Public Companies Should Be More Valuable Because They Are Becoming More Efficient

To investors,

It feels like there are two different realities in financial markets right now. You see it in the wealth inequality gap, which is being discussed non-stop across political aisles, but you can also see it in the way retail investors and institutions are behaving.

Global Markets Investor writes “The gap between retail and professional investors have rarely been greater: Mom-and-pop investors have purchased ~$190 billion in US equity ETFs so far in 2025. At the same time, institutional investors have sold ~$40 billion. Remarkable divergence.”

Now why are people coming to such different conclusions on how to act in the market? A big reason is because retail and institutions are looking at two completely different data sets. Institutions seem to be looking at valuation levels, which are higher than they were over the last few years, but retail investors seem to be looking at earnings.

AP Research writes “In the dot-com bubble, valuations outran reality. Today, earnings are doing the outrunning. You can debate the multiple. But it’s hard to call it a bubble when the fundamentals are doing this:”

That type of earnings growth is not only impressive, but it highlights something that is fundamentally important in today’s environment — many of the top companies are the greatest businesses ever constructed in human history and they are accelerating their growth. That isn’t supposed to happen when you are a large multi-national company.

Use Facebook as an example. They had a blowout earnings report recently. Look at how insane these growth rates are:

* Revenue: $47.52 billion, up 22% year-over-year

* Net Income: $18.34 billion, up 36% year-over-year

* Diluted EPS: $7.14, a 38% increase over Q2 2024 and well above analyst estimates

* Operating Income: $20.44 billion

* Operating Margin: 43%, rising from 38% last year

* Costs and Expenses: $27.08 billion, up 12% year-over-year

Just ridiculous performance for a nearly $2 trillion business to be growing net income at 36% year-over-year. Add in the fact that headcount is only growing at 7% year-over-year and you start to see an increasing level of efficiency that most companies can only dream of.

This data is reinforced by many anecdotal conversations I am having right now. I spoke with the CFO of a $500 million private business yesterday and he told me the focus internally is up-skilling their employee base to become proficient with artificial intelligence. Rather than hire new employees, the goal is to make the existing team more productive.

And we saw Palantir mention the exact same thing in their recent earnings call. Perplexity summarized the commentary with the following:

“On its most recent earnings call, Palantir leadership made clear that their goal is to dramatically increase revenue with a leaner workforce—thanks to the productivity gains from artificial intelligence integration. CEO Alex Karp said Palantir aims to achieve “10x revenue with 3,600 people” (down from the current 4,100 employees), describing this as a “crazy, efficient revolution.” Rather than conducting mass layoffs, Palantir intends to freeze hiring and “rely on AI to multiply every employee’s productivity,” highlighting that the company's LLM- and AI-driven platforms are now automating many tasks that previously required larger teams.”

So it is important to keep your eyes on this situation. Companies are becoming more productive and they are doing it with less employees. This means the companies should be more valuable. Watching company valuations tick up may scare some investors, but only those who don’t realize the AI revolution transforming businesses.

Hope you all have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

Why Bitcoin & Stocks Are Going Up Forever

Anthony Pompliano & Polina Pompliano discuss short-term outlook for bitcoin, government printing money, what is going on with inflation, the biggest risk in the market, what you should be paying attention to, and are stocks overvalued and due for a crash?

Enjoy!

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