Why Companies Are Buying Bitcoin & Consulting Crashing Out?
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Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the hottest strategy to turn around your struggling business, just hoard Bitcoin. Then how is the unstoppable force NVIDIA contending with the immovable object of a U.S. trade war? It's Thursday, May 29th. Let's ride. ♪

Someone is finally doing something about people standing up and crowding the aisle right when the plane reaches the gate. That someone is Turkey, who in a Larry David approved rule said it would slap a fine on passengers who get out of their seats before the plane has stopped taxiing or climb

clog the aisle when it's not their turn to leave the aircraft. Aviation officials say it's a safety hazard when passengers unbuckle their seatbelts or stand up while the plane is still moving, and it can also delay the disembarking process. Toby, what's next? Finding people who clap when the plane lands? Obviously could not be more in support of this rule. Nothing grinds my gears like people getting hot under the collar and jumping up to try to make up three rows. Where are you

going. There is nowhere to go. It just drives me crazy. But you combine this with American Airlines' tech that triggers a sound if someone scans their boarding pass before their boarding group is called, and we are finally getting to the point where we are bringing back

Shame in proper amounts in the airport, in the travel sector. And I love it. Bring shame back. It's a very potent and powerful societal force. So shame the people who get up too early. Shame the early boarders. Shame and financial repercussions. And financial, but mostly the shame.

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NVIDIA reported earnings yesterday, and while the days of 200% revenue growth are over, things are still pretty hunky-dory for the company selling shovels during the AI gold rush. Demand for AI infrastructure shows no signs of cooling down, powering NVIDIA to better-than-expected earnings and revenue as its data center business recorded year-over-year growth of 73%. Not quite triple digits, but hey, C's get degrees.

The other main focus ahead of its earnings was whether recent US chip export controls were going to affect Nvidia's international chip business in future revenue guidance. And the answer was yes. Yes, they are. Nvidia forecasted $45 billion in sales for Q2, saying its guidance would have been $8

billion higher if not for the export restrictions on China-bound H20 chips. The restrictions also led to $4.5 billion in extra inventory charges, $2.5 billion in lost sales, and a 10-point hit to its gross margin.

Obviously, export restrictions are a hot topic in the chip industry, as successive administrations have tried to stop NVIDIA's most advanced tech from falling into Chinese hands. But Jensen Huang himself called those attempts a failure, arguing they've only accelerated China's domestic industry by galvanizing local talent and government support.

Neil, despite all of this political tension, Nvidia is still chugging along saying that global demand for their products is alive and well. But actually Neil, I don't really care what you have to say here because we have our Morning Brew coworker Phil who runs the Maconomics YouTube channel in the studio this morning to chime in on Nvidia. Phil, first of all, thanks for being here this morning. And secondly, give me your thoughts on how Nvidia is navigating this China situation.

Thanks for having me on, gentlemen. The effect of export controls were in tight focus. NVIDIA has had to shift things around to comply with the new administration's trade policy. Notably, as Toby said, NVIDIA took a $4.5 billion hit for having too many H20s on hand after the April 9th deadline for shipping them to China.

The H20s were an intentionally downgraded GPU model designed specifically to meet export controls set by the U.S. government for China. NVIDIA ended up making too many, took too many orders, and weren't able to ship them out in time. And that gets even worse next quarter. NVIDIA is saying they expect around $8 billion in losses on the H20. You would think that perhaps you could just sell these to other companies.

And perhaps in some niche cases, that might be true. But these things were nerfed pretty hard to comply with the U.S. government's desire to not ship cutting edge chips to China. So it's certainly been a hectic six months for NVIDIA's compliance department, who, along with the CEO, have been fairly loud in making the case that perhaps limiting China to low powered chips will provide the incentive for the country to finally push through and develop its own chips that can rival the highest performing ones that are coming out of the U.S.,

as they say necessity is the mother of all invention and there have been some chirps that perhaps Huawei the Chinese company that would be most likely to challenge Nvidia has made more ground in this area than people assume I mean I have been there I just bought the wrong Uncrustables for my girlfriend and she said no no no we don't want these old 820 Uncrustables I want

these ones and she started making her own peanut butter and jelly sandwiches. So I've been there where you just overload on the wrong inventory. And it does look like investors though are kind of shrugging this off because looking at early morning trading right now, Nvidia's up 6% already. And then since...

the announcement of these export controls, Nvidia's stock has actually risen 20%. So, mainly just been this shrug-off maneuver from a lot of global investors. But Phil, you also read through the most recent earnings transcript and found another interesting tidbit about demand for tokens, which is the industry speak for data being processed by AI models. What did you notice there?

On the call, Jensen Wong, the CEO, said Microsoft processed about 100 trillion tokens over the last year, which is a 500% increase year over year. A token is the base unit of LLM processing. It's slightly more nuanced than this, but for the sake of brevity...

one word equals one token. Anytime a word is taken in from a query or output as a response, that's one process token. So that means Microsoft is processing about 200 billion pages of single spaced text per year.

But as NVIDIA noted on its blog, the exponential increase in token processing has come from generating tokens, output, essentially generating words. So while we're inputting more and more data to these things, they're spitting out from what NVIDIA is saying a far larger asymmetric amount.

This jives with what David Solomon, the CEO of Goldman Sachs, said a few months ago, that an LLM can accurately generate 95% of an S-1 statement. An S-1 statement is about a 300- to 400-page document, a super-dense financial and legal document that companies file when they're about to IPO. He said it used to take a six-person team two weeks to do that.

So a bit speculative here, but that exponential increase in token processing might signal that these things have actually started to see more adoption in business use cases, even if those cases aren't made formal within the company. Yeah, it does seem like the demand is halving.

healthy, if that's the underlying point to the point you were making there. Because if you look at the list of domestic companies and their spend for this AI infrastructure, it is quite healthy. Big Tech still says that they plan to spend $345 billion on AI infrastructure this year. So homegrown demand is healthy, as in OSC. Also, you looked at

at the recent trip over to the Middle East that Trump just took. And it looks like there's a new Stargate project as there. So there's some international demand. So a lot of what we heard yesterday from Jensen Huang was kind of flexing on people saying like, hey, we are shut out of this $50 billion Chinese market, but look at the amount of demand we have from other places around the world and just here in the US. So I think a lot of companies are having these hiccups dealing with these

export controls or dealing with the trade war, but Nvidia probably has the biggest moat of any of them. So they have the most resilience to any of this. So it did look like yesterday, Jensen Huang was basically saying like, hey, we are doing just fine. We're doing just hunky-dory here, despite getting shut out of this pretty lucrative market. And on that note, it's time to move on. Phil, thanks so much for joining us. Where can our listeners find your stuff?

You can find me on all of the socials, primarily on YouTube at Maxonomics or on Instagram at MaxonomicsMB. It has been a privilege. Thank you, gentlemen. Wow, just loved shutting my pie hole during that discussion and learning a lot about NVIDIA. Let's move on. If you're worried about job security, just know that the people with far more diplomas on their wall are also feeling the squeeze. McKinsey has shed more than 10% of its workforce over the past eight

18 months as the consulting giant hunkers down for lean times in the industry. The cuts began with 1,400 back office staff in 2023 and continued with letting 400 specialists in data and software engineering go last year, the Financial Times reported.

These are among the biggest layoffs in McKinsey's almost 100-year history, and it's a sharp U-turn from the glory days of COVID when every CEO was looking for help navigating the pandemic, and McKinsey beefed up its workforce by almost two-thirds. This past year has been a much different story. The company was hit by $1.6 billion in legal settlements for its work with opioid manufacturers. Demand for consulting is down across the board, and something unprecedented

odd is happening, McKinsey employees are staying at their jobs a lot longer than usual. Turnover is typically high at firms like McKinsey, especially during the great resignation of 2021. But the number of people leaving voluntarily has dropped to a record low, and this lack of attrition has led to tougher mid-year performance reviews in an effort to coax the weakest performing consultants to quit on their own. Toby, McKinsey has hit a rough

patch, but I guess it can take some comfort in that it's not alone. It's not alone, but also McKinsey consultants getting fired for operational efficiency into drive profitability. Where have I heard this before? But yeah, I mean, it is just insane. All the things that

completely U-turned since the pandemic when they thought that this was just going to be the new normal, that governments were going to just need their services more and more. And talking about government consulting a little bit, Booz Allen Hamilton, who is a massive, you know, a

provider of government consulting is also cutting roughly 2,500 jobs after they said that they are feeling the effects of Trump administration's crackdown on federal contracting. Its stock price fell nearly 17% after the announcement because they are so exposed to, uh,

98% of their $12 billion in revenue comes from government-related work. So the hits just keep coming for a lot of consulting firms. It is interesting, though, to see McKinsey, who is the creme de la creme. They usually have a pretty good sense of what demand will be like and how much workforce they need to satisfy that demand. So to hear them cutting jobs...

That is something that you don't normally see. I think a big thing is this lack of attrition. Usually they cycle through people pretty quickly, but in this perhaps labor market that is souring on white collar professionals, um, they, these workers are just staying there a lot longer. So they've kind of shamed and, you know, made, try to make people feel really bad about how they're doing their jobs at these mid-year performance reviews in the hopes that they'll just leave voluntarily as they have been in recent years. Uh, so overall the consulting, uh,

industry has taken a dip in these past couple of years, but there is one firm that's doing pretty good, and that's McKinsey's small rival, BCG, Boston Consulting Group. Last month, it reported a 10% increase in global revenue, and it's grown its workforce by about 1,000 people to 33,000. It's almost as big as McKinsey now, which has about...

40,000 workers. But there is also another cloud hanging over this entire industry, and that is potentially ChatGPT and AI taking all their work. Yeah, they're trying to frame it that it's going to augment work, not replace consultants, which I know is probably true at some point. But yeah, that's definitely something that junior consultants are looking at saying, wait a second, this can maybe do my job better than I can. Senior consultants are probably still safe because they have to go out and win a business. But yeah, that's just

Another thing to add to the list of all these headwinds facing McKenzie and others.

GameStop did a very GameStop thing yesterday and bought 4,710 Bitcoins worth more than half a billion dollars. It was the company's first investment in Bitcoin and comes as the digital currency has been on an absolute tear this year, flirting with an all-time high last week. While GameStop made the purchase partly because it's GameStop and it's allowed to do stuff for the memes, buying Bitcoin has become a popular strategy for an increasing number of public companies.

Obviously, Uber Bitcoin bull Michael Saylor, the CEO of the company's strategy, is the pioneer of this concept, turning his company, once a lowly business intelligence platform, into a leveraged bet on crypto fueled by selling stock and bonds in exchange for more Bitcoin. Others have followed in his footsteps,

namely Trump's family-run media company, which said this week that it plans to raise $2.5 billion to buy cryptocurrencies as well. In total, the number of listed companies holding Bitcoin surged from 89 to 114 since April and have amassed a hoard of around 800,000 worth $88 billion.

So Neil, this is a thing now. Companies holding a boatload of Bitcoin because Bitcoin is scarce and it tends to go up. And as it's gone up, more companies have been getting in on the game. And that's because this pioneer of this maneuver strategy has found what is essentially an infinite

money glitch. Well, maybe not quite, but it is close because for every one Bitcoin that they buy, they're rewarded with a 1.6X increase in valuation on the stock market. They own $64 billion worth of Bitcoin, but their stock market capitalization is 108%.

and $1 billion. So if they keep selling stock and using those proceeds to buy Bitcoin, their valuation will keep going up. And that is exactly what they're doing. And that is what all these other companies are trying to do in their footsteps. To be clear, though, this is not a natural fit for a lot of public companies because most

Businesses are in the business of selling whatever product they sell. Why would you go and just do this other side quest of putting Bitcoin on your balance sheet? But Matt Levine from Bloomberg actually talked about how it's actually a strategy that crypto investment funds have been pursuing, which is they go and acquire a U.S. public company and essentially just turn them into a pool of Bitcoin. He talked about one company, Upexie Inc.,

Tiny public company got acquired by a crypto investment firm and turned into this pot of Solana Immediately it started selling on a public exchange of 4x the value of the axis Solana it hold it so it is like this interesting arbitrage opportunity where for some reason the public markets are valuing these companies at a premium to the actual underlying assets that they're holding and

Not necessarily something that is financially sound, but you are seeing a lot more companies doing it. And GameStop said that, hey, the reason we're doing it is because we see macro uncertainty and that this is a hedge against a financial system. So they are justifying it by kind of just talking about what the bull case of Bitcoin actually is. But mostly they're just trying to follow this strategy and trying to trade out a multiple to their underlying Bitcoin assets.

Up next, that was a lot of numbers, but Neil, Scott, even more coming your way. ServiceNow puts AI agents to work for people. That's why this was written and read by a real person and not AI. Creative work like writing and performing, that's the good stuff. You know, the work people actually want to do. You know what people don't want to do? Boring, repetitive, busy work. That's where AI agents come in. Built into the ServiceNow platform, AI agents can work on millions of repetitive tasks in every corner of a business.

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Welcome to Neal's Numbers, the segment where I share three stats from the week's news that will send you down more rabbit holes than Alice. My first number is $216 million, which is how much New York City's congestion pricing toll has raised in the program's first four months.

That's right in line with estimates and a sign that the hot button scheme is accomplishing its twin goals to A, raise money for transit projects, and B, reduce traffic in the core of Manhattan. And that's not the only good news congestion pricing fans received this week. The program has survived, for now, a legal challenge by the Trump administration, which has echoed many other critics in saying that congestion pricing hurts small businesses,

inside the zone and lower-income commuters. The Transportation Department threatened to withhold federal funding from New York City projects unless it scrapped congestion pricing, but on Tuesday, a judge said that the government couldn't do that until at least June 8th.

Quick refresher on how congestion pricing works. It went into effect in January, charging most drivers $9 to enter south of 60th Street in Manhattan during peak hours. The policy aims to bring down traffic and pollution, while at the same time raise money for long overdue improvements for New York City's antique

transit system. Similar programs have been implemented in cities like London, Stockholm, Milan, but New York's is the first attempt in the United States and its supporters have to be thrilled so far. Yeah, you do have to be thrilled, but also it is trying to help put money towards funding these massive repair projects that the MTA is undergoing. They've budgeted $68 billion towards this, specifically $12 billion towards subway repairs and station improvements. Most of those are

going towards adding elevators for accessibility and to become ADA compliant. So yes, $200 million is great to start, but also people have been looking at the budget and saying, wait, we're averaging $110 million to add one elevator to one station. So that's

two elevators if you're reading a little bit obliquely and a little bit higher level here. So they still have a lot of money, but this is crucial towards allowing them to continue to sell these bonds to help fund these improvement projects. So it is a very good start for a program that was very controversial when it went into place. And there's just a lot less traffic because of it. The daily average decline

for cars entering the zone is 11%, and the average traffic speeds inside the zone have increased by 15% in the first two months of congestion pricing. So, so far, so good for supporters of this policy. My next number is a bad sign for the New York Knicks, who try to stave off elimination at home tonight against the Pacers in the Eastern Conference Finals.

So far this playoffs, the Knicks are just three and five at Madison Square Garden, while there's six and two on the road, a perplexing stat given just how rowdy their home arena is. What is the reason for the Knicks lack of home court advantage? Some say it's because of all the

A-listers sitting courtside at MSG, which distracts the players. New York radio host Boomer Esiason said on Tuesday, I think the Knicks are sick and tired of all the damn celebrities at home. They'd rather get away from all that. On Monday, former Nick Julius Randall also said of his experience at Madison Square Garden, it ain't fun. You can't really focus on the game. You're focused on everything else other than the game itself.

Look, I'd get distracted too. A ton of Hollywood stars show up to Knicks games and perch themselves on so-called celebrity row where they're shown on the jumbotron during timeouts and become memes on social media. The most prominent Knicks fan this playoff run is Lisan Al-Ghaib himself, Timothee Chalamet, who often sits next to his mega celebrity girlfriend, Kylie Jenner, also seen at MSG, Jerry Seinfeld, Bill

Murray, Michael J. Fox, Suni Lee, Jelly Roll, and of course, longtime Knicks fan Spikes Lee. Apparently, they're all contributing to the Knicks' putrid home performance. Toby, you think there's anything to this celebrity distraction hypothesis? Absolutely. I would do my job a lot worse if Timothee Chalamet was dressed up as Guy

You're yelling in my face. Do I think I would podcast better if I knew Ben Stiller was going to tweet more about my show than his own show, Severance? No, I do not think I would do my job better. So it is just the bright lights in the Big Apple. It's part of why maybe players...

either can play for the Knicks or they can't play for the Knicks. Like Julius Randle said, wasn't cut out for it necessarily. He went to Minnesota. Maybe he's doing a little bit better there. So yeah, I do think there is something to it because people look at the front rows. I mean, it's front row. You see them face to face. You're very close to them. So I,

This is just speculation, but you look at the record and it is playing out in the numbers that you've given us so far. And these celebrity sightings have just become almost as big of a story in and of themselves as the actual basketball game as we head into game five tonight. My final number is the

birthday effect. Have you heard of this? It was new to me. Apparently, you are more likely to die on your birthday than any other day of the year. A number of studies run across different populations have shown the birthday effect is indeed a thing. One study of 25 million Americans from 1998 to 2011 found 6.7% excess deaths on people's birthdays, while another study of Swiss people from 1969 to 2008

found 13.8% excess deaths. The number crunchers at the website Pudding decided to run an experiment of their own to confirm these findings. Looking at every person who died in Massachusetts from 1990 to 2024, they concluded that the birthday effect was real with 7% excess deaths happening on people's birthdays, even controlling for seasonal variations. Toby, what is going on here?

I don't know, but I'm a little nervous. My birthday's in February, so I got some time before, you know, death is knocking at my door. But why is there a birthday effect at all? There's a lot of explanations. My favorite is actually clerical. It is possible when processing death certificates to confuse the birth and death date, which would...

explain the apparent increase. Also, when the exact date of death is not known, oftentimes they just put the first or the 15th of the month as placeholder. So maybe there's an excess of births and deaths recorded on those dates that specifically overlap. Another one is the psychological idea of death placements.

postponement where people have these looming birthdays and they hold on to reach death until they've had their special day. That has been mostly disproved by these studies though because you would probably see slight spikes in the birthday effect in the days preceding the days after your birthday, but we don't see those in any of the studies.

Another theory is just celebratory behavior. What do you normally do on your birthday? Maybe you go out, have a few drinks. Obviously, alcohol is led to increased rates of mortality. So it could just be as simple as people party too hard. But fascinating to see the statistical analysis has proven to be pretty robust across multiple experiments in multiple countries and states. So birthday effect.

I'm nervous. Neil, when's your, is your birthday coming up? August 21st. Well, I'm just staying inside my house during my birthday after looking at the study. Let's sprint to the finish with some final headlines. Trump's tariff agenda took a hit yesterday after a federal court ruled that the president actually does not have the legal authority to impose sweeping unilateral global tariffs. Trump has been using the 1997 law called the International Emergency Economic Powers Act to carry out most of his protests.

trade war. But the little-known U.S. Court of International Trade issued two rulings yesterday that throws out all the tariffs imposed under that act after two groups of plaintiffs sued on grounds that his orders violated the constitutional authority granted to Congress to control import duties.

Other tariffs under a different legal authority called Section 232 that includes imports of auto steel and aluminum were unaffected by this ruling. Neil, the administration has filed a notice of appeal, but as of right now, this plunges ports into chaos because new goods are arriving every day, and now no one really knows what to enforce or what to charge. It is very murky going forward. It really gives the executive branch up to 10 days to end the tariffs, but they are appealing enough

What it also does is kind of blow a hole in all these negotiations that are happening across the world between the U.S. and every other country for these trade negotiations, because what was the leverage that the Trump administration had over these countries to come to the table to talk trade and maybe lower some tariffs or lower other trade barriers? It was the threat of these reciprocal tariffs that

perhaps has gone completely away thanks to this court ruling. So we'll see how those negotiations play out, but they're probably stopped dead in their tracks without the looming threat of tariffs. Countries have no incentive to come to the table with the U.S. Hailey Bieber may not be able to hit a high note like her husband, but she sure knows how to make a whole lot of money. Elf Beauty announced it will acquire her skincare brand, Rode, in a deal worth up to $1 billion just three years after it launched. Started back in 2022, Rode,

road hayley bieber's star power to become the number one skincare brand on social media in terms of earned media it has also more than doubled its customer base over the past year bringing in 212 million dollars in revenue over the last 12 months for elf the road acquisition is a chance to expand into higher end skincare its average price point is about six dollars and fifty cents while roads is in the high 20 of

according to Elf's CEO. Neil, someone send this story to hair and makeup because I think we need some road in our lives. I mean, this is a huge exit. It's one of the biggest for a celebrity-backed company since Ryan Reynolds sold Mint Mobile to T-Mobile for $1.3 billion in 2023. We've talked about Nvidia at the

beginning of the show. I mean, this company is growing, if not as fast, if not faster than Nvidia from zero to $212 million in sales in three years, basically unheard of. And Hailey Bieber is just the girl boss to all girl bosses. No, she really is. And also just the social media takeover that Rode has experienced over the past years is impossible to ignore. I mean, I'm sure you know a girl who has a Rode phone case too, which

has this designated slot for their lip gloss to go in. So she just has a really good sense of what drives culture, what drives attention. And I mean, she's got a big social media following herself. She's also married to someone who has a big social media following in Justin Bieber. So really, we thought Kylie ran this playbook with Kylie Cosmetics. She sold her Kylie Cosmetics

for $1.2 billion, but Rode did it essentially at the same price and much, much quicker than Kylie did. So just a juggernaut of a company. Finally, can Texas become the new Hollywood? Natives Dennis Quaid, Woody Harrelson, and Matthew McConaughey are championing a state bill that would offer $1.5 billion in incentives to attract TV, film, and video game production to Texas over the next 10 years. But

there is a catch. You can't bad mouth Texas. If you take money from the incentive program, the bill stipulates your artwork can't portray Texas in a negative light. So I'm guessing the next Texas Chainsaw Massacre would probably have to be filmed elsewhere. Yeah, the provision is what's getting all the headlines here. I mean, Apple's

Apple has this kind of hidden but not so hidden provision that won't let their phones be used by villains in movies. So Texas is trying to apply a similar sort of creative control. Who knows if it's going to work because what filmmaker wants to make, you know, something where you can't curse in it or portray?

Texas in any negative light. So there were a lot of jokes being tossed around about how you need to have a plug for Texas in every way. It's like product placement for a whole state. But yeah, they're going after the film industry. It's obviously aligned with the Trump administration's priorities to try to bring back domestic film production

making as well. And I mean, Texas has had a lot of success in other attracting other industries with a low tax environment. So potentially there is a path for them to becoming the Hollywood in, in this, do you call Texas the South? I guess Texas is kind of its own thing. I would say it's the South, but New Mexico, it's got a lot of challenges next to New Mexico because you know, that is a film and TV juggernaut as we know from breaking bad.

That is all the time we have. Thanks so much for starting your morning with us and have a wonderful Thursday. If you enjoyed hearing Phil's insights, go check out his Maxonomics channel on YouTube. The link is right in the show notes. If you have any other thoughts on today's episode, send an email with questions, comments, or feedback to morningbrewdaily at morningbrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Liu is our producer. Our associate producers are Olivia Graham and Olivia Lake. Hair and Makeup is starting their own cosmetics line. Like, why not?

Devin Emery is our president and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.