll get into. But doesn't surprise me that she dodged it because that is a fucking hard question. But... Sorry. Continue. [00:23:53] S0: Well, 71% of Americans said they oppose building one in their area, which for context is slightly lower than the share of Americans who oppose strip clubs. So people would rather have a strip club or a nuclear power plant. [00:24:05] S3: Well, that's all of us. But... [00:24:06] S0: Yeah. Well, there you go. That's just common sense. That's just common sense. [00:24:11] S3: They they got their head screwed on. [00:24:13] S0: There you go. And so in an attempt to get around this, OpenAI is now rebranding data centers as compute campuses. That's my that's [00:24:22] S3: that's my favorite. Walking around with backpacks, scootering from from class to class at their compute campuses.
00:24:30 · Scott Galloway
[00:24:30] S0: Consumers figure it out pretty quickly. I don't I don't think the rebranding is gonna save them. But this the data center thing, I would argue that data centers are the new empty vessel for income inequality, and it's the worst managed brand in America. And they decided to literally pick the opposite of Michael Jordan, who was the best spokesperson in history. They picked Kevin O'Leary, who couldn't have been a worse spokesperson. And people are upset about income inequality. People are upset by what they perceive is a correlation between the Epstein class and the Tech Brothers. And they... And their empty vessel, how they can vote on it is they vote on data centers, and data centers have become... And I... And again, and I... Our comments will fill up, Scott, you live next to a data center. The state with the most data centers is Virginia, and they like them. And so I was shocked. I mean, basically, what I thought was gonna happen was that red states are gonna benefit economically because they were gonna say, alright. You... Your market for supply for data centers for approval has shrunk, which means I can extract more money, more guarantees around not having a constraint electricity bills, more more taxation, and they'd say fine. And then they come in and there's more economic growth in red states. And now it looks like the market is saying, the hose has been cauterized here, that there's... These data centers literally have nowhere to go. Even Republican governors are going to be somewhat remiss. But, yeah, the day... Anyways, if I were to try and pick one point of light that the markets woke up to and said, oh, uh-oh. And then also, it's validated by the thesis that the ones that are the least diversified to the choke of supply of data centers are the ones that got hit hit the hardest. That would be the point of light I would be looking at. But, you know, it's difficult.
00:26:19 · Ed Elson
[00:26:19] S3: That's it. I think that's the most important thing for the markets coming out of this election was that the people were asked how they feel about data centers, and it was basically just a giant flat resounding no. Only one of those measures got passed. The rest failed. You had four moratoriums in Maine that were passed overwhelmingly, 82% in Wales, 76% in Peru. I mean, just incredible numbers. And, you know, Alex Bores, who who is an assembly member who's who's written some AI legislation, we had him on the show, and he made a very good point. He pointed out that if you ask people how they feel about a data center versus an AI data center, data centers themselves are still underwater, but AI data centers are another 20 points underwater. And so what that tells you is that this is a piece of policy that has been injected with a huge amount of emotion. And that might mean that maybe people aren't being fully rational in terms of their decision making about what's good and what isn't. However, we should also acknowledge that this is the first time in years, perhaps decades, after our country has been essentially overrun and taken over by a billionaire class, that after the Epstein files was proven to be, pretty pretty awful in a lot of ways. I mean, the the the conspiracy theorists were not totally right, but they were kind of right about what was happening and what these tech billionaires were doing. And we've seen it in our politics, the the the hundreds of millions of dollars that they've spent on our politics after Citizens United. These people have been running the country. And if you look at a lot of them, if you look at Elon Musk, I mean, these are not exemplary people. This is the first time where the American people have had giant leverage over that class, over those people. They know that in order to create the extraordinary wealth that they are so they are so set on creating for themselves, they have to get approval from America. And so whether or not it's technically rational, I mean, these data centers will generate some tax revenue for local communities. At the same time, there are clearly downsides. The electric prices are not great, though it seems as though a lot of these companies are saying we'll bring our own energy, but still that's gonna be a problem. They're noisy. They're big. They're ugly.
00:28:47 · Ed Elson
They don't really employ that many people. They employ employ the third amount of of the workers that a Walmart employs despite taking up three times the space. There are reasons not to like them, but also maybe some reasons to like them in terms of growth, in terms of tax revenue. But more than anything, this is America saying, you need us now, and you guys have never been there for us. All you have done for us is take and take and take, and you refuse to engage with us. You you refuse to to have any conversation about redistribution, any conversation about figuring out this inequality problem. And anytime anyone brings it up, they're immediately labeled a communist or a socialist and the conversation just falls flat on its face. And so this is finally the moment where America says, okay. Oh, you need us now. Now what do you wanna do? We're gonna say no. And what's gonna happen now? And so, you know, it's not good for investors, but there's a little bit of sweetness to it because American workers have been royally screwed over for so many years now. And this is basically their way to say fuck you back. And, you know, I'm not that upset about it. It's like, fair enough. This is sort of... This comes with the territory. This is kind of what you get. Is it necessarily the right thing? I don't know. But but I respect it, and I and I and I get why it's happening.