Techstrong Gang – July 19, 2024

Hello Everybody. I'm Mike Baard. Alan Shimmel is still out on vacation, but today we're gonna be talking about, well, a ship crisis, interest rates, and what's the value of a four year college degree these days you're watching Textron Gang.

We'll be back in a minute. All right, folks, we're back. And let me introduce our August panel today we have Corey Johnson, who is joining us as Chief Market Strategist for the Futureum Group.

Corey, welcome to show. Glad to be here. And then as always, we have Mitch Ashley, who is joining us from Denver, per usual.

I think that's still Denver, right? Still Denver this Morning, as of this morning. Anyway, And finally, one of our relatively newer members of the gang, who's a regular Jon Swartz, who's out in San Francisco, giving us that perspective of the Valley.

John, how you doing? Hey, I'm good. Hi, everybody.

All right. In fact, both Corey and John are in the uh, bay area, correct? That's correct.

All right. Yeah, Looks like, looks like, looks like Bay Area be, because Sun's coming up. There's naked people on the streets, Just as typical San Francisco.

Sounds like Vegas. Okay. There's A visual for everybody.

Some of those folks are just coming home. Right. Alright, Corey, let's get started with you.

I mean, it seems like Wall Street would got rocked by, uh, a report, not even a, I don't even, I'm not sure it's even been confirmed yet that the United States government is thinking about applying some more, uh, restrictions to, uh, chip production, exports, imports, and all that good stuff. Um, stocks went crazy. What is actually going on here, and can you make some sense of it for the average IT individual?

What should they be thinking about here? Yeah. Well, um, uh, I like to look at things at the perspective of earnings.

I spend a lot of time, um, um, building financial models, listening company conference calls, talking to company management and, uh, A SML, the, the, uh, lithography equipment manufacturer. That, that is the company behind the creation of the, the most impressive and incredible semiconductors. It has been argued that A SML has makes the most complicated machines in the history of mankind.

And I, I, that's an absolute true fact as SML reported results, uh, yesterday, um, that were pretty good, but they weren't great. Revenues were down 10% in a year over year basis. But, uh, the con the stocks sold off massively after the results came out.

And the reason was, uh, as ML'S sales to China were 49% of revenues six quarters ago, they were 8% of revenues. So the company is really relying on sales to China amidst, uh, uh, uh, a global, um, reduction of their ability to sell, uh, in both, uh, to China, both Europe, in Europe and the US has banned the company from selling the most, uh, um, uh, progressive powerful EUV machines, um, into China. Uh, and, and there was, there was some reporting from Bloomberg this week, my former, uh, colleagues reporting that, that, uh, the, the sales of other equipment and even servicing equipment would be banned, uh, even more so in China.

And so when you take a company that has 49% of its sales, your largest customer is China and says that the government's gonna come in and say, you can't sell to China anymore, that hurts the stock. And indeed it because it could have hurt the business. I think the thing that keeps me up at night about all this is it, it feels like, you know, we're kind of stumbling towards a trade war.

Am I gonna wake up one morning? Is, uh, an IT organization discover that processors are in short supply because all the stuff that used to come outta China is no longer available, and maybe I should start hoarding stuff now. What do you think, Cory?

I think the concern is not that you're gonna wake up one morning and see that it's hard, get semiconductors the concern, uh, and be be on trade war. The concern is they're gonna wake up one morning. We're in a war.

Um, China has made, um, very clear that they intend to, um, capture the territory that they consider a sovereign, uh, runaway, uh, nation in China. If you turn the map of the world, you know, we're used to looking at the north is is up and, and south is down, when in fact down is the ground and up is the sky. Um, if you turn the map of the world, just turn it a little bit sideways.

And you look at how China looks at the world. They have South Korea and Japan to the north. They have the Philippines to the South, and they're, and, and when they wanna look at the, the open the world that is open to them, it is blocked by, by Taiwan, which they consider part of their territory.

Um, they're, they're very clear about their intention to invade Taiwan. They are training troops on roads in angolia designed like the Taiwanese, uh, capital. The, their, their goal.

The, the, the notion that we're gonna be in an actual war with Taiwan and what that's gonna do to the world trade is, is a real concern I think that we all have to think about as technology, uh, practitioners because, uh, most of the world's semiconductors, the leading semiconductors come from China and Taiwan. You know, uh, John, I'm glad you, I'm sorry, Mike. I'm, I'm glad Corey kind of brought up this political aspect because I look at this through a political prism, and especially through geopolitics.

And, uh, I think in the Bloomberg article, um, Trump told the publication Business week that Taiwan should pay the US for defense. And claimed Taiwan took about a hundred percent of America semiconductor business. Meanwhile, you've got the Biden administration considering this wide, wide sweeping rule to clamp down on companies exporting their ship, making equipment to China.

I think in a sense, you're gonna see probably more of this not just pertaining to China, but even in domestic policy. 'cause I actually think that we're gonna see more of an interjection more than we thought we would, or a raise profile of geopolitics in tech in the presidential race, for instance. I mean, it all goes down to JD Vance being named as Trump's running mate.

We got the libertarian tech bros like Musk, Andreessen Horowitz Teal, who is JD Vance's mentor David Sachs. And I think this, this is gonna be something we're gonna probably become accustomed to in terms of the impact on things like deregulation, taxes, cryptocurrency. I mean, I'm kind of throwing this out there because I, I do think there's gonna be an escalation on being tough on not just China, but making a firm stance.

And I actually think tech is gonna play a much more prominent role, um, from both sides, perhaps. And I think the repercussions will be, you're gonna be nervous if you're a company that relies on a high degree of revenue from China, like an Apple or a Qualcomm. And I also think, um, in terms of AI regulation, the executive order is gonna go by the wayside, even though it was largely ceremonial.

I think, uh, Trump, as part of their Republican platform, are gonna repeal that. I think you're basically gonna see tech unleashed and much more big acquisitions going on like Google and Wiz, which is by far the biggest in Google's history. I think a lot of this stuff is just gonna be percolating and simmering.

And I, and I, and I, I mean, I'm, but I don't, but John, I don't think there's a difference between what phrase that I was gonna say there. I don't think there's a difference between the, the, the potential Trump administration's plans for China and by their tremendous differences. And I think that the Biden administration, uh, the White House has been very trying to be very, um, uh, aggressively, uh, containing, uh, China's, uh, technology aspirations.

Uh, but, but being surgical in what their, in their use of, of all the tools in, in their, uh, in the toolkit, including, uh, tariffs. Um, I, I, obviously President Trump says he was a hundred percent tariff on everything from for or 50 to a hundred percent. He likes Big Brown.

To quote Brad, uh, stellar, one of the people who did that interview in Bloomberg, uh, he likes big round numbers. But I think that the, the, the, this, the surgical nature of the White House's, the, um, uh, approach to China right now, and yet the big, uh, stick they're using, uh, shows how concerning this, this is to, uh, both the potential trauma. Yeah, I agree.

Because China's been so aggressive in trying to acquire every single piece of the, the biggest difference in our technology versus in our US technology versus the rest of the world, is that it's so much more advanced, that it gives us a military adv, a military advantage, that it's not born out by the, the count of warheads or tanks or troops. And that's all about semiconductors. And China knows that.

Yeah, no, I think I have a question. I have a question for Corey. Just so we have seen the United States government say they wanna invest in chips and we wanna decrease our dependency on, uh, foreign suppliers.

How long does it take to build, you know, a modern semiconductor plant that's capable of producing the chips that we need? It's not about time. And, and the answer is it takes about, uh, three to five years to build, uh, the, the, the fabs at Intel's building in Columbus, Ohio, for example, um, are already a year behind.

And they're about four or five years into it, and they're about three or four years out. So there you go. Uh, $10 billion maybe, uh, per plant.

Um, and about, about, uh, you know, seven to 10 years to build it. But more importantly, you can't build it without the right equipment. And the only company that makes the equipment to make top end semiconductors is a SML.

Now, again, the, the EUV machines, they're, they're, they've not been able to sell to China because they, the import restrictions, um, uh, it doesn't matter. The, the founda the, uh, the way technologists look at ships, I think a lot is they talk about the old ships and the, and the 10 nanometer and 30 nanometer, and who cares about that stuff? 'cause it's not the cutting edge, it's not the Nvidia Blackwell.

Well, the fact is China is, is doubling and tripling and quadrupling down and manufacturing whatever chips they can and flooding the market with those chips at low prices, so that there are no other manufacturers of the foundational chips that are, most of the chips that are used in automobiles, that are used in industrial, that are used even in telecommunications and, and yes, used in computing and mobile. Um, so that we need China's production of chips, and they want that to be the case. Uh, so they can control the world market and indeed, uh, control global policies that they want well, beyond technology.

It's a really good point, Corey, because, you know, we think about the race of chips and the advancement of technology using for AI for, for lots of applications. Many applications require very mature chips. Chips that have been around for 10, 20 years.

There's still even, you know, devices going into space that are built around a Motorola 2000 architecture because it's reliable, you know, so there are different requirements. So you think about telecommunications isn't just about putting the latest chips in it, the availability of well used, uh, tried and true technology is also part of this. To me, to me, it's, this is all an intersection of, of course, geopolitical trade, uh, national security and cyber.

And we haven't talked about kind of the cybersecurity side of this, because if we can talk about hardware and software, but the thing that really makes it, uh, susceptible, no matter where it's located, no matter where it's being manufactured, is either embedding back doors and Trojans and things like that, that allow company co countries to get access to technology that's been deployed. Of course, that's, you know, was a big concern around telecommunications, uh, technology for a while. But I think the key thing is we we're, we're already in this cyber deante, uh, now we're going into the trade deante of, okay, uh, who do we depend on and how do we capture as much of the market as possible?

And then what's the economic impact? All, all that. It's a very kind of inter intertwined, complicated, uh, matrix of things, but ultimately it's about our national security and national defense.

See your point about that though, we said we were gonna replace all those, uh, Yahweh systems from our telecommunications network, and then there was a report last month said, we don't have the money to do it. And there's still like all these systems from that company in our networks. So I kind of feel like we're, uh, in a rock and a hard place here.

Well, I, I think that's in part of where we were at that point in time, and what the real threat from China was. I think that's escalated greatly since that point in time. And that's why you see more actions, the things that, uh, Corey and John are talking about.

So if that debate was to happen today, maybe we'd add a different outcome. You still have the issue of the cost of doing it. But now it's about do we allow those things to happen?

So I think more and more we're gonna be kind of pulling back on what we do and don't allow. And you, you see that in the Biden administration already. Trump kind of presents it as a different proposition of pay us, you know, for, for events, Taiwan, and we'll protect you.

But still, ultimately it's the same thing. How do we protect our, uh, our shores digitally as well as, uh, and physically? All right, Corey, the next president is gonna name you head of the cabinet that's responsible for all of this.

Oh, God, what should we'd be doing? I I could, I could be, uh, the next scaramucci I give my 10 days. And, and, uh, I don't, I, I, that that's not an, uh, that's not an appointment I want.

I I can't afford the lawyer bills and the indictments. Um, I, I think that, you know, we, we have tried to be an isolation isolationist nation with cutting end technologies. Before in the 1920s, we tried to be an isolationist nation.

We, we put up trade barriers all over the world. We tried to go on our own, and we couldn't do it because we relied on global trade and we needed it. And that is certainly more the case now, the idea that we don't need Taiwan and we can charge a rent for protecting our own interests.

We, we want, we need Taiwan to be an independent nation and produce the goods that they use because America depends on it. And Covid showed us that, COVID showed us how dependent we are on, on world trade. And, and that was just a glimpse at what it was like.

Uh, and we clearly are gonna need that in the future. So, you know, um, uh, the efforts by the Biden administration even hinting at, at these tariffs, um, is meant to be a little saber rattling, I think. And, and, and tell China, you know, we're, we're gonna take care of Taiwan.

'cause we need Taiwan. It would seem to me too, if we asked Taiwan to put their defense bill, all they're gonna do is increase the cost of the chips to pay for it anyway. So it's kind of, we might as well just write 'em a check for the defense in the first place.

It's, it's, it's not Taiwan's defense, it's our defense. We need the global community against, against China, uh, to protect the things that we want. That it would also escalate things if Taiwan all of a sudden is, uh, investing significantly themselves in their own military.

That kind of flips that dynamic. And they are, they've tripled military spending that country in Alaska, which Has caused a lot of issues for China, which is why they're so hot about this. All right, folks, no one knows for sure how this is all gonna play out, but take a hard look at those supply chains that you're counting on for processors, because, well, they may not be as stable as you think, gentlemen.

Let's hope for peace in our time and we'll see what happens. But we'll be back in a minute. Welcome back everybody.

And we're still talking about things that happened in the realm of, well, I don't know if the Treasury Department is politics, but, um, the Federal Reserve Board, at least, is saying that they might cut interest rates for the first time in recent memory. They're at an all time high. And, um, I'm not sure a half point is going to change the world dramatically, but at the very least, it kind of signals that maybe the battle to whip inflation now is finally over, at least the latest round thereof.

But Mitch, let's start with you. I'm not clear that everybody kind of gets the correlation between interest rates and what happens in the tech sector because, you know, two, three years ago, this place was teaming with startups. There were perhaps overly subscribed and overly funded by venture capitalist firms, and then suddenly one day they all just sort started disappearing.

So connect the dot for me. Well, pendulum swings in the startup world and the VC world, both on the economy in general, because that's the consumers of the technology that startups are creating, but also the availability of money where people are putting their dollars. And the, the Fed is, you know, we've been talking about this interest rate cut, is it gonna come, when's it gonna come?

It seems more likely now they're kind of hinting that they may be doing this, um, because of housing starts are lower inflation's, you know, drop down in terms of its rate of increase. Things like that. You know, VCs look at it.

They're, they're, they have funds, they're given funds, you know, whatever millions or millions of dollars are put into a VC fund. And they look for opportunities where the best places are to an investment to invest it. When things are tight.

They look for things that have a nearer term outcome, you know, a for a, a, a later round that they might invest in a company and they'll still invest some early rounds, but they tend to pull back and be more conservative about that. Meanwhile, when you're at the v when you're at the startup company yourself, you're told to pull back on a lot of things like pull back on marketing, really tighten up sales, tighten up your pipeline and get really strong around, you know, what are your next 30, 60, 90 day sales you're gonna be making when interest rates free up, when interest go, go down and money, there's more access to money. Then you start to see a little bit longer horizon about how startups behave.

And I'm talking more of the earlier startups that are in the two to five year kind of stage of their career. Um, but I'm sure Corey, I'd love to hear your thoughts on, you know, the, the, this kind of rattling, is the Fed gonna make this cut and what's, what, how the market reacts just to the news that they might do a cut. Yeah, but I think we, we can, we can, we can tweeze out their, their, uh, financial markets.

Everything's connected, right? But I think we can, we can, we can separate the vc what's going on in the VC world right now to what's happening with the Fed a little bit, at least the Fed in the short term. Um, you know, the Fed is trying to respond to giving us, uh, giving lots of people jobs and keeping inflation, uh, uh, uh, manageable.

They're setting a, a 2% target. 1%. And the, the last quarter, the last, the last inflation we last month was actually deflation.

So not only has inflation been coming down for, uh, I don't know, like nine months, um, it's actually at a deflationary level at this point. So, so, you know, watching the Republican convention this week, all the talking about inflation, inflation, inflation, it's like they wrote their talking points six months ago. 'cause we don't have inflation.

They wrote their talking points about crime. Crime is down, inflation is down, they're talking about crime and inflation. But I think that, um, uh, the Fed is concerned that inflation chips away on people's savings and people's ability to get ahead.

Uh, they're concerned that, uh, that, uh, a slowing, however, they're concerned that a slowing economy doesn't keep employment up, but wages are rising faster than inflation. Uh, employment levels are still very high. But there's some disconcerting signs about weakness in the economy, especially for poorer people, uh, particularly consumer spending numbers that were out this week.

Um, and it suggests the fed's gonna get what they want to do, which is lower the rate, uh, of, of Fed funds, which among other things, will lower the cost of us borrowing as well. John, what did you see when rates started going up? Did you start seeing a lot of smaller companies in the valley kind of disappear, but you know, at the same time, there was this AI bubble going on, so, right, The money, They Were kind of, yeah, they were conflicted, right?

They were, they were trying to expand while also consolidating, I think, um, at my previous employer and I was at Dow Jones la I, I was heavily into writing about earnings and it was quarter after quarter of reduced spending and operating expenses from small company to the largest company, and an era of consolidation and austerity. And I think maybe it's too early to see that trend as we enter earning season, but I think it's, we're gonna start seeing an expansion again in, in terms of spending and in terms of hiring. But you're, you're right, um, this, this is kind of an accordion like action that's been going on throughout the industry.

And I think for, for the first time in a long time, there's maybe an exhale of the possibility of this going down to 2%. Alright, Mitch, do you think that, at least I do, but it seems like the minute the interest rates start going up, the smaller companies start getting gobbled up by bigger companies that have some cash and they kind of buy some of these companies for, you know, 2 cents on the dollar, and a lot of good technology winds up going to the incumbent. So does interest rates kind of favor the incumbent?

And, and how do you feel it affects the way competition and technology advances are made? Well, it all has to do with valuations of startups and, uh, when money's freer, valuations tend to accelerate. But when it's pulled back, when, when money's less available, then suddenly the next round of investing people are taking a haircut and they don't want to take a haircut, get for, and put more money in it at the same time.

So that's oftentimes a really good way to do good, really good time to do an acquisition of a company. So it may be overinflated in its valuation and you can get a better deal by acquiring it versus plopping in more money with no kind of horizon of when you think that's gonna deliver return in addition to what you've already invested in it. So it's, it's an economics, it's really just the, the matter of the, the supply of money.

And have you kind of jumped ahead of now where the market's currently at in terms of your own EVA own valuation and, uh, when you're looking at a haircut and acquisition can, uh, be a very near term nice payout folks that have invested quite a bit of money into that company. John, you think we're gonna see more acquisitions or less going forward? I think we are going to probably see more acquisitions.

So we, we mentioned Google and, and, and Wiz. Um, I, I do think so, but then again, we have to figure into the calculus, the impact of FTC. I mean, they're still making it as difficult as possible or to dissuade large companies.

They're not stopping them, but they're trying to dissuade them at least in a large deals. I think it del some people are looking closely at the election and when that happens, if, if there's a likely scenario of of Trump being going back to the White House, then all, all things are wide open. I, I mean, you're gonna see, yeah, I think, I think activity, the, the risk of pernicious companies is, is lower under, uh, a White House.

Uh, and, and this administration in the ftc, which has been really concerned about companies merging to take pricing power away. But I think, uh, in, in terms of sort of small deals, smaller companies being acquired, I think those are gonna go down with the expect 'cause the economy's doing so well. When companies look at what their future is, they're, they're, the impetus to sell right now is, is, uh, not great because there's the, the economy's doing so well, you've got, um, uh, rates looking like they're gonna come down, which makes means that things are gonna be better in the future.

Right? You have this, uh, um, contango, if you would, in the oil and gas terms, the idea that think prices are gonna get higher, things are gonna get better. Why would you sell now?

Uh, we saw venture capital investments. The number of deals on venture capital have fallen so much. They were better the last quarter than they would they've been in the last year.

But we're still at sort of 2016 levels in terms of the number of deals being done. Venture capitalists are writing checks. I wrote a check this week.

I was at dinner with a VC last night. He wrote three deals last week, which is a huge week, which was kind of a, a huge quarter for him. But, uh, deals are happening, but there, there are fewer of them.

And the correlation in my mind is, it used to be that a venture capitalist would go to a pension fund and say, we will give you a better return on your investment than you're gonna get from just, um, parking your money in some sort of fund or whatever it is. And when interest rates go up, suddenly it becomes a lot harder for the VCs to make that promise. And so that kind of tightens up the cash flow that goes into these startups.

Um, Corey, do you think that, um, that might loosen a little bit. I mean, what, what do, what do interest rates have to come down to to kind of get to the point where maybe there's more money flowing in the startups? Um, I I think it's more of a direction than a, than a than a hard number.

Um, you know, the, an interest rate, I remember talking to, uh, uh, well, Mike Bloomberg said to me once, like, you know, the rates up, uh, 75 basis points or down 75 basis points doesn't make a, doesn't help a company make a decision as whether they they need to build a new factory. But I think the direction of rates clearly, uh, uh, guides companies on what they want to do, where they want to grow, and how they wanna spend. And it's true across the investment universe, and you're exactly right to, to a pension fund on the margin.

If you're gonna get 5% in treasuries, you're gonna put less money into vc. If you're gonna get 1% in treasuries, as we were looking at three years ago, you're gonna put more money into venture capital because you need some outsized return on the edge. I think that as we get to this whole issue, um, I have found it interesting over the years than we never really connected these dots in a way that, you know, tech people understand because it really does drive the level of competition in the sector.

And, and I feel like, I don't know, Mitch, your thoughts on it, but I feel like the level of competition since interest rates rose has dropped. And, and, and I can't put my finger on it. It's more of a feeling, but I, I just don't see the same level of tension in the IT space.

But maybe it's just me. I wonder if it's, if this is a, a Mike Baard scratch your head moment, right? Is that one of these Yeah, We might do a particular scratch.

I'm unaware of. We had a whole whole show where he scratches head on, like, segment, like, Hmm. Things that make you say, Hmm.

Um, anyway, I forgot the question now. I think it's as, uh, as acquisitions happen, you know, it feels like, you know, the Splunk now becomes part of Cisco Wiz might become part of go Google, kind of those big ones. You see big part parts of the market being consolidated, right?

Um, there's still a lot of competition. There's plenty of competition out there. Um, and there are companies who is there.

Yeah, I I believe there is. I think there's how Many, how many, how many different kinds of phones can you choose from? Um, I'm, I'm thinking in my world Or, Or what in, I'm thinking about my world of security and cloud and, and software and DevOps and those platforms and I mean, there's only two phones to buy, right?

Well, I guess can you range account many search Engine to get to use? Yeah. What's that?

How many search engines do you choose from that you use every day? Uh, three, One or one, Three different ones, actually. But yeah, one main one, you're right.

I, yeah, there's, sure your point is there's some areas where, yeah, it is consolidated. I'm not just technology. People should freaking love competition.

They do, they should love companies not merging because it gives us opportunity and security. You see this right? In security, you see dozens or hundreds of solutions to problems.

And if you didn't have, if you had three dominant, if you, heck with phones by example earlier, if you had two companies doing security, you don't already have insecurity. You already have insecurity. Let you want, as technologists, we want to be able to come to the market with new creations and new solutions to problems.

We don't want monopolies, we don't want big companies gobbling up all the dollars, uh, that are spent so that we can't try to innovate and create new solutions. We need competi competition. We want competition.

We get rich off a competition. There's, There's the other side of it too. I'm agreeing with what you're saying, Corey, the other side of it, just as a, a practitioner, it sucks when companies get bought that you're working closely with.

'cause you don't know what's gonna happen to 'em. Yeah. You know, Cisco was famous for a long time of gobbling up whatever company that you loved working with, and suddenly product re productizing it as a Cisco product, and it kind of, you know, turned into milk toast or wasn't, or, or went away, right?

Got subsumed because Says, my links as routers By the market, your release, I, I actually do know what's gonna happen every time a company gets acquired, the price of whatever it is that you were buying from them is going up. That's It's going up. Absolutely.

And you just don't know if it's gonna, are they gonna leave it alone? You know, is is Slack gonna change because it got consumed by Salesforce? You know, all those kinds of questions.

And usually they, they do change quite significantly. And you're, you've invested this strategy around using this set of technologies and now you're like, oh crap. You know, what's gonna happen to this?

Am I gonna have to switch to something else? Right. Or I don't like working with that vendor.

What do we do now? Or maybe it's one that you do like with, so, so acquisitions have some backend consequences, uh, for people who are using those products. That can be quite significant.

John, you can get the last word here, because you can break the tie. Yeah, I, I, I agree with, I mean, it's kinda a bit of both. I'm not gonna, I'm ambi wishy-washy, but I think in terms of what Corey is saying, there's limited use or limited options for major types of technology.

But on the flip side, when we look at cybersecurity, DevOps, et cetera, I do think that's a very rich area of field of, of innovation or at least options. Um, but then again, we have limited options for the most popular technology. That's what it always comes down to.

And that's why we have a kinda a blowback towards tech and its influence and the fact that there are a handful of companies that have such a hold on our daily lives and such an influence on our daily lives. All right. I would just conclude here that high interest rates are generally bad for tech.

So those, if those numbers start coming down, you're gonna see a lot more innovation, a lot more movement, and a lot more excitement in this space. I don't think we want to get to zero, but between zero and where they are now, there's a number that most of us probably be very comfortable with. We'll be back in a minute.

I'm Bonnie Schneider, sustainability contributor to the Techron Group. I'm excited to introduce you to a groundbreaking new initiative from Techron Research, the sustainability pulse meter. The pulse meter offers valuable insights into how environmental responsibility factors into tech purchasing decisions for key players in the industry.

Position your company as a leader in the industry and differentiate from your competitors with the sustainability pulse meter offered exclusively from tech strong research. All right, folks, we're back and we're talking about the value of four year degrees. This is a subject that is hotly debated in the land of technology because not all the things that we do in tech, well require a four year degree.

And there's probably a lot of folks in this space who don't have one and don't see the need for one. com. It says one in three companies have eliminated the need for bachelor degree requirements so far this year alone.

And meanwhile, against that backdrop, we have the rise of ai, which may change the way we learn in the first place. But, um, Corey, let's start with you. I know, you know, you're on the beginning of a journey here with, uh, putting some kids through college, you know, what's your sense of what is the value of a four year degree these days?

And, and, and does everybody need one? Well, put your money where your mouth is. I, I, uh, I've got three tuition bills looking at me in the next two weeks.

All for private universities, all of them, lemme think all of them more than $80,000 a year. So, um, uh, I'm clearly betting that the value of that education is gonna be great for my kids. Um, and I still have one more yet to go to college.

Um, but I, uh, um, I think that it is reasonable to question the value of a lot of the degrees out there. Not all degrees are, are the same. Um, I I was one short a whole bunch of, um, uh, uh, higher education, higher education companies, except there were lower education value companies, uh, in 2006 and 2007.

And in 2000, sorry, 2007, 2008, I was short. Um, uh, UTI, Apollo Group, uh, uh, Corinthian Colleges, um, Coco was, was the ticker. CCO was another one.

Uh, and all the stocks went up as we went into a recession in 2008, because the belief is lots of people would enroll in those schools with gar government guaranteed loans. And they did. But most of the schools went outta business 'cause they were committing fraud.

They were promising, um, uh, results for their students illegally during the cold calls to try to get students to enroll, getting them to sign up for government loans or government backed loans, and letting those students default to not show up for class. And, uh, uh, while the Obama administration went after those people, those, those schools and, and indeed those companies, and many of them went out of business, uh, multi-billion dollar businesses, it was because they weren't delivering value. They were, they were giving degrees that didn't have value.

And so I think that there's a differentiation and, and it has begun between crappy degrees that don't mean anything and a valuable education in, in, uh, in college. I'm saying. John, What's your take?

What are you seeing out in the, in the valley there? Are you? Well, Yeah, I mean, we had, so we, it just full disclosure, we have four kids.

They all graduated from college and I think three of the four ended up doing things that really were tangentially related to what they majored in. And what was your major John? Journalism?

I'm an ex, I mean, I, I always knew what I wanted to do. You're the one I think. Yeah, I mean, I was the only one left.

I mean, among my friends, I think, uh, I was probably, there were three of us who stayed in the Field and Where'd you go? Went to Georgia. So, uh, it was, it was interesting.

Um, when I, I also think about this idea that when I was in college, I think it applies back then, and it applies now to the study. Practical knowledge, pragmatic experience was the best form of education I had, right? I mean, learning in the job in an internship or, uh, doing something that was, that was practically, uh, associated with what I was gonna do.

And, and I think one of the problems, Mike and Corey is, it, it goes back to a segment we were, we had a couple of days ago of this idea that we want more specialized people, especially in ai. So there's all this pressure to produce more engineering projects more quickly, uh, with, with ai, which puts an incredible amount of pressure on the few people who are very well versed in that area. And I think Tracy Reagan pointed out, made a very good point.

She said that, uh, as far as curriculum in colleges and universities, what, what's the AI curriculum and how current is it up to snuff? Who's teaching it? And I think that's probably the, the rub here is that these companies especially want AI ready engineers or what have you coming out of college, but are the colleges capable of producing those folks?

So, um, maybe it, it minimizes the importance of colleges and maybe we go through, i, I don't know, some other type of programming programs for kids or for students that creates, uh, job opportunities for them. Yeah. But the value, I, I think the value is learning how to learn and surrounding yourself with smart people who are engaged and who want to, um, accomplish great things in the world.

Um, and I I, I think that, uh, you know, the specifics of of, you know, I, I remember, I remember my father, uh, talking about studying business as an undergrad at University of Michigan, actually went to grad school at University of Michigan. And, and he said, look, I, I learned how to like, fill in a ledger as an undergrad with a pencil and how to keep books. And that knowledge was useless ultimately.

But learning, so learning, uh, specific skills that are applicable in 2024 will surely be useless in 2044. But learning how to learn will never go outta style. And I think that that's the difference between the vocational education and, and actual education.

Yeah. Yeah. That's a, that's a good point.

I mean, people learn on the fly. I mean the, the people who are, uh, happy you people are supposed to do this in journalism, although they really don't. I mean, they're resistant to technology.

But my son, for instance, who went to Syracuse, he works for ESPN, he learned on the production engineering side on the fly. Um, it was different than his college experience. And you have to adapt.

You have to adapt in every, anything in life, right? You have to reinvent yourself every few years. If you don't, you become stagnant and you're not as employable or, or, or safe in your job as you are.

I think that applies to not just education, but in terms of just once you started a job. Yeah. How you progress in how you evolve.

Mike, what did you study? I studied journalism. Went to Boston University and go terriers and, and still using some of the skills I learned there, I learned how to write a story and reported in under 45 minutes there.

And I use that skill almost every day. Yeah. That's terriers I feel surrounded.

Yeah. That's interesting, Mike. I mean, 'cause that's a skill you can't teach really.

Well, I mean, you have it, it's innate in terms of being able to turn something around like a story fast, knowing how to do it. And I, I've seen you do it and there are very few reporters who can write on deadline. Yeah.

Yeah. So, you know, some things you just can't teach. Yeah.

I, I've seen some of the younger kids come out, I'm like, did they not teach these kids how to do this? 'cause I'm, I take it for granted, but, um, it's Like second nature, right? Once you start doing it.

But I mean, that's different strokes for different folks. Yeah. You abused children.

We've, we've filed a deadline. There's, there's an, it's torture. Nothing more stressful.

No. And yet, and, and I can remember hearing these complaints even when I was graduating, right? CEOs were saying that kids are turned outta college, don't know enough, and nor don't have enough value proposition, and they wind up teaching 'em the skills in the first place or over again.

And I know Jamie Diamond, I think just said the same thing most recently, um, about the kids that are coming outta college now, and it's been an ongoing complaint. Um, is there a disconnect between what occurs on the university level and what we need in real life and practical life? And, and can that ever be fixed?

Or should it be fixed? I don't know. Corey, what do you think?

I, I mean, I, I think about this all the time. What is the value of, of learning things that are, you know, I, I, I Russell uh, John, you know, my youngest son, uh, a Grammy, you know, he's very, he's, I, I remember, you know, when he was like in the, when he was eight years old, he is like, I will never ever have to use Shakespeare. Why would I read a book?

Right? But the but the knowledge of knowledge, the, the value of knowledge is, is esoteric. But everything, and you, and you don't know what you're gonna need when you're, and when you're gonna need it.

Um, uh, and I think that that's a hundred percent true. That, that, that, that the value of a degree, because it's called a degree. Let's go back to our original question is not great, but the value of knowledge and learning is tremendous.

It's maybe the most important thing. And, um, uh, it's important to differentiate what you're getting and how much you're getting it. And there is a, a process of learning, right?

Either actually fast track something or, or kinda a longer process. I think there's nothing sort of about this. There's nothing, um, that, that, that, that we, you, you can teach about just doing something quickly.

Um, I guess that what I'm trying to say is we, college actually does have a valuable experience in assess, because there's a diverse broad stretch swath of things we have to learn whether we want to or not. And they sometimes apply later, as you mentioned, the Shakespeare reference. Sometimes you, you'll write a story or you're doing something and you want to, you kind of wanna make a parallel to something that you had learned or something that was kind of all like a, and it, it's, it's, it, it, I think there is value in that, though.

I guess though. Are we putting too much emphasis on that degree, is the question. Because there are plenty of jobs out there that doesn't necessarily require that degree.

And especially in tech, if I want to be an application developer, do I really need a four year degree? If I wanna manage a Kubernetes cluster, do I really need a four year degree? Or, um, are, are there just job positions where we've made that as a standard thing without thinking through why?

Well, We think also just to think about how many successful tech entrepreneurs there have been and how many of them have graduated from college, or how many haven't graduated from college. Think of jobs, I think of supper. Uh, I but those, they're, they're, they're the exception, right?

I mean, I, I remember being, but when I was short, uh, UTI, uh, I remember, uh, it was United Technical Institute and they were charging people $65,000 for a two a year for a two year degree. So they're charging me $130,000 to learn to be a motorcycle mechanic, which is very appealing to like kids with motorcycles. But as a motorcycle mechanic, you make about four at the time, about $40,000 a year.

And so these people would never pay off that loan. They would put themselves into permanent financial distress because they would default on their loans, default on their credit, uh, and be behind the eight ball from the start. And, um, those degrees I think are worthless.

But getting a, a degree from Boston College, from Syracuse, from USC, from Connecticut College, from Lehigh University, um, uh, these, these are great institutions of learning where the people will do well and out earn their peers. And when you look at the, the statistics about how much money, um, a graduate from a four year private school, we're talking about all private schools there that I just listed, you know, they're great public schools as well. Uh, Georgia, uh, that is one, um, the, the, the earnings capability of those people is fantastic.

Oh, and much better than go there exponentially. We've been so lucky to, we, well, I'm sorry, go ahead, John. Oh no, I was gonna say it's exponentially more, and in a sense it opens doors to open source street.

It also shows that you have the discipline. I think that's one thing is college degree shows. You have the discipline to go through a program and to learn something versus something off the street.

I mean, I, I don't want to be sound prejudicial or, or condescending, but in a sense it shows that you can work within a system or within an institution and learn. Um, versus someone who shortcuts his way through or her way through, I don't know, three, it was the first time in 15 years that anybody ever asked me what college I went to. Well, we, but We've, we've been really, really, really blessed by being in a profession where we get to learn all the time.

And we get to say, I don't know at the beginning and get to say, I still don't know, but I kind of know something more than I used to at the end. Um, you know, there is a Shakespeare, I was it like a, a fool thinks himself wise and a wise man knows himself to be a fool. Uh, the, the journey of constant learning is a great joy.

And I think that that is discovered in a great collegiate education more than anything else. So I think that, uh, for that reason alone, the college will always have some great college, uh, educations will always have value. I'm not disputing the value of the experience and going to college and the people that I met.

And I learned a lot of things that I probably never would've learned. And I enjoyed learning those things. I'm just not quite clear that the people who hired me after college gave a crap about any of that.

'cause Basically they did, they asking, they didn't care. How many times Did somebody ask you what your grade point average was when they, when they hired you? Or, or asked remember what grade point average Was?

I do, but no, I, sorry, but I mean, it's just like the, uh, the other thing is people, it's On your permanent record, Mike People Yeah. Along, along with a note from a nun in eighth grade. Yep.

Yeah, people just, I mean, once you're employed somewhere, you're, you're judged on the work you do, not where you went to school. I mean, that helps you get through the dorm meeting perhaps, but for the first few months. But ultimately, you're as good as is the day, finish your job.

But at work, I mean, you're, you're not judged by your pedigree. Um, that's just, although I, the irony in Silicon Valley is everyone is so obsessed with status symbols, like your college degree at a car you drive, where you live, et cetera. And Corey probably could, would, would agree with that.

It's all very static. And, and A, a Harvard degree only means you're good at something when you were 18. That's true.

And it's true too. I asked one guy once a long time ago, I said, you know, what was the thing you learned in Harvard that, uh, you know, in business school that really stuck with you? And he said, well, it, it, it's easier to change something in motion and than it is if it's standing still.

And I looked at him and I said, I think that's Boyle's law. I learned it in high school. What was his response?

He kind of scratched his head. I guess he was a business major. He is like, you know, or Tel is our, is it this scratch?

Is it this, There's a, There's A head scratching theme here tonight. There is. It's an ongoing theme actually.

Alright guys, I think we can all agree that there's value in college education. You should absolutely. If you can't afford one, get one because, well, it just makes you a better person.

That said, one of the great things about tech is it's open. Everybody, the water's fine continues to be fine. And I've had the pleasure of working with all kinds of people and I immensely enjoy and folks that I respect, regardless of how many college degrees they have.

In fact, there are the folks who have more degrees than others who maybe I don't respect as much and it's all about the person. But anyway, gentlemen, thank you for being on the show, sharing your insights, and to everybody who's watching, stay tuned. We got a lot more coming on Techstrong tv.

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