Jul 11, 2024 · 57m · bg2-pod
Ep12. Tech Stocks vs the Rest; AI VC Bubble, Calcium CT Scan | BG2 with Bill Gurley & Brad Gerstner · Bg2 Pod
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of the BG² Podcast, hosts Brad Gerstner and Bill Gurley analyze public market positioning, Big Tech valuations versus consumer stock declines, the AI venture capital spending debate, and structural barriers to preventative healthcare.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Brad and Bill hold 100% of the talking time here. How this is scored →
Brad and Bill as informed peer 6.6 Guest teaching 3.7 Guest disagreement 2.3 Brad and Bill pushing back 3.7
speaking balance: gold is Brad and Bill, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 31:51 Brad dismisses academic critique of AI scaling laws
Brad forcefully rejects the MIT professor's Goldman Sachs critique, arguing that researchers in ivory towers lack credibility compared to operators like Elon Musk and OpenAI committing billions to clusters.
Hardest push from Brad and Bill ▶ 53:06 Bill presses Brad on why the medical establishment resists preventative scansBill directly challenges Brad's explanation, pointing out that Brad failed to answer why the system resists cheap preventative scans and refuting the idea that insurance companies want lower volume.
Biggest teaching moment ▶ 47:25 Brad reveals heart disease mortality statistics and CT scan efficacyBrad provides detailed clinical comparisons showing that five times more women die from heart disease than breast cancer and explains why calcium CT scans outperform standard cholesterol testing.
Brad and Bill hold their own ▶ 41:43 Bill dismantles VC spin on AI acqui-hiresBill draws on decades of venture capital experience to expose how pseudo-acquisitions like Adept and Inflection are effectively low-return rescue deals rather than portfolio wins.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Brad and Bill as informed peer | Guest teaching | Guest disagreement | Brad and Bill pushing back | Why |
|---|---|---|---|---|---|---|
| Summer Catch-Up, Capitol Hill Poker & Election Calendar | 3 | 2 | 1 | 1 | Brad recaps his trip to DC and a Capitol Hill poker game during the presidential debate, setting the stage for the election timeline and trading days before November. Bill listens and agrees with the heavy political focus in current media. | |
| Macro Market Setup: Elections, Rate Cuts & Tech Hedge Fund Positioning | 7 | 4 | 2 | 4 | Brad shares Morgan Stanley data highlighting heavy hedge fund tech shorting and selling, while Bill challenges the predictive signal of active managers by highlighting how massive passive ETF flows dominate mega-cap trading. | |
| Market Dispersion: Tech Mega-Caps vs. Struggling Consumer Stocks | 6 | 3 | 1 | 2 | The hosts examine the extreme divergence between consumer stocks hitting 52-week lows and mega-cap tech earnings growing 38% while the rest of the S&P 495 is down 5%. Bill probes whether this reflects deeper consumer exhaustion. | |
| Big Tech P/E Multiples & Mag 7 Valuation Analysis | 7 | 3 | 2 | 4 | Brad runs through Mag 7 historical P/E multiples from the 2021 peak to the 2022 trough and current levels, arguing they are not in bubble territory. Bill pushes on whether narrow market concentration is dangerous and points out Meta's unique insulation from LLM risk. | |
| The AI VC Bubble Debate: Capex Spend vs. Commercial Revenue | 8 | 5 | 5 | 6 | Bill and Brad debate reports from Sequoia, Goldman Sachs, and McKinsey questioning AI capex returns. Brad pushes back hard on academic skepticism by citing enterprise scale and historical precedent like AWS, while Bill argues LLMs face diminishing marginal returns unlike past computing waves. | |
| AI Startup Mortality: Acqui-Hires, Valuations & Enterprise Winners | 8 | 4 | 2 | 3 | Bill breaks down recent 'acqui-hires' like Adept and Inflection, explaining how they mask down-round failures for VCs due to unmanageable valuations. Brad agrees, emphasizing that incumbent balance sheets can absorb experimentation while venture startups face lethal mortality. | |
| Preventative Health: Calcium CT Scans & The Healthcare Complex | 7 | 5 | 3 | 6 | Brad advocates for low-cost calcium CT scans and recounts the documentary 'The Widowmaker' regarding stent lobbying. Bill pushes back on Brad's insurance blame, countering with a structural critique of NIH grant incentives and the broader healthcare industrial complex. |
Statements from this episode (21)
Gerstner: 2017 Corporate Tax Cuts Drove 20% to 30% of Earnings Growth
“Corporate tax cuts that we've talked about before represent 20 to 30% of the earnings growth
Since 2017.”
Gerstner: May and June 2024 Saw Near-Record Tech Stock Selling
“May and June have been two of the top three largest months of tech selling
Since 2010”
Gerstner: Hedge Funds Are Most Underweight Growth in a Decade
“Overall hedge funds are more underweight growth than at any point Morgan Stanley has seen in the last 10 years.”
Gerstner: Active Managers Control Only 11% of Mega-Cap Tech Shares
“About 11 to 12% of the dollars in, in, in, in large cap tech, think mag seven are quote unquote active dollars.
So think long only in hedge funds.
Yeah.
So if you would have looked at this in 2010, that would have been above 20%.”
Gerstner: McDonald's, Nike, Lululemon, SoFi, Walgreens, Papa John's Hit 52-Week Lows
“If you look at consumer stocks from McDonald's to Nike to Lululemon, SoFi, Walgreens, Papa John's, just in the last week, they all hit 52 week lows, right?”
Gerstner: Big Tech Earnings Are Up 38% Over the Past 12 Months
“So if you look at it for Microsoft, NVIDIA, Amazon, Google, Meta, earnings are up 38% over the last 12 months.”
Gerstner: Earnings for the 'S&P 495' Are Down 5% Over 12 Months
“If you look at the S&P, 500 as a whole earnings are, you know, roughly flat during that period of time. And if you look at, if you take out those tech stocks, the other 495 earnings are actually down five percent.”
Gerstner: Big Tech Stocks Are Not in a Valuation Bubble
“We certainly are nowhere near the trough. But these don't, this doesn't feel to me like the stuff that bubbles are made of, right? I can make an argument that you could, these things could all be down 10% in the next three months, and none of them would be scr…”
Gerstner: Altimeter Cut Its Peak 70% Big Tech Allocation by Half
“Well, first to say we own them all. Okay. And you know, the second thing I would say is Altimeter's peak exposure to these names was about 70% over the course of the last 12 months. So we had 70% of our dollars at one point in time in these names. Remember, at…”
Gurley: Meta Gets AI Upside Without LLM Downside Risk
“My quick reaction would be that Meta is somewhat unique in the group in that if there were an air pocket, you know, or something that came out of the LLM AGI world, they're not really, I mean, they're playing with the open source models, but they're not really…”
Gurley: Flooding Sectors With Venture Capital Degrades Portfolio Returns
“Having crazy money in the market is not necessarily consistent with creating positive return for your venture capital portfolio. It can start to trend the other way. If you end up with hyper competition, if you end up where every single player has four hundred…”
Gerstner: Amazon Spent Over $100 Billion on AWS Before Turning Profitable
“By our analysis, for example, just Amazon, Spent over a hundred billion dollars on AWS invested for over eight years before they saw profitability in that business.”
Gerstner: OpenAI Has Generated $3 Billion in Real Customer Spend
“To the tune of, you know, three billion dollars, OpenAI has people reaching in their pockets and paying real money, including myself, for their service.”
Gurley: LLMs Are Structurally Set Up for Diminishing Marginal Returns
“I'm probably more skeptical. I think that the way that LLM's work is actually set up for diminishing marginal returns, but we will see.”
Gurley: OpenAI Failed to Ship Voice Product Months After Promised Date
“The amazing voice demo that we saw on the last OpenAI demo day they had talked about releasing the voice product in two weeks and it's been months. Months, yeah. It's not out.”
Gurley: Big Tech Licensing Acquihires Like Adept Are Not VC Wins
“The adept thing is which was positioned by the press is similar to the inflection outcome. There's no way that's a win for venture capitalists. Like, I'm sure venture capitalists try and spin it, and we heard some spin around inflection, but it, you know, I, i…”
Gerstner: AI startup mortality rate will be very high and winners massive
“I do think that the mortality rate in AI is going to be very high and the winners are going to be incredibly large. And if this is all as big as we think it is, this is going to play out over decades.”
Gerstner: Five Times More US Women Die From Heart Attacks Than Breast Cancer
“Five times as many women die of a heart attack each year in this country as die of breast cancer.”
Gerstner: Half of People With Good Cholesterol Have Arterial Plaque
“And in one of these mini pods I did with Marin, he said that half the people, right, who have good cholesterol have a bunch of plaque in their arteries. Right? And plenty of people who are in the red zone of cholesterol have no plaque in their arteries.”
Gurley: Health Insurers Are Not Incentivized to Cut Medical Spending
“I don't actually think insurance companies are interested in cutting costs. They make a percentage of what is spent, and the more, the merrier. The more that's in there, the merrier.”
Gurley: Over 90% of NIH Grants Target Monetizable Products Over Prevention
“I listened to this podcast once, I need to find it, but where a gentleman argued that over 90% of NIH grants go towards things that are potentially monetizable, so either a product or a drug, and that the NIH is less interested in funding things that might be …”