Mindy Jensen: Mega-cap stocks have been some of the biggest winners in the market, but does that make them a smart move for someone pursuing financial independence? With huge valuations, strong cash flows, and increasing concentration in major indexes, there’s a compelling argument for both sides. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen. He’s Carl Jensen, and with me as always is my doesn’t-have-many-single-stocks co-host, Scott Trench.
Scott Trench: Hey, I’m so excited to be here with you and Carl today to talk about this subject. And Carl and I had a great conversation about this at lunch the other day, so we’re going to be hashing out some of those points here. And just to frame the debate at the highest level, 11 companies make up about 38% of the S&P 500—actually, 9 companies make up about 38% of the S&P 500 in the mega-cap tech complex. These companies are Nvidia, Alphabet, Apple, Microsoft, Amazon, TSMC, which is not in the S&P 500, but is a major semiconductor manufacturing company, Broadcom, SpaceX, Meta, Tesla, and Oracle. And also call out that SpaceX is not yet in the S&P 500 following their recent IPO. But these 11 companies add up to about $32 trillion in market cap value, $33 trillion in market cap value, and $30 trillion of that is in the S&P 500, or about 40% of the S&P 500. And these companies are richly valued. I think the aggregate multiple is well north of 6 to 7 times total sales for this aggregate. It gets worse if you exclude Apple, for example, as many people want to argue. And it gets even worse if you exclude the sellers like Nvidia and TSMC. The question is, can these companies win? And what do you have to believe for them to win? I am skeptical of that, and I’m so skeptical that I’ve made significant moves—I have paid taxes in order to do so—to shift my wealth away from the S&P 500 index fund to an equal-weight index fund and to factor tilts in small-cap value, US international. Carl and Mindy have done the exact opposite, and I think are bullish on this AI world and the AI complex and think that there’s many paths to winning here. And you have heavily invested your personal net worth in these stocks and continue to hold these positions as they’ve grown.
Mindy Jensen: Right.
Scott Trench: over the years. Is that the right way to frame it, Carl?
Carl Jensen: Yeah, I’d say that’s the right way to frame it. But one thing I will say is we are big fans of index investing. We have put more money into index funds than anything else. It’s just that these stocks have done better than the index funds. We bought a lot of these a long time ago, like Tesla. I think we bought for $2 a share in 2012. Google was $85 a share in 2004. I think if you extrapolated that to now without the splits, it would be $15,000 a share, something around there. So we bought these companies a long time ago, but we do strongly believe in index investing, even though we are holding on to these stocks too.
Scott Trench: Let me frame my argument with one example of a company that I think you’re really familiar with, which is Alphabet. Also, before I get to this, I want to call out—this is something that we, in the wake of the Money Guy podcast, you know, you guys were saying, hey, we’re index fund investors. And they’re like, are you? Well, yeah, I think you are. I think you just said it. You’ve put more of your money into index funds than you have into tech stocks. And many people invest in different things other than index funds with small percentages of their wealth. And that’s exactly what you did. You just happen to hit these huge winners that you’ve let ride for many, many years. And that’s why your wealth is so heavily skewed or concentrated in these tech stocks. It’s because you hit the winners in the space. And somehow that makes you not an index fund investor. But if they’d gone to zero and you were 100% index funds, then nobody would have a problem calling you an index fund investor. So, anyways, I think that’s kind of fun internet mental math or however, whatever the term is there. So, yes, you guys are index fund investors in my book. You also have huge winners that you’ve hit. But here’s my argument for Alphabet, right? Alphabet trades at about 31 times trailing 12-month earnings. It’s actually about 28.5. I’m citing a source from about a month ago when I wrote this. And you pointed out something here, Carl, yesterday when you were texting me. What was your reaction when I said that Google trades at 31 times?
Carl Jensen: I was looking at the P/E ratio, and specifically I looked at it on like Yahoo Finance and Google Finance, and they have it at 17. And then you told me why you have it a different number there.
Scott Trench: It looks like Alphabet’s operating income for the last 12 months is $147 billion as of today’s recording. Their market cap is $4.2 trillion. So $4.2 trillion divided by $147 billion is going to be 28.5 times. So it fluctuates day by day, but 31 is what I was using when I wrote the article. It’s about 28.5 times core operating income. But their official price-to-earnings ratio is closer to 17, like you said. And the reason for that is because of these unrealized gains, like you mentioned, like their investments in Anthropic and SpaceX, although they’ve not been officially and fully disclosed what those are. It’s almost certainly the investments in those 2 companies. So we have this issue where more than half of Alphabet’s earnings, about half of them are coming from unrealized gains in companies that they’re investing in, in this technology ecosystem. That scares me because when Google invests $40 billion in Anthropic, and Anthropic is committing $200 billion over the next several years to Google’s cloud revenue service. They’re buying compute from Google that Google is building out. That’s a pretty circular mechanism here. And somehow, some way, Google and Anthropic must generate enough revenue from somebody else in order to cover that. And so my issue is Google can win, Anthropic could win. There’s cases for all of these, but can both of those 2 companies win together? And when you stack in the competition, the same thing’s happening with Microsoft, where they’re building out hundreds of billions of dollars in compute for AI services, and they happen to be renting most of that out to OpenAI. Now we’ve got the same thing going on over there. We’ve got Amazon doing something very similar. We’ve got Meta entering the race with similar volumes of investment. However, their CapEx investment is primarily for internal use, although they keep flip-flopping about whether they’re going to rent it out or they’re going to use it solely for their own build-out. And then we’ve got Grok and SpaceX and X entering that fray, supposedly with parts of their approach. We don’t know what Tesla’s going to be doing from a wildcard perspective. And we’ve got Apple sitting on the sidelines, apparently investing the bare minimum in AI to continue offering core services. And then we’ve got the sellers, right? We’ve got Nvidia, Broadcom, we’ve got TSMC, Taiwan Semiconductor Manufacturing Company. And these guys are selling in various—Nvidia is typically selling to Apple, Microsoft, Amazon, and Meta, whereas Alphabet is one of the primary customers of TSMC and Broadcom here. And so we’ve got this interconnected chain. And they’re all valued as if they’re gonna win. And my view is the combination is gonna really struggle to make this work.
Carl Jensen: It kind of reminds me of that quote from Harry Potter, neither can live while the other one exists, or whatever that is. Do you remember that?
Mindy Jensen: Neither can live while the other survives.
Carl Jensen: Okay, I think this kind of applies to this. And one thing, Scott, to build on what you said, I was reading an article in the Wall Street Journal yesterday, and they pointed out that a lot of the CapEx that these companies have committed to, I think it was $3 trillion, isn’t even accounted for. It’s some kind of accounting trick where it’s on the books. They have like signed the contract, but it’s in the future, so they don’t have to formally record it now. So I think it’s even worse than what you’ve said. You’re Mr. Numbers, so you might have a better idea of what I’m talking about here.
Scott Trench: This is about 1 month old, but I wrote an example a little bit ago in preparation for this. And then of course Google releases their earnings call, and so it’s all updated. But price to earnings is a bad way to value Alphabet right now, not just for the reason we discussed, but also because of AI CapEx. For example, over the last 12 months before their Q3 earnings call here, Alphabet had spent $110 billion on CapEx. About 60% of that was on compute. They don’t use GPUs, they use a device called a tensor processing unit. That’s their bet on AI basically, is that they’re going to be cheaper, faster, safer, happier with these tensor processing units. And then about 40% of that spend is on buildings, land, power, the data centers, and the other components that are needed to facilitate this compute. And so that is considered an investment. It does not hit the P&L, profit and loss statement, does not hit earnings in that calendar year. It begins to depreciate once it is placed in service. So we can spend the money now and it’ll hit the expense part of the P&L later. In 2025, they spent $91 billion. Through the 12 months leading up to Q2 2026, they had spent $110 billion. In 2026, we’re estimating $180 to $190 billion in CapEx. And their CFO, when asked about what 2027 is going to look like, said, we’re going to significantly increase this. This is her famous quote. So all you can do is guess. So I put down $215 billion, but Wall Street varies because that’s all we have, right, is this significantly increase remark from the CFO in terms of what they’re going to invest. So at least through 2026 and 2027, they’re going to be spending this money to invest in AI CapEx. And that means that their cash flow for the last 12 months is going to be $64 billion. And if you value them on the $4 trillion market cap—and again, these numbers move a little bit with market valuations day to day—but they were trading at about 71 times price to free cash flow. That’s an extremely expensive valuation. In 2026 full year, they’re spending effectively all their cash on this. So the numbers get very silly, right? We could say, oh, we’re expecting net free cash flow of $8 billion in 2026, so they’re trading at 568, or, you know, some crazy multiple of cash flow next year. And then 2027, you can basically put a zero or something very close to it again.
Mindy Jensen: Every business owner hits a point where they need more expertise than they can handle alone, but another full-time hire isn’t always the answer. That’s where Upwork comes in. It’s where growing businesses find highly skilled freelance specialists, not just for one-off tasks, but to build an entire team, fill critical skill gaps, launch projects faster, and scale support up or down at a fraction of the cost and without the commitment of permanent headcount. Visit upwork.com right now and post your job for free. That’s upwork.com to connect with top talent ready to help your business grow. That’s upwork.com, upwork.com.
Scott Trench: You know how the change in seasons hits and suddenly you just wanna declutter the garage, clean out the closets, and get everything all organized? That same feeling hits me with my finances every spring. I used to have accounts scattered everywhere, making it hard to stay on track with my money goals. Let Monarch do your financial spring cleaning for you. One dashboard that gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property, and more all in one place. One thing that really surprised me was pulling up the cash flow view and seeing what percentage of my income was quietly going to lifestyle creep, dining out and subscriptions I barely notice. It motivated me to make some quick adjustments. Get your first year of Monarch for half off, just $50, with the promo code POCKETS. Use the code POCKETS at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code P-O-C-K-E-T-S.
Mindy Jensen: When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one: a business address, website, phone number, operating agreement, free guides, and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1,500 corporate guides. These are real people who know your local laws and can help you in your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email, and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
Scott Trench: And so what this brings is your bet on Google right now is, you know, they’re going to generate no cash flow this year. You know, they’re going to generate no cash flow next year, at least if you believe what they are saying. And so you’re betting on a ramp, you’re betting on them to stop spending this CapEx and for it to generate real long-term cash flows on a go-forward basis. And there’s real reason to believe that. However, we’ve gotta triple cash flow excluding these investments in order for that to work, and we’ve gotta really ramp it and stop spending as a precondition for that. That’s what concerns me about Google, but I’m also not betting against them. There’s a real possibility they can win, which I wanna talk to you about. My broader issue is once you make that same story across 5 or 6 different companies that are building almost identical and directly competitive products here, and that where the suppliers like Nvidia, their bull case is that Google continues to spend, and Google’s bull case is that they stop spending one day and harvest those cash flows. How can they all win? That’s my broader question with this analysis.
Carl Jensen: Yeah, I’m not sure they can all win, but one thing that I want to back up and mention or talk about a little bit is one thing I always wondered when I started, when I did discover index funds, like JL Collins, the Mad Fientist, all these people praised them. And the question I had was, why does this go up and to the right? What causes that up movement over time? And so I actually remember asking JL and Mad Fientist, and their answers were both the same. They said, I don’t know. And then we were at the Berkshire Hathaway conference and Warren Buffett started talking about it. He said, well, there’s 2 things that make this go up and to the right. And one of them is much more important than the other one. The first less important one is population gains. The second, much more important one, are productivity gains. You think of historical things that have caused productivity gains. The tractor was a huge one. I think back around 1900, almost everyone was a farmer. The tractor came out and then now I think it’s less than 5%. So that went down like crazy, the numbers. The steam engine, the Industrial Revolution. When you take a look at AI, well, to back up a second, the tractor, the steam engine, they revolutionized certain parts of the economy. AI has the potential to change everything. You read about the first jobs that are going to go, and they’re probably white-collar jobs like accountants or attorneys, things like that, because coders, that’s what the computers can research and figure out online. But there’s plenty of companies working on robots to take away the physical jobs too. So my question back to you would be, what is Google betting on that they think they can spend hundreds and hundreds of billions of dollars in CapEx? They’re betting on a future that’s wildly different than the present, and I think the main thing that a lot of these people are afraid to say because they don’t want the backlash, although I think Dario, the Anthropic guy, has said it, is that human jobs are going to go away if these companies, if their vision is fulfilled. And if that goes away, maybe some of these huge, huge multiples are justified because right now who is paying for AI? It’s—and it’s hard to tell. That’s another important point. Like OpenAI and Anthropic are not public companies, so we don’t know how much they’re bringing in, but I’m sure it’s not nearly enough to justify their spend. It’s probably a fraction. But once you start taking human jobs out of the way, what is an AI agent worth that can replace a lawyer? I would say maybe hundreds of thousands a year, maybe millions, because that thing doesn’t have to take breaks. It’s never going to call in sick. It can work nonstop and it’s not going to make mistakes, on and on. It might be able to do the job of 10 or 20 different people. So that’s when you see the real money start to flow to AI. And I think that’s what these tech companies—that’s why they’re betting hundreds of billions of dollars on. But, to your point, I don’t think they’re all going to win either. And it’s interesting, there might just be one, whoever gets to AGI first, recursive learning where the computer becomes hyper-intelligent.
Scott Trench: So I think what’s interesting here is I would argue, I think you would agree, I’m the AI power user here. You use them lightly, and you’ve used them in the recent past here, but I have a subscription to Claude, I have a subscription to Grok, I have a subscription to ChatGPT. And we use Gemini to run our basic operations here at BiggerPockets Money. I think my bill last month for AI in aggregate for personal use was $169.99. I’m using it all the time, right, for heavy coding for these applications. I’m using it to review very basic, not high stakes, basic legal documents. I’m using it to help me ideate content. I’m using it to grade arguments and those kinds of things, or preview them, to various degrees. I can’t imagine personally using more AI right now, and I know that the use case is an always-on AI bot. That in practice is much more of a pain in the rear than it is a value-producing play for me so far. Maybe that will change in the future. For now, I can spend very little. And what’s more is every couple of months, one of the AI models leapfrogs the last one. And so if I ever got too dependent on Claude, for example, I could bet you that within a few months, GPT is going to figure out something, catch up, and flip the switch on it. And so that’s the question I have, is I completely agree that if you are going to build the bull case for the complex as a whole, okay, it’s going to divert revenue that goes to human labor right now in the white-collar workforce in the near future, and maybe all jobs, including the physical world, in the long-term future. But the question is cost, right? If you can do that, if accounting is now an AI bot, there’s a race where the compute gets better and better and cheaper and cheaper at an exponential rate, given the investments that are going on. And does it become effectively free to provide those services from the AI? And so that’s a threat there. But yes, I would definitely agree that betting on the complex right now is fundamentally, in some form, about that idea, that concept that you said, which is AI will substitute for a significant portion of today’s current labor force and will actually be able to realize revenue as it substitutes for that.
Carl Jensen: I pay $100 a month to have my car drive me around, which is an AI system. You pay a couple hundred bucks to find your answers. But how much would someone pay to have an AI that could solve cancer, that could create a customized thing to produce antigens to destroy your tumors? I mean, something like that would be worth billions and billions of dollars. And I know things like that have already been done, like the Mayo Clinic uses AI now for pancreatic cancer early detection, and supposedly can detect it like three times earlier than a physician reading. And I wonder, if these tech companies just keep it to themselves, if they know they have that kind of power, why would they sell it to anyone?
Scott Trench: I think that’s a great segue here. I think it’s, what do you have to believe for this to work? So right now, these eleven companies — Nvidia, Alphabet, Apple, Microsoft, Amazon, Taiwan Semiconductor Manufacturing Company, Broadcom, SpaceX, Meta, Tesla, and I included Oracle, because at the time I did this they were worth a trillion dollars and were part of this complex, they’ve since imploded to 60% of their value here — but those eleven companies, including Oracle, make up about $30 trillion in market cap. After net cash, that’s about $29.5 trillion in market cap. And their combined free cash flow today for 2026, TTM, is $450 billion. So that means that they’re trading at 65 times price to free cash flow at today’s levels. If you want a 10% return as an investor, and you give them reasonably generous assumptions here, you’re going to need for them to compound that free cash flow total at 35% a year for the next decade straight, to $4.3 trillion in free cash flow as a complex, in order to generate 10% returns. If we’re very generous and assume that after 2027 the hyperscalers will slow significantly their CapEx investments, and Nvidia and Broadcom and TSMC still find other ways to generate revenue — maybe new buyers, for example — and they collect their cash flows, then from there they will need to compound free cash flow at 27% per year for about a decade straight to deliver a 10% return to investors. So I agree with you that there’s places to win, but the magnitude of that bet, per my model at biggerpocketsmoney.com/megacap, and I put all these inputs there for people to change, is to me fairly preposterous. And especially once you think about, hey, what does that mean on a planetary scale. And some people roll their eyes at the planetary scale argument, and I get it, because you could have made that ten years ago to some degree. But you’re basically requiring, at today’s margins, these companies to generate $17 trillion in top-line revenue to generate this $4.3 trillion in free cash flow. That’s 17% of the entire global corporate pool of revenue for these companies. And it’s $2,000 per person. If you just want to put that into countries with affluent consumers, then you’re talking about $14,000 for everybody — $14,000 for you, Mindy, for you, Carl, for Claire, for Daphne, right, for all of those guys — you’re going to need to be paying about $14,000 to some degree, and they’re going to need to profit $3,500 from that. So this is by far the biggest revenue line item in every affluent human household. And so that’s where I get tripped up, is these numbers are so large that it’s very difficult for me to believe that story from here to there, based on the current valuations. And I also think that, remember, as a complex, they have to do some version of this. You can lighten some of the assumptions and make it slightly easier, but they have to do some version of this as a complex in order to get to that point. And my belief is that there will be some winners and some losers, of course. But if there’s one winner or two winners, for example, I believe now you’ve got a secondary bet, if you believe those, because is the American population or the worldwide population going to politically allow a single entity of size to exist and harvest that revenue or cash flow? And that’s going to be another challenge with this thing. I think there’s actually a political bet embedded in the valuations of this complex in today’s environment. So what are your thoughts on that?
Carl Jensen: Oh, those are very big numbers. I think you said $4.3 trillion. And what’s the current US GDP? It’s like, I think it’s right around $40 trillion, something like that. So that’s over 10% of the current GDP. But again, that expanse of productivity goes crazy because of these AI agents.
Scott Trench: Yeah, US nominal gross domestic product was $32 trillion. So Carl, one thing I want to call out here is that $4.3 trillion is the profits. That’s one-eighth of today’s GDP that’s implying for the profit. But to get there, they have to generate revenue, they’ll have some expense. So I would actually say that the number you’re looking for here is this one here at $17 trillion in revenue for the complex.
Carl Jensen: I think their expenses will go way down. Software — Marc Andreessen once wrote that article, “Software Is Eating the World,” because, like, Microsoft can write Windows once and sell it a billion times. So as these models get better and better, they’re going to have to invest less money, at least in the model generation aspect of it. Then everything goes to inference, which is where you ask a question and how you’re actually dealing with the brain of the system. But I think that gets cheaper over time. That’s the whole reason companies like Google, Mark Zuckerberg, and SpaceX are talking about putting these data centers in space. That’s for inference processing, where you get free electricity and semi-free cooling. But yeah, those are very big numbers. And the two things I would say is, not all these companies are going to make it. It’s clear that some are going to be left behind, probably most of them, or they’ll just revert to what they did before. Apple will continue to make hardware. SpaceX will make their money from launches, which isn’t that much compared to what they’re doing now for AI. But the other question I’d ask, on the flip side, if you were a consumer, how much would it be worth to you to have a car that could drive itself to go pick people up from the airport, a robot that could take care of your lawn, do your laundry, maybe go pick stuff up for you, be a personal assistant? What about an AI assistant that takes care of your life, kind of like a virtual secretary? People pay a lot more for those kind of humans in their real life. So I’m not sure if it’s worth $14,000 per person. I could definitely see $14,000 per household. And I think that’s what these companies are betting on. They’re looking at a future that we can’t even imagine, where AI and the products that come from it take over our lives. But then the corporate side of it too — if the accounting companies can get rid of accountants, if drug discovery can go to AI, and instead of it taking a decade to come up with a new drug that may or may not pass muster when it comes to their phase 2 or phase 3 trial, AI comes up with it in a couple days or a couple weeks — I think the corporate side of it, the non-consumer side of it, might be even more valuable. And that’s where a lot of this money would come from. And again, if you get rid of jobs, that’s a lot of people who aren’t getting paid, and that’s money that’s going to flow to Google or Anthropic. These are very ambitious goals that are probably a long time off. I saw SpaceX engineers say, “Yeah, our robots will be able to build a house by around the year 2035.” I do not believe that to be true, although it will happen at some point. Maybe you could unclog the toilet, more sophisticated things than that. But yeah, yes, Scott, there is a ton of money, and there’s probably going to be a reckoning. We’ve already seen it a little bit. I have a friend who works for SanDisk, and their stock got cut in half a couple of weeks ago, or close to it. And that’s probably going to happen, or might happen, with all these. This is not financial advice.
Scott Trench: When I think about it, the other thing that’s hard about Google is you’d be crazy, I think, to say that Google is going to go bankrupt or their core business is going to implode overnight or begin rapidly declining or even stop growing in any meaningful sense. They’ve got a core business, it’s profitable, it works. I’m going to keep searching, I’m going to keep using YouTube. We are literally recording a YouTube video right now. We use Gmail every day. Those are real businesses. This is a very profitable core enterprise here, and that is not going anywhere. And so this is not like Google is going to implode or go bankrupt or whatever. It’s just, will it justify its valuation? Will it grow revenue, or more specifically free cash flow, enough for its current valuation to provide a return that is reasonable to investors? And my belief is that when you look at high-quality companies, like many of the companies in this list, and you look at low-quality companies, like value stocks for example, and you look out, you take random samplings over ten years, they tend to regress towards the mean — the mean growth for any industry, right? And so it’s hard to predict that a company that’s richly valued is actually going to grow free cash flow more than your boring can manufacturing company out in the Midwest. Those things, they actually tend to regress towards the mean. And so I think that’s more of the risk here, is that these companies just simply grow their cash flows at 7% to 10% a year, as an aggregate, from here. Something more like that seems to be what I think would be more of the base case. If they just grow 10% a year for their free cash flow — if the aggregate complex just grows free cash flow 10% a year — they’re overvalued by two-thirds. Two-thirds of the value in this complex is going to get wiped out at some point, whether it’s through stagnation or a crash or whatever. That’s with pretty good performance — 10% free cash flow growth sustained for a decade is not a bad outcome, but the valuations are so high that it requires something much higher, like something in the 20s at least, regardless of what assumptions you begin to bake in. And then on top of that, I would also worry that this AI is real. What you just described are real possibilities from this, right? We can use AI to make accounting or personal finance decisions better, faster, safer, cheaper, and happier. We can largely replace paying for many of these services right now. But who benefits most from that, right? Anyone listening to this podcast can literally use Claude or GPT or Grok or Gemini — as these protocols advance, take their data from Monarch, upload it to them, and get better and better real-time insight into their spending or where they’re having tax inefficiencies, those types of things. That’s going to provide real benefit to people. But the cost is so low right now to have that — it’s like $20 a month, you can get really good answers from GPT, for example, on that. Is that going to just blow up parts of this industry, or reset it, on the financial services side? Or is it actually going to translate to revenue at some point to ChatGPT that replaces this — the big, big value it is delivering?
Carl Jensen: I think it will translate to much more money. I think the $20 or $200 that people are paying will be a drop in the bucket. I think most of the AI that people will interact with in their daily lives is AI they don’t even know they’re interacting with. For example, how many people know that a modern airliner can fly and land itself? If your car drives around, I don’t think anyone who takes a Waymo, except maybe Scott or I, or maybe you, is considering that AI is actually driving around. People don’t care. This is going to be a level deeper than most people realize. We started this conversation talking about index funds, and this conversation and all your scary numbers, especially the ones you opened this talk with, really, really, really make a strong case for not doing what we’re doing and really going towards index funds.
Scott Trench: What makes this so hard, and why I’ve been so obsessed with this problem for so long, is you can make a case that people are going to win, right? Like Tesla has a real — you’re right, like driving people around autonomously and sustaining that advantage for a while is a real value. Something between zero and what you pay a taxi driver today is going to be the potential — all taxi drivers today, all Uber drivers today, for example, is somewhere where the theoretical revenue potential lies for a business like that. And that’s real. That’s what makes this hard. But who captures it, I think, is the next question. How do the competitive dynamics play out over time? Because right now I can access this AI in a way that seems to be just as available to Anthropic, just as available to Gemini, just as available to OpenAI or Grok here, to run any part of any business I would like to as an entrepreneur or individual. And so the question is, who actually captures this economic benefit? And I think your can manufacturer in the Midwest captures a huge percentage of the value of a superintelligent AI compared to what Google may make selling it to them. I don’t know. That’s the $30 trillion question for GDP — surely GDP is going to grow, surely people are going to benefit from this enormous wave of technology and the infrastructure these companies are laying. Who gets paid for it, I think, is the question I’m asking.
Carl Jensen: Yeah, I wonder if it eventually becomes a situation where 10% of the top customers are subsidizing the other 90% of people, like you and I, Scott, who just use it to research more basic things. Maybe a drug company or an autonomous car company licenses Tesla software or Waymo software, and that’s very valuable, so they’re paying huge money for that. And so the top people are kind of paying for it all, like covering the costs. I think that’s how I would probably see it. Yeah, if anything, like you inferred, these things get better every month. And I don’t know, they’re not getting more expensive either. Like the leaps and bounds that AI has made just in the past two years since I tried my first queries — it’s crazy, it’s amazing, it’s become my go-to thing. Yeah, I think it’ll be ingrained in our lives soon. And yeah, the money question, though — the $30 trillion question.
Scott Trench: Another question I have here that we talked about recently was, is there a ceiling to the practical application of intelligence in human life? So, for example, if I had a 5,000 IQ AI telling me what to do with my fitness plan, would I be better off than with a 150 IQ AI telling me what to do? Or 125 equivalent? What is the actual advantage of superintelligence in helping me work out? Is it basically zero after a right answer is established in that situation? And now we’re in a race to the bottom for cost at that point. You certainly can find a use case for superintelligence when it comes to folding proteins and predicting what is likely to solve that cancer cell. Here’s this cancer cell, we’re going to diagnose exactly how its genome is expressed, and then begin folding proteins or creating cells to go attack it. That surely has that application. But I think that those applications, for the vast majority of us, are likely to be constrained to frontier research in very technical fields where there will be real benefits. And the question is, is there trillions and trillions of dollars in revenue to be captured in those environments that maybe do require superintelligence? When spring hits, some people suddenly just want to declutter the garage, clean out the closets, and get everything all organized. Whether or not that hits you, Monarch will do your financial spring cleaning for you. One dashboard gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property, and more, all in one place. One of my favorite parts is the Sankey diagram. Every month I open it up and literally watch the flow of money. It shows exactly where every dollar is going, from income to all of my spending categories. It makes it so much easier to spot what’s working and what needs tweaking. Get your first year of Monarch for half off, just $50, with the promo code POCKETS. Use the code POCKETS at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code P-O-C-K-E-T-S. If you’ve been putting off life insurance, I get it. The old process was miserable— phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you’d pay. That friction is exactly why so many people who should have coverage don’t. Here’s what I believe: most BP Money listeners need term life, and the right move is to build a ladder— a few term policies of different lengths stacked together so your coverage steps down as your mortgage shrinks and your kids get closer to being financially independent, or you get closer to hitting your financial independence number. The thing that makes that practical now is Ethos, a platform that helps you find life insurance, all 100% online. Same-day coverage, no medical exam. You just answer a few health questions online. Up to $3 million in coverage, some policies as low as $30 a month. So building a two or three layer ladder that used to take a month of appointments is something you can knock out before your coffee gets cold. Get your free quote at ethos.com/bpmoney. That is E-T-H-O-S. Application times may vary and rates may vary.
Mindy Jensen: Every business owner hits a point where they need more expertise than they can handle alone, but another full-time hire isn’t always the answer. That’s where Upwork comes in. It’s where growing businesses find highly skilled freelance specialists, not just for one-off tasks, but to build an entire team at a fraction of the cost and without the commitment of permanent headcount. Upwork is where businesses find highly skilled freelance professionals for specialized work, from software development and AI implementation to marketing, design, and business operations. Fill critical skill gaps, launch projects faster, and scale support up or down without committing to full-time headcount. Visit upwork.com right now and post your job for free. That’s upwork.com to connect with top talent ready to help your business grow. That’s upwork.com. upwork.com.
Carl Jensen: I think there is. Superintelligence could figure out so many problems, especially all the physical AI. If we could have physical bots taking care of most of our labor, then we eventually end up at the paradise that futurists have been predicting for 100 years, where we get to sit around and do whatever we want and the robots do all the work. I think that is the endgame, and that’s what these tech people think of with all this. Back to your workout example, I think that would be a diminishing return. But what if we had a health device that analyzed our heart rate, our HRV, all these statistics? Maybe you prick your blood and send that every week to the AI, and then this is better than any doctor because it knows everything about you on a weekly basis, which is kind of scary. There might be some privacy issues, but on the other hand, you’re going to learn so much and gain so much valuable health information about yourself. And I think about how much money goes towards healthcare. This has the potential to replace much of that. Yep, that’s the bet.
Scott Trench: I think it’s a really fun analysis challenge, but it’s also one of those things that gives me the pit in my stomach when I think about this. But I’m a little bit more detached from it now because I’ve made my move and I’ve separated from this and I’ve paid my taxes along the way to move away from the concentration in this that is implied in the S&P 500 or many total market index funds.
Carl Jensen: Do you have AI help you plan your sales or do your taxes or any of that?
Scott Trench: I certainly did.
Carl Jensen: Yeah.
Scott Trench: I certainly did have to use AI. I’m an AI power user. It’s like me betting against the railroads or the airline industry while flying on a plane, right? Those industries unquestionably changed society for the better and gave people freedom of movement and goods and services and enabled really wonderful things. And they were disastrous for their investors because of the competitive dynamics and the infrastructure and the cost— the war to move, to ship those goods at lower and lower cost. This is not me making original arguments. Plenty of people have made these observations that I’m making before me. It’s just those are the things that I’m worried about in the environment, not questioning the clear utility of this.
Carl Jensen: Yeah, it’s going to be super interesting where all this ends up. I think we should have a follow-up podcast, and I don’t know, 2030 seems a little bit far off, maybe 2.5 years from now, and then maybe 2030 to see where all this lands. And I suspect it’ll land in a place that neither of us could have predicted or seen. And who knows if it’s better, worse, or something way off the charts. But yeah, it’s so difficult to know where this is going. And again, yay, index funds.
Scott Trench: Let’s do that here, though. So at the end of 2028, where do you think we’re going to be with respect to AI and the progress of these companies?
Carl Jensen: Oh, what specific metric? That’s such a broad, difficult question.
Scott Trench: You have this big vision for AI in the future and you see all these places. Do you have any directional view of how things will be at that point?
Carl Jensen: Just based on your mega-cap valuation? I would guess that it’s going to be— well, you see, it’s so hard now because Anthropic and OpenAI, the two big guys, have not IPO’d yet. So we have no idea. And that’s where all the money is, by the way. Like these hyperscalers, the people we’ve talked about, the Nvidias, the Googles, the SpaceXs. SpaceX is doing Grok. So that’s a little bit of AI. It’s questionable how good it is. But I think the guys at the top, the guys and girls making the models, that’s where all the money is going to originate from. And we have no idea what those are going to be. So, man, a prediction— I would say it’ll probably be bigger, like these mega-cap companies will have a bigger market cap, but some of them will be far diminished and some of them will be far greater. Some of them will start to pull ahead and others will fall behind.
Mindy Jensen: Which ones?
Carl Jensen: Wow, thanks. I have no idea.
Scott Trench: Where I think we’ll be at the end of 2028 is I will have included OpenAI and Anthropic after their IPOs in this list of AI companies. I literally have built my tool to incorporate that when they IPO and when they’re eventually folded into the S&P 500. I think that the complex as a whole will not be able to hit the free cash flow targets that it needs to. I definitely feel clear that there will be winners and losers in here. I also feel that there will be one or two more new entrants that come in from different avenues that make their way onto the scene from the private markets. So maybe a new model is built by somebody. There’s the old saying that innovators get arrows in their backs, right? The first movers get arrows in their backs. I think somebody can come along and make that next wave of investment as the investment piles from these companies begin cooling off into that environment. I think that could be Apple, it could be somebody else that comes in, but I think there’ll be a new player or three by that point. And I think that everybody else will be benefiting tremendously from AI investment. I think that you’re going to see small companies being able to compete with much bigger players very easily because they’re going to have a basically competent CFO in place, a basically competent HR person in place via AI, basic competence in marketing. And those basic competencies are going to allow individuals or small companies that do one thing really well to shine because they’re not going to have these glaring weaknesses in their organizational models. So I think that’s who’s going to win by 2028— you’re going to see lots of different people winning, and you’re going to see lots of profit margins exploding in other parts of the economy. But I think you’re going to see this particular sector really struggle to hit their bottom line free cash flow targets. Their top line could be anything, because if they keep marking up unrealized investment gains, that can continue forever. But the actual normalized, annualized operating free cash flow from the complex as a whole— I think it doesn’t have a chance in 2028 of hitting $1.8 trillion. That’s my specific, falsifiable hypothesis that you can make fun of me for at the end of 2028.
Carl Jensen: I’m more optimistic than you. I think by 2028, AI companies will be an even bigger chunk of the overall market. I think in your analysis they were about a third, right? Maybe—
Scott Trench: 38.5% of the S&P 500.
Carl Jensen: Okay. I think that’ll continue to grow and maybe be over half by 2030, if not earlier.
Scott Trench: Well, let’s see. That’ll be a fun one to come back to. And we’ll have to replay this and make fun of one of us, probably me, at that point. So that’s the fun of this. And I think that’s the debate in a nutshell, among people who are on different sides of this.
Mindy Jensen: Okay, if you have thoughts about this, either for Scott or Carl, you can email scott@biggerpocketsmoney.com. You can email carl@biggerpocketsmoney.com. Feel free to not email me— I didn’t have a lot to add to this particular episode, so I’m not going to have anything to add to your email either. However, these guys would love to hear from you, would love to continue the conversation after we get some more comments from you, our dear listeners. So again, carl@biggerpocketsmoney.com, scott@biggerpocketsmoney.com, and that’s Carl with a C.
Scott Trench: Well, Carl, thank you so much for joining us today on the show here. Thanks for entertaining my wild, dramatically bear case for mega-cap tech here, and for sharing the counter case, the many ways that this complex can absolutely win.
Mindy Jensen: All right. If you want to see any of these calculators or this article that Scott wrote, you can go to biggerpocketsmoney.com/megacap for the calculator and biggerpocketsmoney.com/ai-bubble for the article that Scott wrote. Now it’s about a month out of date— thank you so much, Alphabet, for redoing your quarterly numbers and throwing all of his numbers off. But from a month ago, the numbers aren’t that far off. Like I said, we have a website, biggerpocketsmoney.com. We have a ton of calculators, free resources, and templates just for you, all for free, to help you on your journey to financial independence.
Scott Trench: You can also check out the professionals network that we have at biggerpocketsmoney.com/fipro. These are FI-friendly professionals that Mindy and I are networking with and that we are partnering with at BiggerPockets Money to help you. Mostly advice-only financial planners, hourly or comprehensive. We do have a comprehensive financial planning flat fee partner as well. So go check those out at biggerpocketsmoney.com/fipro. I just want to call out before we go that there’s also a probability that Carl and I are both wrong, or both right, on this at the same time by the end of 2028, which is where they come nowhere close to producing any free cash flow across this complex, but do make up 50% of the stock valuations because the multiple just continues to explode relative to revenue and free cash flow for the complex. So that is also very possible on this.
Mindy Jensen: Yeah, so set your calendars, set a date. Let’s say December 15th, 2028. Send an email to Scott and Carl and let them know how you feel about their commentary on this episode.
Carl Jensen: BiggerBubbles.com.
Scott Trench: Yeah, Bigger Bubbles.
Mindy Jensen: All right. That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench. He is Carl Jensen. I am Mindy Jensen, saying toodles noodles.
Scott Trench: I’m skeptical of a lot of financial products, but life insurance isn’t one of them— at least not term life. For the vast majority of you listening, term life is simply the right answer. And the smartest way to buy it isn’t one big policy, it’s a ladder. Your need for coverage isn’t flat— it declines over time. You’ve got a 30-year mortgage, a couple of young kids, maybe a spouse mid-career— in 15 years the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30-year policy you’ll overpay for, you stack a few— say a 10-year, a 20-year, and a 30-year layer. So your total coverage steps down as your actual obligations step down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100% online. You can get a quote in seconds and apply in minutes. There’s no medical exam. You just answer a few health questions online. You can get up to $3 million in coverage. Some policies are as low as $30 a month. That makes building a ladder genuinely fast. Get your free quote at ethos.com/bpmoney. That’s ethos.com/bpmoney. Application times may vary and rates may vary.
Mindy Jensen: When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one— a business address, website, phone number, operating agreement, free guides, and more— at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the U.S., with over 1,500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email, and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
