Good morning everybody. Welcome back to another episode of the market open. We are live. It is Friday, December 5th. It's been a long week, but it's also been a very fast week. And the first week of December trading is going to be ending today as we get into the market open.

We got a bunch of headlines this morning. Number one is PCE for September, which is the Fed's preferred measure of inflation, usually is out at 8:30 a.m. on the days that PCE is supposed to come out. The government was shut down during September. So, it's coming out at 10:00 a.m. today. So, in about an hour, we're going to get some details on what the PCE for September looks like. I don't know how much of an impact it's going to have in terms of how the market's thinking of inflation. Usually PCE does have an impact, but this is three months old data. So, we're going to have to see if the market does react to that react to that when it comes out at 10 a.m. The Fed futures probabilities right now is 87.2. It was 89 yesterday. So, that is an important piece of data and we'll see what happens when that comes out.

The other big headline obviously Netflix buying Warner Brothers Discovery for $72 billion.

Uh we've been talking about this all week. It is definitely caught my attention uh if Netflix were to be able to acquire them. Actually, it's 82.7 billion equity value of 72 billion. Uh there's a lot to break down and dive into and see kind of what this means for the overall streaming landscape. Uh, I know Netflix stock is down in the pre-markets because obviously if you're going to be spending $80 billion, Street's not going to be the happiest about it, but um,

I'm not buying the dip yet. I need to analyze the debt profile, how I think Netflix is going to navigate the debt. If you don't want to get that deep into the details and you just think Netflix is going to be monopoly, I mean, maybe this is a buy. The other problem is the the regulatory hurdle that I think Netflix might face. Now, granted, I don't think they did this deal if they didn't think they would be able to get the job done. there's some unique ways that they um basically argued that they would not have a monopoly because if you look at the internet, YouTube has more watch time than Netflix. So like their argument is, hey, we're not competing with the streamers, we're competing with like the tech companies like YouTube and Google that have this like massive massive audience online or Twitch with Amazon. So I think there's some nuance to how you make the competition argument, but my gut feeling tells me this is good for Netflix.

but my gut feeling tells me this is good for Netflix. like and and we we'll talk a lot more about it in a bit, but I I really do think the types of content they're getting and the IP that they will have forever on that platform in and and in the subscriber editions, which they should be adding 40 50 million subscribers, should be a big deal. So, uh that is a headline that we will talk about and get into. It seems like that is going to be relatively important. We have some Nvidia chip headlines as well that we'll get into.

Oh, the the SoFi dilution thing. Look, I looked at it last night. I don't think it's that big of a deal. I know a lot of people are pissed off because of uh what SoFi is doing with it. Look, it is a little bit weird timing, especially before the holidays. People are kind of upset, but like stock's down 5%. Stock was where it was at last week. I don't think it's that big of a deal.

I am trusting I'll just talk about SoFi real quickly before we get into Netflix. I am trusting Well, okay. So is now 7%. I would trust that management understands why they're diluting. A lot of people have this theory that, oh, they should have waited until after the S&P 500 because then they would have got a better price. They would have had less dilution to raise the same amount of capital. It was about 1.5 billion. I don't I don't uh know and I don't think SoFi knows if they're definitely going to get into the S&P,

which I'll be live today. The S&P announcement is at 5:15 p.m. Eastern. So, I think Steve will join me and we'll we'll wait and see if SoFi ends up getting announced. But I don't think this was contingent on the S&P announcement. I think they just really needed the money to do something. What are they doing? I don't know. One would argue it has to be an acquisition, but a lot of people are saying it's not an acquisition. So, is it paying off some of the convertible notes? Maybe.

Um, it is a bit weird because at the fireside chat, they said they didn't really need capital. The day of earnings 80 days ago, they said they didn't need any capital and then, you know, after hours they they diluted. So, yeah, it's weird. But this is where you've got to trust that not actually knows what he's doing.

Not not to mention Noto has a lot of money that's waiting for him at $45 and uh and even at $35. So the dilution stops the stock theoretically from easily getting to those tanches. He only has a couple months left to really sustain those uh price targets to be able to get I think it's like $500 million he would unlock. So I I would imagine he thinks this thing that they're going to do with the 1.5 billion is a creative they know better than me, but I don't think it's that big of a deal.

I don't know if it's that big. Like I wouldn't freak out if I'm heavy into SoFi. Um is it annoying for SoFi investors? Yes. I mean, you know, this is the second time they've done the last dilution was what 1.2 or 999 million something like that. This one is 1.5. It is kind of weird to raise that much money in the span of five months. And they haven't announced a major acquisition yet.

So, I am personally confused why they're doing it. Do I think it's the end of SoFi? No, I don't think it's the end of the world or anything like crazy like that. But I can understand why people are annoyed and I get it. I I wouldn't be buying the dip though. I mean like I for a dip by this thing was at 23 two weeks ago. So like for a dip by this thing needs to get down a lot more to get more excited. Now if you think they're going to get into the S&P or something then maybe you take a swing at it.

But yeah, the only analysis I can really provide here because no one knows what the hell they're doing this for is that you've got to trust that management has an idea of how the dilution is going to play out and why they wanted to do it specifically at these prices. Also, Goldman is underwriting it and you know not ties to Goldman. So, I would imagine he wanted an underwriter that could effectively do this capital raise to to get to the next step of what they want to do.

But, you know, SoFi is in the midst of trying to figure out how do they gain massive operating leverage in the business? How do they actually use that operating leverage to turn into shareholder returns? The shock has already done very well this year. And then how can this dilution be creative? And we're going to see if this dilution ends up actually doing something meaningful.

I guess the only other bare case is that yeah, they have some bad loans and they have a lot more delinquencies than expected, so they need to raise more cap. I really doubt it given SoFi's underwriting quality, but I guess we're going to find out over the uh over the coming months why they ended up doing this dilution.

Okay, Netflix, what is going on here? So, here's a quote from uh Ted Sandrano, CEO of Netflix. Our mission has always been to entertain the world by combining Warner Bros. incredible library of shows and movies from timeless classics like Casablanca and Citizen Kane. By the way, both incredible movies. If you haven't watched Casablanca or Citizen Kane, what are you doing? To modern favorites like Harry Potter and Friends with our culture defining titles like Stranger Things, K-pop, Demon Hunters, and Squid Game, we'll be able to do that even better. Together, we can give audiences more of what they love and help define the next century of storytelling.

Uh he goes on to continue, "The acquisition will improve our offering and accelerate our business for decades to come." And I think they're right. Like for the next decades, this is going to be a content library that is very rich for Netflix. Warner Bros. has defined entertainment for more than a century and continues to do so with phenomenal creative executives and production capabilities.

With a global reach and proven business model, we can introduce a broader audience to the worlds they create, giving our members more options, attracting more fans to our best-in-class streaming service, and strengthening the entire industry for entertainment and creating more value for shareholders.

I think this is a good deal, man. Like I the one of the reasons I subscribed to HBO Max a while ago was just because they have way better intellectual property than Netflix. You have all the DC movies when it comes to Batman. I'll finally be able to watch The Dark Knight whenever I want on Netflix. Uh Friends, that in of itself is massive. All the Harry Potter, that's massive. Got Silicon Valley, Big Bang Theory. I mean, just so many classic shows that people love are now going to Netflix.

The the question is the unit economics on this deal. The bare case to this is Netflix gave an allcash offer last night and they upped it from whatever Paramount Paramount offered and they said we'll do or it's about 85% of its cash and like it's $23 cash per uh WBD stock and then um $4 a share of Netflix stock. Now Warner Brothers is not necessarily pumping. It's up 3% but it's not at the acquisition price because I think a lot of people are still wondering will this go through? So there is a little bit of an arbitrage there.

the the uh bare case here is that Netflix got one could argue Netflix became desperate to offer this much money and the reason they might be becoming desperate Netflix right here down 3.5% is because their actual business on an advertising and subscriber side is slowing remember they don't report subscribers anymore and they are realizing that there's not that many K-pop demon hunters and Squid Games for them to be able to create over the next five years to meaningfully get that next surge of subscribers, which inevitably means they're not going to get that next surge of revenue.

And Netflix trades at a a multiple that quite frankly, uh, you know, the rest of the media entertainment business cannot believe. And I I I missed Netflix for the past 10 years because I couldn't believe why they trade at this multiple because I was like, they're not a tech company. They're a media company. Like, yes, they use algorithms to help you recommend what content you want, but they're but they have to buy the content to be able to get it on the platform. So, there's a lot of cogs there just in order to make it happen.

But Netflix trades at a multiple and I think it's because it's a best-in-class streaming service. Question is, how do they protect that multiple going into the next decade? And I think to protect it, you need the best. But you you have to give everyone a reason to never leave and more content might end up being that reason.

Speaking of Nvidia, last night the event that I was at because I was not on the market close was an event for Pounder. Uh it was their Paragon event. This is kind of like AIPCON but a smaller version of it. It's a customer oriented event where uh the customers come, they explain what they're doing and this one had less customers than AIPcon. It's kind of like all also like an end of year celebration type of party that they do in December.

And uh so you had Mr. Alex Karp there and he gave a small speech and then you had some customer presentations. The reason I went as well is to do some interviews with some customers and I got to interview the head of the Nvidia deal along with the head of the Palunteer Nvidia collaboration. So the two people that were integral to setting up the Nvidia Palunteer collaboration um I I got to interview them and that video will come out next week.

I have a lot to say about the Nvidia person that I met. Basically Jensen has 30 direct reports. I met one of them last night and we talked for like 30 minutes and he's like tight with Jensen like like every single day he's talking to Jensen and it was really cool to pick his brain about Jensen and like just how Jensen is navigating this whole you know four and a half trillion dollar company thing.

So we'll talk more about that but he was an awesome guy. His name was Justin. Interview will be out with him next week and that's why uh that's why I was gone for the market close yesterday. So we'll talk all about that and go deeper into it.

Okay. So, uh, the Nvidia interview that I did last night. So, over the next coming days, I'll be posting that interview. I interviewed a man named Justin, who is one of, uh, Jensen's 30 direct reports. And, uh, the conversation I had with him, I thought was really, really interesting. So, we did the interview. I did it with him and Kevin. Kevin is one of the core uh leads for commercial sales at Palanteer and it was a great interview. It's about 15 minutes and it'll be uploaded next week.

But the description of the partnership and I got to talk to someone named Zach who is one of the chief guys underneath Sham Sanker at Palanteer. Um and he he's out of the London office, but he was in New York yesterday and and he kind of was really describing the partnership. I know a lot of people are still kind of confused on sort of the metrics of the partnership, but at its core basically they both realized, hey, if Palunteer is able to provide software to companies that can operationalize the LMS in a more sophisticated way, especially with all the CUDA libraries and the Nemo models, which is all of Nvidia's proprietary software, then that just means more GPU and compute demand

because if you have the software that's having more API calls, whether it's entropic, GPT, what Gemini, whatever it is, I mean all of those are going through an accelerated computer uh in some data center in some place. So for Nvidia makes a lot of sense and for Palunteer it makes a lot of sense because at the end of the day you're having to use their ontology to be able to make sense of those LLMs. So it really is a chips and ontology type of thesis.

So after the interview when we went to just get a beer, that's when we like really got to talk and have some fun. And I was like, "So what who what like who is Jensen like?" Like like what is like like you know this guy's running a$ four and a half trillion dollar company and he's talking about he reads thousands of emails every day.

Now, I saw that clip and I didn't really believe it. I'm not going to lie. Like, I love Jensen, but I I really didn't believe it. I was like, "This guy is not reading several thousand emails every day." And after talking with Justin, it is really hard to deny his work ethic.

So this guy Justin joined Nvidia back in 2005 or sorry 2008. He left in 2014. And the reason he left in 2014 is because he was like I was trying to like I was dating and I was trying to like solidify a girl who I was with and trying to you know turn that into marriage. And you know, we'd be out for a Sunday afternoon brunch and I'd be getting texts from Jensen about I need the slides by tonight.

And he was, you know, he it's like, do I pick the girl or do I pick this career with Nvidia? And that's when Nvidia stock was not going to the moon. That was like kind of the 10 years where Nvidia was stuck basically doing nothing. And so he left in 2014 and he told Jensen, he was like, I just I just can't give you the the work ethic that you require out of me.

And the fact that the guy had to leave the company, again, this is one of Jensen's direct reports. He has 30 direct reports. This guy talks to Jensen basically every day. The fact that he had to leave because he could not and that was when Nvidia stock was not going to the moon. So Jensen's still workaholic, you know, trying to take over the world. Um, and he's demanding this guy who's trying to, you know, get this girl to marry him on a Sunday when he's supposed to be off from work. He's, you know, Jensen's asking for for things to get done.

So it was stories like that that he was telling me that was just like pretty incredible to define the guy's work ethic and you know quite frankly it made me want to buy more Nvidia just like you hear all these stories about Jensen but when then you actually hear people that talk to him on a daily basis and how they're uh interpreting this guy's attitude towards the work it becomes credible.

Now, PCE is coming out at uh 10:00 a.m. The expectation for it from what I'm seeing, let's pull this up right here, is oh, we also get Michigan consumer sentiment is um 2%. So, if we can come in and then uh year-over-year it's 2.8%. If we can come in below 2.8 or at 2.8, this could be a fun Friday.

The data is 2.8 versus 2.8 expected. 2.8 versus 2.8 expected. That's a really good inline number on PCE. Month overmonth, it was.3 versus.3 expected. Personal spending.3 versus.3 expected. Personal income 04 versus.3 expected. That's a beat to the upside, which is good. Consumer sentiment 53.3 versus 52 expected. That's a beat, which is good. And then price index month over month 2 versus2 expected. We don't have a single miss on this.

We don't have a single miss on this. S&P had a very slight green candle and now it's back to normal. Nvidia little little bit of a bounce. Nothing too crazy, but almost every number here uh in line. I mean, you know, PCE if that came in at like three or 3.1 that would have been ugly. The fact that it came in at 2.8 is nice to see and maybe that could be the trend for the coming for the coming months in and November.

Uh oh. CNBC headline. The Trump administration reportedly views their proposed $72 billion deal for Netflix to acquire Warner Brothers with heavy skepticism.

You know, technically that could be why Netflix is going up right now because investors might not like that Netflix wants to pay 80 billion and if the But hold on. No, no, no. That's not be as for the agreement, they have to pay six billion in a breakup fee. So, I don't I don't know if it's bullish. Six billion is better than 80 billion, but still six billion for nothing if this doesn't get approved is not bullish for Netflix.

So, I I think they are incentivized to get this deal done. S&P 687 663.

Yeah, Carl, we're getting some news here. Our first reaction now from the administration. I was just in contact moments ago with a senior administration official who tells me that the administration's view of this deal can be characterized as heavy skepticism. So, uh, no word from the president yet. We'll watch Truth Social. But that word from a senior official, senior administration official to me just moments ago saying they view this deal with heavy skepticism.

I think that's what we could have expected uh from this deal. You know, the general view at the White House of uh Netflix is, you know, sort of it's an Obama uh entity because of that deal that they did with the Obama family. They wanted the Ellison to

Aean, when you were saying the heavy skepticism, I mean, I'm sure it's not lost on the administration that the co-founder of Netflix, Reed Hastings, has been very anti-Trump. Um, has put a a lot of money where his mouth is. most recently backed Governor Nuomo in the redistricting to redraw the House map and in the in the sort of stop Trump movement. That has to play a role even if it's not supposed to.

Yeah. And you just heard Treasury Secretary Bessant, you know, on stage with our Andrew Ross Sorcin at the Dealbook Conference invoked, uh, the Netflix deal with the Obamas on stage to sort of mock the sort of politicization of some of these networks, right? So, uh, Netflix is not favorably viewed within this administration. And as as you say, I'm now being told by a senior administration official, the first blush reaction that we are getting is heavy skepticism.

So, how does that materialize? I think in the Department of Justice antirust process, but I think if President Trump, you know, wants to flex here, and he often does, uh, there are a whole host of other elements of executive power that he could bring to bear, uh, in a way that we just typically wouldn't see in a normal administration to put quote marks around the word normal there. Uh, this president, you know, is a maximalist in terms of his interpretation of executive power.

Look, if it doesn't happen, Netflix is out of $6 billion. So, I don't know what the Trump administration is going to do here. It's probably going to take a while to figure out. Netflix green on the day right now 103. But if the deal doesn't go through six billion down the toilet.

So I guess we're going to see. I I think this is going to take a while though. So for those that are kind of getting into Netflix just for this, I don't think there's any resolution. This thing could go back down below 100. It could go up to 110. Could be stuck in this. Like if anything, if anything, it might end up creating an overhang for the stock for the next year.

That's another perspective to think about because if this is constantly over the narrative of the stock is like will they acquire and this is not just like some rinky dinky little acquisition. This is like changes the entire trajectory of the company. So it is something to think about if this is a 2026 narrative that Netflix has to deal with the whole time.

I kind of still think the deal goes through though. Do you really do you really think Trump is going to cancel it cuz he he thinks Netflix is tight with the Obamas and that Reed Hastings likes Gavin Newsome?