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Happy Saturday, future bankers!

Hope everyone is doing well! Today we’re covering long-term growth rates in the Gordon Growth Model, how to talk about how long you see yourself working in banking, and Google’s AI debacle.

🚀 Let’s get into it.

🔢 Technical Question

How would you choose the long-term growth rate to be used in the Gordon Growth Model?

The Gordon Growth Model is used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. Given the model’s sensitivity to the growth rate used, it’s important to use a conservative and sustainable rate. Here’s why we often use the country’s long-term GDP growth rate, the rate of inflation, or something similarly conservative:

1. Sustainability: High growth rates are typically not sustainable in the long run. Using a rate that’s too optimistic can significantly overvalue a stock, leading to poor investment decisions. The long-term GDP growth rate or the rate of inflation are generally more sustainable and conservative.

2. Economic Alignment: The growth of a company is often closely tied to the growth of the economy. Using the long-term GDP growth rate aligns the company’s growth with the overall economic growth.

3. Inflation Adjustment: The rate of inflation is used to adjust the nominal growth rate to get the real growth rate. This is important because inflation erodes the purchasing power of future dividends.

4. Conservatism: In finance, it’s often better to be conservative in estimates and projections. Using a lower growth rate provides a margin of safety in the valuation.

5. Benchmark: These rates serve as a benchmark. If a company’s estimated growth rate is significantly higher than these rates, it might indicate over-optimism.

Remember, while these rates are commonly used, they should not be applied blindly. It’s important to consider the specific circumstances of the company and the economy. For example, a technology company in a high-growth industry might have a higher sustainable growth rate than the GDP growth rate. Conversely, a company in a mature industry might have a lower growth rate. It’s always important to use sound judgment and consider multiple factors when choosing the growth rate.

🗣 Behavioral Question

How long do you see yourself working in banking?

Here are some general principles to follow when answering this question:

• Convey Commitment: Interviewers want to ensure they're not hiring someone who'll jump ship quickly. Express genuine interest in a long-term banking career. Even if unsure about the exact timeline, focus on growth in the field.

• Be Enthusiastic: Show passion for the challenges and demanding nature of investment banking. This communicates your work ethic and willingness to go the extra mile.

• Tailor Your Response: Consider the firm's culture. Larger banks may expect more long-term oriented answers. Boutique firms might be open to a few years of intense work followed by an exit to pursue other opportunities. However, always present investment banking as something you want to build a career around for a substantial time.

• Avoid Timeframes: Don't mention specific timelines (e.g., "five years"). It can sound overly rigid or insincere. Focus on growth and potential trajectories.

• Don't Be Afraid to Ask Questions: Show engagement during the interview by asking intelligent questions about typical career paths at the firm, demonstrating your long-term perspective.

🗞 Industry News

Google’s AI Debacle 🤖

Google's AI ambitions have been met with fresh setbacks as its Gemini image generator faced criticism for inaccurate historical depictions. The controversy, which some labeled as anti-White bias, drew condemnation online, including from tech figure Elon Musk. This fumble is another indicator of Google scrambling to keep up with Microsoft and OpenAI in the burgeoning generative AI market. This week, the controversy contributed to a significant drop in Alphabet's stock prices.

This recent stumble follows an earlier incident involving its Bard AI chatbot. Some experts attribute these missteps to a cultural bias within Google and its struggle to balance accurate representation with diversity in its AI tools. While incidents like this often spark political backlash, as seen in the past with Target and Bud Light, Google's situation is more precarious. Investors question the company's leadership position in AI, with potential long-term implications for its valuation.

Read more about this story below.

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Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!