Chapter 1: What is the main topic discussed in this episode?
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That's this week on Explain It To Me. Find new episodes Sundays wherever you get your podcasts. It's like that little monkey who was rejected by his family and found a plushie. I saw that, and granted, I think I was on an edible, and I'm like, that's my purpose in life is to be other people's plushie.
Hi, everyone. This is Pivot from New York Magazine and the Vox Media Podcast Network. I'm Kara Swisher.
And I'm Scott Galloway.
Scott, you're missing the blizzard. As we tape, over 40 million people in the U.S. are under a blizzard warning, by the way, and snow dropping three inches an hour in some locations. It really is still going on here in New York. And it's crazy. There's a lot of snow happening. We all thought the snow was over.
Maybe I'll go take a walk in New York and walk in the Central Park and contemplate my life.
Do what I would do. Go to Chez Margot and get fucked up and establish eye contact with a nice young Russian lady.
I'm getting an award tonight in Brooklyn. I've got to go out to Brooklyn.
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Chapter 2: What recent legal decision impacted Trump's tariffs?
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Scott, we're back. This is really interesting because you've talked about the problems that companies not AI are having, but Wall Street is taking interest in a new category called halo companies, heavy assets, low obsolescence. Business is seen as largely immune to disruption from AI. Really interesting.
S&P 500 sectors for industrials, materials, utilities, and consumer staples have marched ahead in the last month. Companies like McDonald's and ExxonMobil are taking a win as investors try to take cover from potential AI disruption. Now, you said a lot of these companies have suffered because AI has taken most of the gains in the stock market. Talk about this.
This is a story in the Wall Street Journal, but it's something we've discussed before. It was the other 400 companies, not the top seven or whatever.
There's been a rotation out of AI companies into what are traditionally thought of as defense stocks like Procter & Gamble or Caterpillar, but they have been run up. And so what you've had is you've had this weird phenomena where there's been a pretty serious like multi-trillion dollar destruction in the private and public market valuations of the companies most tightly associated with AI.
Nvidia or Microsoft, they have all gotten hit pretty hard. What's also interesting though, and then there's been a rotation into the defensive guys that are considered AI immune. Goldman Sachs put together an AI immune index. The opportunity in all of this and where I'm actually thinking of investing,
is that while AI stocks have come down, there's still a massive fear that they're going to destroy entire sectors. The sectors that are ground zero for this fear right now are traditional SaaS companies, Salesforce, ServiceNow,
Adobe, the view is since this new innovation from Claude, that those businesses that someone will just automatically put in a prompt and all of a sudden overnight no longer need Salesforce for their CRM for their salespeople, and that overnight Salesforce is going to go away.
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Chapter 3: How is Trump responding to the Supreme Court's ruling?
I mean, Salesforce and Adobe and ServiceNow, these companies are off somewhere between 40 and 70 percent. These companies, and by the way, there's absolutely no evidence whatsoever.
As you noted last week, yeah.
These companies are growing at double digits and trading at free cash flows of multiples on free cash flow of 10 or 12. Meanwhile, some of these old economy companies that are growing at single digits are trading at much higher multiples. I would argue that one of the biggest opportunities in the market right now is the traditional SaaS companies as a multiple on their free cash flow.
This is beyond these Halo companies, beyond the McDonald's.
No, I think the Halo guys, quite frankly, are overpriced right now. Interesting. They're low-growth companies trading at exceptional PEs. Meanwhile, keep in mind, at all my companies, we've had Salesforce. I don't care if some kid came to me and said, okay, we can replicate Salesforce with a thoughtful prompt into Anthropic. I'd be like, okay, we're going to have to retrain everybody on a new UI.
These companies get so, they have client service, they have events, they have worked out millions of bugs over a couple of years. I get invited to Dreamforce if I spend enough money. The thought that all of a sudden people are just going to strip out Adobe or Figma or ServiceNow, these companies are so deeply embedded.
You can call it technical debt, you can call it switching costs, whatever it is. In addition, if AI can actually take the coding down to something meaningless, then what will happen, I think, is that these SaaS companies will reduce their costs by 10 or 20 percent, which gives you their actual coding and technical costs are only 10 or 20 percent of their revenue.
The other 80 percent is marketing, branding, client service, design, events. So that shows you where the value is. They'll do the same thing and then pass on those savings. So you might see some mild margin compression, but I think the flight into quote-unquote defensive stocks, I think that trade has been overdone. I haven't been able to find value anywhere. I've been selling, not buying.
For the first time in a long time, I look at these SaaS companies, there is absolutely no evidence anywhere that a large corporation is giving up Adobe or Salesforce and putting in new prompts into AI. So I think that threat has been massively overdone. Also, I think the rotation into these more traditional low growth companies, quite frankly, I think those guys are really overvalued right now.
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