Market Outlook: The podcast discusses a leaked report from Oracle that raises concerns about the sustainability of the current AI market, likening it to the late 1990s tech bubble.
Bubble Concerns: There is a consensus that the AI sector is in a bubble, with comparisons made to the 1999 tech bubble, highlighting the potential for significant downside if the market corrects.
Oracle's Financials: Oracle's leaked report revealed disappointing gross margins of 14% in its AI business, leading to a significant stock drop and raising questions about profitability expectations.
AI Circular Economy: The podcast critiques the circular investment model involving companies like Nvidia, Oracle, and OpenAI, suggesting it relies heavily on OpenAI's spending, which is unsustainable due to its lack of profitability.
Investment Strategy: The discussion emphasizes the importance of understanding market cycles and suggests focusing on the labor market as an indicator of whether the AI bubble is nearing its peak.
Alternative Investments: The podcast contrasts the AI bubble with gold's performance, suggesting that gold offers a more stable investment with significant upside potential.
Labor Market Indicator: The future of the AI bubble is linked to the labor market's strength, with a deteriorating market potentially signaling a shift from passive inflows to outflows, impacting stock prices.
Risk Management: Investors are advised to consider the risks of remaining in potentially overvalued AI stocks and to explore other investment opportunities with better risk-reward profiles.
Transcript
Hello fellow Rebel Capitals. Hope you're well. So, a huge report was leaked today, an internal report, I think it was from Oracle, and we have to ask the question, does this signal the beginning of the end? Did this just pop the AI bubble? I don't think anyone would argue that we're in a bubble. Even the people, the talking heads on CNBC say that we're in a bubble. The only question is what year is it? Is it 1998? Is it 1999 where the stock market, the S&P 500 in 1999 went up by 50% or is it 2000 when we hit that top and just crashed down let's say 50 60%. So this and it's a big question because if you look at a chart of the S&P 500, in fact I can pull that up right here. I was just using this for a whiteboard video today that's adjusted for inflation. We want to look at this. So if it is 1998, then you got a lot of upside here. But if it's 19 or if it's 2000, then not only do you have massive downside, but you have to realize that the market didn't recover for 13 years. That's the United States, remember? Buy the dip, dollar cost average, you know, all these things. Buy and hold. Okay? And most people just look at the S&P 500 as though it's a retirement plan. They look at the S&P 500 as though it's like their social security check that it just goes up 12% every single year. No, it doesn't. And so if we're right here, let's say, and people are doing the whole buy and hold thing, then they need to adjust their spending expectations for the next 15 years or possibly possibly. Again, no certainties, only pos only only probabilities, excuse me. So what happened today? What happened that really shocked the market with Oracle? Well, you guys can probably guess because what was it a month ago or three weeks ago when Oracle came out with earnings? Oh my gosh, everyone is freaking out. Their stock goes up by like 40% in two days. And some of these news reports, I mean, check this out. Uh I was just scrolling down looking for what happened today. And of course, I come across uh articles from call it a month ago. And the CEO uh right here, Oracle CEO, one of the richest self-made women, just got $412 million richer in 6 hours. 6 hours. That was a month ago. Larry Ellison is $100 billion richer after blowout earnings report. This is what you see in a bubble. This is exactly what you see in a bubble. And look, if CNBC of all people, if they're calling it a bubble, we got to call a spade a spade again. Does can the bubble continue for the next two, three years? Absolutely it can. And it can, like Paul Tudtor Jones said, it can go up 100% from here, 200% from here. Who knows? But that bubble might have just been pricricked. Let me show you what I'm referring to. Uh, we can't look. We can't. Can Google suck any worse? It's almost like they're trying to hide like they're trying to shadowban the articles on what happened to Google because they don't or excuse me, what happened to Oracle because they don't want you to sell your AI stocks because one of those is Google. All right, but right here or the Oracle stock slips. That's an understatement. it it t now it ended the day down about two or three% but at one time it was down well let's just do a one day chart that's what happened right there hummed nothing to see here a wally coyote we're just having a good old day remember all of those orders we just got from open AI oh my gosh I just got hundred billion dollars richer looks like I just got a hundred billion million dollar poorer. It took her six hours to earn 400 million and it took her about six seconds to lose about 300 million. This is the volatility that you see all the time here. But what actually came out, let's see if they'll even get into it here, is this insider kind of leaked report which showed their margins aren't even close to what people expected even the like the bulls, the analysts. So, they were expecting these huge margins on their AI business or I guess what they're doing is they're renting Nvidia chips uh to clients like OpenAI. So, they thought, "Oh my gosh, OpenAI, they're making all this money. They're charging 20 bucks a month and they're giving all this away for free. So, they have to be making all this money." So they're charging OpenAI all, you know, hundreds and trillions and billions and quadrillions and they're just renting out these Nvidia chips to them. They don't have to do anything and they just take the depreciation. They meaning Oracle and this is going to be so great for their back-end business and upsells and cloud computing and all these things. And then Oracle comes out and says, "Not really." And and in this leaked report, by the way, it wasn't like this was a earnings report from Oracle, but they had only 14% gross margins. Notice I said gross margins. This is not net. This is not profit. In fact, I read one report that said that on this I don't know if you want to call it component of their business, this renting of the Nvidia chips or whatever they're renting to Open AI. Just over the last quarter, they lost $100 million on net. So, they have negative cash flow, not positive cash flow. Now, who knows if this report is correct or not, but it we could have just seen underneath the kimono. We could have just seen behind the curtain. And what's behind the curtain is that Nvidia is not going bust. Oracle is not going bust. Open AAI probably not going bust. But are they really going to make that much money? Maybe, maybe not. And the bottom line is the expectations are for perfection. See right here, these stocks are priced to perfection. So they can have a 50% drop. The air comes out of the bubble, so to speak. They get more than a 50% drop until they get in line with their proper valuation. And again, it's not like AI isn't the future. It absolutely is, but that doesn't mean that these stocks are priced appropriately for how much profit they're actually going to make. And the shocker for Wall Street today is they were expecting that Oracle was going to make this much profit and it turned out to be a $und00 million loss. So then that begs the question, okay, well, if Oracle isn't making money, then Nvidia's Nvidia is definitely making money. But this is an inverted pyramid, you see. And the the reason Nvidia or one of the main reasons Nvidia is making money is because they've got this huge customer called Open AI. So the demand engine for the whole AI circular economy is Open AI. But your problem there is Open AI doesn't make any money. In fact, they incinerate money. they they lose literally billions of dollars per year. So if everything if this inverted pyramid standing up or this Jenga puzzle staying in place is all dependent on this one piece and that one piece is Open AI and all the spending coming from Open AI is just coming from investors that are willing to donate to the cause and flush their money down the toilet. and none of it is coming from actual profit. That could be a problem. And I think that's what Wall Street got a glimpse of today. That's why you see the coyote, the wildly coyote moment here. All right. So, now let me switch up the screen share and I want to go to a video and this is a clip from CNBC talking about what happened and you can get their take on it because it's not just oh George g oh George you're always so bullish or excuse me so bearish and if I would have listened to you I would have missed out on all these gains. I would have missed out on this incredible amazing 14% gain in the S&P 500. Sure, there's 75% downside, but who cares about that? If I would have listened to George Gammon and the Rebel Capitalists channel, if I would have listened to your whiteboard videos, I would have missed out on all these gains. Okay. Well, by the way, guess what gold's doing today? Ah, that would be hitting an all-time high over 4,000. So, it is true that if you were watching George Gammon videos, you would have missed out on all the gains in the S&P 500. But on the flip side of that coin, you would have participated in all of these gains with gold going up over 4,000, not to mention the gold miners. So, which would you choose? Would you rather be in gold this year that's up, let's just say, 50% with very little downside. now and maybe there's some downside, but back then with very little downside, much better riskreward, or would would you rather be in all these bubble stocks just trying to cross your fingers and hope they don't crash just so you can ek out a 12% gain in the S&P 500? Your choice. Your choice. All right, so now let's go switch up the screen share and we're going to go to this video from CNBC. and get some more intel because they talk about this circular economy and uh see Josh, let me know if you can hear this. >> Can you hear that? >> Yep. >> Okay. So, let me I' I always got on double time, so let me go back to normal here. >> In the marketplace about, you know, so-called circular in investments. There was an NBC news story that I thought laid this out. very easy to to understand for people if you're wondering well what exactly does that mean um so Nvidia plans to invest in open AI which is buying cloud computing from Oracle which is buying chips from Nvidia which has a stake in coreweave which is providing AI infrastructure to open AI >> sounds really solid doesn't it is nothing to see here what could possibly go wrong but you'll notice I should play that again that everything everything in this circular economy is dependent on open AI. It's on OpenAI spending all of this money. And because it's OpenAI that spends the money, that turns into profits for Nvidia that takes those profits and invests them into Coreweave. And then Coreweave takes those profits and invests them back into OpenAI. And then OpenAI takes that and then recirculates it to a contract over an oracle and their stock blows up. But if you eliminate the OpenAI component of it, then what happens to Nvidia's uh revenues? Now, they don't go to zero. I'm not saying that Nvidia is pets.com, but they go down substantially. And if Nvidia's profits, if their revenues go down, then what happens to Coree? then that goes down. And then if OpenAI blows up or isn't as profitable as people thought, then what happens to Oracle? Then that gal that just made 400 million loses 400 million. And Larry Ellison loses hundreds of billions of dollars because it was all just fugazis. It wasn't it wasn't on cash flow. It was only on just dreams and hopes and fairy dust and unicorns and sunshine. and all these other things. So now they get into it here, but there's there's one of the talking heads guys gets this completely completely well, he gets it right, but at the same time he gets it completely wrong. You'll see what I'm talking about, >> right? And come all the way around the circle. Um AMD did their thing yesterday, right? That stock's higher yet again today. That stock just exploded higher yesterday as well, which only >> And why did AMD explode? Because they've got an investment. And by the way, I'm just curious. How on earth does Open AI invest in all of these companies? They don't make any money. They're incinerating money. They're losing billions and billions and billions of dollars every single year. Yet, they invest in a company or they guarantee them some sort of contract like a $300 billion contract for Oracle. I think that's what it was. and the the market just sees that as money good. How this is craziness. Let's get back to it. >> Adds to the conversation about whether there's this massive bubble brewing in this space. >> I I think it's legitimate to ask the question. I don't think we're going to be able to answer it right now. To me, just based on history, being in the markets, being in business, this feels a little bit like it rhymes with the late 1990s, but not with 1999, more with 1997. I don't want to be blasze but that's just what it feels like. Now why do I say that? Because this circular revenue stream which is a good way of describing it at all stations along the arc does seem to have a positive ROI. >> Wrong. That's see he's right that it's it it's very it rhymes with what's happening in the com. But then what he'll say is oh but this time it's way different because every step along the circular pattern they all have positive cash flow. No, they don't. No, they don't. And And the reason why some of them, not the reason why, I shouldn't say that. I was going to say the reason why they have positive cash flow is because of open AI. That's not true. That's not true. But the reason why their share prices have gone completely parabolic was is from demand that is coming from the one entity that this guy leaves out, which is really at the heart of everything. That's the bottom of the inverted pyramid. That's the last Jenga puzzle or puzzle piece and that's OpenAI. And he neglects to mention the fact that that one key component to the whole infinite money glitch working is actually incinerating billions of dollars per year. >> Return on investment. Yes, there are questions today. Let's face it that they are rumors, but they are questions about the degree of profitability. But we're not talking about losing money at any point along which this circle uh circular money travels. Uh I am a believer in the velocity of money theory of economic growth. I mean that's it's a take on Milton Freriedman. It's usually applied to the in to the economy at large, but I think we can apply it to the AI ecosystem given how important that ecosystem is to the economy at large. And as long as this money is flowing and making profits along the way, which it is. >> No, it's not, dude. And think about what he's saying. He's talking about the velocity of money. You know what's wild is is these these anchors and these talking heads don't some you can say something that is so incredibly stupid and as long as you say it with authority like they don't even they don't even question it. Think about what he's saying. He's like well I believe in the velocity of these of of money. Okay fine. So, what he's talking about is the velocity of money within this circular economy and that as long as that money is moving quickly and quicker and quicker and quicker and quicker, well, then the the profits as long as they're there, then it's going to work. Okay? But but just think about that for a moment. It's not like every single round trip has no costs other than those people who are in the circle. Of course, they've got costs. So, you're losing dollars every single round trip. Think about it. And by the way, and that's not even talking about the giant gaping black hole of money which is open AI. So every time it round trips through them, they suck out another $50 billion, right? So even if you have the same trillion going round and around and around and around and round, of course there's a sucking sound from outside of the circle because that the energy as an example, copper wiring components that make up all the stuff that Nvidia is selling. just using as an example or you have that giant sucking sound coming from the massive toilet money toilet that is open AI. So this is completely not true. In fact, the faster you get the velocity, the the quicker you get down to zero. You get down to no money left. And even if there wasn't a sucking sound, you would just have the same hundred billion dollars just going round and round and round and round. And he's like, "Well, if they make five round trips a year, then that's 500 billion in revenues. And if it just makes one round trip, then it's 100." Well, 500's better than 100. This is this is just nonsense. This is like me having a dollar and giving it to you, then you just giving it right back to me and does us going back and forth and back and forth. And at the end of the year, we're like, "Oh my gosh, look at how rich we are. We all made a quadrillion dollars because we traded this $1 back and forth a quadrillion times. Ah, this is just it's bananas. Bananas. I have to keep going. >> We should be fine. Now, for a case like Oracle today, all right, here's a stock that's trading in the mid-40s as a forward earnings multiple. It's up 120% over the last 6 months. It's susceptible to have some air let out of the balloon. As Josh just said, I >> I love how they do this. The the guys on CNBC, if you watch this whole thing, they really try to refrain from using the word bubble. They always try to use the word balloon. And I guarantee you the producers before they went on set, they all say, "Hey guys, you know, we we know this is a bubble." I mean, let's be honest, but we've got to paint as bullish a picture as possible. So, let's not use the B- word. Instead of bubble, let's go ahead and use balloon. It's just it's it's not air coming out of a bubble. It's just it's air. It's it's coming out of a balloon. It sounds so much better. >> That's a good way of of stating it. You let a little air out of the balloon so it doesn't pop and it actually sets up for the balloon to be expanded further down the line. What I'm saying here, just to summarize, feels like 97, not 99. Go ahead, Josh. >> You want that. You want that skepticism. Thank god they're writing articles like that. >> Agreed. >> You want that because in the absence of skepticism, this thing goes parabolic. >> This thing goes parabolic. He just said that Oracle is up 120% over the last six months. And this is a a company that was I mean look let's go to a chart of Oracle. It's not like it's just a massive growth story for heaven's sakes. It might have been going up but I mean really I mean it it's it's not like it's the it it ain't Nvidia that's for sure. >> Um you're you're you're at a you're at like a NASDAQ 30,000 Dow with 65,000. That is that's not a good outcome for anyone. And so far, as bullish as people are, we've staved off that particular concern that I would definitely share if if we were doing that in markets. But the reality is not is not that. And when people >> What did he even just say? I I He's He's just mumbling words, not even forming a sentence. And it you it's just if it was just this then it it wouldn't be this but it's that and it's not that. So it's this. And if it was that then yeah I mean we'd be concerned but it's obviously this and not that. So no reason to worry here. Bye bye bye bye bye. That that's the level of intellect there. That that's the quality of argument we're dealing with here. >> People point out things like I coreweave. I just I just default to saying, "Look, man, these are not the biggest market caps in the stock market. They could get cut in half and the market could survive." >> But think, okay, this is another terrible argument. He's saying, "Oh, okay. Well, there are some stocks that might be in a balloon, definitely not in a bubble, and it might be like Cororeweave or who cares. These aren't like mega cap stocks. They don't really impact the S&P 500." Right? Think about what you're saying. The concentration in the S&P 500 is astronomical. We all know this. It's not even the S&P 500. It's the S&P 7. That That's really what we're talking about. And it's almost by this point just the S&P 1, just Nvidia. So, if you think that Coreweave can go down because the AI story is blowing up and that's not going to impact Nvidia, that's not going to impact the Mag 7. it. No, it's it's going to cut them in half as well. Maybe not in half, but they're going to lose 20, 30, 40%. And if they lose 40%, what do you think's going to happen to the S&P 500? Because it's a weighted index and those seven stocks are what, 30 40% of the index. So, if the AI story blows up to the degree to which would cause Coreeave to blow up, that's a problem. That's a real big problem. You don't have Coreweave blow up and Nvidia not take a hit. And you don't have Nvidia take a hit without the S&P 500 taking a hit. And I would argue you don't have the S&P 500 taking a hit without the overall economy taking a hit. >> Let's put it another way, taking what you're saying. I mean, Oracle right now 40 times Ford earnings. When the bubble in Cisco hit, it was 120 times earnings. By the way, I looked the other day at eBay. I think that's one of your favorites. Back at the same time, it was 400 times earnings. That's what bubbles look like now. to 40 times is projected to go to 24 times for Oracle over the next two years. >> But why were earnings that high? This is again this is just such a weak argument. They sit there and say, "Oh my gosh, well it was what what do you say 120 times earnings or something like that. Oh my gosh, it it's 120 times earning. Well, what earnings is is that trailing 12 month? Is that forward?" And I don't know what it is, right? But it's all about okay the expectations for earnings and that can be that can skew heavily right. So if all of a sudden the earnings expectations plummet well then yeah it's going to go up to 120 just like if we had earnings expectations for Oracle completely plummet and their share price doesn't go down to the same degree during that time frame. Then what's going to happen? You're going to have that same ratio blowout. it's going to be trading at 120 times forward projected earn ear earnings or whatever it is. So, look, the bottom line is whether you can't just sit there and say, "Well, back then it was trading at 120 times. Today, it's 40. So, we're not in a bubble. Nothing to worry about. Just go ahead and buy buy and hold. Just buy the dip." That's that's complete and total nonsense, right? If you if you want to actually time these things, which are very very difficult to do by obviously you've got to sit here and look at stories like this and determine when is the market going to take that whiff of of of smelling salts and realize, holy cow, these businesses are going to be here for the long haul. AI is definitely the future, but right now based on their profitability or lack thereof in terms of OpenAI, the valuations, the market cap, it doesn't make sense. It doesn't make sense. So now let's go over what would in my view determine whether this is 1997 like this gentleman is saying or 19 99 or 2000. And and you know what's bizarre is I've heard all these people come out and talk about how this is a bubble such as Jeff Bezos. I'm sure you guys saw that. And by the way, who was the major shareholder in Pets.com. We talked about this yesterday. That was Amazon. In other words, Jeff Bezos. So if anyone should be able to recognize a bubble, it should be Jeff Bezos. at one time the largest shareholder of Pets.com, right? And even Jeff Bezos is saying that it's a massive bubble, right? We had Einhorn come out bubble. We had Paul Tudtor Jones come out say bubble, but Paul Tudtor Jones is still playing it because he sees a lot of upside because he thinks it's 1999. But that's really an expert move. So, how do we determine at what stage of the game we're in? because it matters. Like going back to this chart, it matters a lot. You could have 50%, 75%, 100% upside. >> You can't see the screen share. >> Oh man. Okay, that is one thing that really sucks about Streamyard. So, I have to redo the screen share once again. Annoying, annoying, annoying. Okay, so now we go back to wherever I was, S&P 500. So, it's really important to try to determine where we are right here. Or if you're like me, just don't even play the game. Like, why? There's so many other things out there to invest in without having to be in cash that have much better riskreward. So, so why even play this game? That's what I do. But that's not personal investing advice. But you can see the problem here is if you're buying here, all right, that might not be too bad. But if you're buying up here and buy and hold, that's a big problem because then you got to wait 13 years just to get back to even. And by the way, if you're buying the dip in dollar cost averaging all the way down, guess what's going to happen right here? You're going to be freaking out. You're going to be your buddies are going to have to talk you off the edge because you're going to be your paper losses are going to be so dramatic and most likely you're going to sell. You're going to capitulate. And that's what then you go back up. So that's this is why it's so important, right, to figure these things out and to try to understand the probabilities here. So where do I think you should focus your attention? This is where I'm focusing my attention and it goes back to something we talk about on this channel all the time. Right here, unemployment rate. So, we we know that the stock market is engineered right now for passive flows to really determine what's going on with the whole AI bubble, what's going on with the S&P 500, what's really going on with everything because it is a nondiscretionary buyer. It's just I think my buddy Mike Green, what does he call it? The the brainless robot or something like that. It's just a dollar goes in, a dollar buys, and 8 cents of that dollar goes to Nvidia. So Nvidia disproportionately benefits from these passive flows. Now the problem here is if we go from passive inflows to passive outflows, then Nvidia, it's a great ride up, isn't it? But when that dollar comes out of the S&P 500 index fund, then who gets disproportionately impacted negatively? That would be Nvidia because as every dollar goes in they get 8 cents which disproportionately favors them but as every dollar comes out they get 8 cents taken away. And if they get 8 cents taken away and by the way then what happens to their market cap? It goes down. And then if their market cap goes down even if dollar goes back in they get fewer cents. They get a lower percentage of the overall dollar. So, as these mark as these inflows turn into outflows, I don't care how bullish people are on AI. I don't care how amazing Sam Alman is. I don't care how incredible Oracle is. The those stocks are going to come down because the reason they're at the levels they are is almost exclusively due to passive investing. So, you've got to think about, all right, well, what contributes to this passive investing? Why is there always a buy the dip buyer? Well, it's because people are taking 10% of their paycheck or whatever it is that Dave Ramsey tells them to and they're just allocating that directly to a um the S&P 500 index, a passive S&P 500 index fund. So the the key component there is the catalyst is that paycheck because if the as long as the paycheck is there's still going to have that passive flow and on net there's going to be more dollars going in than dollars coming out but as soon as the paycheck is gone doesn't matter how bullish you are on AI if you don't have a paycheck you're not putting money into the S&P P500 index fund and then you go from net inflows to net outflows. So, as most of you know, I had the privilege of hanging out with my good buddy Mike Green and others in St. parts a few weeks ago and we had about a 2 or threeh hour discussion during lunch at which time he was nice enough to tell me kind of his numbers and he's got a lot of models for this and according to his calculations he thinks that you could see a net inflow turn into a net outflow if the unemployment rate gets to about 5.5 or 6%. And we know, and that's the big difference here. That's another thing that I pointed out in the whiteboard video that I did today, is look at what was happening to the unemployment rate in 1980, excuse me, 1998 and 1999. What was it doing? It was going down. And by the way, if you look at the non-farm payrolls during this time, they were really strong. Like, you know, positive 200, 300,000. Now juxtapose that to what's happening today. Instead of the unemployment rate going down, instead of this the labor market being incredibly strong, the unemployment rate is going up. But more importantly, the labor market is incredibly weak and it's deteriorating rapidly. As we all know by looking at the negative non-farm payrolls, these massive revisions, what's happening to the household survey, what's happening to ADP negative three of the last four months. And then we have the jolts showing that there is now a surplus of workers versus the job openings. So you have the technical economists call that slack in the labor market. So you have slack in the labor market. you have a labor market that's deteriorating, meaning that you have fewer and fewer paychecks being distributed to people that they can take 10% of and allocate to that S&P index fund that is required for this whole AI bubble to stay afloat. So for me, this is the answer to the question, what year is it? If the unemployment rate stays like this or let's just say the labor market starts to get better, which is definitely a possibility, definitely a possibility. If the labor market starts to get stronger, if it starts to improve, then I think he's right. I think we are in 1998, 1999, why why wouldn't the stock market go up another 100%. I mean, you're going to get so much leverage. You're going to get so much FOMO. You're going to get the I mean, who knows? At the rate Donald Trump is going, he's probably going to take an equity position in every single one of these companies just to juice the share price 75%. I'm sure Donald Junior is taking a cut on the back end somehow, right? But it wouldn't surprise me. So why wouldn't these stocks go up another 100% or whatever it is? The problem there, of course, is you're playing with fire. But now, let's just assume the labor market continues to deteriorate. All right. In that case, if that if that's what your highest probability outcome is, then in my view, you're in 1999 and you might even be in 2000. So for me, it's all about the labor market in trying to determine and answer that extremely extremely important question as to what year of the bubble we are actually in. because everyone agrees that it's a bubble. I look if the if the talking heads on CNBC are even saying that it's a oh, excuse me, a balloon. If the talking heads on CNBC are saying that it's a balloon, you know for sure that okay, we can all agree that this is a massive bubble and this doesn't end well. It's just a matter of of is there another 100% upside before we get the 50% or so of the downside. All about the labor market. All about the labor in my opinion. And you guys could have a different opinion, but that's what I am focused on the most right now. All right, guys. Enjoy the rest of your evening. As always, make sure you are standing up for freedom, liberty, free market, capitalism. See you in the next video.
Leaked AI REPORT From Oracle Shocks The Market
Summary
Transcript
Hello fellow Rebel Capitals. Hope you're well. So, a huge report was leaked today, an internal report, I think it was from Oracle, and we have to ask the question, does this signal the beginning of the end? Did this just pop the AI bubble? I don't think anyone would argue that we're in a bubble. Even the people, the talking heads on CNBC say that we're in a bubble. The only question is what year is it? Is it 1998? Is it 1999 where the stock market, the S&P 500 in 1999 went up by 50% or is it 2000 when we hit that top and just crashed down let's say 50 60%. So this and it's a big question because if you look at a chart of the S&P 500, in fact I can pull that up right here. I was just using this for a whiteboard video today that's adjusted for inflation. We want to look at this. So if it is 1998, then you got a lot of upside here. But if it's 19 or if it's 2000, then not only do you have massive downside, but you have to realize that the market didn't recover for 13 years. That's the United States, remember? Buy the dip, dollar cost average, you know, all these things. Buy and hold. Okay? And most people just look at the S&P 500 as though it's a retirement plan. They look at the S&P 500 as though it's like their social security check that it just goes up 12% every single year. No, it doesn't. And so if we're right here, let's say, and people are doing the whole buy and hold thing, then they need to adjust their spending expectations for the next 15 years or possibly possibly. Again, no certainties, only pos only only probabilities, excuse me. So what happened today? What happened that really shocked the market with Oracle? Well, you guys can probably guess because what was it a month ago or three weeks ago when Oracle came out with earnings? Oh my gosh, everyone is freaking out. Their stock goes up by like 40% in two days. And some of these news reports, I mean, check this out. Uh I was just scrolling down looking for what happened today. And of course, I come across uh articles from call it a month ago. And the CEO uh right here, Oracle CEO, one of the richest self-made women, just got $412 million richer in 6 hours. 6 hours. That was a month ago. Larry Ellison is $100 billion richer after blowout earnings report. This is what you see in a bubble. This is exactly what you see in a bubble. And look, if CNBC of all people, if they're calling it a bubble, we got to call a spade a spade again. Does can the bubble continue for the next two, three years? Absolutely it can. And it can, like Paul Tudtor Jones said, it can go up 100% from here, 200% from here. Who knows? But that bubble might have just been pricricked. Let me show you what I'm referring to. Uh, we can't look. We can't. Can Google suck any worse? It's almost like they're trying to hide like they're trying to shadowban the articles on what happened to Google because they don't or excuse me, what happened to Oracle because they don't want you to sell your AI stocks because one of those is Google. All right, but right here or the Oracle stock slips. That's an understatement. it it t now it ended the day down about two or three% but at one time it was down well let's just do a one day chart that's what happened right there hummed nothing to see here a wally coyote we're just having a good old day remember all of those orders we just got from open AI oh my gosh I just got hundred billion dollars richer looks like I just got a hundred billion million dollar poorer. It took her six hours to earn 400 million and it took her about six seconds to lose about 300 million. This is the volatility that you see all the time here. But what actually came out, let's see if they'll even get into it here, is this insider kind of leaked report which showed their margins aren't even close to what people expected even the like the bulls, the analysts. So, they were expecting these huge margins on their AI business or I guess what they're doing is they're renting Nvidia chips uh to clients like OpenAI. So, they thought, "Oh my gosh, OpenAI, they're making all this money. They're charging 20 bucks a month and they're giving all this away for free. So, they have to be making all this money." So they're charging OpenAI all, you know, hundreds and trillions and billions and quadrillions and they're just renting out these Nvidia chips to them. They don't have to do anything and they just take the depreciation. They meaning Oracle and this is going to be so great for their back-end business and upsells and cloud computing and all these things. And then Oracle comes out and says, "Not really." And and in this leaked report, by the way, it wasn't like this was a earnings report from Oracle, but they had only 14% gross margins. Notice I said gross margins. This is not net. This is not profit. In fact, I read one report that said that on this I don't know if you want to call it component of their business, this renting of the Nvidia chips or whatever they're renting to Open AI. Just over the last quarter, they lost $100 million on net. So, they have negative cash flow, not positive cash flow. Now, who knows if this report is correct or not, but it we could have just seen underneath the kimono. We could have just seen behind the curtain. And what's behind the curtain is that Nvidia is not going bust. Oracle is not going bust. Open AAI probably not going bust. But are they really going to make that much money? Maybe, maybe not. And the bottom line is the expectations are for perfection. See right here, these stocks are priced to perfection. So they can have a 50% drop. The air comes out of the bubble, so to speak. They get more than a 50% drop until they get in line with their proper valuation. And again, it's not like AI isn't the future. It absolutely is, but that doesn't mean that these stocks are priced appropriately for how much profit they're actually going to make. And the shocker for Wall Street today is they were expecting that Oracle was going to make this much profit and it turned out to be a $und00 million loss. So then that begs the question, okay, well, if Oracle isn't making money, then Nvidia's Nvidia is definitely making money. But this is an inverted pyramid, you see. And the the reason Nvidia or one of the main reasons Nvidia is making money is because they've got this huge customer called Open AI. So the demand engine for the whole AI circular economy is Open AI. But your problem there is Open AI doesn't make any money. In fact, they incinerate money. they they lose literally billions of dollars per year. So if everything if this inverted pyramid standing up or this Jenga puzzle staying in place is all dependent on this one piece and that one piece is Open AI and all the spending coming from Open AI is just coming from investors that are willing to donate to the cause and flush their money down the toilet. and none of it is coming from actual profit. That could be a problem. And I think that's what Wall Street got a glimpse of today. That's why you see the coyote, the wildly coyote moment here. All right. So, now let me switch up the screen share and I want to go to a video and this is a clip from CNBC talking about what happened and you can get their take on it because it's not just oh George g oh George you're always so bullish or excuse me so bearish and if I would have listened to you I would have missed out on all these gains. I would have missed out on this incredible amazing 14% gain in the S&P 500. Sure, there's 75% downside, but who cares about that? If I would have listened to George Gammon and the Rebel Capitalists channel, if I would have listened to your whiteboard videos, I would have missed out on all these gains. Okay. Well, by the way, guess what gold's doing today? Ah, that would be hitting an all-time high over 4,000. So, it is true that if you were watching George Gammon videos, you would have missed out on all the gains in the S&P 500. But on the flip side of that coin, you would have participated in all of these gains with gold going up over 4,000, not to mention the gold miners. So, which would you choose? Would you rather be in gold this year that's up, let's just say, 50% with very little downside. now and maybe there's some downside, but back then with very little downside, much better riskreward, or would would you rather be in all these bubble stocks just trying to cross your fingers and hope they don't crash just so you can ek out a 12% gain in the S&P 500? Your choice. Your choice. All right, so now let's go switch up the screen share and we're going to go to this video from CNBC. and get some more intel because they talk about this circular economy and uh see Josh, let me know if you can hear this. >> Can you hear that? >> Yep. >> Okay. So, let me I' I always got on double time, so let me go back to normal here. >> In the marketplace about, you know, so-called circular in investments. There was an NBC news story that I thought laid this out. very easy to to understand for people if you're wondering well what exactly does that mean um so Nvidia plans to invest in open AI which is buying cloud computing from Oracle which is buying chips from Nvidia which has a stake in coreweave which is providing AI infrastructure to open AI >> sounds really solid doesn't it is nothing to see here what could possibly go wrong but you'll notice I should play that again that everything everything in this circular economy is dependent on open AI. It's on OpenAI spending all of this money. And because it's OpenAI that spends the money, that turns into profits for Nvidia that takes those profits and invests them into Coreweave. And then Coreweave takes those profits and invests them back into OpenAI. And then OpenAI takes that and then recirculates it to a contract over an oracle and their stock blows up. But if you eliminate the OpenAI component of it, then what happens to Nvidia's uh revenues? Now, they don't go to zero. I'm not saying that Nvidia is pets.com, but they go down substantially. And if Nvidia's profits, if their revenues go down, then what happens to Coree? then that goes down. And then if OpenAI blows up or isn't as profitable as people thought, then what happens to Oracle? Then that gal that just made 400 million loses 400 million. And Larry Ellison loses hundreds of billions of dollars because it was all just fugazis. It wasn't it wasn't on cash flow. It was only on just dreams and hopes and fairy dust and unicorns and sunshine. and all these other things. So now they get into it here, but there's there's one of the talking heads guys gets this completely completely well, he gets it right, but at the same time he gets it completely wrong. You'll see what I'm talking about, >> right? And come all the way around the circle. Um AMD did their thing yesterday, right? That stock's higher yet again today. That stock just exploded higher yesterday as well, which only >> And why did AMD explode? Because they've got an investment. And by the way, I'm just curious. How on earth does Open AI invest in all of these companies? They don't make any money. They're incinerating money. They're losing billions and billions and billions of dollars every single year. Yet, they invest in a company or they guarantee them some sort of contract like a $300 billion contract for Oracle. I think that's what it was. and the the market just sees that as money good. How this is craziness. Let's get back to it. >> Adds to the conversation about whether there's this massive bubble brewing in this space. >> I I think it's legitimate to ask the question. I don't think we're going to be able to answer it right now. To me, just based on history, being in the markets, being in business, this feels a little bit like it rhymes with the late 1990s, but not with 1999, more with 1997. I don't want to be blasze but that's just what it feels like. Now why do I say that? Because this circular revenue stream which is a good way of describing it at all stations along the arc does seem to have a positive ROI. >> Wrong. That's see he's right that it's it it's very it rhymes with what's happening in the com. But then what he'll say is oh but this time it's way different because every step along the circular pattern they all have positive cash flow. No, they don't. No, they don't. And And the reason why some of them, not the reason why, I shouldn't say that. I was going to say the reason why they have positive cash flow is because of open AI. That's not true. That's not true. But the reason why their share prices have gone completely parabolic was is from demand that is coming from the one entity that this guy leaves out, which is really at the heart of everything. That's the bottom of the inverted pyramid. That's the last Jenga puzzle or puzzle piece and that's OpenAI. And he neglects to mention the fact that that one key component to the whole infinite money glitch working is actually incinerating billions of dollars per year. >> Return on investment. Yes, there are questions today. Let's face it that they are rumors, but they are questions about the degree of profitability. But we're not talking about losing money at any point along which this circle uh circular money travels. Uh I am a believer in the velocity of money theory of economic growth. I mean that's it's a take on Milton Freriedman. It's usually applied to the in to the economy at large, but I think we can apply it to the AI ecosystem given how important that ecosystem is to the economy at large. And as long as this money is flowing and making profits along the way, which it is. >> No, it's not, dude. And think about what he's saying. He's talking about the velocity of money. You know what's wild is is these these anchors and these talking heads don't some you can say something that is so incredibly stupid and as long as you say it with authority like they don't even they don't even question it. Think about what he's saying. He's like well I believe in the velocity of these of of money. Okay fine. So, what he's talking about is the velocity of money within this circular economy and that as long as that money is moving quickly and quicker and quicker and quicker and quicker, well, then the the profits as long as they're there, then it's going to work. Okay? But but just think about that for a moment. It's not like every single round trip has no costs other than those people who are in the circle. Of course, they've got costs. So, you're losing dollars every single round trip. Think about it. And by the way, and that's not even talking about the giant gaping black hole of money which is open AI. So every time it round trips through them, they suck out another $50 billion, right? So even if you have the same trillion going round and around and around and around and round, of course there's a sucking sound from outside of the circle because that the energy as an example, copper wiring components that make up all the stuff that Nvidia is selling. just using as an example or you have that giant sucking sound coming from the massive toilet money toilet that is open AI. So this is completely not true. In fact, the faster you get the velocity, the the quicker you get down to zero. You get down to no money left. And even if there wasn't a sucking sound, you would just have the same hundred billion dollars just going round and round and round and round. And he's like, "Well, if they make five round trips a year, then that's 500 billion in revenues. And if it just makes one round trip, then it's 100." Well, 500's better than 100. This is this is just nonsense. This is like me having a dollar and giving it to you, then you just giving it right back to me and does us going back and forth and back and forth. And at the end of the year, we're like, "Oh my gosh, look at how rich we are. We all made a quadrillion dollars because we traded this $1 back and forth a quadrillion times. Ah, this is just it's bananas. Bananas. I have to keep going. >> We should be fine. Now, for a case like Oracle today, all right, here's a stock that's trading in the mid-40s as a forward earnings multiple. It's up 120% over the last 6 months. It's susceptible to have some air let out of the balloon. As Josh just said, I >> I love how they do this. The the guys on CNBC, if you watch this whole thing, they really try to refrain from using the word bubble. They always try to use the word balloon. And I guarantee you the producers before they went on set, they all say, "Hey guys, you know, we we know this is a bubble." I mean, let's be honest, but we've got to paint as bullish a picture as possible. So, let's not use the B- word. Instead of bubble, let's go ahead and use balloon. It's just it's it's not air coming out of a bubble. It's just it's air. It's it's coming out of a balloon. It sounds so much better. >> That's a good way of of stating it. You let a little air out of the balloon so it doesn't pop and it actually sets up for the balloon to be expanded further down the line. What I'm saying here, just to summarize, feels like 97, not 99. Go ahead, Josh. >> You want that. You want that skepticism. Thank god they're writing articles like that. >> Agreed. >> You want that because in the absence of skepticism, this thing goes parabolic. >> This thing goes parabolic. He just said that Oracle is up 120% over the last six months. And this is a a company that was I mean look let's go to a chart of Oracle. It's not like it's just a massive growth story for heaven's sakes. It might have been going up but I mean really I mean it it's it's not like it's the it it ain't Nvidia that's for sure. >> Um you're you're you're at a you're at like a NASDAQ 30,000 Dow with 65,000. That is that's not a good outcome for anyone. And so far, as bullish as people are, we've staved off that particular concern that I would definitely share if if we were doing that in markets. But the reality is not is not that. And when people >> What did he even just say? I I He's He's just mumbling words, not even forming a sentence. And it you it's just if it was just this then it it wouldn't be this but it's that and it's not that. So it's this. And if it was that then yeah I mean we'd be concerned but it's obviously this and not that. So no reason to worry here. Bye bye bye bye bye. That that's the level of intellect there. That that's the quality of argument we're dealing with here. >> People point out things like I coreweave. I just I just default to saying, "Look, man, these are not the biggest market caps in the stock market. They could get cut in half and the market could survive." >> But think, okay, this is another terrible argument. He's saying, "Oh, okay. Well, there are some stocks that might be in a balloon, definitely not in a bubble, and it might be like Cororeweave or who cares. These aren't like mega cap stocks. They don't really impact the S&P 500." Right? Think about what you're saying. The concentration in the S&P 500 is astronomical. We all know this. It's not even the S&P 500. It's the S&P 7. That That's really what we're talking about. And it's almost by this point just the S&P 1, just Nvidia. So, if you think that Coreweave can go down because the AI story is blowing up and that's not going to impact Nvidia, that's not going to impact the Mag 7. it. No, it's it's going to cut them in half as well. Maybe not in half, but they're going to lose 20, 30, 40%. And if they lose 40%, what do you think's going to happen to the S&P 500? Because it's a weighted index and those seven stocks are what, 30 40% of the index. So, if the AI story blows up to the degree to which would cause Coreeave to blow up, that's a problem. That's a real big problem. You don't have Coreweave blow up and Nvidia not take a hit. And you don't have Nvidia take a hit without the S&P 500 taking a hit. And I would argue you don't have the S&P 500 taking a hit without the overall economy taking a hit. >> Let's put it another way, taking what you're saying. I mean, Oracle right now 40 times Ford earnings. When the bubble in Cisco hit, it was 120 times earnings. By the way, I looked the other day at eBay. I think that's one of your favorites. Back at the same time, it was 400 times earnings. That's what bubbles look like now. to 40 times is projected to go to 24 times for Oracle over the next two years. >> But why were earnings that high? This is again this is just such a weak argument. They sit there and say, "Oh my gosh, well it was what what do you say 120 times earnings or something like that. Oh my gosh, it it's 120 times earning. Well, what earnings is is that trailing 12 month? Is that forward?" And I don't know what it is, right? But it's all about okay the expectations for earnings and that can be that can skew heavily right. So if all of a sudden the earnings expectations plummet well then yeah it's going to go up to 120 just like if we had earnings expectations for Oracle completely plummet and their share price doesn't go down to the same degree during that time frame. Then what's going to happen? You're going to have that same ratio blowout. it's going to be trading at 120 times forward projected earn ear earnings or whatever it is. So, look, the bottom line is whether you can't just sit there and say, "Well, back then it was trading at 120 times. Today, it's 40. So, we're not in a bubble. Nothing to worry about. Just go ahead and buy buy and hold. Just buy the dip." That's that's complete and total nonsense, right? If you if you want to actually time these things, which are very very difficult to do by obviously you've got to sit here and look at stories like this and determine when is the market going to take that whiff of of of smelling salts and realize, holy cow, these businesses are going to be here for the long haul. AI is definitely the future, but right now based on their profitability or lack thereof in terms of OpenAI, the valuations, the market cap, it doesn't make sense. It doesn't make sense. So now let's go over what would in my view determine whether this is 1997 like this gentleman is saying or 19 99 or 2000. And and you know what's bizarre is I've heard all these people come out and talk about how this is a bubble such as Jeff Bezos. I'm sure you guys saw that. And by the way, who was the major shareholder in Pets.com. We talked about this yesterday. That was Amazon. In other words, Jeff Bezos. So if anyone should be able to recognize a bubble, it should be Jeff Bezos. at one time the largest shareholder of Pets.com, right? And even Jeff Bezos is saying that it's a massive bubble, right? We had Einhorn come out bubble. We had Paul Tudtor Jones come out say bubble, but Paul Tudtor Jones is still playing it because he sees a lot of upside because he thinks it's 1999. But that's really an expert move. So, how do we determine at what stage of the game we're in? because it matters. Like going back to this chart, it matters a lot. You could have 50%, 75%, 100% upside. >> You can't see the screen share. >> Oh man. Okay, that is one thing that really sucks about Streamyard. So, I have to redo the screen share once again. Annoying, annoying, annoying. Okay, so now we go back to wherever I was, S&P 500. So, it's really important to try to determine where we are right here. Or if you're like me, just don't even play the game. Like, why? There's so many other things out there to invest in without having to be in cash that have much better riskreward. So, so why even play this game? That's what I do. But that's not personal investing advice. But you can see the problem here is if you're buying here, all right, that might not be too bad. But if you're buying up here and buy and hold, that's a big problem because then you got to wait 13 years just to get back to even. And by the way, if you're buying the dip in dollar cost averaging all the way down, guess what's going to happen right here? You're going to be freaking out. You're going to be your buddies are going to have to talk you off the edge because you're going to be your paper losses are going to be so dramatic and most likely you're going to sell. You're going to capitulate. And that's what then you go back up. So that's this is why it's so important, right, to figure these things out and to try to understand the probabilities here. So where do I think you should focus your attention? This is where I'm focusing my attention and it goes back to something we talk about on this channel all the time. Right here, unemployment rate. So, we we know that the stock market is engineered right now for passive flows to really determine what's going on with the whole AI bubble, what's going on with the S&P 500, what's really going on with everything because it is a nondiscretionary buyer. It's just I think my buddy Mike Green, what does he call it? The the brainless robot or something like that. It's just a dollar goes in, a dollar buys, and 8 cents of that dollar goes to Nvidia. So Nvidia disproportionately benefits from these passive flows. Now the problem here is if we go from passive inflows to passive outflows, then Nvidia, it's a great ride up, isn't it? But when that dollar comes out of the S&P 500 index fund, then who gets disproportionately impacted negatively? That would be Nvidia because as every dollar goes in they get 8 cents which disproportionately favors them but as every dollar comes out they get 8 cents taken away. And if they get 8 cents taken away and by the way then what happens to their market cap? It goes down. And then if their market cap goes down even if dollar goes back in they get fewer cents. They get a lower percentage of the overall dollar. So, as these mark as these inflows turn into outflows, I don't care how bullish people are on AI. I don't care how amazing Sam Alman is. I don't care how incredible Oracle is. The those stocks are going to come down because the reason they're at the levels they are is almost exclusively due to passive investing. So, you've got to think about, all right, well, what contributes to this passive investing? Why is there always a buy the dip buyer? Well, it's because people are taking 10% of their paycheck or whatever it is that Dave Ramsey tells them to and they're just allocating that directly to a um the S&P 500 index, a passive S&P 500 index fund. So the the key component there is the catalyst is that paycheck because if the as long as the paycheck is there's still going to have that passive flow and on net there's going to be more dollars going in than dollars coming out but as soon as the paycheck is gone doesn't matter how bullish you are on AI if you don't have a paycheck you're not putting money into the S&P P500 index fund and then you go from net inflows to net outflows. So, as most of you know, I had the privilege of hanging out with my good buddy Mike Green and others in St. parts a few weeks ago and we had about a 2 or threeh hour discussion during lunch at which time he was nice enough to tell me kind of his numbers and he's got a lot of models for this and according to his calculations he thinks that you could see a net inflow turn into a net outflow if the unemployment rate gets to about 5.5 or 6%. And we know, and that's the big difference here. That's another thing that I pointed out in the whiteboard video that I did today, is look at what was happening to the unemployment rate in 1980, excuse me, 1998 and 1999. What was it doing? It was going down. And by the way, if you look at the non-farm payrolls during this time, they were really strong. Like, you know, positive 200, 300,000. Now juxtapose that to what's happening today. Instead of the unemployment rate going down, instead of this the labor market being incredibly strong, the unemployment rate is going up. But more importantly, the labor market is incredibly weak and it's deteriorating rapidly. As we all know by looking at the negative non-farm payrolls, these massive revisions, what's happening to the household survey, what's happening to ADP negative three of the last four months. And then we have the jolts showing that there is now a surplus of workers versus the job openings. So you have the technical economists call that slack in the labor market. So you have slack in the labor market. you have a labor market that's deteriorating, meaning that you have fewer and fewer paychecks being distributed to people that they can take 10% of and allocate to that S&P index fund that is required for this whole AI bubble to stay afloat. So for me, this is the answer to the question, what year is it? If the unemployment rate stays like this or let's just say the labor market starts to get better, which is definitely a possibility, definitely a possibility. If the labor market starts to get stronger, if it starts to improve, then I think he's right. I think we are in 1998, 1999, why why wouldn't the stock market go up another 100%. I mean, you're going to get so much leverage. You're going to get so much FOMO. You're going to get the I mean, who knows? At the rate Donald Trump is going, he's probably going to take an equity position in every single one of these companies just to juice the share price 75%. I'm sure Donald Junior is taking a cut on the back end somehow, right? But it wouldn't surprise me. So why wouldn't these stocks go up another 100% or whatever it is? The problem there, of course, is you're playing with fire. But now, let's just assume the labor market continues to deteriorate. All right. In that case, if that if that's what your highest probability outcome is, then in my view, you're in 1999 and you might even be in 2000. So for me, it's all about the labor market in trying to determine and answer that extremely extremely important question as to what year of the bubble we are actually in. because everyone agrees that it's a bubble. I look if the if the talking heads on CNBC are even saying that it's a oh, excuse me, a balloon. If the talking heads on CNBC are saying that it's a balloon, you know for sure that okay, we can all agree that this is a massive bubble and this doesn't end well. It's just a matter of of is there another 100% upside before we get the 50% or so of the downside. All about the labor market. All about the labor in my opinion. And you guys could have a different opinion, but that's what I am focused on the most right now. All right, guys. Enjoy the rest of your evening. As always, make sure you are standing up for freedom, liberty, free market, capitalism. See you in the next video.