00:12:48 · Scott Galloway
[00:12:48] S0: It's very hard to find themes in a one day movement in the market. So if you look at the economic policies, one of the things that Prof Gives have been great at is branding themselves as the pro growth pro, like, economic growth party. I would argue that over the last ten years, the GOP has moved from being the pro business party to the pro billionaire party. And that if you actually look at the policies of massive deficits, not reinvesting in the middle class, that over the last 12 presidential administrations, what you've seen is lower growth in Republican administrations, lower job growth with greater deficits. That's just a fact. And that I would have liked to have thought that the market said that this was an endorsement of democratic policies as it relates to the economy. But I think probably what it was given the check back today was a bit of a relief rally that the markets don't like uncertainty. That once once the markets have sort of a feel for what the next few years will be like and the election is is over, the the markets like knowing who they're waking up next to, even if you don't agree with their politics or or or... They they just... They want a certain level of certainty. And once the election was over, there was a bit of, like, I I call it an uncertainty relief or certainty relief rally. Today, I think, with the wipeout we've seen in tech stocks, I wonder if people are interpreting this populist movement against data centers. I mean, the elections sent a resounding face plant or not so fast girlfriend to data centers and thinking, okay. Is the capital formation... If you have a wobbliness in big tech around it being out over its skis because of incredible... These incredible CapEx wars, and then you have a hostile... Potentially a hostile congress, what might that mean for the companies that are basically have become synonymous with the market to say represent so much of the market? I think it woke up and said, okay, great. Now what? Is this potentially at exactly the wrong moment when when the the the the sector itself, which is basically as goes AI, as goes on market right now, I would argue, are we about to see additional headwinds if the Democrats come in and start just getting... Passing all sorts of anti AI legislation, anti growth legislation? I don't think that's gonna happen.
00:15:13 · Scott Galloway, Ed Elson
I think that regulation is actually key to a market's growth. And one of the thing that's been constraining AI companies is a lack of guardrails and clarity around how they operate, what they can, what they can't do, and some certainty from citizens that these models are going through some sort of blue ribbon panel or check. The the piece of data I did see yesterday that just blew my mind, and I think I might have seen it from you or from your show, was Tom Lee, and it's all over the Internet now, showing that when the Senate in a midterm election flips to blue, and that's happened, I think, 20 times since World War two, every time over the next twelve months or six months maybe, the markets rip up. And it's it's a 100%. It's 20 for 20. So I don't... I'm I'm trying to digest why the market is seesawing back and forth. It is very hard to draw consistent themes, and CNBC, I'm sure, has already interpreted this 45 different ways. But I'm not... I I think it is difficult to draw any conclusions either way as I tried to do yesterday based on what we've seen in the last forty eight hours in the markets. What are your thoughts? [00:16:24] S3: It's very hard to understand exactly what investors are thinking. I mean, just to start off with the initial rally because what you had was a very, very big rally. The Dow especially up 3%, best day of the year. S and P up one and a half percent. NASDAQ up one and a half percent. [00:16:38] S0: Don't forget oil.
00:16:39 · Ed Elson
[00:16:39] S3: Oil, down 8%. And by the way, that that continued, to go down going into the week... Into the end of the week. So I think what is definitely clear is there is an assumption that we will have a swifter end to the war. Mhmm. And I think probably one of the big reasons that that investors think that is because JD Vance came out and said something that was pretty anti war. Plus, you've got control over Congress at this point, so that might put pressure on the president. To be clear, the president still has veto power. So they don't have enough seats in the Senate or the House to override his veto. So if they decide we wanna make these decisions, he can just say no. And he said as much. He's just gonna veto things that he doesn't like. So I think there is an open question now as to will the war come to a swifter conclusion. And right now, investors are betting yes. Is that the right bet? I don't think so personally, but that's a debate we can have. At the same time, I think they were probably projecting that tariffs will come to a a sooner close than perhaps we earlier thought as well because, of course, tariffs are attacks on The US economy. They're they're especially attacks on American consumers, but they are also attacks on corporations as well. Yes. Corporations can pass on the costs to consumers. That's exactly what they did, but not all of them. They they bore about 40% of the the costs, and they sent over the the remaining 60 to the consumers. They, of course, got their their 40% back in refunds, but still that is a level of uncertainty that investors don't like. I think that they were expecting something to be resolved there. I also think your point is important, is the psychology of having a result. Once you know what's happened, you feel better. You're down with any result so long as you have a result, and that's helpful. And then I think to your point about Tom Lee, we know from history that having some level of gridlock, which has now been introduced because he had Democrats with the house and the senate and and Trump, with the executive. He didn't have that before. He had repop... Total Republican control. Gridlock means it's harder to make crazy decisions in government and investors like that. So I think those were the dynamics that were going into the pop.
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.