Drowning Financially (EP. 489)

Apple

Across the shows: 39 speakers in other episodes, 38 bullish and 30 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Apple's price hikes can't offset memory-driven margin compression, so the company is feeling the squeeze.

  A Wall Street Journal piece on chip pricing power shows memory costs have reversed. Flash storage fell from $68 per GB in 2005 to a nickel by 2023, but it is now above 30 cents, a 550% jump. The extra storage in the iPhone 17 Pro cost Apple $15 and now costs about $66, while buyers paid $200 for double the storage. Apple's price increases are not enough to offset margin compression, so the company is feeling it, even though the stock was only down about 4% that morning.

  “But interestingly, [Apple's] price hikes are not enough to offset margin compression. They're feeling it.”at 31:15

Reddit

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Reddit's business is permanently impaired as Google and AI answers stop sending it search traffic.

  Reddit's CEO said Google is no longer sending people to Reddit the way it used to, and Gemini and AI answers mean people don't need to visit for answers. Search referral traffic fell meaningfully in Q3 with the decline accelerating late in the quarter, and the stock is down 60% year to date. Batnick concludes Reddit will never make another all-time high and its business is permanently impaired. He concedes it may still generate cash, but calls it a poor investable asset.

  “So Reddit will never make another all time high. ... I would be shocked. It's business is permanently impaired.”at 41:40

Robinhood Markets

Across the shows: 4 speakers in other episodes, 2 bullish and 2 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Robinhood's market value per dollar of assets is about 20 times Schwab's, a premium he finds excessive.

  Schwab has about 34 times Robinhood's assets (roughly $12 trillion versus $400 billion), but its market cap is only about 1.7 times larger. Batnick attributes the gap to Robinhood extracting more money from users through more creative means. Adjusting for assets, the market values Robinhood's assets about 20 times more than Schwab's. He calls it a massive premium, though he admits he is not sure it is right.

  “...the market is valuing Robinhood assets 20 times greater than their value in Schwab's. ... Robinhood is getting a massive premium.”at 44:34

Alphabet

Across the shows: 56 speakers in other episodes, 44 bullish and 36 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Google's search and YouTube ad misses are potentially problematic for the company.

  Google search missed estimates in the quarter, and YouTube ad sales also missed. Batnick links this to a Luka Shaw observation that slowing YouTube ad sales look like Netflix's. He calls the combined misses potentially problematic for Google. The view is tentative and rests on one quarter's ad misses.

  “So I mentioned earlier that Google search missed, so did YouTube ads. This is potentially problematic for Google.”at 55:42

Netflix

Across the shows: 22 speakers in other episodes, 12 bullish and 18 bearish calls, past 30 days

• Michael Batnick · Ritholtz Wealth ManagementBearish

  Netflix churn could start rising as YouTube takes TV ad and viewing share, hurting the stock.

  YouTube's share of TV viewing is rising and is now about double Netflix's. Netflix still shows basically no churn compared with peers, but Batnick thinks churn could come. If people start cancelling Netflix, he says that could be catastrophic for the stock, which is already down 55%. Ben's reply that it would not shock him given the stock's state reinforces the bearish read. The view is conditional and has no timeframe.

  “If, and I might be prepared to say when, people start canceling Netflix, holy shit. Is that gonna be catastrophic for the stock? ... I do think that you could see some churn coming.”at 56:39

AI & jobs

• Michael Batnick · Ritholtz Wealth Management

  Employment of 18-to-24-year-olds in AI-exposed firms is falling, so young workers are struggling.

  A Financial Times-style analysis of US AI-exposed companies, excluding tech, shows employment for 18-to-24-year-olds trending down. Employment for workers aged 25 and older is flat to rolling over. Revenue is also pulling away from headcount at tech firms. He concludes it is definitely hard for young people, which is consistent with the data.

  “They look inside US tech and US AI exposed companies excluding tech, and they show employment of 18 to 24 year olds, which is going down to the right.”at 29:19

• Ben Carlson · Ritholtz Wealth Management

  AI labor-market disruption should appear once agents are widely used, a view he finds valid.

  Someone who DMed him asked why AI has not hit the labor market yet. Their answer was that disruption will come once agents are widely used. Ben calls it a bit of moving the goalpost but thinks it is valid. His own experience using an agent to operate a browser for an AT&T account was bizarre, which suggests agents are not yet mainstream. He thinks the labor effect follows widespread adoption.

  “So I actually think that is a fair statement. Like, once these agents are more widely used,”at 34:06

• Ben Carlson · Ritholtz Wealth Management

  AI job displacement of high earners is not a real stock-market risk, since their money stays invested.

  A Schroders report argues that retirement assets (defined contribution plans and IRAs, around $30 trillion) are roughly as large as all non-US developed and emerging stock markets combined. Retirement accounts bought about $500 billion of US equities in 2024, about a third of demand, mostly from the top 10 to 20 percent of earners. Schroders argues AI could displace these white-collar high earners and so hurt equity demand. Carlson counters that even if wealth is more concentrated, the money still goes into the market, and there will be more money than ever. He does not see this as a risk. Batnick agrees with his takeaway.

  “My counterpoint is even if the wealth is more concentrated, it's still going into the market. ... I don't see this as a risk.”at 50:45

US stock market outlook

• Michael Batnick · Ritholtz Wealth Management

  Growth-adjusted S&P valuations are falling, so the end-of-bubble narrative is wrong and earnings-driven dips are buying opportunities.

  Forward P/E divided by operating margin, a growth-adjusted measure, is trending down even as forward earnings estimates keep rising. Next-twelve-month EPS estimates went from about $270 in January 2025 to about $413 now. Per Duality Research, 65% of S&P 500 stocks trade below 20x forward earnings. He has a hard time buying the end-of-bubble narrative, so if earnings arrive as expected, the sell-off should prove a good buying opportunity. He concedes a recession would make the estimates look wrong.

  “I think it's hard to get too bearish when you have the next twelve month earning per share estimates continuing to go up into the right.”at 2:50

• Michael Batnick · Ritholtz Wealth Management

  Current sell-off is healthy, floor is relatively high, and it is not the start of a bubble bursting.

  Batnick calls the current sell-off painful but healthy. He argues the floor is relatively high because of the reset in the numbers, which he says are estimated to be lower, and the sentiment washout. He says the Nasdaq being down 10% already delivered the correction the market needed, so he does not see this as the beginning of a bubble bursting. He describes himself as bullish.

  “I think that the current sell off, ... while painful, I think that this is healthy. I think that the floor is relatively high. I don't think that this is the beginning of the bubble bursting.”at 1:08:35

AI infrastructure & data centers

• Ben Carlson · Ritholtz Wealth Management

  Bond market, not stocks, holds veto over AI buildout funding; Oracle and SpaceX spreads are widening.

  Spreads on Oracle and SpaceX debt are blowing out, even as Meta's stock goes up. AI build-out CEOs will raise money however they can and pay up for it, issuing equity if needed. Michael argues the stock market is the boss, since funding dries up if Meta's stock falls. Ben's reply is that the bond market is the boss's parents, and that it still has veto power over the buildout.

  “They will run out of options... The bond market is, the boss's parents. They still have veto power.”at 14:47

• Ben Carlson · Ritholtz Wealth Management

  AI capex is the biggest bet in capitalism, and executives deserve credit for disrupting themselves.

  He argues that the public hates AI, so executives are not getting enough credit. Critics say companies no longer take risk and only buy back shares, but these firms are betting heavily on AI. In ten or fifteen years, one or two of these companies may wish they could go back to how things were before AI. He thinks that makes this the biggest bet in the history of capitalism.

  “I don't think that these executives get enough credit for completely trying to disrupt themselves... This is the biggest bet in the history of capitalism.”at 18:21

Market sentiment, positioning & volatility

• Ben Carlson · Ritholtz Wealth Management

  Retail dip-buying won't run out until layoffs hit households; no one is going to cash or bonds.

  Retail has been buying the dip for years and the money has not run out. JPMorgan data shows October inflows into leveraged equity ETFs hit a record monthly high. Morgan Stanley data shows retail was net sellers on only the second day this year, but the dip-buying in SanDisk and Micron rolled over. Investors are rotating between sectors rather than leaving stocks, so no one wants to go to cash or bonds. Ben thinks buying continues until job losses hit households.

  “It just hasn't run out yet. And I really don't think it's going to until people start losing their job or they see their neighbors start to lose their job.”at 21:28

• Ben Carlson · Ritholtz Wealth Management

  Hedge funds cutting AI exposure is forced risk-reduction after losses, not a bet against AI.

  Morgan Stanley reports hedge funds have moved to underweight AI for the first time since early 2023. Ben argues this was less a position than funds getting blown out of trades. Their risk limits were hit, so they had to sell. He does not think this reflects a bearish view on AI. Michael agrees it is hard to know in real time how much is positioning versus crowding.

  “I don't think this is like a bet against AI. This is like, okay. Your risk level has been hit. You have to sell.”at 21:59

US consumer

• Ben Carlson · Ritholtz Wealth Management

  US household finances look strong overall, and the negative consumer story is overstated.

  Nick broke down the Fed's triennial Survey of Consumer Finances. Real income and median net worth are at all-time highs. Ben had Claude chart the data, which looked good, but the summary focused on the 20% of households doing worse. He argues the good news is overwhelmingly bigger than the bad. The negativity reflects how people consume information, from social media and Reddit, rather than the data.

  “The trends all look pretty good. In real income is all time highs. Median net worth all time highs.”at 26:17

• Michael Batnick · Ritholtz Wealth Management

  DoorDash's gross volume roughly doubling since 2022 shows strong consumer spending.

  DoorDash's gross order volume was $34 billion in the most recent quarter, about double its 2022 level. Batnick uses this chart as evidence of consumer spending. He notes that the stock is not working, even though the spending data looks strong. He says that a bull on consumer spending would find the trend 'up and to the right'.

  “So what a great chart just to show, like, the consumer spending. DoorDash's gross volume was $34,000,000,000 ... basically double where it was in 2022.”at 42:47

US inflation

• Michael Batnick · Ritholtz Wealth Management

  Technology's long run as a global deflationary force is over, as memory and storage prices now rise.

  For years technology pushed prices down everywhere, but that is no longer the case. The evidence is flash storage prices, which rose from a nickel per gigabyte in 2023 to above 30 cents, and Apple's rising component costs. Apple's pricing power over component suppliers has weakened, and the rising cost of memory is passing through to products.

  “for years, technology was a deflationary force all around the globe, and that is no longer the case.”at 30:17

• Ben Carlson · Ritholtz Wealth Management

  AI buildout is inflationary short term; AI only turns deflationary later if it makes labor cheaper.

  The idea that tech is deflationary runs against the current reality. Companies are building out AI infrastructure now, which pushes up demand for chips, memory and power. AI only becomes deflationary in the future, if it reduces labor costs. The inflation from the buildout comes first.

  “The whole idea is that tech being deflationary. Like, AI has to be inflationary in the short run because they're building everything out now.”at 31:33

Earnings & corporate profits

• Ben Carlson · Ritholtz Wealth Management

  Investors are still underreacting to S&P earnings growth, which analysts keep raising every season.

  At the start of the year, bottom-up analysts expected about $310 of S&P 500 EPS. Nine months later the consensus is about $360. Estimates have been ratcheted up every earnings season, so the analyst forecasts were nowhere near actual earnings. He links this to momentum theory, where investors first underreact and then overreact. He thinks investors' brains have not caught up to how strong earnings growth is.

  “I don't think investors' brains have caught up to the fact that how great earnings growth is.”at 5:54

AI bubble & tech valuations

• Ben Carlson · Ritholtz Wealth Management

  This is the least fun bubble ever: no media or retail cheerleading, and even tech leaders warn.

  The dot-com and financial-crisis experiences seem to have made bubbles unpleasant. During the dot-com boom, the financial media and retail cheered it on. Now the financial media does not act as a cheerleader. The only cheerleaders are tech people, and even they warn that AI could kill us. Ben's view is that this is a bubble but one with little enthusiasm.

  “I don't know what it's going to take. Maybe a whole new generation of investors coming along, but this is, like, the least fun bubble of all time.”at 6:20

Credit markets

• Ben Carlson · Ritholtz Wealth Management

  Leveraged-loan distress and the maturity wall are overhyped; companies just refinance, as they always have.

  PitchBook data shows $131 billion of term loans in the leveraged loan index priced below 80, a common distress threshold and the most since May 2020. About 8.3% of outstanding loans are distressed, and 53% of those need refinancing within three years. Ben has heard about the maturity wall since 2008 and says it has never mattered, because companies just refinance and life moves on. He also notes small caps are outperforming this year despite relying on floating-rate debt.

  “I've been hearing this since 2008. Maturity wall? ... It's never mattered, but people are always worried about it. And guess what happens? They just refinance, and life moves on.”at 28:00

Tariffs & trade policy

• Ben Carlson · Ritholtz Wealth Management

  Tariffs on everyday consumer goods are wrong; tariffs make sense only for strategic resources.

  Carlson tried to buy a pair of UK-made boots listed at $280 and found a duty of about $47 that made them much more expensive. As a global consumer, he says this is why he is so anti-tariff. He accepts tariffs on natural resources or goods that matter to a country's future. He does not see why he should pay extra to buy ordinary consumer goods from abroad.

  “As someone who is a... Just a global consumer, this is why I'm so anti tariff. I should be able to buy stuff from wherever I want without...”at 57:40