1 00:00:00,040 --> 00:00:02,520 Today on The Joseph Carlson Show, President Trump and Open 2 00:00:02,520 --> 00:00:05,040 AI have unveiled a new ambitious project. 3 00:00:05,440 --> 00:00:07,880 It's called Stargate. The goal of Stargate is pretty 4 00:00:07,880 --> 00:00:10,240 simple. It's to put the United States at 5 00:00:10,240 --> 00:00:13,240 the forefront of AI. And the amount being invested 6 00:00:13,240 --> 00:00:17,880 here, at least the amount cited, is massive, $500 billion. 7 00:00:17,880 --> 00:00:21,400 That's half a trillion invested over the next four years to 8 00:00:21,400 --> 00:00:24,160 build AI infrastructure. Sam Altman says that we're 9 00:00:24,160 --> 00:00:27,480 deploying $100 billion immediately, but how does this 10 00:00:27,480 --> 00:00:29,480 work? Where are they getting the $500 11 00:00:29,480 --> 00:00:32,080 billion and what is the return on this? 12 00:00:32,080 --> 00:00:35,560 What does the ROI look like? With this big post on their blog 13 00:00:35,560 --> 00:00:38,360 as well as on Twitter, this has launched a flurry of headlines. 14 00:00:38,520 --> 00:00:40,960 We have the Wall Street Journal nonstop reporting on this. 15 00:00:40,960 --> 00:00:42,840 More compute leads to better models. 16 00:00:43,080 --> 00:00:46,800 Open AI hails their $500 billion Stargate plan. 17 00:00:46,920 --> 00:00:49,600 It has a list of critics, Elon Musk being one of them. 18 00:00:49,800 --> 00:00:51,440 He feels a little left out of the party. 19 00:00:51,440 --> 00:00:54,360 Elon Musk has poured cold water on the project, saying that the 20 00:00:54,360 --> 00:00:56,720 money doesn't exist. The announcement of this project 21 00:00:56,720 --> 00:00:59,880 also changed the dynamics of some important relationships. 22 00:01:00,040 --> 00:01:02,480 Opening the Eye has been moving away from Microsoft, and we have 23 00:01:02,480 --> 00:01:05,840 details on why this is happening and the drama behind it. 24 00:01:05,840 --> 00:01:08,280 And right now, as we have this flurry of questions going on 25 00:01:08,280 --> 00:01:10,960 with this project, we are getting some of the details. 26 00:01:11,240 --> 00:01:13,320 In this episode. We're going to try to piece all 27 00:01:13,320 --> 00:01:16,000 this together. What is this Stargate project? 28 00:01:16,000 --> 00:01:18,680 How will it impact all of the big tech companies involved in 29 00:01:18,680 --> 00:01:19,600 it? And what are the biggest 30 00:01:19,600 --> 00:01:21,640 problems facing this ambitious goal? 31 00:01:21,640 --> 00:01:23,200 Now, we also have some other news to get to. 32 00:01:23,200 --> 00:01:25,720 For example, Netflix just reported their earnings report. 33 00:01:25,960 --> 00:01:28,080 This is one of the first ones of the earnings season. 34 00:01:28,080 --> 00:01:30,640 We're going to get more into earnings season next week, but 35 00:01:30,640 --> 00:01:32,960 Netflix had a great report. Now as a key holding, I want to 36 00:01:32,960 --> 00:01:35,920 go over a few details of what we look for in reports like this. 37 00:01:36,040 --> 00:01:37,920 And we also have news of more union strikes. 38 00:01:37,920 --> 00:01:40,360 You're seeing this type of news pop up left and right with 39 00:01:40,360 --> 00:01:42,440 different companies. In this case, a union was 40 00:01:42,440 --> 00:01:46,040 fighting Amazon, and this is one of the biggest self-inflicted 41 00:01:46,040 --> 00:01:49,920 wounds I've ever seen a union cause They truly shot themselves 42 00:01:49,920 --> 00:01:51,720 in the foot. Here we'll be going over the sad 43 00:01:51,720 --> 00:01:55,480 case of a union causing the job loss of 1700 Jobs. 44 00:01:55,600 --> 00:01:58,520 And then finally, Apple stock is under more pressure. 45 00:01:58,520 --> 00:02:00,640 The company continues to trade down in price. 46 00:02:00,640 --> 00:02:03,880 Over the past month, I've sold out of the majority of my 47 00:02:03,880 --> 00:02:07,440 position in Apple. Now I only have a $10,000 48 00:02:07,440 --> 00:02:10,520 position, which is a very small weighting in My Portfolio. 49 00:02:10,520 --> 00:02:12,440 We're going to take a look at the future of Apple and the 50 00:02:12,440 --> 00:02:14,040 challenges this company's facing. 51 00:02:14,080 --> 00:02:15,800 So we have a lot to get into in this episode. 52 00:02:15,800 --> 00:02:18,880 Let's go ahead and jump in with the breaking news Project 53 00:02:18,880 --> 00:02:20,760 Stargate. As President Trump has taken 54 00:02:20,760 --> 00:02:24,080 office, this Project Stargate is one of the single biggest 55 00:02:24,080 --> 00:02:27,120 investments that the US has announced in the past decade. 56 00:02:27,120 --> 00:02:29,720 Announcing the formation of Stargate. 57 00:02:29,880 --> 00:02:33,040 So put that name down in your books because I think you're 58 00:02:33,040 --> 00:02:35,800 going to hear a lot about it in the future. 59 00:02:35,800 --> 00:02:41,200 A new American company that will invest $500 billion at least in 60 00:02:41,320 --> 00:02:45,560 AI infrastructure in the United States and very, very quickly 61 00:02:45,560 --> 00:02:49,520 moving very rapidly, creating over 100,000 American jobs 62 00:02:49,520 --> 00:02:52,560 almost immediately. These numbers are astronomical. 63 00:02:52,880 --> 00:02:56,440 And why is there such focus from the presidency, from the United 64 00:02:56,440 --> 00:03:00,320 States on this AI project? Well, before we jump into even 65 00:03:00,320 --> 00:03:03,720 the details of this project, we have to rewind a little bit to 66 00:03:03,720 --> 00:03:06,480 see how we got here. It was only about a year ago 67 00:03:06,480 --> 00:03:09,480 that Open AI was at the forefront of artificial 68 00:03:09,480 --> 00:03:13,600 intelligence, releasing models like GPT 4, revolutionary 69 00:03:13,600 --> 00:03:16,480 breakthrough models that beat out anything that anyone had 70 00:03:16,480 --> 00:03:19,400 released, even companies like Google, seemed years away. 71 00:03:19,560 --> 00:03:21,840 Hey, catching PT Hi Mark, how are you? 72 00:03:22,720 --> 00:03:26,480 Oh, Mark, I'm doing great. Thanks for asking. 73 00:03:26,560 --> 00:03:29,720 How about you? Hey, so I'm on stage right now, 74 00:03:29,720 --> 00:03:32,200 I'm doing a live demo and frankly I'm feeling a little bit 75 00:03:32,200 --> 00:03:34,040 nervous. Can you help me calm my nerves a 76 00:03:34,040 --> 00:03:37,280 little bit? Oh, you're doing a live demo 77 00:03:37,280 --> 00:03:39,040 right now? That's awesome. 78 00:03:39,160 --> 00:03:42,080 GBT four and four O were not only impressive, but they showed 79 00:03:42,080 --> 00:03:44,680 the importance of having this technology. 80 00:03:45,080 --> 00:03:47,600 Artificial intelligence is incredibly powerful. 81 00:03:47,800 --> 00:03:51,160 Whoever wields the power of this technology, whoever develops it 82 00:03:51,160 --> 00:03:54,520 and owns it has a major advantage culturally, 83 00:03:54,520 --> 00:03:58,320 financially, and geographically, an imperative advantage for the 84 00:03:58,320 --> 00:04:00,400 United States. While it seems like the United 85 00:04:00,400 --> 00:04:03,960 States has been unbeatable and artificial intelligence with no 86 00:04:03,960 --> 00:04:06,640 European models coming close to what that the United States has 87 00:04:06,640 --> 00:04:09,680 created, there's another threat to America's dominance of 88 00:04:09,680 --> 00:04:12,280 artificial intelligence, and it comes from China. 89 00:04:12,520 --> 00:04:15,840 So here is the name that our audience may want to write down 90 00:04:15,840 --> 00:04:18,720 deep seek. This is a new free open source 91 00:04:18,839 --> 00:04:22,640 AI model that beats the latest open AI and meta models on key 92 00:04:22,640 --> 00:04:24,760 benchmarks. And it was made for a fraction 93 00:04:24,760 --> 00:04:27,720 of a fraction of the cost. Now it was trained by a Chinese 94 00:04:27,720 --> 00:04:30,760 research lab that used NVIDIA H8 hundreds. 95 00:04:30,960 --> 00:04:33,760 That's a lower performance version of the H100 chips that 96 00:04:33,760 --> 00:04:37,840 are cheaper, more available, and tailored for restricted markets 97 00:04:37,840 --> 00:04:39,880 like China. Now I've been testing it out 98 00:04:39,880 --> 00:04:43,240 this morning and on the surface that looks and acts just like 99 00:04:43,240 --> 00:04:46,880 Open AI's ChatGPT, and in fact it actually thinks that is 100 00:04:46,880 --> 00:04:49,560 ChatGPT. When I asked what model are you, 101 00:04:49,600 --> 00:04:52,920 it answered I'm an AI language model created by Open AI 102 00:04:52,920 --> 00:04:57,080 specifically based on the GBT 4 architecture, suggesting that it 103 00:04:57,080 --> 00:05:01,280 was trained on ChatGPT outputs. Which, leaving aside terms of 104 00:05:01,280 --> 00:05:04,280 service violations, it means that entirely new 105 00:05:04,280 --> 00:05:07,480 state-of-the-art models can be built on what is already out 106 00:05:07,480 --> 00:05:09,720 there. The monumental lead the Open AI 107 00:05:09,720 --> 00:05:13,120 and other US dominant LLMS had over foreign countries 108 00:05:13,400 --> 00:05:17,120 evaporated overnight with the release of Deepseek, China's 109 00:05:17,120 --> 00:05:21,280 model that not only mimicked Open AI, but it acted 110 00:05:21,280 --> 00:05:24,600 identically to Open AI. Like she notes here, it says 111 00:05:24,600 --> 00:05:27,480 that it was trained on Open AI's ChatGPT model. 112 00:05:27,880 --> 00:05:31,600 Not only has China copied Open AI's model and their technology, 113 00:05:31,720 --> 00:05:34,480 stealing much of the technology from the US, but they've 114 00:05:34,480 --> 00:05:38,160 architected it and made it into a new LLM that is dramatically 115 00:05:38,160 --> 00:05:39,880 cheaper. But saying it's cheaper may 116 00:05:39,880 --> 00:05:44,160 leave you the impression that it's 20% cheaper or 30% cheaper. 117 00:05:44,520 --> 00:05:47,960 That's not the case. Deep seek is up to 90% plus 118 00:05:47,960 --> 00:05:51,400 cheaper than ChatGPT. It is literally a fraction of 119 00:05:51,400 --> 00:05:54,960 the cost, making China on a value proposition basis the 120 00:05:54,960 --> 00:05:58,080 leader in AI. In other words, open a eyes Moat 121 00:05:58,440 --> 00:06:01,280 may be shrinking. If a model like Deepseek can 122 00:06:01,320 --> 00:06:04,200 emerge with competitive performance, minimal cost, and 123 00:06:04,200 --> 00:06:07,720 reliance on existing outputs, it signals a rapidly shrinking 124 00:06:07,720 --> 00:06:10,320 barrier to entry in AI development, challenging the 125 00:06:10,320 --> 00:06:13,480 current dominance of industry leaders like Open AI. 126 00:06:13,680 --> 00:06:16,360 Based on technical tests designed to measure its coding 127 00:06:16,360 --> 00:06:19,160 performance, Deepseek outperformed other models, 128 00:06:19,160 --> 00:06:23,920 including Metas, LAMA 3.1 and Open A is GPT 4 O. 129 00:06:23,920 --> 00:06:26,480 And by the way, those are the latest state-of-the-art models. 130 00:06:26,480 --> 00:06:28,800 The models from China were so good that they literally 131 00:06:28,800 --> 00:06:31,840 outperformed our latest and greatest models from our leading 132 00:06:31,840 --> 00:06:34,880 tech companies, and they did it for a much cheaper price. 133 00:06:34,880 --> 00:06:36,440 How did the Chinese accomplish this? 134 00:06:36,440 --> 00:06:38,400 Well, there's a couple things we know about China. 135 00:06:38,400 --> 00:06:41,040 First of all, they have a population of 1.4 billion 136 00:06:41,040 --> 00:06:42,960 people. With that type of population, 137 00:06:43,120 --> 00:06:44,720 there's going to be a few smart people. 138 00:06:44,880 --> 00:06:47,040 In fact, there's going to be many smart people. 139 00:06:47,080 --> 00:06:49,400 China has a major focus on teaching their people STEM, 140 00:06:49,400 --> 00:06:52,840 mathematics, computation, things that help you excel at modeling 141 00:06:52,840 --> 00:06:55,120 LLMS. China's government also works in 142 00:06:55,120 --> 00:06:59,400 concerted effort to focus on key projects like generative AI. 143 00:06:59,600 --> 00:07:03,040 These are state funded projects where they put huge emphasis and 144 00:07:03,040 --> 00:07:06,080 capital into being the leaders in these categories. 145 00:07:06,440 --> 00:07:09,360 So with a talent pool to work with and a concerted effort from 146 00:07:09,360 --> 00:07:12,960 the government, you have major innovation and progress in these 147 00:07:12,960 --> 00:07:16,600 fields, even surpassing the US. Now again, there are 1,000,000 148 00:07:16,640 --> 00:07:19,720 headlines on Stargate with all the different political opinions 149 00:07:19,720 --> 00:07:22,520 that you could imagine on it and the motivations behind this 150 00:07:22,520 --> 00:07:24,600 project. Is it just to get a flashy 151 00:07:24,600 --> 00:07:26,600 headline? Is it just for Trump to have one 152 00:07:26,600 --> 00:07:29,520 more thing to talk about? All those seem like they could 153 00:07:29,520 --> 00:07:32,640 be contributing factors. Maybe it is just for a flashy 154 00:07:32,640 --> 00:07:35,040 headline or a fun thing for Trump to talk about. 155 00:07:35,560 --> 00:07:37,640 But if I had a guess, I think there's one other motivating 156 00:07:37,640 --> 00:07:41,720 factor, and that is the concern from U.S. officials of the 157 00:07:41,720 --> 00:07:44,280 Chinese being the dominant leaders in artificial 158 00:07:44,280 --> 00:07:46,240 intelligence. I believe U.S. intelligence 159 00:07:46,240 --> 00:07:50,000 agencies view Chinas progress in artificial intelligence as a 160 00:07:50,000 --> 00:07:52,200 real threat to the dominance of the US. 161 00:07:52,200 --> 00:07:55,640 If China has LLM models that are already transcending and 162 00:07:55,640 --> 00:07:59,200 eclipsing US models, they're already cheaper and more robust, 163 00:07:59,560 --> 00:08:02,560 they may start to take serious market share in this important 164 00:08:02,560 --> 00:08:04,680 market. A Chinese controlled AI victory 165 00:08:04,680 --> 00:08:07,440 would mean greater censorship, greater influence and greater 166 00:08:07,440 --> 00:08:10,320 control of data from China, which is something that the US 167 00:08:10,320 --> 00:08:12,840 does not want. Enter the Stargate project. 168 00:08:13,080 --> 00:08:16,760 This massive project is because the US wants the dominant lead 169 00:08:16,920 --> 00:08:19,760 in artificial intelligence. You can think of it as a modern 170 00:08:19,760 --> 00:08:21,920 day space race. This project will not only 171 00:08:21,920 --> 00:08:24,440 support the reindustrialization of the United States, but it 172 00:08:24,440 --> 00:08:27,440 will also provide a strategic capability to protect the 173 00:08:27,440 --> 00:08:30,360 national security of America and its allies. 174 00:08:30,360 --> 00:08:32,159 We're going back to the space race. 175 00:08:32,159 --> 00:08:34,360 We're going back to reindustrialization. 176 00:08:34,400 --> 00:08:37,640 We're going back to large scale infrastructure projects with 177 00:08:37,640 --> 00:08:39,919 concerted efforts from the central government. 178 00:08:40,039 --> 00:08:43,200 Now we know that the US doesn't have money to afford a Stargate 179 00:08:43,200 --> 00:08:46,920 project. the US is heavily indebted and focused on paying 180 00:08:46,920 --> 00:08:49,720 down debts and lowering its interest year by year. 181 00:08:49,760 --> 00:08:52,920 With that being known, Trump has tapped many business leaders 182 00:08:52,920 --> 00:08:55,840 that are extremely wealthy, some of the biggest big tech 183 00:08:55,840 --> 00:08:58,600 companies in the world, and leaders of investment funds. 184 00:08:58,960 --> 00:09:01,720 The initial equity founders in Stargate are SoftBank. 185 00:09:02,000 --> 00:09:06,360 This is a massive investment fund, Open AI, Oracle and MGX. 186 00:09:06,360 --> 00:09:09,280 SoftBank and Open Eye are the lead partners for Stargate, with 187 00:09:09,280 --> 00:09:12,280 SoftBank having financial responsibility and Open Eye 188 00:09:12,280 --> 00:09:14,320 having the operational responsibility. 189 00:09:14,320 --> 00:09:16,800 There's other investors and technology partners as well that 190 00:09:16,800 --> 00:09:20,560 have been listed, ARM, Microsoft, NVIDIA, Oracle, Open 191 00:09:20,560 --> 00:09:22,080 AI. All of these companies are 192 00:09:22,080 --> 00:09:25,240 contributing their technology to build out this massive project. 193 00:09:25,280 --> 00:09:28,560 Now, anytime a project like this is announced, it's met with a 194 00:09:28,560 --> 00:09:32,360 degree skepticism and criticism, and that was no different this 195 00:09:32,360 --> 00:09:34,120 time. And the most vocal critic by 196 00:09:34,120 --> 00:09:37,160 far, immediately pouring cold water on this project and it's 197 00:09:37,160 --> 00:09:40,600 ambitious goals was Elon Musk. The same day that this project 198 00:09:40,600 --> 00:09:43,720 was announced by Sam Altman and Open AI, Elon Musk replied 199 00:09:43,720 --> 00:09:46,480 saying that SoftBank doesn't have the money, they don't even 200 00:09:46,480 --> 00:09:49,200 have $10 billion. And this was a bit shocking. 201 00:09:49,200 --> 00:09:51,920 Having someone so close to the president, someone that 202 00:09:51,920 --> 00:09:54,920 campaigned for him, someone that has been next to him and by his 203 00:09:54,920 --> 00:09:57,600 side the entire way is now actively undermining the 204 00:09:57,600 --> 00:10:00,920 prospects of his biggest capital project as President Trump is 205 00:10:00,920 --> 00:10:03,200 calling this tremendous and monumental. 206 00:10:03,480 --> 00:10:06,480 Elon Musk is saying they don't actually have the money and this 207 00:10:06,480 --> 00:10:09,640 is where a lot of drama ensued. When Elon Musk commented that 208 00:10:09,640 --> 00:10:12,680 they don't have the money, Sam Altman decided to take the High 209 00:10:12,680 --> 00:10:14,480 Road. He said I genuinely respect your 210 00:10:14,480 --> 00:10:17,040 accomplishments and think you are the most inspiring 211 00:10:17,040 --> 00:10:20,160 entrepreneur of our time. With Elon Musk not provoking the 212 00:10:20,160 --> 00:10:23,800 response he wanted, he replied again saying that SoftBank has 213 00:10:23,960 --> 00:10:27,960 well under $10 billion secured. I have that on good authority. 214 00:10:28,040 --> 00:10:31,520 And this is where Sam Altman changed his tone saying wrong, 215 00:10:31,720 --> 00:10:34,760 as you surely know. Want to come and visit the site 216 00:10:34,760 --> 00:10:37,280 already underway? This is great for the country. 217 00:10:37,560 --> 00:10:41,120 I realize what is great for the country isn't always optimal for 218 00:10:41,120 --> 00:10:44,520 your companies, but in your new role, I hope you mostly put 219 00:10:44,680 --> 00:10:47,000 America first. This is a comment that hits back 220 00:10:47,000 --> 00:10:49,600 hard because he's directly pointing out that Elon Musk is 221 00:10:49,600 --> 00:10:52,680 undermining one of the key goals of the president that he helped 222 00:10:52,680 --> 00:10:54,800 elect. After this reply, Elon Musk 223 00:10:54,800 --> 00:10:56,440 didn't engage in that threat anymore. 224 00:10:56,440 --> 00:10:59,560 Instead, he took to Twitter to post attacks on Sam Altman 225 00:10:59,560 --> 00:11:01,480 nonstop for the next three hours. 226 00:11:01,560 --> 00:11:04,480 Posting what seems like every 5 minutes with different areas of 227 00:11:04,480 --> 00:11:07,520 attack for Sam Altman, digging up old tweets, pointing out how 228 00:11:07,520 --> 00:11:10,600 he changes support overtime once opposing Trump. 229 00:11:10,680 --> 00:11:12,040 Now why is all of this important? 230 00:11:12,040 --> 00:11:14,960 Because because large companies like Open AI are working with 231 00:11:14,960 --> 00:11:17,280 the Trump administration, they have these projects like 232 00:11:17,280 --> 00:11:21,120 Stargate, while President Trump is also a partner with Elon 233 00:11:21,120 --> 00:11:23,080 Musk. And these relationship dynamics 234 00:11:23,080 --> 00:11:25,440 seem to be causing some troubles, at least with Elon 235 00:11:25,440 --> 00:11:27,400 Musk. So I'm told by a source that 236 00:11:27,400 --> 00:11:31,920 Open AI CEO Sam Altman had a, quote, lengthy phone call with 237 00:11:31,920 --> 00:11:35,480 President Trump on Friday and did focus on AI's potential. 238 00:11:35,480 --> 00:11:38,440 They walked through what this technology is really capable of 239 00:11:38,440 --> 00:11:40,400 and certain parts of the infrastructure plan that was 240 00:11:40,400 --> 00:11:43,200 laid out yesterday. The source here asked not to be 241 00:11:43,200 --> 00:11:46,160 named because these discussions were confidential, but they did 242 00:11:46,160 --> 00:11:49,080 say it was productive. They described it as amicable. 243 00:11:49,400 --> 00:11:52,280 And Trump publicly yesterday really calling Altman at the 244 00:11:52,280 --> 00:11:55,200 White House the leading expert on AI. 245 00:11:55,240 --> 00:11:59,400 Trump called Sam Altman the leading expert in AI and that 246 00:11:59,400 --> 00:12:01,800 had to sting a little. One thing we know about Elon is 247 00:12:01,800 --> 00:12:04,640 there's no shared victories. He doesn't share the limelight 248 00:12:04,880 --> 00:12:07,240 and he likes total control over what he's doing. 249 00:12:07,440 --> 00:12:09,440 It's how he's ran everyone of his companies. 250 00:12:09,640 --> 00:12:12,640 There's no Co CEO. Elon Musk likes having that 251 00:12:12,640 --> 00:12:16,200 limelight on himself and anytime that limelight shines on someone 252 00:12:16,200 --> 00:12:19,480 else, especially given Sam Altman and their history, well, 253 00:12:19,480 --> 00:12:21,720 that causes some issues. Now, while this drama is 254 00:12:21,720 --> 00:12:23,760 unfolding, there's other things happening as well in the 255 00:12:23,760 --> 00:12:25,280 background. And one of the most important, 256 00:12:25,280 --> 00:12:28,640 especially if you're a Microsoft investor, is the separation from 257 00:12:28,640 --> 00:12:31,280 Open AI and Microsoft. This isn't a complete 258 00:12:31,280 --> 00:12:34,040 separation, but it's the end of their exclusive agreement. 259 00:12:34,080 --> 00:12:36,000 One of the main things that's been revealed with the 260 00:12:36,000 --> 00:12:39,440 announcement of Stargate is that Microsoft is ending their 261 00:12:39,440 --> 00:12:41,640 exclusive agreement with Open AI. 262 00:12:42,040 --> 00:12:44,240 Now, they're not completely detaching from the company. 263 00:12:44,480 --> 00:12:47,080 They're still going to be partners with Open AI, but the 264 00:12:47,080 --> 00:12:50,520 exclusivity was an important part for this relationship and 265 00:12:50,520 --> 00:12:52,400 having it end open. Some questions. 266 00:12:52,440 --> 00:12:55,000 Satya Nadella, the CEO of Microsoft, was asked 267 00:12:55,000 --> 00:12:57,560 specifically about the ending of this relationship. 268 00:12:57,560 --> 00:13:00,040 Yeah. First of all, anytime a company 269 00:13:00,040 --> 00:13:03,840 that you've sponsored and were essentially a seed investor in 270 00:13:03,840 --> 00:13:07,840 raises money from others, it's a good day, a good day for Open AI 271 00:13:07,840 --> 00:13:10,520 and a good day for Microsoft and our investors. 272 00:13:11,320 --> 00:13:15,360 Look, our partnership continues. We'll be a tech partner to 273 00:13:15,360 --> 00:13:19,120 Stargate, but more importantly partnership with Open AI. 274 00:13:19,160 --> 00:13:22,520 You talked about exclusivity. Open AIAPIS are exclusive to 275 00:13:22,520 --> 00:13:25,760 Azure going forward. Even so nothing changes there. 276 00:13:26,760 --> 00:13:29,280 IP access to Microsoft continues. 277 00:13:29,280 --> 00:13:31,760 And in fact because of this, there will be more IP. 278 00:13:31,760 --> 00:13:34,440 And so therefore we will benefit and we are grab share 279 00:13:34,440 --> 00:13:39,320 arrangements that are great and also Open AI committed into a 280 00:13:39,360 --> 00:13:42,240 significant, very significant way to Azure consumption. 281 00:13:42,240 --> 00:13:43,800 And so we are very thrilled about that as well. 282 00:13:43,800 --> 00:13:47,800 So all up, as far as I'm concerned, this accelerates Open 283 00:13:47,800 --> 00:13:51,680 AI's model work, which accelerates Microsoft's ability 284 00:13:51,680 --> 00:13:55,240 to go to market with those models and really grow our 285 00:13:55,240 --> 00:13:57,600 business. Now, like a good CEO, he paints 286 00:13:57,600 --> 00:14:00,440 this as a positive thing. Overall, he highlights the 287 00:14:00,440 --> 00:14:04,040 benefits of them moving on and having different partners, but 288 00:14:04,040 --> 00:14:07,640 behind the scenes, Microsoft has been less than enthused about 289 00:14:07,640 --> 00:14:09,400 the ending of their exclusive agreement. 290 00:14:09,480 --> 00:14:11,600 In the months leading up to the announcement, the two sides have 291 00:14:11,600 --> 00:14:14,280 been haggling over what to do about Open AI seemingly 292 00:14:14,280 --> 00:14:17,520 insatiable appetite for computing power and it's 293 00:14:17,520 --> 00:14:20,120 contention that Microsoft couldn't fulfill it. 294 00:14:20,320 --> 00:14:23,200 Even though their agreement didn't allow for Open AI to 295 00:14:23,200 --> 00:14:27,080 easily switch to others, Open AI is almost entirely reliant on 296 00:14:27,080 --> 00:14:30,080 Microsoft to provide it with data centers it needs to build 297 00:14:30,080 --> 00:14:32,520 and operate. It's sophisticated AI software 298 00:14:32,840 --> 00:14:35,440 that has been part of their agreement since Microsoft first 299 00:14:35,440 --> 00:14:38,680 invested in 2019. Open a is need for computing 300 00:14:38,680 --> 00:14:43,040 power has surged since 2019. Its executives have said that 301 00:14:43,040 --> 00:14:46,360 ending the exclusive cloud contract could be crucial to 302 00:14:46,360 --> 00:14:49,720 compete with rival AI developers that don't have the same 303 00:14:49,720 --> 00:14:52,200 constraints. The talks have intensified in 304 00:14:52,200 --> 00:14:54,120 recent months. Like other tech giants, 305 00:14:54,120 --> 00:14:57,440 Microsoft has rapidly increased its investment in AI 306 00:14:57,440 --> 00:15:01,760 infrastructure and recently said it would spend $80 billion on AI 307 00:15:01,760 --> 00:15:04,200 data centers in its current fiscal year here. 308 00:15:04,320 --> 00:15:07,560 But Microsoft also notes that they have other customers and 309 00:15:07,560 --> 00:15:11,680 partners besides Open AI. Microsoft ending their exclusive 310 00:15:11,680 --> 00:15:15,200 agreement with Open AI is a calculated decision that I think 311 00:15:15,200 --> 00:15:17,440 investors shouldn't take too lightly. 312 00:15:17,800 --> 00:15:22,080 Microsoft is saying that we're only going to spend $80 billion 313 00:15:22,160 --> 00:15:24,920 and we're not going to push the envelope beyond that amount. 314 00:15:24,920 --> 00:15:26,440 I. Don't know if you saw Elon Musk 315 00:15:26,440 --> 00:15:30,160 took to Twitter and said they don't have the money. 316 00:15:30,360 --> 00:15:33,240 The money doesn't exist as if this is not really going to 317 00:15:33,240 --> 00:15:34,600 happen. What do you think of that? 318 00:15:35,640 --> 00:15:39,240 Look, all I know is I'm good for my 80 billion. 319 00:15:39,320 --> 00:15:42,640 I'm going to spend $80 billion building out Azure. 320 00:15:42,640 --> 00:15:46,920 Customers can count on Microsoft with open AI models being there 321 00:15:46,920 --> 00:15:50,920 everywhere in the world, serving open eye models and other 322 00:15:50,920 --> 00:15:52,640 models. That's, I think, what I know. 323 00:15:52,920 --> 00:15:55,960 I don't know about others, but put me down for 80 billion. 324 00:15:56,280 --> 00:15:59,480 That's a line that I can confidently say has never been 325 00:15:59,480 --> 00:16:03,360 said up until this time period in human civilization. 326 00:16:03,800 --> 00:16:07,120 No one has ever once said, you know, I don't know about you 327 00:16:07,120 --> 00:16:09,320 guys, but put me down for $80 billion. 328 00:16:09,680 --> 00:16:12,400 Now, the unique thing about this situation is not only does he 329 00:16:12,400 --> 00:16:14,320 say it, but he actually means it. 330 00:16:14,640 --> 00:16:18,280 And Microsoft is good for $80 billion easily. 331 00:16:18,320 --> 00:16:21,000 There's not many companies on planet Earth that generate this 332 00:16:21,000 --> 00:16:22,680 consistent levels of free cash flow. 333 00:16:23,040 --> 00:16:26,680 In the trailing 12 months, they generated $73 billion of free 334 00:16:26,680 --> 00:16:28,440 cash flow. And this free cash flow is 335 00:16:28,440 --> 00:16:31,840 generated after accounting for the massive CapEx they're 336 00:16:31,880 --> 00:16:34,480 already spending on artificial intelligence. 337 00:16:34,640 --> 00:16:39,400 Microsoft could spend upwards of 100 billion or 150 billion in 338 00:16:39,400 --> 00:16:42,520 CapEx for artificial intelligence, but he's only 339 00:16:42,520 --> 00:16:45,600 spending billion. And while that line that Satya 340 00:16:45,600 --> 00:16:49,400 Nadella used is one of the most insane lines that a CEO has ever 341 00:16:49,400 --> 00:16:51,960 said, it's also telling to some degree. 342 00:16:52,040 --> 00:16:55,480 Some companies are showing continuous restraint on how much 343 00:16:55,480 --> 00:16:58,360 money they're willing to spend on artificial intelligence, and 344 00:16:58,360 --> 00:17:01,840 Microsoft is one of them. Satya Nadella is concerned about 345 00:17:01,840 --> 00:17:05,040 spending too much on artificial intelligence, and I think with 346 00:17:05,040 --> 00:17:06,800 good reason. And this is where I believe we 347 00:17:06,800 --> 00:17:09,960 get into the area where the Stargate project has very real 348 00:17:09,960 --> 00:17:13,200 challenges unique to the technology of this time. 349 00:17:13,680 --> 00:17:17,200 We know that President Trump has been big on implementing large 350 00:17:17,200 --> 00:17:20,760 industrial projects, ones like the ones we saw in the 1850s. 351 00:17:20,800 --> 00:17:24,480 In many ways, Project Stargate is being compared to comparable 352 00:17:24,480 --> 00:17:27,640 projects throughout history that changed and revolutionized the 353 00:17:27,640 --> 00:17:29,480 United States. Ones like the rail 354 00:17:29,480 --> 00:17:32,320 transportation industry. Class 1 railroads work as the 355 00:17:32,320 --> 00:17:34,960 veins of the United States. They go across the entire 356 00:17:34,960 --> 00:17:38,320 country and make it so that different goods can be delivered 357 00:17:38,320 --> 00:17:41,160 from one place to another. There aren't enough trucks to 358 00:17:41,160 --> 00:17:44,280 accomplish this. It has to be done by rail, and 359 00:17:44,280 --> 00:17:47,280 rail is by far the most cost effective way to do it. the 360 00:17:47,280 --> 00:17:51,000 United States is so reliant on the railroad industry that it 361 00:17:51,000 --> 00:17:54,640 becomes illegal to strike in many cases because shutting it 362 00:17:54,640 --> 00:17:57,960 down even for a few days could cause critical problems to 363 00:17:57,960 --> 00:18:00,760 different states. Class 1 railroads are integral 364 00:18:00,760 --> 00:18:02,560 to the success of the United States. 365 00:18:02,560 --> 00:18:06,280 All the basic luxuries we have today are reliant on this system 366 00:18:06,280 --> 00:18:09,400 running, and this was a system created over 100 years ago now. 367 00:18:09,400 --> 00:18:12,320 The government in and of itself didn't pay for the railroads, 368 00:18:12,320 --> 00:18:14,080 just like they're not paying for Harrogate. 369 00:18:14,280 --> 00:18:18,000 It was mostly funded by private companies, but it also had huge 370 00:18:18,000 --> 00:18:20,640 government incentives from state and local governments. 371 00:18:20,880 --> 00:18:23,720 It was subsidized heavily. So you can see a lot of 372 00:18:23,720 --> 00:18:26,880 similarities between what's happening now with government 373 00:18:26,880 --> 00:18:29,800 subsidized and government concerted efforts into 374 00:18:29,800 --> 00:18:33,120 artificial intelligence infrastructure and what happened 375 00:18:33,120 --> 00:18:35,840 over 100 years ago with railroad development. 376 00:18:35,840 --> 00:18:38,160 But even though there's many similarities you can make, 377 00:18:38,160 --> 00:18:40,920 there's also some key differences that makes this 378 00:18:40,920 --> 00:18:44,280 project of developing artificial intelligence more costly and 379 00:18:44,280 --> 00:18:46,880 difficult than laying the foundation of railroads. 380 00:18:46,920 --> 00:18:49,480 And the biggest problem with Stargate is the cost. 381 00:18:49,880 --> 00:18:54,080 Not just the upfront cost, but the ongoing cost and the returns 382 00:18:54,080 --> 00:18:57,640 that are implied from the money invested with every company that 383 00:18:57,640 --> 00:19:00,080 we look at, it doesn't matter which one we look at. 384 00:19:00,080 --> 00:19:02,200 For example, we can look at Costco. 385 00:19:02,200 --> 00:19:05,000 If we look at Costco's return on capital employed, which is a 386 00:19:05,000 --> 00:19:08,280 measurement of profitability for every dollar invested, we can 387 00:19:08,280 --> 00:19:13,080 see that last year it was 27%, meaning that if Costco invests a 388 00:19:13,080 --> 00:19:16,240 dollar back into its business, it gets $1.27 back. 389 00:19:16,560 --> 00:19:18,800 That's really good. That's far above the cost of 390 00:19:18,800 --> 00:19:21,200 capital, where their cost of capital is somewhere probably 391 00:19:21,200 --> 00:19:24,840 close to 8 to 11%. So they earn back about double 392 00:19:24,840 --> 00:19:28,120 what their cost of capital is. Every dollar that Costco puts 393 00:19:28,120 --> 00:19:31,360 into their business, they're making a solid profit in the 394 00:19:31,360 --> 00:19:33,920 next year, and they've done this for decades. 395 00:19:33,920 --> 00:19:37,880 This is why Costco has been such a reliably good investment with 396 00:19:37,880 --> 00:19:41,640 the cost of capital around here. They've always made more money 397 00:19:41,680 --> 00:19:43,160 than the cost of borrowing money. 398 00:19:43,280 --> 00:19:45,800 We can look at any other company, for example, we have 399 00:19:45,800 --> 00:19:49,320 Booking Holdings and if we go down to that same metric, the 400 00:19:49,320 --> 00:19:52,120 return on capital employed, assuming they have a cost of 401 00:19:52,120 --> 00:19:56,320 capital around 10 into 11%, you can see that even in the bad 402 00:19:56,320 --> 00:20:00,320 years of 2020 and 2021 when business went down because of 403 00:20:00,320 --> 00:20:03,160 the pandemic, they still were just meeting their cost of 404 00:20:03,160 --> 00:20:05,480 capital. They didn't generate much wealth 405 00:20:05,480 --> 00:20:07,960 in these two years, but every other year they're generating 406 00:20:07,960 --> 00:20:10,200 wealth far above the cost of the money. 407 00:20:10,200 --> 00:20:11,960 This means it's a profitable business. 408 00:20:12,080 --> 00:20:15,560 Booking Holdings is making a dollar thirty $1.50 for every 409 00:20:15,560 --> 00:20:17,240 dollar invested back in their business. 410 00:20:17,720 --> 00:20:20,640 This is a widely profitable company and we can see the same 411 00:20:20,640 --> 00:20:23,880 thing with railroads. Railroads being the veins of the 412 00:20:24,040 --> 00:20:28,080 US for the past 100 plus years, transporting that oxygen to 413 00:20:28,080 --> 00:20:30,120 different states have been critical. 414 00:20:30,400 --> 00:20:32,920 But more importantly with railroads, they run a very 415 00:20:32,920 --> 00:20:35,520 successful and profitable business at the same time. 416 00:20:35,640 --> 00:20:38,760 Union Pacific's return on capital employed is not as high 417 00:20:38,760 --> 00:20:42,200 as Booking Holdings or Costco, but it's still pretty good up 418 00:20:42,200 --> 00:20:46,280 into the range of 13 to 16%, assuming that their cost of 419 00:20:46,280 --> 00:20:50,800 capitals anywhere from 8 to 11%. This is a profitable business 420 00:20:50,800 --> 00:20:53,480 year after year and that's why these Class 1 railroads have 421 00:20:53,480 --> 00:20:56,080 done well for investors for decade after decade. 422 00:20:56,320 --> 00:20:59,320 It's why it attracted Warren Buffett to these stocks. 423 00:20:59,320 --> 00:21:02,760 But the unique difference between railroads and AI 424 00:21:02,760 --> 00:21:07,920 infrastructure is the valuable lifetime of every rail laid, the 425 00:21:07,920 --> 00:21:10,560 valuable lifetime of the CapEx investment. 426 00:21:10,800 --> 00:21:13,440 For example, if we look at the capital expenditures of the 427 00:21:13,440 --> 00:21:16,400 company, which means the physical goods that you're 428 00:21:16,400 --> 00:21:20,360 building out to the things like warehouses or in this case, rail 429 00:21:20,360 --> 00:21:23,560 for the railroads, you can see that it's been relatively flat 430 00:21:23,560 --> 00:21:25,640 year after year for the past two decades. 431 00:21:26,000 --> 00:21:28,400 It's average around $3 billion per year. 432 00:21:28,800 --> 00:21:31,800 This is simply maintenance for the rail that's already been 433 00:21:31,800 --> 00:21:33,720 laid. It's different repairs and 434 00:21:33,720 --> 00:21:37,800 buying different carts, but the benefit of railroads is that 435 00:21:37,800 --> 00:21:40,720 when they lay rail, it lasts for a very long time. 436 00:21:40,760 --> 00:21:44,120 If Union Pacific invests into building out 100 miles of new 437 00:21:44,120 --> 00:21:48,800 rail, they can expect that rail to stay operational for 50 plus 438 00:21:48,800 --> 00:21:52,480 years without any major significant CapEx investment 439 00:21:52,680 --> 00:21:54,640 over the lifetime of those 50 years. 440 00:21:55,040 --> 00:21:58,120 So they put up the money once and then they only have small 441 00:21:58,120 --> 00:22:00,720 maintenance costs for decade after decade. 442 00:22:00,760 --> 00:22:03,760 And this calculation of having one time significant upfront 443 00:22:03,760 --> 00:22:06,640 cost to build out the rail but then minimal maintenance 444 00:22:06,640 --> 00:22:10,040 afterwards is where you get these consistently high returns 445 00:22:10,040 --> 00:22:12,280 on capital. If they had to rebuild the 446 00:22:12,280 --> 00:22:17,000 entire rail infrastructure every five years, this not only would 447 00:22:17,000 --> 00:22:20,600 it be profitable, but this would be one of the worst businesses 448 00:22:20,720 --> 00:22:23,520 in existence. Union Pacific and every company 449 00:22:23,520 --> 00:22:25,120 like it would go out of business. 450 00:22:25,320 --> 00:22:28,000 There's no way that they could afford to put money back into 451 00:22:28,000 --> 00:22:31,280 laying rail every single five years, redoing the work they 452 00:22:31,280 --> 00:22:33,880 previously did. The useful lifetime of AI, 453 00:22:33,880 --> 00:22:36,960 servers, and GPU's is significantly less than any 454 00:22:36,960 --> 00:22:38,840 other infrastructure project we've done. 455 00:22:39,160 --> 00:22:42,240 It's less than telecom, it's less than rail, and it's not 456 00:22:42,240 --> 00:22:45,440 even close. The useful lifetime of a GPU is 457 00:22:45,440 --> 00:22:49,120 around 4 to five years before it becomes completely obsolete. 458 00:22:49,120 --> 00:22:51,960 There are numerous reports from people familiar with these 459 00:22:52,040 --> 00:22:55,560 industries pointing out that data center and AIGPUS may have 460 00:22:55,560 --> 00:22:59,040 extremely short life spans. This is from engineers at 461 00:22:59,040 --> 00:23:01,600 Google, most of them pointing out that they last around three 462 00:23:01,600 --> 00:23:03,440 years. While this seems good for 463 00:23:03,440 --> 00:23:06,120 companies like NVIDIA in the short term as they have a 464 00:23:06,120 --> 00:23:09,120 reoccurring demand and continually building out new 465 00:23:09,120 --> 00:23:12,120 GPUs, this also brings into big questions of the returns these 466 00:23:12,120 --> 00:23:14,880 type of companies will get with their significant AI 467 00:23:14,880 --> 00:23:17,280 investments. The number being continually 468 00:23:17,280 --> 00:23:21,160 quoted here by the Project Stargate is the $500 billion 469 00:23:21,160 --> 00:23:23,400 number. And that number in and of itself 470 00:23:23,400 --> 00:23:26,320 seems like this fixed amount. But the problem with this major 471 00:23:26,320 --> 00:23:29,120 project is that investment is not a one time thing. 472 00:23:29,120 --> 00:23:32,320 The useful life of most of the expensive part of this project 473 00:23:32,600 --> 00:23:34,960 is not building out the warehouses or laying in the 474 00:23:34,960 --> 00:23:37,360 cement. It's paying for the GPUs that 475 00:23:37,360 --> 00:23:39,840 are constantly in use, training the data. 476 00:23:40,120 --> 00:23:43,640 And those GPUs will need to be fixed and updated every three to 477 00:23:43,640 --> 00:23:47,080 five years. So this $500 billion AI project 478 00:23:47,080 --> 00:23:50,840 is not a one time expense, it's an ongoing reoccurring expense 479 00:23:50,920 --> 00:23:53,800 and no company will continue to invest this amount without 480 00:23:53,800 --> 00:23:57,040 seeing significant returns. Unlike companies like Union 481 00:23:57,040 --> 00:24:00,920 Pacific, which can lay rail once and then wait a decade to get a 482 00:24:00,920 --> 00:24:03,520 return on that investment, companies like Microsoft and 483 00:24:03,520 --> 00:24:06,880 Oracle need to see much faster ROI's with their investment. 484 00:24:06,880 --> 00:24:09,360 They need to see the returns quickly because the assets they 485 00:24:09,360 --> 00:24:12,240 purchased are amortized and depreciate quickly. 486 00:24:12,320 --> 00:24:14,440 So the calculation here is entirely different. 487 00:24:14,480 --> 00:24:18,200 And one CEO seems to understand this, that is Satya Nadella. 488 00:24:18,360 --> 00:24:21,880 Satya Nadella has noted that he's good for the $80 billion. 489 00:24:22,200 --> 00:24:24,920 But if we look at how much money they spend on a trailing basis 490 00:24:24,920 --> 00:24:28,000 on CapEx and artificial intelligence already, it's 491 00:24:28,000 --> 00:24:30,720 around that amount. They're already spending $50 492 00:24:30,720 --> 00:24:33,000 billion. So this isn't some dramatic 493 00:24:33,000 --> 00:24:34,640 change. This is following along their 494 00:24:34,640 --> 00:24:37,640 incremental increase in AI spending, which has doubled and 495 00:24:37,640 --> 00:24:39,440 tripled over the past couple of years. 496 00:24:39,520 --> 00:24:41,920 And This is why you see Microsoft being excluded from 497 00:24:41,920 --> 00:24:44,200 many of the comments in the Stargate deal. 498 00:24:44,200 --> 00:24:46,960 Microsoft needs to see a return on these investments. 499 00:24:47,600 --> 00:24:51,680 With compute being so expensive and the cost of various LLMS 500 00:24:51,680 --> 00:24:54,920 from China being so cheap. This could end U being a race to 501 00:24:54,920 --> 00:24:57,280 the bottom. But ultimately, we'll have to 502 00:24:57,280 --> 00:24:59,240 wait and see. Now, let's go ahead and move on 503 00:24:59,240 --> 00:25:01,000 to some news. Now, obviously, we have the news 504 00:25:01,000 --> 00:25:03,880 that Netflix reported earnings and their numbers blew out 505 00:25:03,880 --> 00:25:06,360 expectations. Now, before even jumping into 506 00:25:06,360 --> 00:25:08,840 this, I get comments from time to time from some viewers that 507 00:25:08,840 --> 00:25:10,520 are sick of hearing about Netflix. 508 00:25:10,600 --> 00:25:14,120 I realize that Netflix is not the most popular stock on the 509 00:25:14,120 --> 00:25:16,000 interweb. I realize it's not the most 510 00:25:16,000 --> 00:25:18,840 popular on YouTube. There's more popular companies 511 00:25:18,840 --> 00:25:21,120 like Tesla. There's more popular companies 512 00:25:21,400 --> 00:25:23,840 like Google that I could talk about and make more videos 513 00:25:23,840 --> 00:25:26,040 about. But the reason that I talk about 514 00:25:26,040 --> 00:25:29,280 Netflix, and I've been beating this drum for a long period of 515 00:25:29,280 --> 00:25:33,480 time, talking glowingly about Netflix for years, is that I 516 00:25:33,480 --> 00:25:37,200 believed it's a good investment. And part of the purpose of this 517 00:25:37,200 --> 00:25:40,320 channel is highlighting my conclusions on what I think are 518 00:25:40,320 --> 00:25:44,480 good investments. Netflix stock price was up 65% 519 00:25:44,680 --> 00:25:47,400 in 2023. That's a pretty good year. 520 00:25:47,400 --> 00:25:49,360 That beats out the major indices. 521 00:25:49,360 --> 00:25:51,960 It double S and triples the return of the S&P 500. 522 00:25:52,440 --> 00:25:56,200 That was 2023. Then in 2024 Netflix stock price 523 00:25:56,200 --> 00:26:01,120 was up 85%. Now in 2025, the stock is up, 524 00:26:01,120 --> 00:26:04,840 currently 9.8%. So the reason that I highlight 525 00:26:04,840 --> 00:26:07,800 this company and I talk about it probably more than a lot of 526 00:26:07,800 --> 00:26:11,000 people like, or at least interested, is because I think 527 00:26:11,000 --> 00:26:12,920 it's a good investment. That's really what it comes down 528 00:26:12,920 --> 00:26:14,360 to. And over the past couple of 529 00:26:14,360 --> 00:26:16,800 years, the people that have taken a closer look at Netflix 530 00:26:16,800 --> 00:26:19,840 stock, in part because of my videos, are very happy that 531 00:26:19,840 --> 00:26:23,120 they've done so. I've had no upset viewers for 532 00:26:23,120 --> 00:26:25,880 investing in Netflix, so that's part of the reason that I 533 00:26:25,880 --> 00:26:28,400 highlight the company continually is because I think 534 00:26:28,400 --> 00:26:30,960 it's a good investment. And at this point, I still 535 00:26:30,960 --> 00:26:34,680 believe it's a good investment. Netflix is showing exactly the 536 00:26:34,680 --> 00:26:37,080 story that I've been saying will play out for a long period of 537 00:26:37,080 --> 00:26:39,600 time. It's flexing its muscles and 538 00:26:39,600 --> 00:26:42,240 showing complete market dominance over one of the 539 00:26:42,240 --> 00:26:45,120 fastest growing and most important industries to be 540 00:26:45,120 --> 00:26:47,240 invested in. A lot of investors get 541 00:26:47,240 --> 00:26:50,880 pigeonholed into viewing only one industry that's talked about 542 00:26:51,240 --> 00:26:54,360 artificial intelligence. Artificial intelligence, but the 543 00:26:54,360 --> 00:26:57,320 media and entertainment industry is massive. 544 00:26:57,360 --> 00:27:00,360 It has global appeal, and there's one company that's 545 00:27:00,360 --> 00:27:03,240 showing incredible dominance. The streaming giant added a 546 00:27:03,240 --> 00:27:06,600 record 18.9 million new subscribers during the fourth 547 00:27:06,600 --> 00:27:09,160 quarter. Now, to put this in perspective, 548 00:27:09,760 --> 00:27:11,960 they were expected to add 8 million. 549 00:27:12,000 --> 00:27:14,400 So that's what Wall Street had. I thought it was going to be 550 00:27:14,400 --> 00:27:18,200 good, so I was leaning more towards 13 million, but I didn't 551 00:27:18,200 --> 00:27:20,680 really imagine them adding 19,000,000. 552 00:27:20,960 --> 00:27:24,360 That was a surprise even for me. After hearing the news, though, 553 00:27:24,360 --> 00:27:27,120 I wasn't really shocked. The content slate last quarter 554 00:27:27,120 --> 00:27:29,720 was incredibly strong, so it's important to know that Netflix 555 00:27:29,720 --> 00:27:34,240 now has 302,000,000 subscribers, every one of these being paid. 556 00:27:34,720 --> 00:27:36,960 Their ad care is growing incredibly fast. 557 00:27:36,960 --> 00:27:41,360 It doubled in revenue in 2024 and Netflix is now forecasting 558 00:27:41,360 --> 00:27:44,480 another doubling of their ad revenue in 2025. 559 00:27:44,480 --> 00:27:48,320 This is the type of company that the more I research into it, the 560 00:27:48,320 --> 00:27:51,360 more I dig into the earnings report, the more I listen to the 561 00:27:51,360 --> 00:27:54,320 earnings call, the more excited I am about the company. 562 00:27:54,320 --> 00:27:57,200 Typically when I'm doing analysis on a company, the more 563 00:27:57,200 --> 00:27:59,600 I dive into it, the more concerned I become. 564 00:27:59,640 --> 00:28:04,200 Their revenue on a quarterly basis hit a record high of 10.25 565 00:28:04,200 --> 00:28:07,320 billion. That is 16% growth year over 566 00:28:07,320 --> 00:28:10,880 year, but on a currency consistent basis, that's 19% 567 00:28:10,880 --> 00:28:13,040 growth. The total subscriber jump was 568 00:28:13,040 --> 00:28:17,280 monumental from 282 million up to 301 million. 569 00:28:17,480 --> 00:28:20,280 This is what the subscriber chart looks like over time. 570 00:28:20,560 --> 00:28:24,240 It grew nearly 16% last year. To look at the total subscribers 571 00:28:24,240 --> 00:28:27,320 gain this quarter, it was the highest of any quarter in their 572 00:28:27,320 --> 00:28:30,200 history, showing that Netflix's total addressable market 573 00:28:30,200 --> 00:28:33,600 continues to be rather large. And one interesting thing about 574 00:28:33,600 --> 00:28:37,240 this total subscriber metric is management believes that their 575 00:28:37,240 --> 00:28:41,560 total addressable market, what they can eventually grow into is 576 00:28:41,560 --> 00:28:45,560 now 750 million plus subscribers. 577 00:28:46,000 --> 00:28:48,920 And this is based off of the broadband Internet connected 578 00:28:48,920 --> 00:28:51,560 households outside of Russia and China. 579 00:28:51,760 --> 00:28:55,440 There's 750 million. Another way of putting this is 580 00:28:55,440 --> 00:28:58,360 that currently 300 million, they're not even halfway there. 581 00:28:58,520 --> 00:29:01,520 Netflix's content budget is starting to trend back upwards 582 00:29:01,520 --> 00:29:04,160 to a healthy level of around $17 billion. 583 00:29:04,200 --> 00:29:05,480 This is where they like it to be. 584 00:29:05,480 --> 00:29:08,520 The reason the content budget is going back up is because the 585 00:29:08,520 --> 00:29:11,360 writer strikes have ended. Even though they've spent far 586 00:29:11,360 --> 00:29:14,440 more on content over the past year, their free cash flow on a 587 00:29:14,440 --> 00:29:17,400 trailing basis is still nearly $7 billion. 588 00:29:17,840 --> 00:29:21,480 So organic free cash flow growth continues to grow on an earnings 589 00:29:21,480 --> 00:29:24,880 per share basis. They grew 65% on a trailing 590 00:29:24,880 --> 00:29:27,520 basis year over year. So even though this company 591 00:29:27,520 --> 00:29:30,600 trades at an elevated PE ratio, the earnings per share growth 592 00:29:30,600 --> 00:29:32,880 over the past five years has more than made-up for it. 593 00:29:33,120 --> 00:29:36,120 This is operating leverage at play and share count continues 594 00:29:36,120 --> 00:29:38,200 to decline as they're funneling a lot of money back into 595 00:29:38,200 --> 00:29:40,400 buybacks. I currently hold Netflix in my 596 00:29:40,400 --> 00:29:42,160 story fund. The gains on it are around 597 00:29:42,160 --> 00:29:45,760 $56,000 and it's now moved up to my largest position. 598 00:29:46,080 --> 00:29:49,000 I continue to hold every share as I still think the future is 599 00:29:49,000 --> 00:29:50,640 bright. A company going through more 600 00:29:50,640 --> 00:29:53,000 difficult challenges right now is Apple. 601 00:29:53,040 --> 00:29:55,320 And this has been one of my key holdings for a long period of 602 00:29:55,320 --> 00:29:56,920 time. And it's a company that I've 603 00:29:56,920 --> 00:30:00,440 significantly reduced my exposure to because I believe 604 00:30:00,440 --> 00:30:03,720 the upside and downside, the risk reward for this company has 605 00:30:03,720 --> 00:30:05,600 flipped. The latest report is that Apple 606 00:30:05,600 --> 00:30:08,720 is struggling to sell in China. It's market share of the iPhone 607 00:30:08,720 --> 00:30:11,840 sales has taken a big hit there. So one of the big issues with 608 00:30:11,840 --> 00:30:14,840 investing in Apple is you do have a lot of exposure to China, 609 00:30:15,040 --> 00:30:16,960 which I believe we have less control over. 610 00:30:17,320 --> 00:30:19,680 It's one thing that I look at with every company I invested 611 00:30:19,680 --> 00:30:21,480 in. Is there amount of exposure to 612 00:30:21,480 --> 00:30:23,360 China? There are analysts like Dan Ives 613 00:30:23,360 --> 00:30:26,360 that believe that the problems in China will be overshadowed by 614 00:30:26,360 --> 00:30:28,280 the growth across the rest of the world. 615 00:30:28,640 --> 00:30:31,840 Fears that have driven the stock lower are overdone and a turn 616 00:30:31,840 --> 00:30:33,440 around is just around the corner. 617 00:30:33,800 --> 00:30:36,680 So some people remain very bullish on Apple, but I'm a bit 618 00:30:36,680 --> 00:30:38,640 more hesitant. The current issue I see with 619 00:30:38,640 --> 00:30:41,320 Apple is the same issue I've been highlighting over the past 620 00:30:41,320 --> 00:30:42,880 year. This company's moved into a 621 00:30:42,880 --> 00:30:46,240 different category based on the slowing of its revenue growth. 622 00:30:46,560 --> 00:30:49,600 If we look at Apple's revenue growth over the past couple of 623 00:30:49,600 --> 00:30:52,960 years, it's been stagnant. It's been completely flat. 624 00:30:53,200 --> 00:30:57,240 In my opinion, Apple has moved from a fast grower into a slow 625 00:30:57,240 --> 00:30:58,960 grower. This is one of the six 626 00:30:58,960 --> 00:31:01,840 categories of stocks that Peter Lynch outlines. 627 00:31:02,360 --> 00:31:05,240 Now, there's nothing inherently bad about slow growers. 628 00:31:05,480 --> 00:31:07,800 They're not companies that will lose you dramatic amounts of 629 00:31:07,800 --> 00:31:09,640 money. It's not something you should be 630 00:31:09,720 --> 00:31:11,840 scared of. In many cases, these are 631 00:31:11,840 --> 00:31:13,840 exceptional companies. They're really great. 632 00:31:13,840 --> 00:31:16,880 Examples of slow growers include companies like Walmart, 633 00:31:16,880 --> 00:31:20,520 Coca-Cola, or Colgate. This is why you see many people 634 00:31:20,520 --> 00:31:23,720 that have these type of companies also owning Apple. 635 00:31:23,800 --> 00:31:26,200 The problems with these companies is that they are low 636 00:31:26,200 --> 00:31:29,320 risk in predictability and they are low reward. 637 00:31:29,520 --> 00:31:32,840 The upside is just not as substantial as fast growing 638 00:31:32,840 --> 00:31:35,160 companies. Even though My Portfolio value 639 00:31:35,160 --> 00:31:38,560 has risen dramatically, I still consider myself a long ways from 640 00:31:38,560 --> 00:31:40,960 retirement. I want to double this portfolio 641 00:31:40,960 --> 00:31:44,320 value and double it again. I want to have constant speed of 642 00:31:44,320 --> 00:31:47,920 growth with strong compounding from every individual stock. 643 00:31:48,120 --> 00:31:50,160 The slower growth is what gives me pause. 644 00:31:50,160 --> 00:31:52,680 So I'm putting my money into companies that I think will grow 645 00:31:52,680 --> 00:31:56,160 that top line revenue at around double or triple the speed. 646 00:31:56,200 --> 00:31:58,240 Now, finally, we get to another union story. 647 00:31:58,240 --> 00:32:01,320 These are always exciting. In this case, it's Amazon 648 00:32:01,320 --> 00:32:04,160 against a union in Canada, Quebec. 649 00:32:04,520 --> 00:32:08,960 And this was a spectacular backfire by the union organizers 650 00:32:08,960 --> 00:32:10,840 here. The union organizers wanted a 651 00:32:10,840 --> 00:32:15,720 pay increase of $6 per hour. Now Amazon said that's too much, 652 00:32:15,800 --> 00:32:18,760 we're not going to pay that. And just like an employee has 653 00:32:18,760 --> 00:32:22,120 the ability to quit a company's job, a company also has the 654 00:32:22,120 --> 00:32:25,080 ability to just shut down those locations to no longer offer the 655 00:32:25,080 --> 00:32:28,200 job in and of itself. And Amazon exercised their right 656 00:32:28,200 --> 00:32:31,440 to shut down all seven locations in Canada, completely 657 00:32:31,440 --> 00:32:33,360 eliminating these fulfillment centers. 658 00:32:33,440 --> 00:32:35,800 Amazon said that it made more economic sense for their 659 00:32:35,800 --> 00:32:39,280 business to shift to 3rd party companies in these areas, third 660 00:32:39,280 --> 00:32:42,200 party companies to deliver the same packages, reverting to the 661 00:32:42,200 --> 00:32:45,160 business model in that area in 2020. 662 00:32:45,320 --> 00:32:47,360 They say the decision wasn't made lightly and they're 663 00:32:47,360 --> 00:32:50,800 offering the impacted employees a package that includes up to 14 664 00:32:50,800 --> 00:32:53,960 weeks pay after the facilities close, which is a great 665 00:32:53,960 --> 00:32:56,160 severance package. Now obviously the union 666 00:32:56,160 --> 00:32:59,400 responsible for this is not happy that all of their jobs are 667 00:32:59,400 --> 00:33:01,480 being transferred to 3rd party companies. 668 00:33:02,000 --> 00:33:05,120 They say that it's a move that runs counter to the provisions 669 00:33:05,120 --> 00:33:08,560 of the Labor Code and one that will be taking a firm stand 670 00:33:08,560 --> 00:33:10,080 against. So now they're going to try to 671 00:33:10,080 --> 00:33:13,240 take legal action against Amazon to force them to offer those 672 00:33:13,240 --> 00:33:16,040 jobs once again. So to summarize this disastrous 673 00:33:16,040 --> 00:33:19,320 fail of a negotiation, this union representing 1700 jobs 674 00:33:19,600 --> 00:33:21,880 demanded much higher pay than they are currently getting. 675 00:33:22,160 --> 00:33:26,040 Amazon decided to go with third party companies to deliver in 676 00:33:26,040 --> 00:33:28,800 that same area and closed every one of these jobs. 677 00:33:28,880 --> 00:33:31,440 So now instead of getting their $6.00 an hour pay raise, every 678 00:33:31,440 --> 00:33:34,040 single one of these employees are losing their jobs and the 679 00:33:34,040 --> 00:33:37,000 unions trying to sue Amazon to reinstate the jobs. 680 00:33:37,120 --> 00:33:39,440 I've tried pointing this out many times that you can have a 681 00:33:39,440 --> 00:33:42,840 stance where you're both pro worker, pro workers making more 682 00:33:42,840 --> 00:33:46,080 money, pro workers having job protections and against the 683 00:33:46,080 --> 00:33:49,640 actions of specific unions. And this is a key example of 684 00:33:49,640 --> 00:33:51,960 one. This union harmed these members 685 00:33:51,960 --> 00:33:54,960 jobs and put them in a much more difficult situation than they 686 00:33:54,960 --> 00:33:56,840 had prior. And while looking at different 687 00:33:56,840 --> 00:33:59,920 news stories of unions actions over the past couple of years, 688 00:33:59,960 --> 00:34:02,600 I've received dozens of messages of different, different members 689 00:34:02,600 --> 00:34:05,840 of unions, even people that are involved in them that wish they 690 00:34:05,840 --> 00:34:07,400 weren't. But this new story is 691 00:34:07,400 --> 00:34:10,480 unfortunately a striking example of how things can go wrong. 692 00:34:10,480 --> 00:34:11,760 That's going to be it for this episode. 693 00:34:11,760 --> 00:34:17,040 See you in the next.