Let's just imagine that open AI fails.

Could happen.

>> The host of the real Eisman playbook

podcast.

>> I don't know about you, but I know that

I don't have a hundred billion dollars

to spend on building data centers.

[music]

>> You may know our next guest from the Big

Short.

>> Your character.

>> You had to work that in there, didn't

you?

>> I did have to.

>> Do you like being described [music] that

way? I think it's going to be on my

tombstone.

>> The whole United States of America would

go into a recession overnight. Oh,

yikes. Okay,

>> Mr. Anders.

>> Well, I'd have said you're out of your

mind.

>> Yeah, you're insane. to get my

programming to impersonate a DT.

>> This industry, despite all the hundreds

of billions of dollars [music] that's

been spent on it, has

>> join us right now is Steve Eisman.

>> Let's bring in Steve Eisman.

>> Steve, welcome back. You are known for

spotting a bubble before anyone else

does. Michael Lewis wrote a whole book

on it. So, my first question to you is,

where on earth are we in AI right now?

There was a great movie with uh Sean

Conre where he played this I can't

remember the name of Finding Forester.

And I remember the young character asks

him a very complicated question and his

response is as he's eating soup he goes,

"It's not exactly a soup question. It's

a complicated question." [laughter] I

never forgot that line. I thought it was

one of the best lines in in the history

of movies. It's not a soup question.

>> Not exactly a soup question, is it?

>> This is how I look at it. The

concentration

risks here are all inspiring, you know.

So, you take a step back and you and

someone said to me, why don't you

analyze this software company? Forget

about what it does. It's a software

company, an established software

company. And if it turned out that the

company had thousands of customers, that

would be great. If it turned out the

company only had two customers, you'd

say, "I don't want to invest in that

because if something bad happens to one

of those customers, this company is is

dead." There's something of that going

on in the whole AI story. So, let's

start just with Nvidia. So, Nvidia, God

bless them, and I own the stock, okay?

When they reported a few weeks ago, I

think the revenue growth was like it was

like 110%.

>> It's a lot. So, so let's just let's just

take a step back just for a second and

say to ourselves, wait a minute. The

largest company on planet Earth just had

forget about earnings growth, which was

great, too. Just revenue revenue growth

of over 100%. Like, that's insane. So,

that would say the AI story is great

until you read the 10 Q, which came out

that night. And I'm going to impress

your viewers by saying if they look at

it and they go to Note 7.

>> Oh, okay.

>> Okay. Yeah. Note 7 says that 70% of

Nvidia's accounts receivable as of the

end of July came from five customers.

>> Warning flag. Not the end of the world.

Warning flag. Now, let's go to the

hyperscalers. You're talking about

Google, Meta, Amazon, Microsoft, and

let's throw Oracle in for good measure.

massive companies spending massive

amounts of money by buying Nvidia's

chips and everything else under the sun.

70%

of their AI revenue which equals

something like 25 to 30% of their entire

cloud revenue

comes solely from anthropic and open AI.

>> Right?

>> Let me just let me just say it again so

your viewers get it. If you look at

leave out Oracle for a second,

Microsoft, Amazon, [snorts]

Google, 70% of their AI revenue, which

is equivalent to 25 to 30% of their

total cloud revenue is just from

anthropic and open AI. If you go to

Oracle, Oracle puts out a data point

called RPO,

which is basically a form of backlog.

when they reported earnings last year in

October for their August quarter, their

RPO went from like 150 billion to like

400 billion

>> in 3 months.

>> It was a massive jump.

>> It was massive jump. I mean, people went

insane. Yes.

>> And the stock went crazy.

>> The stock went crazy. It went from 230

>> to 330 like in two days.

>> Yeah. And then some of the cellite

analysts who are very good who did some

digging came out with reports that said

50% of that RPO is just from open AI.

>> Now now today

Oracle is is over 600 billion and it's

still like 50% is from open AI.

Basically 50% of future revenue of

Oracle is from a company that loses

money like crazy.

>> Well that's what I was going to ask you.

Maybe you can explain how this works.

But from my perspective, I don't

understand where this money is coming

from.

>> We're coming to that. Okay. Let me let

me just finish the let me just finish

the chain. Yeah.

>> So now we come all the way now to Oric

to Anthropic and Open AI. And my view is

the entire chain from Nvidia to the

hyperscalers all the way down the whole

chain rests on the future health and

growth of enthropic and open AI because

they're creating the commitments to the

hyperscalers. If they don't grow and

have the money to pay for those

commitments, well then the whole chain

slows.

>> Yeah.

>> So that's the risk. I would say between

the two probably Open AAI is the weaker

entity. But it's not clear because

really we really don't have enough

numbers. The only thing we do know

because the Wall Street Journal reported

this, so I'm assuming it's true. Open AI

had I something like six and a half

billion

in revenue

in the second quarter of this year.

>> Okay.

>> Anthropic was at 11 plus

>> but this is just revenue

>> just revenue.

>> Okay.

>> Open AI lost something had cost of

something like 12 billion. So the way

the math worked was in three months Open

AI Open AI's revenue went up a billion

and its cost went up three billion which

which we like to say is upside down.

>> You want the reverse not the former they

want the other way to go.

>> Great business model.

>> And and their revenue grew 18% in 3

months whereas Anthropic's revenue grew

over 100% in three months. So they're

the weaker company at this point. That

could that could change. My my only

point is that this whole this whole

industry makes me nervous because let's

let's just imagine that open AI fails

>> could happen.

>> The whole like the you know the whole

United States of America would go into a

recession overnight if this would and

now eventually there'll be a lot more

diversification and there'll be a lot

more companies but that's going to take

time. So you know within the next year

or so those companies have got to stay

healthy. That's where I think we are. So

there's a concentration risk.

>> There's a massive concentration risk.

>> And that brings me to the to the

question I I was asking before. My

understanding is that well we just spoke

about these uh open AI and anthropic are

not making money. They're losing money.

>> Excuse me. To say that they're losing

money would be kind. They bleed money.

>> What's the nicest way?

>> They lose a lot of money.

>> We're pre Yeah, we're pre-p profofit,

right? Prepit. [laughter]

Something like that. They they make

money if you exclude all costs. Yeah,

exactly. That's how they like to think

about it.

>> That's that's we should start reporting

that metric.

>> Yes, I we [laughter] should.

>> Um so where where does the money come

from?

>> Well, that's actually a very interesting

question. I had thought that most of the

company most of the money was coming

from venture capital and that h happens

to be not true. Most of the company is

coming from Amazon, Google, Microsoft

and Nvidia investing in these companies

and SoftBank.

>> Okay. So, taking equity stakes in

>> taking equity stakes. They raise capital

and those guys have ponyed up money.

Whether they want to continue to pony up

money, I don't know.

>> That sounds like a circle. It sounds

like money or commitments are going one

way and then commitments are coming back

the other way.

>> Yeah, it does have that tendency, does

it? This kind of reminds me of the It's

actually a scene from the big short uh

with your character.

>> You had to work that in there, didn't

you?

>> I I did have to work I remember you

saying, "Oh, it's kind of like CDOA and

then they put parts of that into CDOB

and those two put in CDOC."

>> There's some similarities obviously, but

in their defense, there is a circularity

to the financing. But as long as

anthropic and open AI keep growing very

very rapidly and people keep giving them

money, the chain will hold. It's if one

of those two companies really messes up

and pe people pull money or don't want

to invest it anymore that that's when

the chain doesn't hold. That that's

where the concentration risk problem

comes in. If the industry was much if if

this if if if I had said instead of 70%

of hyperscaler

AI revenue comes from anthropic and open

AI if that number had been 10%.

We'd be having an entirely different

conversation because there clearly there

are a lot more customers out there of

size. M. So that brings me to another

argument that I've heard you make on

your podcast and with your guests is

that if some

>> Let's just plug that podcast for a

second and call it the real Eisman.

>> Real Eman playbook. Yeah, absolutely.

It's very very good and it's gaining a

lot of traction. I think it comes down

to the authenticity of it.

>> Well, I appreciate that. I really enjoy

it. I think it's very very high.

>> My wife and I work on it

>> every day.

>> Both of you guys? I didn't realize. So

my wife is my partner in this and um so

she does god bless her all the editing.

>> Oh really?

>> This gave you an insight into into

things. So I I am a very linear thinker

>> which which the way I would define it is

one two three four five conclusion.

>> Got it?

>> And too often I write that way. So, I'll

write I'll do we have this thing called

the weekly rap which we put out Friday

where I sum up the week

>> and too often when I write it I'll I'll

I'll do one two three four five six and

and Valerie my wife who's who's the

editor will always say you buried the

lead again. Yeah.

>> And she'll flip it.

>> Ah okay.

>> And so because she says you know most

people never get to the bottom. you

know, people get your conclusions at the

bottom and it takes it takes 10 minutes

to get to the bottom. So, she so she

edits it and she runs the business,

>> right? Okay. That's cool. I didn't know

that. That's that's a little behind the

scenes. I like that.

>> Okay. Back back to back to AI train of

thought before I forget my train of

thought again. So going on from what

you're saying, if something happens to

OpenAI or Anthropic,

that's where the problems could be at

this moment in time when we've got the

concentration risk.

>> How do you see things like

Deep Seek's new model or Kimmy, what is

it called now? Kimmy,

>> best name in the biz.

>> Kimmy K3.

>> I like that. It just rolls up the

>> So this is where the the industry has, I

think, real weak business weakness.

Yeah, not not con let leave aside

concentration risk. That's its own risk.

Here's the business risk. There was

something going on for a while which is

called token maxing

which is where for lack of a better term

I work for a company [clears throat] and

I'm the I'm I'm a software engineer and

I've been told by management you're to

use AI 247 whether you need it or not.

>> Just do it.

>> Just do it. Right.

>> What happened was last year Open AI and

Anthropic were dramatically

undercharging for for their services.

Then they raised prices because they

they were so undercharging for the cost

of tokens. It was killing them,

>> right?

>> So they increased the prices that so

that the the customer was bearing more

of the cost of the token.

>> So you get people in once you got people

in raise the price.

>> Raise the price. Uber I think went blew

through its entire AI budget in like

three or four months.

>> Oh yikes. Okay.

>> Okay. And that this was some some other

company that I read about spent $500

million before they even knew they had

spent $500 million. So what's happened

is people have gotten a lot more

costconscious. Token maxing has gone

away and people are using these

openweight models a lot more. You don't

need a Cadillac for everything, you

know. So people will use um anthropic

and open AI as models only for the super

important tasks. Everything else they'll

use Kimmy K3 or or whatever. So what I

like to say about this is that this

industry despite all the hundreds of

billions of dollars that's been spent on

it has no moes.

>> There are no moes. This is you know

Google with its search until very very

recently that was a moat. I mean,

everybody used Google like I mean

>> 90%

>> 90% of planet Earth used Google and no

one even think about it

>> because because it was just better and

nobody could could approach it

>> you know here one day it's Gemini one

day it's chat GPT another day it's

Claude they they just rotate

>> and so well we'll come to it about my

conspiracy theory about the end of the

world

>> conspiracy theory all right so this this

dovetales into my conspiracy Okay. Okay.

>> So, as every as all your viewers know,

the world's going to end

>> some point. It has to

>> at some point it has to maybe it could

be five billion years from now or in a

couple of weeks.

>> Yeah. CNBC and Wall Street.

>> I I think this entire

AI is going to end the world is a

complete subtrauge.

>> Okay.

>> And what I think is really going on is

that these companies are nervous.

They're nervous that token maxing has

ended. They're nervous that there are no

moes. They're nervous that these they

these Chinese openweight models are

taking massive market share. So they're

manufacturing a hysteria which what

they're hoping for is for the government

to come in and regulate the industry and

they think that by manip they could

manipulate that regulation

to create a duopoly

>> so that will that the regulation will

create the moes. the regulation will say

no Chinese AI models. There's too big a

risk.

>> I see.

>> And then all all of a sudden there's a

moat. Yeah.

>> That didn't exist before

>> a legal barrier.

>> That's what I think is is is actually

happening here. So you think that's the

reason behind I cuz I've noticed Elon

he's always talking about it but

recently the uh anthropic CEO Dario

>> and they're also talking about slowing

down

>> slow and that that cannot be that cannot

be taken seriously because if you really

really really if you if I was Dario Modi

>> and I really really really thought

>> that my product is dangerous and I

really need to slow

I'd postpone my IPO.

>> You'd have to postpone your IPO.

>> You could just do take the steps.

>> Take a step back and and you know, I'll

fix fix what we need to fix and we'll

come back. Are they postponing their

IPO? No. You know, Elon Musk had a very

funny quote the other day where I think

he did on X where he said something like

um I'm going to paraphrase. I don't have

the exact This is some messed up 4D

chess where you're saying that the that

your product's going to end. Oh, and by

the way, how much can I allocate to you

for the IPO? [laughter]

>> Yeah.

>> You know, seriously, I I take people

seriously when they put their their

money at risk,

>> right?

>> You know, this this statement about a

slowdown is is just all part of this

hysteria that they're trying to

manufacture,

>> right? So they're aware that there may

not be moes and it kind of for for those

that don't know explain what you what

you mean we're talking moes specifically

in uh not hypers scale in the LLM

providers because the there I guess

there's still

>> the hyperscalers have moes

>> okay hyperscaler so so what's a moat

>> your grocery store doesn't have a moat

>> because somebody could open up a grocery

store across the street tomorrow

>> but there are some businesses that have

real moes real moes around them

>> like a competitive advantage.

>> It's but it's a competitive advantage

that is eternal or or at least very long

lasting like Nvidia makes GPUs.

>> Mhm.

>> Well, nobody else really makes GPUs.

>> That's a moat. certain software

companies have, you know, when if you're

Salesforce or Service Now, which are two

massive software companies, you your

product is embedded in the companies

that you service. Like like

>> those companies that use your your

product, [snorts] they've used it for so

long, they can't function without your

product.

>> Hard to switch away.

>> You try and get to try and switch out of

that is brutal.

>> Yeah,

>> that's a moat. There's no hyperscaler.

What's the moat? Well, I don't know

about you, but I know that I don't have

hundred billion dollars to spend on

building data centers.

>> Okay?

>> They just don't have it.

>> So, there is some moist.

>> So, that so just in terms of size and

money, I mean, there only certain

companies that can actually build data

centers.

>> They're just that expensive. LLMs, the

the creation of the models is expensive,

but there's so much competition

and there's no loyalty. Like, you know,

if you're a if you're a software

developer and you're using Claude, if

tomorrow another LLM shows up that's

better than Claude, you'll switch.

>> Y

>> you're you're switch there's no there's

you're not stuck.

>> That's the problem with the LLM model.

>> Gotcha. So, there's no moes in LLM.

>> Yes. hyperscalers they have I guess they

have diversified business models so

there's

>> and they have modes but they're

dependent upon the LLMs in their cloud

businesses that's their weakness right

now

>> so okay so there's kind of a argument

for hyperscalers for and against having

a mode you kind of in some ways there's

the scale and the cost and the barrier

to entry mode of of the investment and

then there's also the dependency on the

people that are buying

>> that have no modes

>> yes

>> that's the problem

>> interesting Okay.

>> And the other and the other problem with

the hyperscalers this may be temporary

but then again maybe it's not is you

know Microsoft Amazon Google 3 four

years ago and way prior to that these

companies were incredibly profitable but

even more importantly they just threw

off cash like crazy. I mean so much cash

they didn't even know what to do with

it. So they just bought back stock

because they literally didn't have any

enough investments to pour back into

their own businesses. Today, because of

the incredible amount of money that

they're that they're spending on these

data centers, their cash flow is gone.

>> I noticed that.

>> And in some cases, negative

>> negative now. Yeah. Yeah. Very little.

>> I mean, Google raised equity capital 85

billion. I mean, if you had said to me a

year a two years ago that that hey,

Steve, I'm gonna make a prediction.

Google,

which hasn't raised capital since it

went public, is going to raise 85

billion not in debt, in equity capital.

I'd have said, "You're out of your mind.

You're insane." Like like what are you

talking about? They they create 85

billion in cash in like overnight like

why what would what would possess them

to raise equity capital? Well, world

changed.

>> It's a very dramatic shift. Uh I I feel

you know as you know an investor that's

held Google for probably eight years

right the company that I hold now is

very different to the company that

>> and that's an interesting point we've

seen the market get a little bit jittery

with the amount of spending that's

happening there could be a payoff maybe

there's not you

>> by the way let me just jump you for one

second let's go back to Oracle

>> okay

>> because after that I I didn't finish

after Oracle Um every people said that

50% of Oracle's RPO the the backlog is

from open AI. the stock which had gone

from 230 to 330 over the next 2 3 months

went to 200 and today it's 150 and

what's fascinating fascinating

>> is Oracle just reported and the numbers

were pretty good

>> and the stock was up four or five% after

hours

>> and was up 7% at the open and closed

down on day

>> right

>> and I was and and there was no news so I

don't have like I don't have like a news

explanation like nothing happened but

>> clearly people are very nervous about

Oracle because Oracle got downgraded and

its debt rating is like triple B minus

by S&P which is like I think maybe just

one level above junk.

>> So people are nervous about Oracle and

how much debt they have.

>> Well, it seems investors are nervous

about all of these hyperscalers now that

are investing literally hundreds of

billions like

>> hundreds

>> hundreds of billions. It it's just it's

insane. staggering. It's the numbers and

you know the numbers are just so big.

>> I think the number that I heard this

year is that if you just look at the

hyperscalers, they will spend $700

billion on AI capex this year.

>> It's like that's such a huge number.

It's hard to even get your mind around

it.

>> It's so enormous.

>> I'm interested in your perspective on

what Michael Bur has been saying where

he's concerned that the data centers are

taking too long to come online. They're

buying so many chips. He his opinion is

the chips become obsolete way faster

than the depreciation schedules.

>> I I I understand his argument. So So let

me give his it's its due first. Yeah.

>> What he pointed out last year, I think

in November was that the hyperscalers

had changed the depreciation schedule

of the chips from 3 to four years to

like five to six years. And if you did

like a I can't remember exactly what the

calculation but but it's an it's an

enormous increase in profitability just

from the change in that accounting

because by by changing right it's like

click by by um by changing your

depreciation schedule from three 3 to

four years to 5 to 6 years by definition

your depreciation expense which you

report is going to be lower all other

things being equal. He also said that,

you know, there's so many new chips

coming that they become obsolete. Where

I think he's wrong for the moment is

that there is such demand for chips

right now that there's still huge demand

for the older chips whose price has gone

up with all the other chips,

>> right?

>> So I I I think with all due respect to

Michael, I think his argument is too

academic.

>> Okay? Like put this way if AI succeeds

because anthropic and open AI you know

grow like crazy and the hyperscalers do

well etc etc it's not going to matter if

the depreciation schedule changed from 3

to four years to 5 to six years

>> right

>> at the same time if open AI fails and

and the whole chain goes in reverse

we'll have a massive correction which

has nothing to do with the depreciation

schedule I don't I mean I think what

he's deep down what he's is trying to

point out is maybe there's something

wrong here, but I don't think what the

thing that he's pointing to as being

wrong is what's going to is is important

enough,

>> right? There's bigger factors that play

both directions in both

>> much bigger factors.

>> Okay. Interesting. So, we've spoken

about no moes, we've spoken about China

coming in potentially being competition.

Another headwind that I've been trying

to wrap my head around more is is the

power element as well

>> because this is another one of those big

things that we're talking about earnings

and chips and this and that.

>> But when I started to look at power, I I

think it was Elon Musk's interview with

the economist that opened my eyes up to

it. He said China has a chip problem.

The US has a power problem.

>> He's right.

>> However, in his view, China can solve

its chip problem. might take some time,

but a harder one to solve is the power

problem because power is physical

infrastructure. It takes a long time.

>> Correct.

>> I don't know if I have the expertise or

the understanding to know how big of a

restraint or a bottleneck power in the

United States is actually going to be.

>> Get in line. Nobody Nobody knows,

>> right?

>> I mean, I keep looking, you know, I

there are people who say it's a b that

things are slow. There are other people

who say things are fine. I can't I can't

nail it down yet.

>> Right. Okay. I mean, I do know that the

companies that are involved with power

>> are doing great.

>> Like Genova, for example, and that

stock's gone nuts. You know, I'll pat

myself a little bit on the back. I

bought that stock really early. Oh,

really?

>> But but I I bought it because the sell

side analyst I'm very friendly with told

me I should buy it and I just took a

flyer on it.

>> But um

>> for those that don't know Geneva told

me,

>> let me tell you, it's very interesting.

So GE used to be composed basically of

three massive divisions. healthcare,

>> aerospace where they basically make the

jet engines for planes and then they

service them

>> and then call it energy. If you ever saw

a jet engine

>> and looked at at a gas turbine, which is

what goes into a utility that creates

electricity, they look exactly the same.

It's just that the gas turbine is much

bigger.

>> Yes.

>> But it's basically the same technology.

So the energy division of of GE

makes gas turbines. They have all this

electrical equipment that they sell and

then they have a wind division which

does terribly.

>> Now this should show you how like fast

the world can change. The the energy

division was created when I think around

2015 or so. GE bought a company in

Europe called Olam. Now Olm did was an

energy company that also created gas

turbines and GE had a business that

created gas turbines. So they mushed

them together just in time for the

entire gas turbine business to fall

apart,

>> right?

>> And this is why IML lost his Jeff Immel

who was the CEO of GE finally lost his

job because that was like enough

already. So eventually all three

divisions got spun out. So there's GE

healthcare. I think its symbol is GE.

>> Okay.

>> And there's the energy division which is

called GE Vernova which is GEV. And then

there's GE which is the aerospace

division.

>> Gotcha.

>> A year before [snorts] GE Vernova got

spun out. So that would have been like

2023

maybe or 2022. If you were to read

sellside reports

upon about the industry, the energy

business was so bad

that they ascribed negative value to G

to to Vernova. Negative value that it

was worth negative. I think when one guy

wrote it was worth negative3 billion.

>> Oh my gosh.

>> In terms of a sum of the parts analysis

>> right

>> now what's happened is even prior to the

whole data center thing electrical

production in the United States finally

started to increase for the first time

like in 15 years. Now add on top of that

the

data centers and you're talking about US

electricity growing 3 to 4% per year.

Now that may not sound like such a huge

number but 3 to 4% off of the base of

the United States is the equivalent of

like two large cities.

>> Okay. It's a lot.

>> It's huge.

>> Yeah. You know, a company like GE

Vernova has backlogged like two 20 35

that that's how crazy things are

>> because this is how these data centers

are being powered. It's with these gas

turbines, right?

>> Mostly

>> mostly

>> and there's some alternatives. People

are talking about nuclear and they're

and there's a company called Bloom

Energy which makes its own little

turbine

>> that that you could hook up to a to a

data center, but most of it's going to

be through gas turbines. M well that's

what um Elon had to do with the um

Colossus data center that he built in

Memphis. The grid was too slow. It was

not ready. So he he ended up getting 35

of the portable gas turbines,

>> right? And hooked it up to his hooked

up.

>> Hooked it up. He created his own mini

power center like on site right next to

Okay.

>> So So most most of GNOVA is these um

>> well it's the gas turbines. It's all the

electrical I mean think about it. I mean

there's You know, you're not just when

you're building a new utility plant, it

ain't just turbine. There's all this

other electrical equipment that's got to

get hooked up. They make that too. And

the wind business will always, I think,

be a crappy business. And and that that

so what,

>> right? Okay. Very interesting. Very

interesting. But you would say the thing

to look out for in Genova's case is the

gas turbines. Is that the core of that

business?

>> Yeah. I mean, that's the core. And you

would just want to look at the orders.

>> Yes.

>> Which I think in the last quarter up

like 85%. Something insane. I

>> I mean they I mean there's those gas

turbines like in the room that we're in.

It's like is it's like five of these

rooms combined is how big these things

are. They're huge. They're I mean it

takes years to build them.

>> Yes. Well, that's what I was going to I

think I read something that their

backlog is stretching out to past 2030

or something like it is

>> which is just

>> Well, because people want to they want

to line it up as much as they can. M but

is that even more of a uh an argument

for this power problem if [laughter]

people are making orders now we want

these turbines now and hang on well

we've got 2030 you want

>> I I just don't know I really don't know

I don't have enough information

>> yeah I um I can't remember who it was

that you interviewed the man that knew

uh it was about power but I found that

was a really good interview I might

leave it linked um on screen right now

but I I thought that was a really really

good explanation okay so we've covered a

lot

headwinds when it comes to AI. I think

you you went on the record saying that

if you try and predict what's going to

happen, you're a fool. So, don't don't

try and predict it. I think there are a

lot of people out there that feel

compelled to look at these AI plays to

to look into the realm of AI. If you're

if someone comes to you and says, "Oh,

look, Steve, I really got to get in on

AI somehow." What are what are some of

the maybe safer ways to play AI? And

what's what would you say are the

high-risk ways to play AI? Talking about

just investing in in stuff.

>> I mean, I would play I wouldn't invest

in an LLM because I just think, as I

said, there's no I would not. I would

not

>> because there are no moes.

>> Yeah, that makes sense.

>> I might be a little wary of the

hyperscalers at this point just because

their businesses have they've lost all

their cash flow.

>> But I would be looking at the companies

that are getting that cash flow,

>> right?

>> So, you know, that would be Nvidia. you

know, maybe you you'd want to own

Micron, GE, Verova, um, Arista Network,

Cisco, and then if you want to get into

the industrial side, you could talk

about like an Eaton, which could is

electrification company. That's what I

would

>> So, it's more it's more picks and

shovels.

>> Picks and shovels,

>> right? As opposed to the flashy software

side,

>> right?

>> Okay.

>> The software, you know, the whole

software industry to I mean, I'm sure

you've heard the word SAS apocalypse.

>> I have. Um, [laughter]

and I I I I all I know is there will be

software companies that will have

problems

>> because, you know, take this new Agentic

AI um, Muse, I think it's called, that

Meta put out. You know, if I want to

book

a flight, I say to my muse, oh, that's

good. I say to my muse,

I want to book a flight to Miami on such

and such a date.

book me in the best hotel in Bickl.

>> Okay. And it goes and does it. Well, how

does it do it? It goes on all the travel

sites

and finds the best price and books it.

>> Mhm.

>> Well, that kind of makes the travel

sites worth less because you're not

going to you're not going to bookings or

travel velocity or what whatever

directly anymore.

>> You're not their customer anymore. your

AI is

>> you're AI my AI agent is my customer he

and he does the work

>> and the sidebar ads don't work on that

>> so stuff like that I think stuff in the

payment world could get dicey but on the

other hand you know software that's

deeply embedded in enterprises is

probably okay

>> well that's what I was going to ask you

it sounds like the most important thing

to look at is the switching mode and how

how resilient

>> how resilient is it okay I mean you know

for bookings what's the switching mode

you know I go to I go on the bookings

website and I book a trip so now I don't

go on the bookings website. I my agentic

AI finds just the best deal.

>> So that kind of makes the the travel

online

companies worth less. I think it's a

little early, but I think that's a

possibility.

>> Yeah. Okay. So I I guess another

argument that I've heard and I'm

interested to hear your overarching

thoughts on this around AI is people are

very fast to liken it to 1999,

>> a techbubble 2.0. Oh, no. You know,

that's that's what the media will say,

>> right?

>> I'm very interested in what your

thoughts are on this.

I have my own opinion, but I'm

interested to hear what you think. We're

in the same setup. New technology,

speculation in financial markets,

>> similar setup. Is it different this

time? Is there anything fundamentally

different?

>> I I don't know if it's different or not.

I think it's too early. I mean, if open

AI or anthropic fail, you'll have a real

correction and then the next generation

of people will come up and pick up the

pieces. I don't know if that's going to

happen or not. So, I I just don't know.

>> Fair enough. Going back to the investing

argument, I I'm actually interested

because I didn't ask you last time and I

had some subscribers that are interested

in understanding how you actually go

about your investing, not stocks, not

what stocks you're picking or anything

like that, but when it comes to the Real

Eman playbook, what is the Real Eisman

playbook? How do you analyze companies?

Is it do you stick within a circle of

confidence? Do you go down rabbit holes?

Do you look at certain financial metrics

that you really love to see or not?

>> Well, a couple of things. I'm very

storyoriented.

>> Story. Okay.

>> I am not a quote unquote value player, I

think.

>> Okay.

>> You know, stocks are cheap. They're

probably cheap for a reason. Okay. You

know,

>> but I can't see you being someone that

will grossly overpay for something

either.

>> I I see you as personally I see you as

very rational. You know, I I mean, I

would have loved to have owned

Palunteer, but I won't buy it now

because it's so expensive.

>> Yeah.

>> Um,

>> so story but rational.

>> Very story. Story but rational.

[laughter]

>> Okay. Is there anything uh are there any

kind of uh metrics on your checklist or

anything that you love to look at that

might be a red flag? I'm just interested

to see like what you really look for. Is

a moat like a must-have for you or

>> Not necessarily. I like a moat.

>> That's why I own Moody's for example. Um

that's why I own Visa.

>> Mhm.

>> But um it's not a complete requirement.

So no.

>> Is there anything that you particularly

hate to see in a company? What's what's

what are some things that will instantly

turn you off?

>> Management selling stock.

>> Okay.

>> I generally don't like cyclical

companies.

>> Okay.

>> Because then you're just predicting the

economy. And I mean there are

exceptions, but I I I like companies

that have a real story with real growth

tailwinds,

>> right?

>> That's what I like.

>> Okay. Interesting. Hey, do you mind if I

finish off by asking you some questions

from the audience? Sure. Is that all

right?

>> All right. I had a quick screen, but I

might have forgotten some. [laughter]

>> All right, let's Oh, this is a really

interesting one. I did want to get your

opinion on this. US debt. This is such a

a an interesting topic and it's very

very very highly covered. So it's at $40

trillion now. The average interest rate

on it has gone from 1.77% in 2020 to

3.45% today. The interest expense has

risen from 523 billion a year to now

1.22 trillion. Is that something

investors need to be genuinely worried

about? Is there a real risk of a debt

spiral in the future?

>> I mean all the things be equal. I wish

the deficit was smaller.

>> Y

>> um I I have my doubts about a debt

spiral. Number one, we are the reserve

currency of the world. But maybe even

more importantly, US treasuries are the

financial system of planet earth. So

just for example,

banks all over the world do something

called repos where they lend to each

other overnight. They do it through

overnight treasuries.

So, as long as the US Treasury is the

backbone of the financial system of the

world, I tend not to worry about the

deficit too much, although I'd like it

to be smaller. If there was an

alternative, we'd be in trouble.

>> Okay?

>> But there is no alternative at this

point.

>> Let me ask you this. The Fed just raised

rates for the first time in 3 years. Are

rates uh likely to be a showstopper for

the market and in particular the AI

narrative? The rate to look at is the

10-year.

>> It's long the long-term rates, not the

short-term rates that the Fed does

because that's what people borrow.

>> Okay?

>> You know, the Fed is just

>> the Fed funds rate is the rate at which

the Fed lends to banks overnight.

>> Okay?

>> You don't have access to that. Neither

do [laughter] I.

>> Um to the side.

>> Yeah. So,

you know, just today, for example, the

markets rallied because despite the Fed

raising rates, the 10-year yield went

down.

I'm getting the feeling that 5% is sort

of the Rubicon for the market.

>> And um as long as we're below that,

we'll probably be okay. But if something

were to happen and and we blow through

that, I think we get a correction.

>> Okay. Because it's around

>> that's just my guess. I actually thought

originally the number was 4 and a half%

and I was wrong.

>> Okay.

>> But five feels more.

>> Do you know where it is now? It's around

there.

>> It's 4.98.

>> 4.98. Okay.

>> But it was over 5% yesterday. Yes.

>> And it's come back down. People are

watching every tick.

>> Yes. Interesting. I'm interested to hear

Steve's thoughts on Here we go. rising

yields of long-term treasuries. Is Scott

Bessant's buyback plan really designed

to increase liquidity in older long-term

bonds? Or is the government trying to

manipulate long interest rates to ease

their interest problem?

>> The latter.

He's trying to buy long long-term

treasuries to bring rates down to ease

the cost of of money for the United

States of America. He's failed miserably

at this point. You know, rates are

higher than when he made his

announcement. I have a suspicion that

he's going to come with something else

because because well, he he he announced

6 billion. 6 billion is nothing. I mean,

it's a $40 trillion deficit.

>> That's that was my thought.

>> So, I I I don't think he's an idiot. So,

I think he's going to come with

something else. What else that is, I

don't know.

>> Okay. So, a different plan of attack to

do the same thing. Yes. Ah, okay. Okay.

I've always been skeptical about

precious metals, but Steve's recent

discussion with Porter Collins and

Vincent Daniel made me second guess

that. I would like to know if he has any

conflicting feelings about precious

metals, or is he still firmly opposed to

the asset class?

>> I'm not opposed, but I don't I've never

owned it.

>> Y

>> I've never owned it. I It's not

something that has ever really enticed

me one way or the other. Similar

thinking to Warren Buffett. It just sits

there and looks right.

>> Sits there. Does nothing.

>> Does nothing. It's not productive. It

>> It has value because people say it has

value.

>> Okay.

>> That's all. Doesn't pay you an interest

rate.

>> Similar argument, I'm guessing, to

Bitcoin and anything else that sits

there in

>> Oh, definitely.

>> Baseball cards, blah blah blah, whatever

sits there.

>> Well, Bitcoin is worse.

>> Bitcoin is worse. Yeah,

>> Bitcoin is worse because it trades

inversely to its own thesis.

>> Yes, I have noticed that. That is quite

strange. So, so for those for your

viewers, what I what I mean by just to

explain what I mean by that is people

like if you went to a Bitcoiner

>> and you said, "Dude,

>> why do you want Bitcoin?" The answer you

would invariably get is that that fiat

currency, which is government

currencies, has been debased, inflation

is coming, and you want to hedge against

this, so buy Bitcoin.

>> Okay, that sounds reasonable. The

problem is that if that were the case,

on days where people worry about

inflation, rates are going up, and the

stock market goes is down, Bitcoin

should be up. And on days where NASDAQ

is up like crazy and rates are down,

Bitcoin should be down. But it does the

opposite.

>> Yes.

>> So, so you know, you you say that

Bitcoin is going to go up when because

when the sky is blue and then the sky is

blue and it goes down, you know, why do

I own it? You have no thesis. It seems

to be just a speculative asset.

>> It's just like it's a way to speculate

about speculating.

>> Speculate about speculating. I like

that. All right, let me ask you this.

Dear Steve, you seem to be very much

centered on the US stock market. Have

you ever tried to broaden your investing

or trading horizon geographically? Do

you have any interest in companies held

outside the US?

>> Great question. When I used to run my

hedge funds, I used to invest overseas.

>> Mh.

>> And I found that there was no night and

there was no day.

>> Okay. So for the last many many years,

all I do is the US and I'm perfectly

happy. There's plenty to do in the US. I

don't feel the need to invest overseas.

>> Fair enough. Plenty of opportunities

here. I like it. What's his view on when

all these wars would end? I guess

particularly the Iran war. Do you see

inflation coming down anytime soon?

>> I have no more insight into the war than

anyone else, so I can't answer the

question.

>> Fair enough. Well, I think that is just

about all we've got. Is there one more?

Is there one or a set of numerical

indicators, whether related to interest

rates or inflation or unemployment or

otherwise, that Steve could see as being

the tipping point for the US to take its

medicine with cutting benefits or wash

spiking rates up or whatever he thinks

that medicine might be? I've seen I've

seen it said that oil will rise until

stocks fall, meaning that the US won't

get out of Iran until stocks really take

a beating. But this is a much broader

question about getting the debt back

well under control. I guess we kind of

touched on that with the kind of touch.

I mean, all I would say is that's a

total political question,

>> and there's no political appetite in

Washington right now to cut the deficit

>> a dollar

>> by either side.

>> We'll see where that goes.

>> I think that's just about how we

finished our last [laughter] our last

interview. And I was like, on that

cheery note, so again, on that cheery

note, Steve, thank you very much for for

coming on. For those that don't know,

well, we talked about it earlier, but

The Real Eisman Playbook is uh is what

you're currently working on. That's your

podcast. Can you tell us a little bit

more? What can people expect from that?

It's on YouTube. I guess you can get it

on podcast platforms as well.

>> Well, we do two two free podcasts a

week. So, one is an interview. So, and

then the other one is a market rap where

on Friday I put out like a summary of

the whole week and then if you're

willing to pay for the payw wall on

Substack, we do an additional podcast

which is sometimes an interview. This

week was part one of two-part master

lecture of how to analyze banks.

>> All right.

>> Yeah. I have to check

>> if anybody who ever But you have to

subscribe.

>> Okay, I will subscribe. [laughter] No

free lunch.

>> No free lunch there city here.

>> I will see.

>> Yeah, but if you want to know how to

analyze banks,

>> go there.

>> That's where you should go.

>> Awesome, Steve. Thank you very much for

Thank you very much. Appreciate it.

>> Great. Bye.

>> Yes,

you're the man now, dog.