Podcast source: Creative Planning
Compiled & organized by: TechFlow
- Host: Charlie Bilello (Chief Market Strategist at Creative Planning)
- Guest: Jamie Battmer (Co-Chief Investment Officer at Creative Planning)
- Release date: 2026-08-01
- Core topics: Sustainability of asset rotation, semiconductors and leveraged liquidations, IPO wave, inflation and bond market divergence, fiscal deficit, AI capex cycle, employment and business formation data.
- Conflict of interest statement: Charlie Bilello and Jamie Battmer are both employees of Creative Planning. The firm is one of the largest independent registered investment advisors (RIAs) in the U.S., with officially disclosed managed/consulting assets of approximately $370B+ (as of June 2025). This episode focuses on broad market, industry, and macro frameworks, and does not recommend any specific securities, but the show itself carries Creative Planning's brand acquisition purpose, and the video begins with a standard disclaimer: the content does not constitute personalized investment advice.
TechFlow Introduction: History doesn't repeat, but it rhymes. This phrase runs through almost every topic in this episode: value stocks, small caps, and emerging markets have collectively rebounded after being shunned for 15 years; semiconductors surged 237% in 14 months, then gave back 20% in one month; leveraged funds halved in a single month and were forced to sell positions to Citadel; SpaceX went public and briefly hit a $3 trillion market cap, then quickly fell below its IPO price; 2026 IPO fundraising has already exceeded the 2021 bubble peak. Meanwhile, the four major cloud vendors' Q1 capex surged 87% year-over-year, Google recorded its first negative free cash flow in history, Meta's free cash flow shrank 91% year-over-year, and asset-light tech giants are rapidly becoming asset-heavy companies. The most jarring signal comes from the bond market: core PCE has been above 2% for 64 consecutive months, and the 30-year Treasury yield hit a 19-year high of 5.2%, the first time in history that long-term rates have risen during a rate-cutting cycle. The Chief Market Strategist and Co-Chief Investment Officer of Creative Planning, one of the largest independent investment advisors in the U.S., use 44 minutes to weave these threads into a market map for August.
Key Takeaways
- Asset rotation has been dramatic this year: value stocks up ~20%, small caps 19%, emerging markets 15%, international stocks 13%; U.S. large caps up 9%, but growth stocks slightly down, Magnificent 7 down 3%.
- This is mean reversion after 15 years of growth/tech outperformance, but both host and guest agree it is not a reason to chase value stocks or switch allocations.
- The semiconductor sector saw what Charlie calls "speculative frenzy" at the end of June, rising 237% in 14 months, exceeding the pre-bubble peak of the internet bubble; in July, the semiconductor index fell 20%, and DRAM ETFs fell 30%.
- Korean retail investors leveraged bets on SK Hynix and Samsung faced margin calls; U.S. hedge fund Situational Awareness, due to extreme leverage on semiconductors, plunged 67% in July and was forced to sell positions to Citadel.
- SpaceX's market cap briefly exceeded $3 trillion after IPO, surpassing Google and Amazon, with a price-to-sales ratio over 150x; it has since fallen more than 50% from its high and dropped below its IPO price.
- U.S. IPO fundraising so far in 2026 is about $144 billion, already exceeding the 2021 peak; mega IPOs like OpenAI and Anthropic could further increase market supply.
- Core PCE has been above 2% for 64 consecutive months; the 30-year Treasury yield rose to 5.2%, the highest since July 2007, and the first time it has risen during a Fed rate-cutting cycle.
- U.S. inflation has averaged about 4% over the past six years, double the target; the market is beginning to price in a 25 basis point rate hike in September.
- Since July 1, U.S. national debt has increased by over $400 billion, approaching $40 trillion; both "growing out of debt" and "tariff revenue to pay debt" have not materialized.
- The four hyperscalers (Amazon, Google, Microsoft, Meta) had combined Q1 capex of $165 billion, up 87% year-over-year, and up 393% from three years ago.
- Google recorded its first negative free cash flow; Meta's free cash flow plummeted from $14 billion to $784 million, down 91% year-over-year.
- Initial jobless claims fell to the lowest since January 2024; new business formation in the information technology sector hit an all-time high, with the threshold for one-person companies significantly lowered.
Highlights of Key Insights
- "These more value-oriented assets are finally outperforming after a long period of underperformance, but don't chase them. Just like after the tech crash in 2000, everyone rushed into value stocks, or after emerging markets doubled in a decade, everyone piled into BRICS – often at the wrong time."
- "The four most expensive words in financial innovation history: this time is different."
- "The Fed says inflation is under control, but the bond market completely disagrees. The 30-year yield at 5.2% is a 19-year high."
- "The federal government is the drunk sailor. At least the sailor eventually has to return to the ship; the government's borrowing has no end."
- "The end of AI capex will either be when the money runs out, or when someone in a dorm room comes up with a more efficient solution. History repeats every time."
- "Excitement and investment returns are not correlated. In the long run, it's often the boring stuff that wins."
Chapter 1: Diversification Matters Again
Charlie Bilello: Over the past year, diversification has almost become a dirty word. Many people ask, why should I hold value stocks? Why should I hold small caps? Take those international stocks out of my portfolio. But this year, we've seen what I call "everything reversed." Value stocks are up about 20%, small caps 19%, emerging markets 15%, mid caps 15%, and international stocks overall up 13%. The U.S. market is still doing well, up 9%, but growth stocks are actually slightly down this year, and the Magnificent 7 is down 3%. How do you view this rotation? What lessons should investors take away?
Jamie Battmer: It finally happened, and I'm actually glad. Because before this, growth stocks and U.S. tech stocks had been outperforming for about 15 years. The longer it goes, the more likely people are to jump in at the top. We've seen this too many times, in 2000 and 2010. Back then, emerging markets and international stocks surged, while U.S. large-cap tech fell 33%, and the S&P had nearly zero returns for a decade. So seeing this rotation is good; it means asset allocation and diversification are starting to work again, rather than everyone chasing hot spots.
Charlie Bilello: Now we're getting a lot of questions in the opposite direction. A year ago, people were asking "why should I hold these things," and now they're asking "value stocks are up 20%, growth stocks are down, this spread is one of the largest in history, is it too late for me to switch?" I'll show you this chart, whether it's the large-cap/small-cap ratio or the U.S./international ratio, it's the same. Value relative to growth has just started to turn around, but we're coming from historical highs, and this outperformance could easily continue for years. Of course, it won't be linear, but given the 15 years of underperformance before, just one year of reversal might be early in terms of time.
Jamie Battmer: Yes, it could last another three months, or it could last another 30 years, nobody knows. But as long as you've already diversified sufficiently, this is not actionable for you. Those value assets that have been underperforming for a long time are finally starting to outperform, which is good, but don't run after them. It's like after the tech crash in 2000, everyone switched their portfolios entirely to value stocks, and the timing was wrong; or when emerging markets rose over 100% in a decade, people rushed into BRICS, that was also a bad timing. These are all parts of the portfolio, just keep it balanced. In the long run, it might start to correct as soon as tomorrow, but that's not a reason to adjust asset allocation.
Charlie Bilello: Completely agree. Predicting the future, if we could actually do it, we would concentrate our bets on the assets that will win. But since we can't, that's why we diversify. We don't know what's going to happen, so we have to spread our bets and hold a bit of everything.
Jamie Battmer: My crystal ball is just as useless as those of Wall Street pretending to predict the future. The only difference is mine only needs a small battery, while theirs charge exorbitant fees.
Chapter 2: Semiconductor Mania and Mean Reversion
Charlie Bilello: Next, I want to talk about what John Bogle called the "iron rule of financial markets," which is mean reversion. The most overextended sector before July, I believe, was semiconductors. I've spent a lot of time studying it, and the only way to describe it is speculative mania. We saw the sector rise 237% in 14 months, which even exceeded the rise before the peak of the internet bubble. In the weeks before the peak, massive amounts of money flowed into semiconductor ETFs, the so-called "chasing the hot trend." There was a DRAM ETF, with mainly just three stocks in its holdings, that raised nearly $30 billion in about 30 days, becoming the fastest-growing ETF in history. That almost never ends well. In July, the S&P was roughly flat, down less than 1%, but semiconductors fell 20%, and the DRAM ETF fell 30%. Did you hear a lot of people talking about semiconductors in June? Did many people ask you whether they should buy?
Jamie Battmer: Of course. The whole society's excitement about the leapfrog development of AI technology is so intense that everything related to semiconductors has been bid up to the sky. You can argue whether Nvidia is expensive; it's a big company that actually makes money. But many of the companies that followed are not big, with mediocre management, just hitching a ride. It's like the last tech bubble, where just adding ".com" to your company name could make it rise 50%. Interestingly, our clients haven't been overly involved; occasionally someone asks. But from a portfolio management perspective, it does affect our public holdings. We've done a lot of tax efficiency optimization and also tried to balance those clients who hold large amounts of Nvidia stock with huge unrealized gains on their books. When such extreme deviations based on greed and irrational exuberance occur, they create many challenges. But these things eventually self-correct, as recent data shows. It reminds us not to be swept up by irrational excitement and not to chase hot trends.
Charlie Bilello: There's also a lesson about leverage here. We've seen a proliferation of leveraged ETFs and related products, and many stories about margin accounts. In Korea, a lot of retail investors were wiped out because of leveraged bets on SK Hynix and Samsung. In the US, there's also a hedge fund called Situational Awareness, which is a bit ironic because they seem to lack that awareness. They made extreme leveraged bets on semiconductors, and the fund grew from a few hundred million dollars to $45 billion in a few years, becoming one of the fastest-growing hedge funds in the US, but then something went wrong. Essentially, they got a margin call and were forced to sell most of their stock positions to Ken Griffin's Citadel.
Jamie Battmer: That's basically a synonym for "we let you down this month; sorry, we're human." Humans get ignited by certain things and scared by certain things. All the data overwhelmingly proves that humans cannot beat the public market. You shouldn't try to beat it; the optimal strategy is to own it. So when we design portfolios, we preset that "this month might disappoint you." The market might fall, the economy might weaken, that happens, but the portfolio is prepared for these and will recover. But when people bet heavily on these things, you get headlines like "Sorry, we were greedy, excited, and let you down." Such headlines are as old as newspapers.
Charlie Bilello: This fund fell 67% in July, clearly not what investors originally wanted, although given its huge prior gains, extreme volatility was to be expected. As usual, the problem is that investors chase past performance. They didn't enjoy the upside but have to suffer the downside. A very true saying in investing is that you have to survive to fight another day. When you use leverage, and leverage meets extreme volatility, you might lose the chance to fight again. That's a good lesson for all investors.
Chapter 3: IPO History Rhymes Again
Charlie Bilello: The third topic: history rhymes again. We all know the saying that history doesn't repeat itself, but it rhymes. I've been talking about the IPO market. In the first few days after SpaceX went public, I posted many warning posts, saying its market cap once exceeded $3 trillion, higher than Google and Amazon, with a price-to-sales ratio over 150 times. Many people said, "Charlie, you don't understand this company; it's different this time; it won't have a typical IPO trajectory." But to this day, the stock has fallen more than 50% from its high, broken below the issue price, and also below the first-day closing price. This time is actually no different, just like you wrote in your last quarterly letter.
Jamie Battmer: Thanks, Charlie, for teasing me about that; actually, I stole those charts from you. But seriously, the phrase "this time is different," Mark Twain's history rhyming, and one of my favorite books, "This Time Is Different: Eight Centuries of Financial Folly," all tell us that this isn't just the last 15 or 30 years; it's been happening for a thousand years. It comes back to human nature. It's normal for people to be excited about these things; we have many clients who are excited. If we can get them a relatively higher allocation through our custody partners, we'll arrange it if clients want it, but the data tells us not to do that. What surprises me most is that Wall Street pretends to have the ability to predict the future. If you ask a hundred people whether a hot IPO is a good thing and whether to participate, most will say yes. If these people held up signs saying "Come buy this IPO; on average you'll lose a third in a year," nobody would buy. But Wall Street can stir people up time and again.
Charlie Bilello: They are very good at selling, that's for sure. The demand is indeed there, oversubscribed many times. We've seen this movie before; excitement peaks in the first few days of trading, and you're essentially providing exit liquidity for others. Those who bought at the IPO price are the sellers. Next week we'll see the first real test, because SpaceX insiders and early investors haven't been allowed to sell yet. The first earnings report comes out next week, and two days later the first batch of people can sell. So that's the real test. If you have 10x, 20x, 30x gains on SpaceX, would you sell some? That seems like a high-probability event.
Jamie Battmer: We have hundreds of clients who are SpaceX employees or related. The key is that you can't control what the market does; lock-up periods of 3 months, 6 months, etc., are completely outside your control. But proper estate planning, risk mitigation, risk management—these are what you should focus on. That's what we do for our SpaceX employee clients. For Anthropic, OpenAI, or anyone holding highly appreciated assets, the future direction of the public market is a guessing game, but there are many things you can control that are unrelated to the stock price. That's the focus, not staring at what the stock will do tomorrow. Of course, what happens as lock-ups gradually expire is indeed worth watching.
Charlie Bilello: It's not over yet; there are still 5 months left in the year. If you look at this chart, US IPO fundraising has already set a record, about $144 billion year-to-date in 2026, surpassing the 2021 bubble peak. Of course, most of that is from SpaceX. But as I've always said, historically, whether in 2021 or 2000, when there's such a huge wave of supply, when people are looking for exit liquidity, it often portends more difficult markets ahead. It doesn't have to happen this time, but if history rhymes, when OpenAI, Anthropic, and others go public, it wouldn't be surprising if it coincides with a difficult market period. Because the supply in the market has suddenly increased too much.
Jamie Battmer: Yes, Charlie and I have both been in this for over 20 years. Those who remember the last tech boom know that was the last time people were this excited about individual stock names. 2021 was more about SPACs and financial engineering, but this time the excitement around names like SpaceX and Anthropic brings back the atmosphere of Google, Facebook, and even pets.com, which we haven't seen in 25 years. Those who lived through it know the endings usually aren't pretty, and investors need to remember that now.
Charlie Bilello: Excitement and investment returns are not correlated. In the long run, it's often the boring stuff that wins. When Anthropic and OpenAI go public, people will be very excited, and the stocks might have a pulse-like surge, but be careful about assuming that trend will continue and chasing it. The S&P has stuck to its principles this time and hasn't changed its rules to include SpaceX, making it the only index company to do so. Nasdaq changed, and many large ETF issuers changed because the demand was so high to include SpaceX. So far, not changing the rules is the right call because SpaceX isn't profitable yet and won't be included in the index for at least a year.
Jamie Battmer: In the short term, it does look good, but who knows in the long run. Zooming out, it's about the fact that 87% of companies with annual revenue over $100 million are still private. So we recommend that eligible clients allocate to both public and private markets. Another Wall Street misconception is that private markets are better, the holy grail. That's not the case; they're just different, and it's about diversification. That way you get broader exposure to the entire economy. In the short term, SpaceX not being in the index is good, but as more mega IPOs come in the future, it'll be an interesting debate whether index companies stick to their principles or compromise.
Charlie Bilello: And if you hold a total market ETF, SpaceX's weight is only about 20 basis points because the float is too low. So the exposure to SpaceX in a total market portfolio is very small. But if you put 5%, 10%, 15%, 20% of your portfolio into SpaceX, that's a massive overweight, a massive bet.
Chapter 4: The Low Inflation Lie and the Bond Market's Revenge
Charlie Bilello: Next, let's talk about inflation, which I call the "low inflation lie." The federal government and the Fed are trying to tell everyone that inflation is under control and not that high. But the Fed's preferred inflation gauge, core PCE, has been above 2% for 64 consecutive months. Now we're seeing the consequences start to show. The 30-year Treasury yield has risen to 5.2%, the highest since July 2007, a 19-year high. The bond market is responding to many things, but certainly including the fact that inflation isn't as controlled as the Fed says, nor as close to the 2% target. Also worth noting, this is the first time in a Fed rate-cutting cycle that the 30-year yield hasn't fallen but is actually much higher than when the cuts began. In my view, that's a signal of policy error and shows investors are becoming hesitant to hold long-term Treasuries.
Jamie Battmer: Hopefully so, because you really shouldn't hold bonds beyond what you need for short-term and medium-term cash flow needs. The risk is also that someone will say, "5% is good enough, I can live off that." But the data overwhelmingly shows that over the long term, bond returns are only about half of stock returns. And if rates spike like in 2022, these so-called safe assets could drop 20%. A common misconception is that bonds underperform over the long term, but they also don't always provide a safe haven in storms, especially if the storm itself is rising rates. And going back to your chart, inflation is the ultimate hidden tax, and many of these numbers we know are nonsense, like healthcare costs falling over the past decade – 100 out of 100 people know that's false. Take my family for example: we have three kids, from a Midwest farm background, and we eat a lot of bacon. Bacon prices have gone crazy, and I even have a pack in the fridge. I told my family to try a cheaper brand, but the kids refused. So maybe they're just picky, or maybe it shows that even ordinary people clearly feel the price increases.
Charlie Bilello: Totally agree. The real issue is the cumulative increase, which has always annoyed me. When you listen to the Fed, they always talk only about what happened in the past 12 months. But even looking at that number, inflation is rising, not falling. The new Fed Chair Kevin Warsh was very hawkish this week. Here's a quote from this week's press conference: "Households and businesses have been dissatisfied with persistently high inflation for 63, 64 months. We're on the job, we'll deliver, and we're laser-focused on doing that." Similar to his hawkish tone at his first press conference in June. But so far there's been no action; the Fed hasn't raised rates, they're still doing some form of quantitative easing, and the balance sheet is still expanding. And over the past six-plus years, U.S. inflation has averaged about 4% annually, double the target. In my view, the Fed must act. If you're going to have a 2% target and want to regain credibility as an inflation fighter, you have to raise rates. The market is starting to price in a 25 basis point hike in September, and I think that's a high-probability event. What do you think? Is the Fed behind the curve?
Jamie Battmer: The only data-driven thought is that Wall Street's predictions on rate moves are just as wrong as anything else. A year ago they predicted nine cuts, which didn't happen. Interestingly, there's a misconception about the Fed Chair – people think they're all-powerful, the top gorilla in the group, but they're just one voting member. Almost like the president, they get too much credit and too much blame, but they're just a human voice pretending to know the future. Alan Greenspan was Fed Chair for a long time and wrote a book called "Maestro" claiming he was coordinating everything. But then came the worst recession since the Great Depression, and many policies were enacted during his tenure. Conversely, Paul Volcker was blamed in the late 70s and early 80s for causing a recession and helping Carter lose the 1980 election to Reagan because the Fed aggressively fought inflation. So yes, prices have been stubbornly high, and it seems action is necessary, but it's a balance. No one knows what tomorrow will bring. Fighting inflation hurts ordinary workers, but higher rates also hurt ordinary workers, ordinary businesses, and small businesses, which are hurt more than large businesses that can negotiate lower rates. So it's a balance, and future data will tell us the answer, but the fact is prices just keep rising, rising, rising, and never come down, and it's been going on for too long – it's a severe hangover from COVID-era policies.
Charlie Bilello: There are indeed many factors. I often talk about the Fed, but obviously it's not just them. The federal government and fiscal situation are also a big part, but somehow the Fed now says, "We don't talk about that; it's not our jurisdiction." That doesn't make sense. They have to talk about it, and they should, because it's an important part of the inflation picture. But the Fed also bears responsibility – they maintained ultra-low rates for a long time, flooded the system with liquidity, and their operations in MBS in 2020 and 2021 were absolutely crazy measures that certainly fueled inflation and are still fanning the flames. So I go back to this: if you have a 2% target, you have to stick to it. We haven't hit it in over five years, and you should raise rates in response. That doesn't mean you alone can solve inflation – no – but it's your job, and you should do something. I think there will be a hike in September, and we'll have you back to discuss it then.
Chapter 5: Fiscal Deficit: More Profligate Than a Drunken Sailor
Charlie Bilello: Next topic, "slandering drunken sailors." The term sailor probably emerged in the 17th century, referring to sailors who, upon coming ashore, spent all their voyage earnings in bars and such until they had nothing. I often say the federal government spends like a drunken sailor, but actually that's slandering drunken sailors. Because we not only spend a $7 trillion budget, but we also borrow excessively. Since July 1, the national debt has increased by over $400 billion, which is an astonishing pace. We're rapidly approaching $40 trillion in national debt. Inflation isn't just caused by the Fed; this massive borrowing and deficit spending that hasn't stopped since COVID is the elephant in the room, yet few people seriously discuss it.
Jamie Battmer: Yes, actually it started even earlier, after 2008, and it's only gotten worse. If any of us lived like this, we'd be thrown into debtor's prison, kicked out of our houses and apartments; it just wouldn't work.
Charlie Bilello: Don't try that at home.
Jamie Battmer: Right. And as for the drunken sailor, at least they eventually have to get back on the ship. Even if it's the Titanic, they leave, maybe hit an iceberg, but they depart. Government debt, however, never ends. No matter which party is in power, it's stimulus, stimulus, stimulus. It's like a drug in medicine; once it enters the body, the economy says, "Give me more, give me more." The growth is terrifying. I have three kids, and I was just complaining about bacon prices, half-jokingly, but the world's debt, obligations, and the checks we're writing may ultimately have to be honored or come due by them. In my view, that's a terrible burden to leave for future generations.
Charlie Bilello: I've always said they'll pay for it in some way. It may not be direct repayment, but more likely through inflation, lower future Social Security, and such. So we have to do something. Also, the idea that tariff revenue would balance the budget and pay down the debt—Scott Bessent said tariffs could do it when the debt was $37.2 trillion, and now it's $39.8 trillion, so clearly that hasn't materialized. At the start of Trump's second term in early 2025, many in the administration talked about growing out of debt, discussing 5%, 6%, 7% real GDP growth. That's nice on paper, but hard in reality. Growth was 2.8% in 2024, 2.1% in 2025, 2.1% in Q1 this year, and the latest GDP is only 1.5%. So the idea of growing out of debt, unless you have post-WWII growth rates, if you can only grow 1% to 2%, there's only one solution, which no one wants to do and won't do until a real crisis: cutting spending. There must be discipline.
Jamie Battmer: It's like someone saying you have to eat healthier and exercise more. It's not a big deal until you have a major heart attack; then it becomes the biggest deal. Will we grow out of debt? Maybe AI can do something. Maybe. But historical data says no. Will tariffs be the answer? Maybe. But historical data also says no. I just mentioned the new Fed, Greenspan, Volcker, and then Ben Bernanke, who as Fed chair really put these massive debt policies into overdrive. He's famous for understanding the causes of the Great Depression, calling it the holy grail of macroeconomics. But the massive tariffs enacted during the economic collapse, all the data shows they exacerbated the problem, dragging the global economy into a worldwide depression. So history says no. The future is unwritten, but setting up more obstacles to capitalism, they're more likely to have negative than positive effects; the odds don't look good.
Chapter 6: How Much Longer Can AI Capital Expenditure Dance?
Charlie Bilello: Two more topics. This is a big one; a lot depends on the AI infrastructure boom. Will we keep dancing until the music stops? Everyone remembers Chuck Prince's quote in 2007, when he was CEO of Citigroup, saying they'd keep dancing until the music stopped. The big banks were dancing, then the music stopped, and the result was the financial crisis. Now, big tech companies are still dancing. If you look at Q1 earnings for Amazon, Google, Microsoft, and Meta—the four hyperscalers—Oracle hasn't reported yet. Their capital expenditures all came in above expectations. The four combined spent $165 billion in Q1, a staggering number, up 87% year-over-year, and up 393% from three years ago. I keep asking, are we at least close to the peak in the growth rate of capital spending? Are we close to the moment when the music stops? I guess when it stops, it'll be because of this chart. Let's talk about free cash flow. Last week I mentioned Google, which had negative free cash flow for the first time in its history, due to massive spending on property and equipment related to AI infrastructure. Meta's stock got hit hard this week, with free cash flow plunging 91% to just $784 million, down from $12 billion last quarter and $14 billion the quarter before. Jamie, these companies used to be asset-light, which was one reason for their valuation premiums; now they're rapidly transforming into capital-intensive businesses. And eventually, will investors say, "Wait, I didn't sign up for this bloodletting"? A few years ago they were the strongest free cash flow generators in the world; now some have turned negative. They're giving all their money to semiconductor companies. How long can this last? Is today's growth rate sustainable? What would make them pull back on spending plans?
Jamie Battmer: First, personally, I think Facebook is one of the most evil companies on Earth, so I don't mind seeing it burn cash. But more broadly, infrastructure—we actually invest a lot in infrastructure. Like any asset class, you have to avoid chasing hot trends. Yes, there are these hot elements, but there are also companies building roads, bridges, maintaining bridges, recycling centers, water purification plants. So don't throw out an entire asset class, and don't pour everything into a fast-growing sector. Yes, it may continue to grow, but we seem closer to the peak than the starting point. Interestingly, either they run out of money, as this chart shows, or, as has happened throughout history, a lot of money and resources pour into something, making it expensive or exhausting funds, and then the next revolutionary innovation makes it more efficient. Maybe someone in a dorm room will come up with that brilliant idea that brings higher efficiency and reduces the need for this infrastructure. Hopefully from Stanford or the University of Montana, not a North Korean government facility. But history shows that when oil prices spiked, it drove more efficient extraction technologies. Using history as a guide, the outcome could be they run out of money, or it slowly fades, or AI really does amaze for many, many years. The amazement from technology could last our lifetimes, but there will be bumps, and right now a massive amount of money is flowing into this area; historically, these are signs of irrational exuberance and danger.
Charlie Bilello: Right, these companies were asset-light, which was one reason for their high valuations; now they're rapidly transforming into capital-intensive businesses, and historically, capital-intensive businesses haven't had great shareholder returns. I also want to quickly mention, this isn't even the latest financing arrangement—Nvidia announced $250 billion in financing for OpenAI's data centers. We're seeing more of these circular deals; companies run out of money, they either issue debt or equity, and even Google is issuing stock, which shocks me. They can no longer finance through free cash flow. OpenAI also doesn't seem to have enough money to do what it wants, and now it's tied to Nvidia, which is essentially guaranteeing financing for this project and then using that financing to buy chips. I think this circular structure is dangerous, and looking back, the fact that Nvidia had to resort to this will be a red flag.
Chapter 7: Positive Signs in Employment and Business Formation
Charlie Bilello: Last topic, we always like to end on a positive note. There are two very positive trends. First, late last year we often talked about a weakening labor market, rising unemployment, and even the first job losses outside of a recession. I called it the most confusing labor market ever. But over the past six months, we've seen a reversal; employment is growing again, and initial jobless claims have seen a surprising decline. The fear of massive AI-driven unemployment and job displacement is still there, and maybe it will happen in the future, but right now people aren't filing for unemployment in large numbers. Initial jobless claims have fallen to their lowest level since January 2024. On the other hand, regarding the potential concern about capital spending, business formation in the information technology sector is so high it's almost off the charts, as shown in this chart. A lot of new businesses are being formed; it's never been easier to start a tech company, requiring fewer employees, and we're seeing many one-person companies emerge. Regardless of market trends and returns, this will bring more innovation and competition. As you said, the cure for this high capital demand and high memory prices will ultimately be innovation. What do you think about the labor market and the surge in new businesses?
Jamie Battmer: I think it's great. It shows that someone has a good idea. You're right, the barrier to entry has been dramatically lowered. When someone is stuck, tired of the daily grind, and wants to try something new, breaking down that barrier is a wonderful thing. It's also nice that fewer people have to go home and tell their families they lost their jobs. AI may and will take some jobs, but history shows that every quantum leap in technology has brought more jobs, more well-being, and more productivity. If this time is different, it would be an exception to the rule. Of course, what works and what doesn't will change, but that has always been the case since ancient times. I think it's great that people with ideas and people who want to make a change can truly take a shot and chase the American Dream. Many people say the American Dream is dead, but the data shows the exact opposite.
Charlie Bilello: Great. Jamie, great show today, thank you very much.
Jamie Battmer: Thank you, Charlie.
