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Going back to Alex Karp's point, who was here a week and a half ago, about the so- called " token maximization "—some of these companies, and this applies to Anthropic and OpenAI, have executives that I've talked to as well, and they say, "The math doesn't add up." In my opinion, CEOs and CFOs probably have no idea how much “ token maximization ” is happening inside their organizations.
I suspect they will miss the target one day. And earnings per share will be a few cents lower. And the CEO will ask the CFO: “What happened? Where did all these additional operating costs come from? And they will find a reason in a " barrel of intelligence" for $50 instead of $1 or 50 cents. This has not happened yet.
This is interesting. Here are the software promotions . What is also interesting is that IBM is a component of the Dow index. So, the Dow fell 500 points. Just do the math. Multiply 50 points by the divisor. The NASDAQ is up more than 100. It's still going up. So if there's a question about technology in general, you don't see it in the NASDAQ yet, and that big 500-point drop in the Dow happened because of...
I think it's fair to say that there's a lot more to the NASDAQ that's ... It's not software. All the hardware, all the memory, all the chips. This whole complex will still make a lot of money. Right. The question again is, in the end... That 's right. If you buy oil , you must pour it into a new engine.
This engine should make you go faster, right? It should work cleaner. You seem to be suggesting that the high-level large language model (LLM) complex , which is essentially Anthropic and OpenAI in terms of pricing, that still remains in private markets, is going to collapse. Is that what you're trying to imply?
I think that's what you're trying to get me to say. Let me be very clear. The hardware and memory complex will work for a couple more years, because there are huge limitations in this ecosystem. So, there is a colossal deficit. These things will continue to show good results. The Nasdaq will likely outperform the S&P.
Good. If you look at the only other niche where there is real growth, it is the LLM complex, as you said. I don't know what the long-term valuation will be , but if you see a number of public companies underperforming in the next few quarters due to operating expense overruns, yes. and they discover that the reason for this was uncontrolled spending that they didn't even suspect within their organization, then it will cool the interest in this particular category a little .
So, we've just discussed four major model makers, maybe even five. We talked about OpenAI, Anthropic, you mentioned Gemini, we talked about Grok. about Grok, and also mentioned Meta. Yes. How do you assess their positions in the long term? I believe that we are observing a process of convergence. It used to be like this: when a new model came out, it was so much better than everything else that you thought, "Oh my God, we've gone from kerosene to jet fuel, right ?
To jet fuel. So of course I'm going to go with jet fuel." Escalation. You clearly don't see this now. So this puts upward pressure on crude oil prices. Not as much as you might think. The reaction, although the price increased by about $10, was somewhat subdued. I think people believe that some de-escalation is possible in the future.
I have no idea when this will happen, but the price of oil is back up to $80. You know, inflation could have a good week. But crude oil—not really, Jen. Yes, that's true. And I mean, crude oil futures are up 12% in a week. So, let's move on to the individual movers, as Netflix falls sharply after its earnings report and, in fact , due to some weakness in its forecasts.
And I don't think we're all that shocked by the Netflix movement, and the movement is actually not even as significant as it seemed two or three years ago. We saw Netflix literally drag the entire market down when it fell 40% after the report. I will never forget that day. But this morning we see no such movement, although the pullback is still noticeable after a tone that clearly did not please Wall Street.
So tell us what impressed you most about the company, which was once the dominant topic in all our conversations. She has fallen out of favor a bit since then . It looks like streaming is no longer the main story this year, Kevin. Well, Netflix's reports weren't terrible, but they just weren't very appealing.
They beat expectations for earnings per share: 80 cents versus 79. Their revenue was slightly lower : 12.56 versus 12.58. Their free cash flow decreased by a billion dollars because they had to pay taxes for terminating the deal with Warner Brothers. I think it's worth remembering that they are annoying the market by not providing enough forecasts, numbers, and indicators for the future.
There are rumors that they are looking for opportunities for some kind of takeover. Remember, they ended up being the ones who lost the most from the Warner Brothers deal. So, here is my overall opinion on this matter after analysis and reflection. If you were optimistic about Netflix, little has changed to make you a pessimist.
If you were pessimistic about Netflix, little has changed to make you optimistic. So I think they will sell these shares today. From a valuation perspective, the company is getting cheaper and cheaper. People need to think long-term , but the company constantly hints that live sports and TV broadcasts attract viewers and curiosity.
I'm keeping an eye out to see if more sports shows will appear on Netflix. Do I know if this will happen ? No, but the trend with football, basketball, the upcoming Women's World Cup ...I think all of this is pushing Netflix towards more sports broadcasts or other live events. But right now there's nothing particularly impressive that immediately catches the eye.
This is just another such report, and we move o to understand. But based on daily volatility, one company may be quietly preparing for a significant breakout. And this company is Nvidia. Investors have seen huge swings in the semiconductor industry over the past few weeks. SK Hynix is falling sharply, and suddenly the entire chip sector is feeling the pressure.
Memory maker stocks are turning around, while AI infrastructure companies are selling off. Then another positive data point appears and money immediately starts flowing back into the trade. This volatility has created an unusual market where the momentum of a few semiconductor stocks can influence sentiment across the entire technology sector.
However, Nvidia may be starting to separate itself from this noise. So now investors are looking at stocks from a completely different angle. Not because Nvidia's fundamental story has suddenly changed. The demand for AI computing has long been well understood. Instead, the argument becomes increasingly technical.
After a long period of consolidation, Nvidia may try to break out of this range. And if momentum starts to build under a stock, the next move could happen quickly. We've seen this behavior pattern before from other tech giants. Stocks can move sideways for months while investors experience disappointment.
Fundamentals remain strong and earnings continue to grow . But the stock price refuses to respond. Then eventually momentum returns and the stock breaks through the resistance level. Quantitative strategies are starting to capitalize on this movement. Algorithmic buying is on the rise, and momentum investors are returning.
And suddenly, stocks that seemed stagnant begin to rise rapidly. This is a situation that some investors believe could now be developing at Nvidia. Interestingly, this potential breakout comes as Nvidia's valuation has become significantly more attractive relative to its growth profile. This creates a potentially powerful combination.
Strong fundamentals, huge opportunities for long-term growth, and improving technical indicators. But the broader story of AI asking whether ill really yield sufficient returns. It's a valid question, but assessing the return on investment in AI may not be as simple as investors expect. There probably won't be a separate line on the income statement labeled " return on investment." Instead, the benefits of artificial intelligence can be seen across all existing businesses.
Better performance, higher ad engagement, faster cloud growth, and improved search results. More efficient software development and better recommendations. Reducing operating costs and increasing customer retention. AI can improve dozens of different financial metrics, and companies won't clearly state exactly how much revenue came directly from AI.
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