Google’s $85B AI Push, Tesla Bets on Robotaxis and Meme Stock Mania Returns!

Hello and welcome back to the Market Maker podcast. And Piers, you've just sent over your notes to me. And I know that you're such a diligent guy, but my God, I feel like we could be here for hours. So I'm actually very keen to see how you condense this down. But to give the listeners a bit of an idea of what we're going to cover, we've had Alphabet. So one of the first, the big tech companies come out and report. And obviously we had the big bank earnings last week we talked about. So this really kicks off the tech side of things, which is obviously incredibly influential for the overall indices. I was just looking at some stats preparing for some slides for tomorrow and just looking at like the amount of contribution these stocks are doing, dragging these indices up to these record levels. But Alphabet profits jumped 20%, particularly with strength in search and cloud units, but maybe not all Sunshine and rainbows. So we'll have a look at that. And then Tesla faces some rough quarters amid Trump's EV policy shift. And also we'll have a look at what would it take for robo taxis to go global? Because you sounded quite excited when you had a little breakdown on this one. And then obviously Trump's been in deal mode. He's done it again. Trump has struck a trade pact with Japan, but also EU is pending. And on the back of that, that news, I think on Tuesday, on Wednesday, markets hit record highs once again, baby. And then meme stock mania returns. So if you like your Krispy Kremes, and I didn't even know GoPros were still a thing, to be honest, but that's probably what qualifies them for meme stock status.

Yeah, exactly.

So yeah, we'll talk a little bit about that as well. So yeah, where do you want to start, Piers?

Well, pack it in. I like the fact that you are implying, you know, I put in a huge volume of work to prepare for this episode. I like that. In truth, you know, you, well, part of this episode's gonna be about AI, obviously talking about these tech stocks and particularly Google, as I said. But yeah, AI, I mean, look, in terms of driving efficiencies in the workplace, yeah, I reckon I spent 60 seconds putting this sort of summarized overview together for this episode. Obviously, I've read all these articles, so I'm not saying I haven't spent time, but yeah, in terms of like shaping a podcast episode. Yeah. Wow. I mean, that work would have taken definitely a couple of hours and it took 60 seconds.

Are you telling me that you've been spending a couple of hours for the last 324 episodes? Where have you been hiding under a rock or something?

Look, I'm embracing the future and 60 seconds starts now. So we're going to start with Alphabet. And as you said, obviously this is massive for, well, just global markets. And that's because it's the US big tech stocks. It's earnings season. It's kind of the latest sort of check, temperature check, right? What's happening? How are they getting on? And like Google here are the kind of one of the first ones up. But also, as you were implying with regards to markets there, like for the S&P 500, don't forget that over 30% of that index is US big tech. So what happens with these companies and their earnings is absolutely phenomenally key to what happens with US stock indices. And right now the S&P's punching more new all-time highs. We were talking a few weeks back about that radical bounce from the 8th of April low up over 30%. Well, it's just carrying on going. We're at 6,367 on the S&P 500 now. So look, Alphabet, I mean, the main thing here is relief that their search revenues, so Google searching is as of yet at least not being cannibalized by the ChatGPTs of this world. That's been the big issue with kind of Alphabet, or we should say obviously Alphabet's the parent company of Google. So Google's revenues, the majority of them are from search advertising. And so one of the key risks here was that maybe AI, maybe the ChatGPTs of this world were finally going to topple Google's monopoly on this thing called search. And we would no longer just type stuff into the Google search bar and then get 10 blue links and then have to, I mean, can you imagine, have to go and actually click on these links and actually do our own reading once you get to the website that it's pointed you to? That seems quite archaic now that we'll just get ChatGPT to read the actual articles and just gimme a summary, thanks. So the idea was that advertising revenues would really be cannibalized. What we've seen from these earnings from Q2, so look, this is May, sorry, April, May, June 2025. We are seeing that there's no cannibalization whatsoever. And in fact, their revenues from search alone are punching higher. And look, they've added, look, they're kind of on their way to evolving their offering from a user's perspective. Because as you'll know, using Google now, you get the, what's called the AI overviews. So once you bang in your Google search, you'll get that little segment at the top, which is a little bit of an AI sort of summary.

Yeah, I use that. I use that quite often, I'd say.

Yeah.

Like I was doing some, using some new software and I was like, well, how do I do this? And how do I, I was using, I can't remember, Adobe Premiere. And I was like, well, how do I chop this element and that? And actually it just went bang, bang, bang, step by step.

Yeah.

I don't know why I went there rather than ChatGPT. It just felt like, a more natural place to go at this point.

Well, that's it. And I think there is a time factor here for Google because right now most of the planet just Googles. You know, yes, volumes on the ChatGPTs of this world obviously are growing and growing and growing. And I think actually ChatGPT's monthly active users right now is 600 million, which is a hell of a lot, right? But there's 7 billion people on the planet and there's way more people that are still Googling rather than getting onto this AI-driven ChatGPT situation. So Google have to get there first so that most of the people don't pivot to ChatGPT, right? And so they've still got time, but obviously they've got their own equivalent, which is Gemini AI, which is a separate app from their search bar. That's actually got 450 million monthly active users now. So actually that's catching up with, it's not far off ChatGPT's. But you know, back to the actual straight up search, search volumes were up by 10% year on year in Q2. So as I said, rather than that cannibalization risk, actually their volumes are still climbing. So that's been, I'd say that's the really big key takeaway from their earnings here. And as a result, their net income rose 19%. So $28.2 billion worth of profit in 3 months, which is, decent. But then their search and advertising revenue, if you take that segment out, that was up 12%. So that in itself generated $54.2 billion. So that's really key. The second part of this earnings report is that their cloud revenue, which is stepping away from all that search and advertising stuff now, their cloud revenue was up 32%. So that's now clocking in at a really meaningful $13.6 billion for the quarter. And obviously that is, That's them benefiting from just the AI evolution, right? Because obviously AI and all these machine learning, all these training tools and so on, they need compute. And so, you know, all the cloud providers, the big ones like AWS and Azure, Microsoft, and obviously Google Cloud, they're the three big guns. And so that is just going through the roof here. So, you know, these are all the positives from the Alphabet earnings, and that has led to a a little bump. I mean, from their share price perspective, these numbers beat expectations, but their share price was up about 2% in overnight trading. And look, they've had a good run from sort of their start of April low. Share price was down about $144. So now it's clocking at $190. So that's a big run-up. So look, they're off the back of a strong rally, but adding a small minor, a little bit, I'd say this upward trend that we've had for the last couple of months, would probably justification that that's going to continue. It's not like we've popped 10% off these earnings or anything. And really the target from a technical perspective is the high of the year, which was set back in January, just above $200. But there's always the but with Google and the reason why it got, it's been underperforming, not over the last few weeks or a couple of months, but prior to that. Google was underperforming, I should say Alphabet was underperforming the other Mag Sevens for a couple of kind of key reasons. So one was some news earlier this year, some antitrust issues, and there was risk that they're going to lose the default search status on Apple devices. So iPhone. So right now Google pay, I think they pay Apple $10 billion a year to be the default search browser on the iPhone. And the idea that this is an antitrust issue that the US government have picked up and they want to force them to force Apple now to present users with options of browsers that they can use. So that's one thing. The other thing then is their spend on AI, which is more broadly a factor for all of these big tech giants. And here in this earnings report that, I mean, this is just, it's just insane what's happening here, but they are now increasing. So they've announced that they're accelerating and increasing their spend on the AI race. It's now forecast to be $85 billion in 2025. To give that some context, in 2024, they spent $53 billion on AI. $85 billion. I mean, I just can't even kind of imagine that amount of spend on, it's just insane. And actually just look, all of these big tech firms, it's a similar story. And it just, from an antitrust perspective, how the hell do you compete with a checkbook or a set of checkbooks that are that big, right? When you look across those big tech firms. So that news in the earnings report, last night, I would say, has just curbed enthusiasm with regards to what would've been a probably bigger share price positive bump to the upside. That big increase in spend has just, again, everyone's just taken a sharp intake of breath and let's see if, can anybody actually win this race and make this just disgusting amount of money that's getting thrown at it, make that payoff.

Yeah. I'd love to know, like, if anyone listening knows the breakdown of the $85 billion.

That's a really good question.

Like, yeah. How do you spend that? Because a lot of the buildout and infrastructure, isn't that someone else doing that? You're not building in-house centers, right?

I don't know the breakdown, but I can I'll bet what's the biggest line item in that costing? That's gotta be NVIDIA GPUs, isn't it? Look, they're building out their data centers and that, you know, they've, that cloud service, you know, for them to be able to compete with the larger AWSs and Azures, right? Those two are bigger than Google Cloud. So infrastructure buildout, to handle what is obviously an exponentially growing kind of demand, compute demand, as these ChatGPTs, you know, get more advanced. And at the same time, user growth is like rapid. So both of those things require more compute power, right? So it's just kind of building that out. Now from Google's point of view, they're saying, well, look, we're spending this on stuff that's, generating us money. It's not like Facebook a few years back, Facebook going, right, we're gonna spend, I can't remember the exact numbers now, but I'm gonna make them up. We're gonna spend $40 billion on the metaverse. Okay? That's what Zuckerberg said a few years back. And then the Facebook stock dumped 30% because the metaverse, I mean, well, it's not a thing. You know, it's not, that's a moonshot for like a decade plus. This is, I mean, from Google's point of view, at least they're spending it on stuff that's immediately generating some money. So there's that, but still it's just, you just, I mean, it's, I can't even kind of fathom.

Well, I just asked the AI, how do they spend $85 billion? And what I got back was roughly, so CapEx breakdown, roughly two-thirds of the $85 billion goes to servers. Including tensor processing unit hardware, TPUs, and the remainder goes to global data center buildouts and networking gear.

Yeah.

But yeah, let me just to conclude then. So on the year to date so far, Google is basically flat. And so that now unbalanced MAC7, you've got Tesla at the bottom down 18%. Apple down 15, then Google. And then on the upside, you've got Microsoft up 20, Meta up 22, and Nvidia up just under 30.

Yeah, exactly. That splits them out perfectly. You got the laggards, the Tesla and Apple. You've got then an Alphabet or Google's kind of just in the middle now catching back up. I would say flat on the year doesn't quite tell the story because the all-time high for Google was set on the 1st of January. So it's back to all-time highs, but like the Metas and the Nvidias and the Microsofts have smashed their all-time highs from, right? So yeah, but you know, I'd say, look, this is all very positive, a bit of a relief, no cannibalization yet to their search revenues. That was key, obviously big explosive growth on the cloud side. And so we crack on. So let's kind of switch to the opposite side of the pendulum maybe.

Yeah. One thing is, wouldn't the competitive kind of tension amongst these big tech in the AI space, if they go to $53 to $85 billion, doesn't that just force the hand then of the others to follow suit? And so then they just get backstopped by, you cannot not spend now.

That's right. Exactly. That's it. You know, you're, you're, you're stuck. They're well beyond the sort of point of no return. There's so much that's been spent, they've just got to carry on. So it's just interesting to think about, well, who wins? And actually, most likely there'll be multiple winners. And right now, most likely there'll be the big giant tech firms because they'll just outspend everyone else. Now, is that a problem from an innovation point of view? You could argue definitely. That's why antitrust risks loom because it stifles innovation. We'll talk about one of those in a minute when we talk about robo taxis. There's a startup that's trying to fight against these big boys. But yeah, it's a difficult race to join and you've either got to have some kind of massive edge on the kind of technology side or you've got to have a massive checkbook.

Well, let's go to Tesla then. How are they getting on? And then the robotaxi situation.

Well, Tesla are having a shocker. I mean, the numbers are quite alarming on the one hand, and if it wasn't for stuff that's further down the track that could possibly turn this around, then I think their share price would be in a whole different place, i.e., much lower. Right now the numbers are crazy really. So their profits for Q2 dropped 23%. Their revenues are down 12% compared to Q2 of 2024. So their revenues came in at $22.5 billion. Now the reason why I'm, you know, this is shocking because the share price of Tesla and their kind of valuation as a result from a kind of price to earnings perspective is really high. It's pric— their They're rated as a sort of rapidly growing tech firm, except not only are they not rapidly growing, they're not growing. In fact, they're contracting. So it definitely doesn't add up towards their kind of valuations, but revenue's down 12%. Obviously there's reasons for this, many reasons, and that's the thing, which one do you point at? But there's an aging model. Lineup. They're trying to address that with the kind of new Model Y, but it still hasn't quite come through yet. Obviously, it's the competition that they're getting from the likes of the Chinese electric vehicle makers, the BYDs of this world, which has really, really been a killer. So you've got that going on. Then you've got the tariffs. So tariff, and actually it was interesting that they reported that in Q2, they had $300 million in extra costs due to tariffs. They've I've never reported anything like that. That is definitely Musk making it very clear, Donald Trump, this is what you are doing to US businesses with your tariff policy. We are paying more, we're paying $300 million more in costs. And they said that they're expecting that to continue to rise. So obviously that's a negative that's squeezing their margins. Then on top of all of that, this big beautiful bill that Trump rolled out, In it were two big negatives. Firstly, the EV incentives. So if you're an American, you get $7,500 of subsidies, as in discounted off the price of the car, because the government will fund that if you buy an electric vehicle. That is coming to an end in September, scrapped entirely, not reducing it. It's literally zero, no more incentive for No more subsidies for someone to buy an EV. Secondly, a kind of big under the bonnet sort of revenue driver for Tesla were selling what were called these regulatory credits. And their revenue from that halved in Q2 compared to the year before. So $439 million. This is basically Tesla, which is an EV selling regulatory credits to some of the big, let's say, automotives that have huge emissions outputs. So those big automotive companies would buy these credits off Tesla. To comply with the emissions regulations and that there's penalties on emissions outputs in the US. Well, that's all been scrapped. There's no penalties now, so no one needs to buy regulatory credits off Tesla. So that's another kind of big kick in the face, to be honest. And so all of this is why, and obviously then there's the political kind of negative sort of flak Musk has been getting as a result of his sort of, well, controlling US politics. Would that be too strong a phrase? And him meddling with European politics unnecessarily. So from a PR perspective, it's been an absolute shocker. So look, all this winds up to say that in Q2 they sold 384,122 vehicles, which was 13% down on the same point last year. And Musk was saying, look, there's some rough quarters ahead because of all of these regulatory changes and so on. So yeah, I mean, there's no good news in here. And their stock's down 6% now in aftermarket trading. Obviously the stock won't open until New York opens at 2:30 UK time, which as we're recording is in like 4 hours.

So I'm assuming Musk adopts two strategies here. There's the pivot as to the moonshot's not that far away strategy, right? And to deflect attention away from the things that you've described. And then there's also then the calling out of Donald Trump and some of these political noises about his own party and so forth.

Yeah. And so like, I mean, on that last point, I don't know, from an investor's point of view, you might even see that as a negative because, hang on, I thought he'd stepped out of the Trump administration now and he said, right, my full focus is back on Tesla. And what, now he's starting a new political party? It doesn't sound like his full focus is back on Tesla, but he's quick to point out on this earnings call, you know, he is looking into the future. And number one is he now expects that they will be building 100,000 Optimus AI robots. Per year within 5 years. So that's like the moonshot, that's like the metaverse sort of equivalent. And look, who's to say? I mean, obviously there's competitors in that space, but Tesla have a really, really attractive, interesting product. It's just, it's 5, 10 years down the track before that's going to really come through, right? And will they win that race? There are competitors. So the other one, which is nearer term, Which segues into our next segment is then the, well, actually, sorry, one more before we go. Robotaxi, that's the affordable EV. And he's been banging on about how Tesla are going to be rolling out this affordable EV for years and it's never happened. And now he's saying again, it's going to be mass production in second half of this year. Well, we're already in the second half of this year. So is this another line that they don't deliver on. Obviously, this is to try and compete with the Chinese. Obviously, Trump tariffs in this instance are a good thing for Tesla. We'll talk about the Japan deal and the EU trade deal in a second, but those negotiations are positive for Tesla from the point of view of foreign cars coming into the country are going to get tariffed, right? But anyway, he says they are going to roll out this EV mass production affordable car. This does tie into his robo-taxi dream because look, there's a few players in this robo-taxi sort of space. There's the three sort of big guns. Waymo, that's Alphabet's company that came out of Google. They spun it out and set it up as its own entity, still under the Alphabet umbrella. But Waymo now is the leader with regards to monthly rides, let's say. And actually, it's quite amazing. Oh, sorry, weekly rides. Do you know this figure? So, what's the number of paid-for Waymo rides per week right now? Do you know? How many per week?

No idea. I don't even know which states have adopted it.

Well, it's 5 cities. They operate in 5 cities.

Okay.

In the, all in the US.

So I'm assuming these are large popular cities, assuming they're fairly affluent ones like California and the people that use them are probably fairly affluent. So probably use them quite often. I don't know. 100,000.

I like your rationale. It's good. Uh, 250,000 per week. So that, I mean, that look, Robotaxis was always this thing in the future, right? Not, it's here. It literally now is happening. So you've obviously got Waymo here. And by the way, to give that some context, if you go back just 12 months, I want to give you like the growth rate here. If you go back 12 months, it was like, well, actually I've got monthly figures here now. Sorry. So monthly paid-for trips are now up to 700,000. 12 months ago it was 100,000. So it's kind of 7x'd in volume in 12 months. And obviously that growth rate is expected to be sustained. And this is only just 5 cities, right? So obviously the size of this market, if you think about it, it's kind of, it was hard to kind of get your head around and actually obviously hard to forecast right now in 2024, the size of the market was tiny, tiny, tiny, $1.9 billion. By 2030 is expected to be somewhere between $40 billion to $100 billion. So that's at least, you know, that could be 50 times growth in 4.5 years, right? By 2040, expected to be $1.2 trillion. Now obviously that's a long way in the future and that estimate carries a lot of, Where can I buy these famous shares? But this is my point, right? This is a massive, massive future market. And so who's going to win it? And again, perhaps not one single player, but well, if you talk to Musk, then he'll tell you, because in his earnings call yesterday, he said, hang on, here's the quote talking about robotaxis. Once it does start to move the financial needle in a significant way, i.e., revenues from robotaxiing. It will really go exponentially from here. And he predicted that Tesla will have a 99% market share. That's a lot of hot air. No one's going to have 99% market share. But look, if it's going to be $1.2 trillion, the size of the market in 15 years' time, then even if, I don't know, even if a big minority chunk of that, that's a lot of money. Remember, Tesla at the moment generate $100 billion revenue a year, right? Let's just say they had a quarter of that market in 2040, then that's $300 billion. So, and that you would say that would be maybe a conservative estimate of the amount of market share they might have. And so look, Waymo are ahead at the moment in terms of weekly rides. Tesla, they started to roll out their kind of Cyber Cab, in Texas earlier this year. The other player you might not be aware of, listeners, is Zooks. So Z-O-O-X. And that is whose? That is Amazon's player, right? So you've got, you've got the three big tech, another set of giant checkbooks that are just all over this market. You might remember Apple tried to, had a go at this a few years back. They failed and ditched it and caved and just gave up. So you've got these 3 big guns that are plowing forwards, right? And we'll see, right? There's different now that the, obviously to win this big giant market share in the future, it's about scale. Now you have to say on this front, Tesla are absolutely in the driving seat, even though Waymo is right now out in front. The problem Waymo have is their vehicle costs. Right now they're partnering with Jaguar and there's a huge amount of equipment because because it's not just cameras, they have LiDAR, which is these laser detectors as well. So right now, one vehicle is expected to cost Google $150,000 to get it on the road. That's a lot of rides you need to kind of make that money back before then actually you are— so they're definitely losing money right now. One way that Google are going— so the point here is Google don't make their own cars. So they're having to partner with someone else. They, they're switching to Hyundai and that's expected to bring that cost down. But still the equipment is really expensive. If you look at Tesla, they reckon, 'cause Tesla just use cameras only, it's a more advanced technology. It's still behind in terms of its level of autonomy. But if the, if, if Tesla can get it up to what's called a Level 4 fully self-drive signed off by the regulator technology, then their system is, well, Musk says it costs about $400 for a set of cameras and fine, a bit of a software download, meaning two things. He can mobilize the entire existing Tesla fleet that are already out there in the wild, right? If you own a Tesla, it can be a robotaxi. Number two, obviously Tesla are in the business of manufacturing cars. You know, his news that this cheap vehicle is gonna get mass production second half of this year. Well, that's where he's going to get his robo taxi from, and he reckons he can build robo taxis for $30,000. So he could have his own fleet at $30,000 a pop on the road versus Tesla's currently, sorry, versus Google's current cost of $150,000. So look, they've got the, if they can get regulatory sign-off. Now obviously he's fallen out with Trump, So that hurdle's got higher. Then from a scale point of view, Tesla are looking pretty good here. There's a lot of, a lot way, long way to go. Zoox, they've gone a different route where they've got the same technology as Google in terms of using the LiDAR stuff. They're also then trying to build their own cars. It's apparently, they're calling it a toaster. I haven't actually seen one. It's like a glass toaster is apparently what it looks like. But again, it's hugely expensive. So obviously a long way to go in this race, but from— so Waymo are leading in terms of weekly rides by miles, but Tesla are sitting on the ace cards if they can get this technology through the regulator. So it'll be interesting to see.

Makes sense to me then for Musk to turn political allegiance and back Democrats in time and take like a right position within the Democratic Party.

Such a good point. That is such a good point. That, so maybe this new party idea, maybe actually it's just the kind of stepping segue, stepping stones back to the Democrats.

Yeah.

Skid. But look from him, right? That regulation. If he can get it through, I mean, Tesla could become the biggest company on the planet.

It's part of the deal for the Democrats to sign up to the Musk show.

Yeah. And he's happy to play the long game. He's happy to play the long game. That is a great shout. I like it.

Okay. Well, look, talking of the main man himself, the Donald.

The Donald.

I mean, he's been a busy boy and he's been Doing the business again, it seems. So what's the latest then? I think Japan was the big one, right? This week. I don't know.

Yeah. Well, there was a small one earlier in the week where Bessant, that's the Treasury Secretary, announced that he's going to meet with the Chinese in Sweden next week. So obviously that's a good sign. The deadline for the Chinese deal, just quickly, was August 12th. Remember like back when I think they got up to, what was it, 145% tariffs on China and then they came together and did a kind of deal and Trump said, right, we'll give you 90 days. Well, that expires on August 12th. So a meeting next week in Sweden is obviously a good sign.

Also with Bessant, the Treasury Secretary, he said on Tuesday, look, we're not going to fire Powell.

Yeah.

So that's also another little element for the, I think the positivity in markets as well.

I agree. Absolutely. And then the Japanese news. So they've done the deal and actually Japan have officially also announced that the deal's been done. So yeah, look, this is a good thing on that kind of trade war risk barometer. So they've agreed 15% tariffs on all Chinese goods. That's a drop from the 25% that Trump had threatened. Okay. They've also carved out a kind of deal on automotives. So yeah, auto tariffs, remember the US have a global 25% tariff on autos, full stop, all autos coming in. They've carved out an exception for Japan again at 15%. So instead of 25% on Japanese autos and obviously the Toyotas of this world, et cetera, that's a really massive piece of that Japanese exporting industry. So they've They've cut that. So that's a really good thing. In return, Japan have committed to 550 billion investment fund for the US. Don't know what that means. But then questions remain on defense obligations and what's going to happen with steel tariffs. But look, net-net, the Nikkei jumped 3.5% off the back of this news. And being led, and look, that index is heavily packed with the big autos like, and so it's not just Toyota, of course, you might have heard of Mazda, you might have heard of Subaru, you might have heard of Mitsubishi, Honda, you know, these are global giants of the auto industry. And so they are, they're through the roof. In fact, Mazda's share price was up, I think, 17.5% off this announcement. They were worried that they weren't expecting to get a concession on the auto tariff. They thought that's it, we're just locked in on 25% with the rest of the planet, but no, And actually there was a side story here because the US are negotiating with the EU and the EU are also got a big giant automotive industry. So they're like, oh, hang on, we can perhaps have this carve out as well. So you had EU big giant automotive, Volkswagen, BMW, all the rest of them that they obviously benefited from this story as well. But yeah, look, this is Japan. They're a big player. If you think about the global If you think about the trade war risk and you think about the big giant economies, well, China are the second biggest economy. Obviously the US are the biggest, right? China are second. Bessant's going to meet them in Sweden next week. The euro area looks like, so the EU are apparently on the cusp of a deal. We will see. Japan's in the bag. The UK's done. India, actually, where are we with India? Is that the one where they announced a deal but then India didn't confirm it? I can't remember now. But that basically takes care of the top 10 biggest economies on the planet, right? So then actually fine, you're then looking at individual countries rather than it being a global risk. It then really becomes more of an isolated risk to the individual countries that are on the other side of it, right? So yeah, look, Trump in deal mode and that's been a real boost for markets generally. There is quite a complicated sort of secondary impact to this Japanese deal. There's quite a few steps to it which could circle back and bite the US in the ass. And this is due to something called the carry trade. So basically, If you take the last 30 years, Japanese interest rates have been zero. And that's because they had basically a deflation crisis. They had a financial crisis in the '90s, deflation trap ever since, interest rates at zero. So the carry trade for my entire career, which is a long time, has been borrow money in yen, because the interest you pay on your yen loan is super low because their interest rates are zero. Borrow in yen, then take that yen, convert it to a different currency like the dollar and buy US Treasuries, which is at a higher yield. Okay? So you're borrowing in yen at a low rate and then you are lending to a government, let's take the US government at a higher rate. And there's your profit, right? There's a lot of money parked in that trade. Now, the Japanese economy is actually, ironically, after COVID and the inflation crisis for the whole planet, it was actually a really good thing for Japan. It got them out of deflation. Okay? Their economy's had some challenges, but this is a positive thing for their economy. The thought is that inflation's going to stay. The thought is that the central bank are going to start to hike rates. Finally get them off that zero floor, right? But that is a problem for the carry trade. If Japan can hike this year, and we're actually, we're now pricing in one hike, if they can, well then how many times do you think they might hike next year and the year after? And actually does the differential between the US rates and Japanese rates, because remember US rates are coming down, they're being cut, or at least they were, and they will be again next year when Trump's new kind of Fed chair comes in, right? So you've got US rates coming down and maybe Japanese rates coming up. So that differential's going to close and that might mean an unwinding of the carry trade. The problem there is that that's a big part of the demand of US debt. It's the carry trade, borrow in yen, buy US bonds. But if you're going to unwind that, well, you're going to sell US bonds, right? And we got a debt problem in the US, so it could through some complicated kind of set of circumstances, circle back and actually exacerbate the US debt risk. So that's just kind of one side caveat, but like, park that for now. This is a good, obviously a positive thing. Japanese trade deal in the bag and S&P, Nikkei, let's go.

Yeah. And I think I saw some, some news about he's got some deals over with Columbia, the university and things like that. So, okay.

Seems like everyone's, yeah, I did read that.

Everyone's, uh, falling into line basically and either paying up or doing at least half of what was requested. So it's an interesting strategy. Like you said, it's high risk, but, uh, seemingly yielding some results, but not without its secondary consequences, I guess, this point you're making.

Yeah.

Um, all right. Well, look, to, to wrap it up then, Everyone loves a little bit of meme stock mania because we all think, oh, well, another opportunity where I can make a quick buck. So rather than eating my Krispy Kreme, you think I should be buying stock in Krispy Kreme and dusting off the GoPro. So why has this become a thing again?

Well, first of all, slight side Note, you know, right? When US, sorry, when stocks list on a stock exchange, they have a ticker, right? And it's 4 letters if you're on a US stock exchange. So you gotta pick 4 letters that kind of, and mostly it's kind of a shortened version of your company's name, right? So you gotta pick 4 letters. Obviously it's gotta be 4 letters that no one else has. I love Krispy Kreme's ticker code, which is Dnut. D-N-U-T. Anyway, slight, slight, sorry there, but their D-NUT ticker code is revving up on what's called WallStreetBets, which is one of the, which is the famous kind of Reddit channel. You know, back, back at what, what was it like 4, 2021, 4 years ago now. It was GameStop. Everyone I'm sure will have heard about, and there's a movie about it now. That was out last year. I can't even remember the name of the movie. Maybe you can tell me, but it was a quite, quite a good movie actually in terms of actually representing what was happening. Anyway, this was the meme stock kind of mania. Anyway, it's mildly back and Krispy Kreme are leading this as well as GoPro. Another one is Open Door Technologies and then coal. Okay. These four have been kind of singled out as being significant upside. And actually Krispy Kreme stock is up 100% in July, right? So that's 3 weeks. It's doubled. 3 weeks, it's doubled. Now that doesn't tell the story because, well, what happened before July? Well, this stock has been absolutely crunched. And if you go back to last year, it was trading at sort of $12. And it traded down to below 3 as of the start of July. Okay, so it's been killed. Why? Well, hedge funds are shorting it, which is your first item on the list of, right, which stock might become a meme stock. It's one where the like classic kind of fundamental analysis of the business is incredibly bad. And then the professionals short it, right? So hedge funds, they sell the stock to try and profit from it falling. Why are the fundamentals bad? Well, and actually at the moment, about 30% of the Krispy Kreme shares are out on loan for hedge funds to short. So this is where investment banks, let's say, will have inventory of Krispy Kreme shares and they'll lend these shares to a hedge fund who will then sell them, looking to then buy them back at a lower price and give them back to the bank. So about 30% of the float is now out on short selling positions, which is really high. Okay. Why? So why? Well, firstly, the fundamentals, they got a lot of debt. So their debt is about $935 million at the moment. And you might have heard interest rates are staying stubbornly high. They've got negative margins so that they're losing money. And look, this is all around stuff like the craze in the weight loss drugs at the moment in the US. It's thought, well, okay, junk food, that's a problem because if people don't have an appetite anymore, they're not going to buy unhealthy stuff, right? So that was one thing. And then on top of that, obviously then you've got this kind of setup where they got too levered, too much debt, their margins were super thin. Such as they've now gone negative. And so, right, everyone's jumping on this short. Okay. So the market went from the, the share price went from $12 to 3. Cue the WallStreetBets. And this is where now you've got Main Street, you've got the retail army are kind of coming in and saying, right, screw you hedge funds, let's squeeze you out. Right. So they, the retail Traders are plowing into this stock, lifting it up 100% up. I mean, it's only at $4.30 by the way, but that is like 100% off the low from 3 weeks ago. But don't forget, it was at $12 like literally 4 months ago. So we're still nowhere near back to, it's not like GameStop, which went thousands of percent and to all-time highs. We're nowhere near that. Yet in brackets. I don't know. But it's just quite an interesting story that you've got the retail army back on the battlefield looking to take on some of these big hedge funds.

Yeah, I'm just wondering like, well, why are they bored? Or they, there was stimmy checks at the time, which made a lot of sense.

Yeah.

Because there was like, here's a check and you're like, okay, cool. I'll get a new widescreen TV and park a load of money that I never earned. I'm willing to risk it all and burn it all tomorrow. So, so yeah, I wonder what's changed this time to like galvanize the army. I don't, I don't know enough. And maybe there's people within the threads that could inform us of maybe something's happened unbeknown to us.

Well, Bitcoin's had a good year.

True. Maybe cashing out.

Maybe people are cashing out a bit on their Bitcoin and they've got some ammunition looking to park it somewhere spicy. But yeah, that's why I made that very specific point. It's at $4. Yeah, 100% up on the month, but still 70% down on the year. So the point here is, yeah, will this take off like a proper meme stock? I don't know. I'm not buying. Let's just put it that way.

Oh no, you've just literally given the army all that they need.

I'm not buying.

Prop— honest.

Critically get on the way. Okay.

All right. Well, look, we will wrap the show up there for this week. So Thanks as always for listening. Any questions or any views you want to share, things of that nature, please do just drop us a comment. Let us know. We'd love to hear. And we will see you same time next week. Take care.

Catch you later.