It's a Bloodbath (EP. 487)

CoreWeave

Across the shows: 26 speakers in other episodes, 6 bullish and 19 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  CoreWeave's debt-funded chip buildout is a credible AI canary; company size is irrelevant.

  CoreWeave is a neocloud that fills data centers with Nvidia chips and leases them to hyperscalers. It is financing chip purchases worth tens of billions of dollars with a mix of public, private, secured and unsecured debt. Borrowing costs are rising sharply and its bond prices are falling, so he thinks it can be the canary in the coal mine for AI. He says the company's size does not matter, though he admits he does not know whether it will be the end of the story.

  “...is that there is a lot of borrowing going on to finance the purchases of these chips that are in the tens of billions of dollars... And the rates are going vertical, and the bond prices are crashing.”at 8:55

• Ben Carlson · Ritholtz Wealth ManagementNeutral

  CoreWeave is a small firm; it is unlikely to be the AI canary, with about 15% odds.

  He puts the odds that CoreWeave is an AI canary at about 15%. He expects hyperscalers to be unaffected by CoreWeave's problems, since CoreWeave's own debt is trading at higher yields. He sees CoreWeave as a drop in the ocean within AI. He also argues that the bond market being involved is good news, because investors pricing AI debt act as a check on speculative excess.

  “So my kind of final answer on CoreWeave, 15% chance this could be a canary in the coal mine”at 19:11

Netflix

Across the shows: 9 speakers in other episodes, 6 bullish and 5 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Netflix's financials are strong, but slowing growth and YouTube competition explain the stock's drop.

  Michael says Netflix took a 20% loss despite billions of quarterly profit and healthy margins. The problem is growth, which is not fast enough, and YouTube is taking its share. He notes that the stock barely reacted to a 1,000-person layoff, and that the head of content, who oversaw a $20 billion budget, has left.

  “But they're not growing nearly fast enough, and YouTube is eating their lunch.”at 54:22

• Ben Carlson · Ritholtz Wealth ManagementNeutral

  Netflix must push harder into live sports and events to keep growing.

  Ben says Netflix's business is good and it is still growing, but more slowly. He argues the company now needs to spend more on the NFL, the NBA and live events, the money it did not use to buy Warner Bros. The streaming decade that favoured Netflix is over, so it needs live content to keep the audience.

  “They have to get more into the NFL. They have to get more into the NBA. They have to get more into live events.”at 56:12

The Charles Schwab

Across the shows: 1 speaker in other episodes, 0 bullish and 2 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBullish

  Schwab's record client inflows show retail investors are hard to scare off.

  Schwab attracted $190 billion in net new assets last week, up 38% from a year earlier, and clients move about $4 trillion in cash each month. About 70% of new-to-firm retail households are Gen Z or millennials. He concludes it will take a lot to scare these investors away from the market.

  “Schwab reported last week. They attracted a $190,000,000,000 in net new assets, up 38% over last year.”at 15:51

Opendoor Technologies

• Ben Carlson · Ritholtz Wealth ManagementBearish

  Opendoor's spike was a lottery-ticket run driven by one call, and it has since crashed back.

  Eric Jackson's bullish call, which had worked with Carvana, drew followers into Opendoor. That pushed the stock from under a dollar to about $11. It has since crashed back to around $2. Ben uses it to argue that lottery-ticket stocks that fail get far too little attention, and that survivorship bias makes successful ones look more common.

  “From under a dollar to 11, and now it's crashed all the way back down to 2.”at 32:53

Paramount Skydance

Across the shows: 2 speakers in other episodes, 0 bullish and 2 bearish calls, past 30 days

• Ben Carlson · Ritholtz Wealth ManagementBearish

  Paramount's plan to copy Netflix will fail, even if it succeeds at copying it.

  Ben says Netflix won the streaming decade, which is why he is wary of the Paramount deal. If Paramount's goal is to be Netflix, it will fail, because it is copying a winner that already holds that position. He argues that even reaching that model would not produce success.

  “Netflix won. That's why I'm so hesitant about the Paramount thing because if Paramount's goal is to be like Netflix, if that's what your goal is, you're going to... Even if you get there, you're gonna fail.”at 55:40

US stock market outlook

• Ben Carlson · Ritholtz Wealth Management

  Under-the-surface bloodbath claims are misleading; the median stock is up 8% this year.

  Duality Research data show the cap-weighted index and the equal-weight index both up about 13% this year, and the average S&P stock up 15%. Emerging markets, EFA, mid caps and small caps are up roughly 9-15%, and the median stock is up 8%. He concludes that the market is fine this year, and that people calling it a bloodbath are revealing that they bought momentum stocks at the wrong time.

  “I think the whole bloodbath under the surface thing, if you say that, you're telling on yourself for when you bought stocks.”at 20:41

• Michael Batnick · Ritholtz Wealth Management

  Market breadth is poor: many stocks are in deep drawdowns, not just the index.

  Last week the 25 best-performing stocks of the first half of the year fell 19% on average. He says many consumer staples and discretionary stocks are in smithereens, so the weakness is not confined to the handful of big winners. He disputes the median-stock argument by pointing to how many individual stocks sit in 20% drawdowns.

  “Okay. Fine. But if we showed consumer staple stocks or retail... Or discretionary stocks, it's not just these. There are a lot of stocks that are in smithereens, factually speaking.”at 23:25

• Ben Carlson · Ritholtz Wealth Management

  Falling valuations come from strong earnings growth globally, so markets are not overheated.

  A Schroders decomposition across the US, UK, Europe, Japan and EM shows that valuations fell this year because earnings growth was so strong, and this effect is even larger in EM. He notes that if valuations had held, the S&P would be up 30-35% this year. He calls this good news because people are not chasing the rally, though he adds that valuations were very reasonable before 2008, so the market can still fall a lot.

  “And across the world now, everywhere, this is even bigger in the EM than it is here, valuations have fallen this year because earnings growth has been so strong.”at 27:04

• Ben Carlson · Ritholtz Wealth Management

  Long-run equity returns may be lower, but lower fees keep net returns similar.

  Jason Zweig argues that past stock returns were high because investors were compensated for fees and left-tail risks like the Great Depression, and that future returns may be lower as those risks shrink. Ben counters that fees are far lower today, so on a net basis investors will probably earn about the same even if gross returns are lower.

  “fees are so much lower today that on a net basis, you're probably gonna get the same thing even if returns on a gross basis are lower than they were in the past.”at 30:53

US inflation

• Michael Batnick · Ritholtz Wealth Management

  Inflation is persistent and not just a fuel-price story, the market is finally pricing it.

  A hot CPI report last Tuesday triggered a big selloff. He says yields fell as investors concluded that inflation is getting serious, is not going away and is not just fuel prices. He also suggests that the business cycle may be nearing its end.

  “This is actually getting kinda serious. The inflation is not going away. It's not just fuel prices.”at 5:01

• Ben Carlson · Ritholtz Wealth Management

  Without the war, US inflation would be much lower; energy is driving the latest CPI increase.

  Ben cites research showing energy is only 3.2% of the CPI basket but accounted for more than 30% of the increase in the latest reading. He argues energy prices are far higher because of the war, so inflation would be much lower without it. He rejects the idea that AI is the main reason for inflation.

  “I still would make the contention that without the war, inflation would be a lot lower than it is... So energy makes up just 3.2% of the weight in the CPI, but it accounted for more than 30% of the increase in inflation in the latest reading.”at 35:04

• Michael Batnick · Ritholtz Wealth Management

  US inflation is a problem beyond the war, citing a persistent run of readings above 2%.

  Michael counters Ben's war-driven explanation by pointing to 66 consecutive months of CPI above 2%. He argues inflation is a problem for reasons beyond the war. He also dismisses his own $40-a-pound skirt steak as a likely data-entry error, but says beef prices are rising like everything else.

  “Inflation's a problem. It's not just because of the war.”at 36:04

US Treasuries & yields

• Ben Carlson · Ritholtz Wealth Management

  Bond yields will peak on a bad inflation print, as stocks bottomed on bad news in October 2022.

  He recalls that in October 2022, a bad inflation print sent stocks down premarket, and by the close they were up 2%, marking the market bottom on bad news. He expects the same thing in the bond market. A future bad inflation print will prompt people to say it's the top, and the bad news will be priced into bonds.

  “That same thing is going to happen in the bond market... we're gonna get a bad inflation print... And the bad news is all going to be priced into the bond market.”at 5:36

• Michael Batnick · Ritholtz Wealth Management

  AI-driven borrowing, not fiscal deficits, drove last week's surge in interest rates.

  He argues that the blow-off top in rates was driven by the AI trade and the large amounts of money AI companies are borrowing, which crowds out other debt, not by fiscal irresponsibility. He hedges ('maybe that is what I'm saying') and adds that he expects the borrowing wave to end, the economy to weaken and money to come down.

  “last week, we found out that all of the blow off top in interest rates, how much of it is fiscal irresponsibility, how much of it is the government versus AI, It was all AI.”at 17:54

Market sentiment, positioning & volatility

• Michael Batnick · Ritholtz Wealth Management

  Investors are buying sharp selloffs at record pace, which reflects aggressive retail risk-taking.

  Sherwood's chart shows five-day net purchases as a share of the maximum, and investors have never bought this many shares over a five-day period as they did last week. He ties this to the CoreWeave selloff and to Dick's, where stocks falling 20% in a day or 40% in five days attract immediate buyers. He treats this reflexive dip-buying as a sign of speculative appetite.

  “Sherwood has this chart that shows the five day net purchases as a percentage of the max, meaning, like, investors have never bought this much shares over a five day period as they did last week.”at 12:51

• Ben Carlson · Ritholtz Wealth Management

  Risk appetite has structurally changed since the pandemic; investors will keep buying through crashes.

  He argues the pandemic flipped a switch in people's risk appetite, which is now completely different from the last decade. He points to Maggie Maher's book Bull, where after the dot-com crash, when the Nasdaq fell 80%, investors kept buying until the GFC turned them off. He expects that even a crash this time would not stop people from buying all the way down.

  “I don't think people in the market have totally reckoned with the fact that risk appetite in this decade is completely different than it was last decade.”at 13:23

AI bubble & tech valuations

• Ben Carlson · Ritholtz Wealth Management

  AI will see several booms and mini busts, not one huge blow-off top and crash.

  Using the railway bubble as a template, he notes there were several booms and busts in the 1800s rather than one. He expects AI to follow the same pattern, with repeated booms and mini busts instead of a single system-breaking crash. He adds that Michael's examples of DeepSeek and the summer's situational awareness episode already count as earlier mini-cycles.

  “I think we have several booms and several busts as far as AI goes. And you're not gonna get that one huge blow off top or crash that brings the system down.”at 14:48

• Ben Carlson · Ritholtz Wealth Management

  Tech is not a bubble: its forward P/E sits below its ten-year average after huge gains.

  Using a Duality Research chart, he notes consumer discretionary, staples, health care and industrials all trade at higher forward P/Es than tech. Technology is below its own ten-year average after a massive ten-year gain, and the S&P sits right on its average. He concludes that people are not going crazy on valuations.

  “consumer discretionary, consumer staples, health care, and industrials are all more expensive on a forward PE basis than technology.”at 25:27

AI infrastructure & data centers

• Ben Carlson · Ritholtz Wealth Management

  Data center spending will pay off; tech CEOs wouldn't commit this much capital to something unprofitable.

  Ben argues that tech CEOs can make mistakes but would not put this much money into something that will never pay off. He says it is reassuring that every major company is spending together, so it is not one firm's error. He dismisses Ed Zitron's crash-and-burn view as wrong, and he accepts that the buildout is crowding out other construction.

  “I don't think that they would put this much money to something that's not going to eventually pay off.”at 43:50

• Michael Batnick · Ritholtz Wealth Management

  If the data center buildout fails, it could be the biggest misallocation of capital ever.

  Michael frames the risk conditionally: if the companies are wrong about returns, the sheer scale of simultaneous data center spending could be the largest misallocation of capital in history. Ben agrees, noting that every major company is spending together. A land surveyor's email, which says the builders cannot see any ROI, prompted the discussion.

  “If they're wrong, this could go down as the biggest misallocation of capital.”at 44:07

Media, music & entertainment

• Michael Batnick · Ritholtz Wealth Management

  Hollywood has a major problem: senior executives often leave within two years of appointment.

  Michael uses a chart from Matt Belloni showing the share of senior executives gone within two years of appointment, at up to 30%. He takes this as evidence of a structural problem in Hollywood, not one-off bad hires, and cites the departure of Netflix's head of content as an example.

  “But Hollywood in general, I mean, not breaking news here, has a major, major problem. ... At max, it's 30% are gone within two years.”at 55:03

• Ben Carlson · Ritholtz Wealth Management

  AI and CGI make modern action movies worse than 1990s films with real stunts and practical effects.

  Ben responds to Ari Emanuel's claim that AI will save time on makeup and editing. He argues 1990s action films were better because they used real stunts and explosions, not green-screen fakes that the audience knows are fake. He says there have been very few good action movies in the last decade because everything is now fake, and that this is a loss in exchange for the gains from technology.

  “I think that's what made nineties action movies so good is that they had to do a lot of real stuff.”at 58:43

AI chips & semiconductors

• Ben Carlson · Ritholtz Wealth Management

  Semiconductor stocks are down 25-50% from highs but still far up year to date, so 'bloodbath' is misleading.

  Western Digital, Seagate, Micron and SanDisk are down 25-50% from their highs. Year to date, however, SanDisk is up almost 500%, Micron about 200%, Seagate about 140% and Western Digital has doubled. He argues that people calling it a bloodbath are anchoring to a peak, and that anyone who bought near the high is the one losing money.

  “Western Digital is down 50% even after a bounce yesterday. Year to date, these companies are still up... SanDisk is still up almost 500%.”at 21:11

Wealth, inequality & billionaires

• Ben Carlson · Ritholtz Wealth Management

  AI wealth creation will force tech billionaires to make public giving gestures to avoid backlash.

  He expects AI to create a great deal of wealth, which is already happening, so the rich will have to give back to avoid pitchforks. He cites Musk's share giveaway and Anthropic's planned public fund as early examples. He points to anti-data-center yard signs in rural Michigan as evidence of public hostility toward technology. Michael responds that these gestures are peeing into the ocean.

  “the rich people in the world, because there's gonna be so much wealth created from AI, and there already has been, they're gonna have to do stuff like this to avoid the pitchforks.”at 33:20

AI: overall outlook

• Ben Carlson · Ritholtz Wealth Management

  Tech insiders can build the future but can't forecast it, as Anthropic staff's 2030 GDP guesses show.

  Ben cites a chart of Anthropic employees' median forecast of about 17% nominal GDP growth in 2030, which he finds implausible. He argues that tech people understand technology but not the real world, so their predictions about how it will be used keep being wrong, as the bank-blocking example shows.

  “They can help create the future. They cannot help predict the future because I think tech people don't understand the real world in a lot of ways.”at 40:24

Banks

• Ben Carlson · Ritholtz Wealth Management

  Banks, not consumers, control whether AI agents can access accounts, and they can block them.

  Ben cites a report that AI agents could move $500 billion out of low-yield bank deposits. He points to JPMorgan, Citigroup and Bank of America restricting outside AI agents from accessing accounts. He argues banks hold the power, as the earlier fintech threat to JPMorgan and Goldman never materialised, and that tech forecasters ignore real-world barriers such as access being shut off.

  “I think the banks still hold the power. ... They can do whatever they want.”at 41:21

US state & local policy

• Ben Carlson · Ritholtz Wealth Management

  Property tax cuts could backfire, shifting costs to renters and locking owners into homes.

  Ben notes that more than two dozen states have moved to cut or repeal property taxes, with Georgia, Indiana and Wyoming already cutting bills. He argues the cuts shift the burden to renters, and that Ohio's governor blocked one because the sales-tax hike needed to fill the gap would be huge. He cites California's Prop 13, which locked owners into their homes and damaged the housing market, and says this could be a disaster.

  “It was a disaster for the housing market because no one wanted to move because they locked in lower property taxes.”at 47:32