Elon Musk pay deal, AI bubble worries and pharma wars

Elon Musk's targets in order to hit his $1 trillion pay package are aggressive according to Tesla's (TSLA) board. Chris Rossbach from J.Stern agrees. This week concerns over an AI bubble have grown and shares of Nvidia (NVDA), Palantir (PLTR) and AMD (AMD) have faltered. The battle to buy Metsera (MTSR) is intensifying as both Novo Nordisk (NVO, NOVO-B.CO) and Pfizer (PFE) make bids for the obesity drug developer this week.

Video Transcript

00:00 Speaker A

Next, Novo raised its offer for the US biotech firm Metsera on Thursday, just hours after Pfizer matched the Danish drug maker's previous $10 billion proposal late on Wednesday. The exact dollar amount is currently unclear, though Novo's CEO, Mike Dusta, said at a White House event yesterday, its bid is currently higher.

00:29 Speaker A

Well, to help us look at those stories in more detail, I'm joined by Chris Rossbach, Chief investment officer at J Stern. Chris, thanks so much for joining us here on Market Sunrise.

00:46 Speaker A

Well, let's start with Tesla. Uh what do you it wasn't much of a surprise, I guess that Tesla shareholders did approve the the pay deal for Musk. But what does this actually mean for Tesla going forward?

01:05 Chris Rossbach

Well, I think Tesla is a very unique company. It's interesting to see how the vote went because a vote abstaining was going to be a vote against uh the proposal. So clearly, a lot of shareholders including the big index funds must have voted in favor. and we're going to find out the details about that. But Tesla is a company that is unlike all others. It's more like a venture capital investment for its shareholders because the actual car business is only a small part of the overall valuation. If Musk is actually able to succeed in building these businesses in the way a venture capital type firm would, then it will generate huge returns and then uh these rewards may be uh in the range of what would be reasonable, but that's what shareholders have just decided and the verdict is going to be out in terms of what he's actually going to be able to achieve.

02:11 Speaker A

It sounds to me Chris that you kind of agree with the Tesla board when they say that the targets they've set for Musk are aggressive.

02:22 Chris Rossbach

they are because we're talking about very large industries that uh Tesla and Musk are trying to disrupt. From our perspective, we invest in quality companies uh that we think we can buy at reasonable valuations and a company like Tesla is trying to change the face of transportation. Um the question is is it going to be about autonomous driving? Is it in inner cities even going to be about cars? Is it going to be about pods? Is it going to be about software? Who's going to be providing the software and providing those pods? And of course, Tesla may be the company that succeeds in doing it, but we're in very early days with great uncertainty. and so the opportunity is great, so is the risk and so potentially should be the rewards for the CEO.

03:22 Speaker A

Okay. Let's move on to the worries that we seem seem to be persisting in the markets about an AI bubble. Are you concerned about it?

03:35 Chris Rossbach

We're not concerned about an underlying AI bubble. We think we're just at the very beginning of data and of computing capacity and the ability to get results from that. And we can see that because the companies that have had the benefits so far are the big tech platforms that have the data. Uh but most of the big companies in the world don't. They're still in the process of putting it together, of aggregating it in a way that can be used. and so we think we're very early days. We also think that the demand for GPUs, which is what's driving Nvidia and the whole industry from the hyper scalers and from the big platforms and probably from the big sovereign players like Saudi Arabia are real and they're going to happen and they're big enough to explain valuations for companies like Nvidia or ASML or others who are absolutely critical in terms of providing that hardware. What is much less un what is much more uncertain, I should say, is open AI and the trillion dollars of demand that they've been talking about, how that's going to be funded and so forth. So there is going to be volatility, not every GPU that's been ordered is going to be uh bought by the people who are buying it, it's not going to be used. So there's going to be volatility, but we are positive in the long term, and we think if there is a significant pullback, it's an opportunity.

05:22 Speaker A

So you're seeing this is this a significant enough of a pullback we're seeing right now though?

05:28 Chris Rossbach

No, it's I mean it's it's extremely uh mild so far. If you see the returns that Nvidia has generated, um some of the other companies as well, then uh no, we're just this is just a mere blip. Uh we just saw what happened in April of this year um uh with liberation day and what kind of volatility can happen if people really start to be concerned. and that of course followed on from the volatility around Deepseek. So, uh no, this is just a blip in the road.

06:06 Speaker A

Let's move on to the pharma industry now. Um what do you make of this battle for Metsara? Novo Nordisk has had a pretty rough time of late and it seems to be trying to flex its muscles against Pfizer. It seems a bit of a strange move, don't you think?

06:29 Chris Rossbach

Well, it's certainly an aggressive move, but that's what you have to do when you've uh when you're backed into a corner. Uh the overall market for GLP1 is clearly enormous. Uh it is uh looks like a drug that people can take to really modify their behavior and to improve their health. Uh but it's also a product that has a lot of competitors, a lot of new product with a better functionality, better ways of taking it uh coming up and with a huge debate about pricing. Uh and so it's very competitive and I think the fact that uh Eli Lily is well positioned, but Novo Nordisk is not, shows what the issue is. Pfizer, one of the world's largest pharmaceutical companies, also failed in its drug development. That's why they're after Metsara with the money that they've got and the fact that Novo after having been the first mover, is now forced to compete with other pharma companies uh for a company that has the new technology and the promise of um uh greater revenues, shows just in what weaker position Novo Nordisk is. I think that uh it's a real issue. Uh and uh pricing up for this kind of thing against one of the large pharma largest pharma companies in the world is not a is a risky proposition.

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