Episode summary
Prediction Markets: Investing, Gambling or a Haven for Insider Trading? | WSJ’s Take On the Week
The Journal
· · 34 min · Hosts: Telis Demos, Miriam Gottfried · Guests: Andrew Courtney
Summary
The hosts argue that the Magnificent Seven are looking less dominant even as they keep spending heavily on AI infrastructure. They say investors are now caught between wanting hyperscalers to maintain a frenetic pace of capex and wanting evidence that products like Microsoft’s Copilot are turning that spending into real revenue growth. One suggested yardstick is cloud-services revenue, since “AI revenue” is not a clean line item.
They also see a possible rotation toward real assets, especially apartment REITs such as AvalonBay, Equity Residential, Essex Property Trust, and Mid-America Apartment Communities. The hosts point out that national rent growth has slowed to 2.6% year over year, the lowest outside post-COVID noise in more than a decade, but they think the earnings reports will show whether the oversupply in multifamily housing is finally being absorbed.
The main conversation is about prediction markets and whether they are investing, gambling, or something in between. Andrew Courtney says prediction markets are best understood as a spectrum: some contracts look like betting, others offer hedge utility, but most are zero-sum and should be treated as an information source rather than a substitute for long-term investing. He argues that their core advantage is legibility, because they turn probabilities into something easier for the public to read than stock prices.
Key takeaways
- The hosts think the Magnificent Seven are no longer driving the market in the same way, even as investors still expect them to keep funding AI buildouts.
- The market wants proof that AI spending is paying off, with Microsoft’s Copilot cited as an example of the kind of revenue evidence investors want to see.
- Apartment REITs may be approaching a turning point if oversupply eases and rent growth reaccelerates after a weak cycle.
- Andrew Courtney says prediction markets are usually best used as an information tool, not as a core investing strategy.
- Courtney argues prediction markets are zero-sum and often speculative, but their prices are more legible than stock prices for ordinary users.
Notable quotes
“they have kind of like lost steam a little bit. Um, Bloomberg actually helpfully has the Bloomberg Magnificent Seven Total Return Index”
“On the one hand, people want to see this magnificence of spending continue, but does it Are they generating any kind of operating leverage from that”
“rents nationally are growing at just 2.6% uh, year-over-year, according to CPI data”
“I think there's a spectrum as there is with a lot of things”
“Prediction market information is being used all over the place”
How the episode opens
I think when you talk about insiders, that um, you know, betraying a confidentiality agreement. — Right. Right. Right. I I don't think those incentives are great for the market, but you definitely want informed people that are doing research, and I just I don't think it's good to leak sensitive military information and things like that. Hi, Tellus.
Hi, Miriam. So, we have an exciting conversation coming up in a bit about prediction markets, but first I wanted to talk about some big earnings reports that are happening this week. We have a lot of the hyperscalers reporting. Remember, these are the big tech companies that are investing a ton into AI and building out data centers.
Not calling them the Mag 7 anymore? Have we dropped that term? I think that maybe we shouldn't call them so magnificent anymore because while they powered a lot of the gains of in the stock market over the last few years, they have kind of like lost steam a little bit.
Um, Bloomberg actually helpfully has the Bloomberg Magnificent Seven Total Return Index. And I looked at that, and as of this recording, it's basically flat year-to-date, but the S&P 500 total return is up. So, actually, it's not the main engine this year.
Seven. — The not-so-magnificent seven.
Regular seven. But they are magnificent in terms of how much they're investing in AI. They are big spenders, and of course, we're talking about Microsoft, Meta, Amazon, Alphabet.
They're all reporting this coming week. Um, and I think that investors are going to be looking at, you know, as we've discussed in previous episodes, how much they're spending on AI. Um, as our colleague Dan Gallagher pointed out in a Heard column, uh, you know, if they slow down in AI spending, it would could be seen as a bad sign by the market that maybe they're bearish on it.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- magnificent seven
- ai spending payoff
- residential real estate cycle
- prediction markets
- insider trading
Companies and tickers mentioned
- MSFT
- META
- GOOGL
- GOOG
- Microsoft
- Meta
- Alphabet
- Susquehanna International Group
- Kalshinomics
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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