Given the strong [music] employment

numbers and the inflation numbers as

well, the probability that the Fed will

cut rates this year is near zero. The

probability that the Fed will raise

rates this year is [music] not zero. In

private equity news, the decline in

public software stocks continues to have

an impact. The value of private equity

technology deals plunged 70%. [music]

Last year, hyperscalers spent around 400

billion on AI capex. [music]

This year, they will spend close to 1

trillion. What are they getting for that

spend? Participating in the LLM agentic

AI game is now incredibly capital

inensive. These hyperscalers are not

going to stop and investors are starting

to lose their taste for it. [music]

[music]

Hi, this is Steve Eisman and this is the

weekly rap. This is for the week ending

Friday, June 12th, but recorded Thursday

night, June 11th. Before we get to the

rap, let me address an issue. We record

the weekly rap Thursday night and post

it Friday after the close. Now, some

viewers have asked us to record the rap

Friday and post it Saturday. And we've

thought a lot about that, but we feel

it's more important to get the rap out

after the close Friday. And to do that,

we need to record it Thursday night

because it takes time to edit. Of

course, that means we miss what happens

Friday. However, I think I can then deal

with that the following week. On this

week's rap, we will discuss one, current

market correction. Two, AI capex is too

thirsty for capital for markets to

satiate comfortably and news from

Google, Soft Bank, and Super Micro is

transformative. Oracle's earnings also

did not help. Three, inflation news is

bad. Four, earnings expectations show

problems under the hood. Five, the war

in Iran, of course. Six, Open AI filed

its S1 and Apple hosted its tech day.

Seven, addiction business models seem to

be spreading. Eight, private equity and

private credit news, of course. Nine,

thoughts on the Real Eyes playbook.

Let's get started. Last Friday witnessed

a correction that continued for part of

this week. On Friday, the S&P 500 was

down 2.64% and Nasdaq was down 4.18%.

Big moves. What happened started

Wednesday night when Broadcom reported

AI related numbers that while strong

were below expectations. As a result, on

Thursday, the semiconductor group

experienced a correction. On Friday, the

big news was that the employment numbers

were better than expected. Actually,

they were quite strong, implying the Fed

will not be raising rates and might even

raise them. The 10-year Treasury yield

climbed once again back over 4 12%. The

combination of Broadcom and the 10-year

caused the correction on Friday. If you

will recall a few weeks ago on the May

15th Friday rap, I announced that I had

lightened up in my personal portfolio

because back then the 10year had climbed

above 4 1/2% and that was my Rubicon.

Admittedly, there is nothing magical

about 4 1/2%. However, the 10-year has

been in a range of 3.9 to 4 1/2% for

several years. And as long as it has

remained in that range, the bull market

held. 4 1/2% seems to be the magical

demarcation point. So, if rates continue

to march higher, expect more of a

correction. One additional point, given

the strong employment numbers and the

inflation numbers as well, which we'll

talk about, the probability that the Fed

will cut rates this year is near zero.

The probability that the Fed will raise

rates this year is not zero. Chances are

though the Fed will do nothing. The

other important news that I think

contributed to the correction was the

news from Google which might be the most

important news of all. Google announced

that it was raising $80 billion since

upsized to 85 billion in new capital all

from equity. Historically software has

been a non- capitalintensive business.

The last time Google raised equity for

the company was when it went public in

2004. So why is it doing so? Because the

table stakes of participating in AI keep

increasing. In 2025, Google spent $80

billion on AI capex which it funded

mostly from its enormous cash flow plus

a bit of debt. In 2026,

Google will spend 180 to 190 billion on

AI capex and that is too much for its

cash flow. There are also stories that

Meta and Microsoft will be doing similar

transactions soon. This all goes to show

that certain non-c capital-intensive

large software companies have now become

capital-intensive hardware companies.

And as I have discussed in the past, the

current growth of GDP can be largely

attributed to the massive investment in

AI. What's changed is the equity markets

are now being asked to fund a

significant chunk of this annual

investment. Up until now, private money

and free cash flow carried the burden,

and the stock market enjoyed the ride.

No longer. It's one thing to own AI

stocks when the AI companies are footing

the bill for the capex. It's another

story to own these stocks when companies

are raising capital for public

shareholders. The other transformative

news came from SoftBank. Now, SoftBank

is a Japanese company that mostly

invests in tech companies. SoftBank has

a large position in OpenAI that given

the most recent valuation is valued at

$60 billion. SoftBank tried to get a

loan for 10 billion and was pledging its

OpenAI position as collateral. It could

not get a $10 billion loan, so it

reduced its ask to 6 billion and it

can't get that amount either for reasons

that are unknown. However, one possible

interpretation is that while the banks

are perfectly willing to take OpenAI

public at an insane valuation, they are

not willing to put their own balance

sheets on the line for that exact same

valuation. The valuation is fine for

investors, just not the banks that will

take OpenAI public. Oracle added to the

capital intensity story when it reported

this week. Now on the positive side, the

company reported earnings per share of

211 which was up 24% versus last year

and a beat and revenue beat as well.

Also, the company's remaining

performance obligations which is a form

of backlog reached a pretty incredible

$638 billion which is up 363%

versus last year and up 85 billion in

just 3 months. So all that's good. What

is not good is the need for capital.

Oracle's capex for the quarter reached

15.9 billion, bringing the annual total

for the fiscal year that just ended on

May 31st to 55.7 billion, which is

higher than Oracle's projection of 50

billion. Perhaps more importantly, the

company added 20 billion to its capital

raising plans. Now, its fiscal 2027

capital plan is for 40 billion in equity

and debt. Like I said before, the tech

industry is being transformed from a

capital light model to a model of

insatiable need for capital and

investors are starting to lose their

taste for it. After hours Wednesday

night, Oracle was down 10%. And in more

capital intensity news, Super Micro,

which is admittedly not a software

company, but a tech hardware company

that largely sells servers, announced

plans to raise $7 billion through a

combination of equity and equity linked

financing. Super Micro, like Dell, is an

AI derivative story. However, 7 billion

off of a market cap of roughly 20

billion is no small thing. And the stock

was down 28%.

28%

on this news on Wednesday. Wow. One more

thought. Traditionally, investors look

out anywhere from 6 months to several

years when valuing stocks and making

investments. The current crop of IPOs

and the stock being issued requires much

longer time horizons to justify

valuations. Equity is finally being

asked both to carry the burden and give

the companies longer runways. It's a lot

to ask and this is a major change.

However, I would not take this new

capital intensity as a sign that the AI

investment story is over. At least not

yet. Anyway, Oracle's numbers were

powerful, especially the backlog. And

the news from Google and Oracle is that

participating in the LLM agentic AI game

is now incredibly capital intensive.

These hyperscalers are not going to

stop. So I think investors are

rethinking their commitments to

companies that might have to raise

capital like Meta and perhaps even

Microsoft. My guess is that investors

will shift to companies that benefit

from AI but don't need capital. sectors

like alternative energy, semiconductors,

and networking equipment. As I

mentioned, I lightened up a few weeks

ago, and I have kept my cash while

considering next moves. It's now perhaps

time to carefully pick stocks with less

headwinds. In a few weeks, I will

discuss my personal portfolio on

premium. Join Premium by looking in the

description for audio and video and

pressing the link, which is also on the

screen. Two more points on AI. Lots to

say about AI this week. Last year,

hyperscalers spent around 400 billion on

AI capex. This year, they will spend

close to 1 trillion. What are they

getting for that spend? Let's assume for

the sake of argument that AI and AI

agents are completely transformative

technologies and yet there seems to be

little difference between them. One week

Gemini is on top and the next it's

anthropic. Despite the money being

spent, there seems to be little

differentiation, no moes. Trillions are

being spent for what looks increasingly

like a commodity. China is highly

competitive as well. Something for

equity holders to think about while

being asked to fund future growth. And

speaking of the commoditization of AI,

on Thursday, an article appeared in the

Wall Street Journal stating that OpenAI

is considering lowering the prices it

charges customers. The company is

considering cutting what it charges for

tokens. This is pretty astonishing news.

Trillions are being spent for a product

with no moes and prices already being

cut. Final point, midterm elections are

coming up. Nimism regarding data centers

will be a big subject. Candidates from

both sides will likely lean into fears

of costs and burdens being forced on

areas where data centers are being

located. The potential good news like

the property tax relief because data

centers will be required to pay more

than their share will likely be buried.

Politicians often weaponize potential

bad news to show the savior role they

can play. Before I get to the rest of

the rap, I would also like to mention

that this past Wednesday, June 10th, on

Premium, I did a deep dive into Croup

and the remarkable turnaround executed

by CEO Jane Frasier. It's a relief to

think about a successful banking story

after the constant drum beat of AI,

energy shocks, and the impact of

inflation. Careful stock selection feels

timely. For our audio listeners and

video as well, see the premium link at

the top of the description. Moving on

from AI, two pieces of economic news.

First, inflation. The numbers are not

good. On Wednesday, the CPI came in at

4.2%, highest in 3 years. Core CPI X

food and energy came in at 2.9%.

Both figures were within expectations.

So as a result, the tenure barely moved

but remained above 4 and a.5%. Producer

price numbers came in on Thursday and

they were high as well. Second, the

second quarter is almost over. Let's

take a bit of a preview of earnings

expectations because they really show a

K-shaped economy. Current earnings

growth expectations for the second

quarter are very, very strong. 22.6%.

However, under the hood, there are

issues. A significant portion of that

22.6% is from the energy sector, which

is expected to grow by more than 100%.

Technology is expected to grow an

amazing 60% and materials and energy

derivative is expected to grow 30%.

After that, every other sector is

expected to grow by single digits with

healthcare posting negative growth.

Moving on. Over the weekend, Iran bombed

Israel and Israel retaliated and bombed

Iran. President Trump then demanded that

both sides stop. They did. On Tuesday,

President Trump announced that a deal

was closed and then Iran shot down a US

helicopter and the US retaliated by

bombing Iran. In response, Iran said

they were delaying the negotiations. On

Thursday morning, President Trump

promised more attacks and said the US

will take Car Island. But later the same

day, Thursday, he canled the bombing and

stated that a deal is close at hand. We

shall see. But the market rallied on

that news. Moving on. Last week,

Enthropic filed an confidential S1 for

an IPO. I'm guessing the size of that

offering will be around hundred billion.

This week, Open AAI filed its own

confidential S1. I'm assuming the size

of that offering will be similar. Add

the 75 billion to be raised by SpaceX,

and we're talking about 275 billion of

capital to be raised. Then add the 85

billion that Google raised and we are at

360 billion. That's a lot of capital for

equity markets to absorb. Now why am I

confident in the potential size of these

offerings? Let's take open AAI. In its

recent round of funding, OpenAI raised

122 billion from investors at an 852

billion valuation. So an IPO where

OpenAI raises a h 100red billion is

certainly a strong possibility. This

week, Apple hosted its annual worldwide

developers conference. Apple has been

having issues with its AI strategy. On

the one hand, Apple long ago abandoned

participating in the LLM race, and given

how much AI capex keeps going up, that's

starting to look like a great decision.

Apple won't be raising capital. On the

other hand, Apple does need an AI

strategy. Apple is teaming up with

Google for its AI. Apple unveiled the

new Siri and it is much better than

before, but the bar was pretty low.

Apple is only catching up to what's

available elsewhere. The new AI features

will help phone upgrade cycle probably.

The new Siri features require at least

an iPhone 15 Pro, but for some of the

more advanced features, an iPhone 17 or

iPhone Air will be required. I want to

spend some time on addiction business

models that seem to be spreading

throughout the economy. Social media has

been accused and in some cases found

guilty of intentionally creating

algorithms that foster addiction. And

last week, the state of Florida sued

OpenAI, alleging that chat GPT also

fosters addiction, implying that AI uses

addiction to keep customers engaged.

Technology induced addiction is a very

important topic. And on this coming

Wednesday, June 17th, on our premium

service, we will post an interview with

Ben Zaperski, tort professor at Forom

Law School, who has become an expert on

these social media addiction cases. We

discuss the legal theories behind these

cases and which cases he thinks have

real potential. For our audio and video

listeners, see the premium link at the

top of the description. If addiction

were confined to just social media, that

would be bad enough, but it has spread.

For example, Khi is a company that I

believe uses an addiction model to

increase the level of customer betting.

The story is their modeling of human

psychology to realize that people

mistake a near miss as an almost

opportunity. Every time a gambler nearly

misses on winning instead of being

disappointed and walking away from

gambling, that same person is actually

motivated by the almost win and driven

to bet again and more often. I'd also

point out that I have learned

anecdotally that kids are using Koshi in

school by tapping into their parents'

accounts or hiding their age behind

VPNs. And by the way, everything I just

said about Koshi applies to its

customers as well. On the subject of

kids minds being exposed to addiction

elsewhere, I'll mention that Hasbro,

whose business model used to be making

and selling toys, has shifted its

business model. The underbelly of this

shift can be seen in the card games

Magic the Gathering and Dungeons and

Dragons. These games have existed for

years in a relatively benign state. Not

anymore. Hasbro has reinvented these

games using an addiction model and that

is fueling most of its profitability.

Why is a child's game that's been around

forever suddenly fueling the profits of

a 12 billion market cap toy

manufacturer? Because Hasbro has

mastered the concept of creating the

illusion of scarcity to create

FOMOdriven purchases. How are they doing

this? Magic has always been a card game

where getting a special card in a deck

with certain highlevel points drives

sales. Hasbro has used this as their

starting point to turn these games into

massive money makers. New sets are

released and promotion is now directed

at adults and kids in some cases with

Tik Tok videos of women reaching inside

their open shirts to reveal winning

cards. Prices have exploded for newly

released and scarcely available Magic

sets with highly promoted winning cards.

Hasbro has shortened the release cycle

and increased promotions. Why develop

new toys that engage children's

creativity when you can manipulate kids

and adults by building hype and sales

with an addictive business model? In

private equity news, the decline in

public software stocks continues to have

an impact. The value of private equity

technology deals plunged 70% in the

first quarter to only 20 billion.

Overall, private equity continues to

have problems selling its assets. During

its heyday, private equity sold its

companies 3 to four years from date of

purchase. Holding periods are now

stretching to seven years and more,

which is upsetting investors, all of

whom want their money back. There are

apparently four trillion four trillion

in private equity investments that have

yet to be monetized. That is not a small

number. The attraction of private equity

was partially that as indices

increasingly commoditized the role of

money managers, high- netw worth

investors increasingly sought illlquid

investments, private equity that

promised outsized gains. The lack of

liquidity was in many ways perceived as

a positive attribute. Investments were

no longer measured against a volatile

daily benchmark. In venture capital and

private equity, the lack of liquidity

has always been accompanied by a lack of

transparency. Lack of transparency in

exchange for the expectation of outsized

returns. The underlining motivators were

the assumptions that these were unique

investment opportunities. Now

investments are being revealed as

increasingly locked and perhaps perhaps

homogeneous as well. In private credit,

Bloomberg reported that one of Blue

Owl's funds, the OCIC fund, raised 500

million in a bond sale. Was this done to

help meet future redemptions? Unclear.

Coincidentally, this week I was asked a

question from someone I bumped into who

asked if the market decline last Friday

was caused by index funds selling stocks

to make room to buy SpaceX. Although

SpaceX is not yet required to be

included into the indices, it's only a

matter of time. The question got me

thinking that active managers feel

obligated to restructure their

portfolios to reflect the eventual need

to include SpaceX and soon entropic and

open AI regardless of the underlying

merits of the investment decisions. Like

it or not, active managers are measured

against the daily performance of an

index. Differentiation in investments is

very risky. That's why active managers

hug the indices because not doing so is

too dangerous. We live in an age where

people crave authenticity and decry

sameness and commoditization. Yet every

fund manager is measured against the

same benchmark, their relevant index.

This means passively managed assets and

actively managed accounts run by

supposed stock jockeyies are all

suffering from massive sameness because

no one can risk underperforming the

benchmarks. This is way past FOMO. This

is required uniformity in order to stay

in business. I don't know if part of the

decline on Friday was stock selling to

make room. It's possible. What I do know

is that sameness increases risk of

everyone underperforming at the same

time. This is the herd mentality

argument played over and over again. I

personally don't like illquid

investments with gated exits. I like the

stock market's liquidity. If the choice

is buy an index versus pay for a fund

with an active manager who's probably

hugging an index, I would just say buy

the index. If like me, you like to pick

stocks, go for it. But park your FOMO at

the door and have a long-term horizon.

Increasingly, my goal for the playbook

is to define the themes of the times we

live in and invest and to highlight

individual investment stock

opportunities that can thrive within the

constraints of external pressures. In a

few weeks, on Monday, June 22nd, I will

have three senior consumer sales site

analysts from Evercor sharing their deep

industry knowledge and their stock

picks. Last Monday, June 8th, we posted

an interview with Stacy Razan, the

semiconductor analyst at Bernstein, we

discussed the impact of AI on the entire

semiconductor area and what might derail

the momentum. So, check it out. This

coming Monday, June 15th, we will post

an interview with Tom Gallagher, the

life insurance analyst at Evercore. We

discussed the impact of private equity

and private credit on the life insurance

sector. These are illquid and opaque

investments and we looked at the real

risks and the size of those risks. So

tune in. Be sure to check out our

website realismanplaybook.com.

Thank you for joining. And that's the

rack.

[music] This podcast is forformational

purposes only and does not constitute

investment advice. The hosts and guests

may hold positions in stocks discussed.

Opinions expressed are their own and not

recommendations. Please do your own due

diligence and consult a licensed

financial adviser before making any

investment decisions.