WEBVTT - Tesla Troubles and Big Tech Earnings Loom 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.760 the Bloomberg Terminal, and the Bloomberg Business App. Now a 0:00:46.760 --> 0:00:49.720 three hour conversation with Dan Eisa web Bush's I don't 0:00:49.720 --> 0:00:50.599 know where where's he? Ben? 0:00:50.920 --> 0:00:51.159 I know? 0:00:51.280 --> 0:00:53.320 I think he's so large now that we can't even 0:00:53.320 --> 0:00:56.480 get them on the show. Dan, let's talk Tesla first. 0:00:56.800 --> 0:00:59.080 I know you're gonna give me the positive spin. Liam 0:00:59.160 --> 0:01:03.240 Denning writes a beautiful column must tells Tesla dream, but 0:01:03.320 --> 0:01:08.520 don't ask for the details. What's the timeline across April 0:01:08.800 --> 0:01:13.320 May June to where Musk has to seep out the 0:01:13.360 --> 0:01:16.919 successful initiation of the so called plan. 0:01:18.840 --> 0:01:22.120 Look, I think last night was a big start because 0:01:22.319 --> 0:01:25.119 the sub thirty K vehicle. I'll call it a Model 0:01:25.160 --> 0:01:28.319 two point five. It's going to be accelerated. I mean, 0:01:28.440 --> 0:01:31.200 this would I come first half twenty twenty five, and 0:01:31.760 --> 0:01:34.280 more details clearly have to come out, but this is 0:01:34.400 --> 0:01:37.960 no new factory line. I think this is a huge 0:01:38.000 --> 0:01:41.440 start for what the bulls needed to hear on the 0:01:41.520 --> 0:01:44.560 Tesla story, especially given the dark days and what was 0:01:44.600 --> 0:01:46.160 really a train wreck one Q. 0:01:46.959 --> 0:01:48.960 I mean at Paul to jump in here, because you know, 0:01:49.080 --> 0:01:50.960 Dan and I don't agree on this. I mean, you 0:01:51.000 --> 0:01:53.200 know he's a good friend, but you know, I'm just 0:01:53.720 --> 0:01:55.920 I'm with Liam Denning. I'm like, are you kidding me? 0:01:56.000 --> 0:01:59.120 That was a conference? Was that a conference called dan ives. 0:02:00.800 --> 0:02:04.880 Relative to the last few calls, which we talked about, right, 0:02:04.920 --> 0:02:07.640 I mean it was a disaster. Last night you actually 0:02:07.680 --> 0:02:11.959 had a vision. The growth strategy was laid out, talked 0:02:11.960 --> 0:02:14.800 about the lower cause vehicle, and the fears were they 0:02:14.800 --> 0:02:17.560 were going to go straight to rover, taxis and autonomous. 0:02:17.800 --> 0:02:20.560 That was a big overhang in the stock. And then 0:02:20.600 --> 0:02:24.880 you look at the margin the cause cuts. I finally 0:02:25.080 --> 0:02:27.160 feel like they're a blue crib. 0:02:27.280 --> 0:02:27.560 Paul. 0:02:27.880 --> 0:02:29.640 After a few quarters, Paul helped me. 0:02:29.680 --> 0:02:32.720 Here I'm on sixth Avenue. I'm trying to get up 0:02:32.880 --> 0:02:35.040 to Central Park South Shore. Who was to go left 0:02:35.120 --> 0:02:38.120 or right? It's a roulette. What's the robotext you do? 0:02:38.200 --> 0:02:40.639 When you all the cars are turning right on fifty 0:02:40.680 --> 0:02:44.440 eighth street. Explain what a robotext he does. It's sixth 0:02:44.480 --> 0:02:45.680 Avenue in fifty eight He's. 0:02:45.560 --> 0:02:48.919 Gonna employ artificial intelligence. AI is what's gonna happen? 0:02:49.000 --> 0:02:49.200 Yeah? 0:02:49.200 --> 0:02:49.359 For you? 0:02:49.639 --> 0:02:52.280 Hey, Dan, So I guess I got off that call yesterday. 0:02:52.280 --> 0:02:53.840 I was walking on the borderwalk down the shore. I 0:02:53.840 --> 0:02:57.160 actually dialed into the call to listen, and I got 0:02:57.160 --> 0:03:01.280 off the call saying I either believe and I buy 0:03:01.320 --> 0:03:03.600 the stock, or I don't and I sell the stock. 0:03:03.919 --> 0:03:05.639 Is that where we are now with the stock? Do 0:03:05.680 --> 0:03:06.080 you think? 0:03:06.919 --> 0:03:10.440 Definitely? Look, I think it's the knives have been sharpened. 0:03:11.040 --> 0:03:14.000 So bulls and bears you meet the bed here? 0:03:14.080 --> 0:03:14.440 Yeah, night. 0:03:14.480 --> 0:03:17.560 Look I heard from many bears obviously over the last 0:03:17.639 --> 0:03:21.200 you know, called sixty eight hours. They'll have their stor 0:03:21.240 --> 0:03:23.240 But I think for the bulls, they finally have something 0:03:23.240 --> 0:03:26.079 to hang their hat on. And again betting on betting 0:03:26.160 --> 0:03:30.919 against Musk for the last four or five years. It's 0:03:30.919 --> 0:03:33.720 like betting against truths in this series. 0:03:33.840 --> 0:03:36.400 He has done this before. Some question, Okay, I'm tesseling 0:03:36.480 --> 0:03:39.800 out Dan ives on Microsoft. That's going to be a 0:03:39.800 --> 0:03:43.800 different call, a different earnings report, isn't it? All? 0:03:43.880 --> 0:03:44.040 Right? 0:03:44.080 --> 0:03:46.480 Look, this is the tactician. I mean, you have the 0:03:46.520 --> 0:03:50.800 hall of fame in Thedella. The AI revolution, it's here, 0:03:51.000 --> 0:03:55.320 and I think demonization that we're starting to see at Microsoft, 0:03:55.560 --> 0:03:58.320 we see it, you know, across I think the software layer. 0:03:59.000 --> 0:04:01.200 This is the call the whole street's going to be 0:04:01.240 --> 0:04:04.600 watching because it chows where the monization of AI is 0:04:05.160 --> 0:04:09.120 as the baton gets handed from Nvidia to Microsoft. 0:04:09.960 --> 0:04:13.880 So, Dan, that's kind of where I think a lot 0:04:13.960 --> 0:04:16.520 of investors would like to see this Microsoft story go. 0:04:17.040 --> 0:04:19.080 It's up eight percent year to date, it is not 0:04:19.240 --> 0:04:23.760 getting fully priced in as an AI story. It seems 0:04:23.800 --> 0:04:26.680 like relative to some other names like Nvidia. What do 0:04:26.720 --> 0:04:29.080 you think Microsoft needs to say on their call tomorrow 0:04:29.160 --> 0:04:31.599 to maybe gotta get that story across a little bit more. 0:04:32.600 --> 0:04:35.440 Look, I think it's really numbers. It's showing co pile 0:04:35.560 --> 0:04:39.320 it in terms of what deployments looking at the moonization. 0:04:39.920 --> 0:04:44.360 Of course, Azure the cloud number is the big focus 0:04:44.680 --> 0:04:47.839 as that actually continues to be something that's probably the 0:04:47.839 --> 0:04:52.200 best barometer in terms of what the Microsoft story is doing. Look, 0:04:52.240 --> 0:04:55.159 they have massive talents, and I think the broader story 0:04:55.160 --> 0:04:57.599 we're going to see across tech earning season is the 0:04:57.680 --> 0:05:02.040 air revolutions. Here the has been handed from Semis to 0:05:02.160 --> 0:05:06.640 software and memes like service Now, sALS Force, Oracle, among others. 0:05:07.000 --> 0:05:09.280 And Dan on Microsoft, I go back. I just take 0:05:09.320 --> 0:05:14.240 everything from pre pandemic. Basically, Microsoft modeled out twenty twenty 0:05:14.279 --> 0:05:19.280 four has done a double in revenue since twenty nineteen. 0:05:20.200 --> 0:05:24.560 Is that an extrapolated function? Can you take a double 0:05:24.680 --> 0:05:28.400 in revenue over five six years and take that out 0:05:28.400 --> 0:05:30.080 into the DAN ives twenty and. 0:05:30.160 --> 0:05:35.120 Thirty, Well, and Tom, I'd take it one even step better. 0:05:35.600 --> 0:05:39.279 It's really about the AI and the cloud component because 0:05:39.720 --> 0:05:44.000 fifty five percent revenue is cloud from Microsoft today, next 0:05:44.000 --> 0:05:46.080 three to four years, it's going to be seventy seventy 0:05:46.400 --> 0:05:49.240 per That multiple is going to continue to expand because 0:05:49.279 --> 0:05:52.560 that higher margin business. That's why I believe it there's 0:05:52.560 --> 0:05:54.480 a four trillion dollar mark happening year. 0:05:54.839 --> 0:05:56.919 Dan. A rep on you is you're an uber bowl, 0:05:57.000 --> 0:05:59.719 What is your what is your least favorite tech company? 0:06:00.080 --> 0:06:03.120 One of which one has the I Z and radar up. 0:06:04.640 --> 0:06:04.839 Look. 0:06:04.839 --> 0:06:07.800 I'd say it's some of the legacy names. If I 0:06:07.839 --> 0:06:11.360 look at like a Cisco as a shared doinger, I 0:06:11.400 --> 0:06:15.159 think some of those are the ones that are really 0:06:15.880 --> 0:06:19.040 gonna struggle if they don't get aggressed. But even look 0:06:19.080 --> 0:06:21.320 at Cisco, they buy spunk, right. I mean, the point 0:06:21.440 --> 0:06:26.239 is this is gonna be really an arms trace that's 0:06:26.279 --> 0:06:28.400 going to have good time. We've talked about. I think 0:06:28.560 --> 0:06:33.120 tech this is just second third inning of this tech 0:06:33.200 --> 0:06:36.280 ball market. And dam is I guess one. 0:06:36.160 --> 0:06:39.159 Of the questions Dan, I guess one of the questions 0:06:39.200 --> 0:06:40.839 for a lot of folks who follow tech is just 0:06:40.880 --> 0:06:44.480 kind of this AI trying to size out AI and 0:06:44.600 --> 0:06:47.839 how much of the AI capex? How much of the 0:06:47.880 --> 0:06:52.320 AI investment over the next five plus years is incremental 0:06:52.600 --> 0:06:54.920 or is it just taking from other parts of the 0:06:54.960 --> 0:06:57.440 tech stack. How do you model that up? 0:06:58.720 --> 0:07:02.000 I think about sixty seventy percent of it is incremental 0:07:02.080 --> 0:07:06.479 because the difference is that it's revenue generally. I mean, 0:07:06.480 --> 0:07:08.960 if you look at the use cases, they're revenue generating. 0:07:09.080 --> 0:07:11.520 This is not just spending on infrastructure, and I think 0:07:11.600 --> 0:07:16.920 that's what's happening really across verticals and we're starting to 0:07:16.920 --> 0:07:18.760 see you now. I mean you look at Pollneer. It's 0:07:18.800 --> 0:07:23.040 a good example where the use cases are exploding and 0:07:23.080 --> 0:07:26.960 the cap act is just massive, not just some big tech. 0:07:27.000 --> 0:07:28.960 But I think what we're seeing across the board. 0:07:29.160 --> 0:07:31.800 I mean, you know, dance like's got the sweats your 0:07:31.880 --> 0:07:33.920 thing going. For those of you are not on YouTube, 0:07:33.960 --> 0:07:36.480 I mean it's a stunning pick. Do you do five 0:07:36.560 --> 0:07:39.200 or ten miles this morning? Are you gonna go out 0:07:39.240 --> 0:07:40.920 for you know, pre pre morning. 0:07:40.760 --> 0:07:45.920 Jogged in I I'll do a little peloton and you know, 0:07:46.160 --> 0:07:47.680 to to get the heart rate up. 0:07:48.040 --> 0:07:51.400 It's good. I take Tank zero for the heart right, Dan, 0:07:51.520 --> 0:08:03.880 I thank you so much. With web Bush right now, 0:08:03.920 --> 0:08:06.800 she's more than a nothing burger. She is exquisite. In 0:08:06.840 --> 0:08:11.360 the analysis of the American economy, Lindsay Pigs joins us 0:08:11.400 --> 0:08:16.680 Now with Steve Lindsay, how do you use cap goods 0:08:16.920 --> 0:08:20.600 x air ex Boeing non defense? How do you use 0:08:20.680 --> 0:08:23.000 one of these obscure statistics? 0:08:24.000 --> 0:08:26.560 Well, I wouldn't argue that it's overly obscure. When we 0:08:26.600 --> 0:08:30.360 look at capital goods orders and we exclude aircraft and defense. 0:08:30.440 --> 0:08:34.199 What we're really doing is removing that volatile transportation component, 0:08:34.600 --> 0:08:38.320 and we can see them the underlying trend for business investment. 0:08:38.800 --> 0:08:40.600 And in fact, the reason that we need to do 0:08:40.640 --> 0:08:43.040 that is because when we look at something like last 0:08:43.160 --> 0:08:48.000 month's numbers, transportation plunged nearly twenty percent. So we need 0:08:48.080 --> 0:08:50.400 to take out that volatility to really get a sense 0:08:50.480 --> 0:08:53.640 where business investment is going, and right now it seems 0:08:53.679 --> 0:08:57.920 to be still positive, but very minimal growth in terms 0:08:57.960 --> 0:09:02.120 of those capital those investment dollars flowing out into the marketplace. 0:09:02.200 --> 0:09:04.200 Elon Musking to call us night, he says, I want 0:09:04.200 --> 0:09:06.920 to see cap goods orders, non defense X, aer X, 0:09:07.000 --> 0:09:08.840 TESLA X test. Let's coming next. 0:09:09.440 --> 0:09:12.600 So, lindsay, just stepping back here, what's kind of the 0:09:12.640 --> 0:09:16.400 Stefel GDP call for the remainder of this year and 0:09:16.440 --> 0:09:18.560 maybe for next year. I mean, I think a lot 0:09:18.600 --> 0:09:22.120 of folks feel like the economy may not be working 0:09:22.240 --> 0:09:24.160 for them despite some of the headline numbers. 0:09:25.240 --> 0:09:27.280 Well, I think the economy right now is still solid. 0:09:27.280 --> 0:09:30.800 We're still seeing consumer spending, we're still seeing businesses investing, 0:09:30.880 --> 0:09:34.280 but as I mentioned, we're losing momentum. We're seeing those 0:09:34.320 --> 0:09:37.720 heightened signs of fatigue. So what does that translate into 0:09:37.760 --> 0:09:40.200 for GDP. We're looking for about a two to two 0:09:40.280 --> 0:09:44.120 and a half ish percent average pace for twenty twenty four. Now, 0:09:44.120 --> 0:09:47.240 of course, volatility quarter to quarter aside Q one may 0:09:47.240 --> 0:09:50.400 come in a little stronger, but two to two and 0:09:50.440 --> 0:09:53.800 a half percent for the current year. The bigger question 0:09:53.920 --> 0:09:56.920 is where do we go into twenty twenty five, because 0:09:56.920 --> 0:09:59.600 if we continue to lose momentum, we've gone from five 0:09:59.600 --> 0:10:01.720 percent in the third quarter, so let's call it three 0:10:01.760 --> 0:10:04.240 percent a year end. If we hit that range of 0:10:04.280 --> 0:10:06.600 two two and a half this year, what if we 0:10:06.640 --> 0:10:11.000 continue to lose momentum into next year. Now we're virtually 0:10:11.040 --> 0:10:13.520 falling below the bare minimum that you would expect from 0:10:13.559 --> 0:10:16.400 a developed economy. But at this point is the FED 0:10:16.520 --> 0:10:21.040 still tolerating above target inflation? So that's my biggest concern 0:10:21.160 --> 0:10:24.320 that we're slowly moving into more of a stagflation scenario. 0:10:24.400 --> 0:10:26.280 I AS's this question the other day, Lindsey. But the 0:10:26.360 --> 0:10:29.160 fact is a central bank can't get out front, whether 0:10:29.160 --> 0:10:32.040 it's easy BE or FED or the Bank of Thailand. 0:10:32.240 --> 0:10:36.360 I mean they have to wait and go ex. 0:10:36.200 --> 0:10:41.520 Post right, I would argue the FED is right now, 0:10:41.559 --> 0:10:44.080 the FED is backing itself into the corner. The Fed 0:10:44.120 --> 0:10:46.800 should have risen rates. They should have raised rates higher. 0:10:47.440 --> 0:10:50.559 Now that they see inflation reversing course for three consecutive 0:10:50.600 --> 0:10:52.800 months since the start of the year, they need to 0:10:53.120 --> 0:10:57.440 re engage, raise rates to a sufficiently restrictive level to 0:10:57.480 --> 0:11:00.559 get price pressures under control and we can start to 0:11:00.600 --> 0:11:03.920 talk about a sustainable recovery. The longer they slow play this, 0:11:04.520 --> 0:11:08.040 the more price pressures become entrenched into the economy, and 0:11:08.080 --> 0:11:10.160 the more difficult it's going to be to ever get 0:11:10.240 --> 0:11:11.800 us back to that two percent target. 0:11:11.960 --> 0:11:14.720 Cancel the pigs a lunch of the Eckles building. That's 0:11:14.720 --> 0:11:16.720 all I can said. Folks, what you just heard there 0:11:16.720 --> 0:11:20.040 from this is classic Lindsay piigs. What you just said 0:11:20.600 --> 0:11:22.079 is a huge deal. 0:11:22.520 --> 0:11:24.959 So Lindsay, just to be clear here, you think that 0:11:25.080 --> 0:11:28.920 inflation is such that the Fed's next move should be 0:11:28.920 --> 0:11:31.360 a rate increase versus a cut. 0:11:33.080 --> 0:11:35.880 When we look at inflation, the target is two percent, 0:11:36.040 --> 0:11:38.400 The target is not three, the target is not three 0:11:38.400 --> 0:11:40.840 and a half. So the Fed has not met their 0:11:40.880 --> 0:11:44.280 mandate of stable prices, and with momentum now turning to 0:11:44.320 --> 0:11:47.120 the upside, I think the Fed has more work to do. 0:11:47.240 --> 0:11:47.400 Now. 0:11:47.440 --> 0:11:52.000 That's my preference for what the Fed should do. That's 0:11:52.040 --> 0:11:54.719 not what I necessarily expect the FED to do. This 0:11:54.760 --> 0:11:57.920 is a FED that desperately wants to provide relief. So 0:11:58.080 --> 0:12:00.440 I do still think that the next move is likely 0:12:00.480 --> 0:12:03.400 a rate cut, but I think that would be a 0:12:03.679 --> 0:12:06.200 material mistake on the part of the central bank. 0:12:06.520 --> 0:12:08.160 Wow, so inflation. 0:12:09.280 --> 0:12:12.240 Is your sense that this inflation that we've seen in 0:12:12.240 --> 0:12:16.560 the past three months, that's something that's that's not a blip, 0:12:16.679 --> 0:12:17.440 that's something more. 0:12:18.600 --> 0:12:20.560 I do think it's something more. If you think about 0:12:20.559 --> 0:12:22.880 the motivation for the FED to raise the rates, it's 0:12:22.960 --> 0:12:28.280 to increase borrowing costs, make that more onerous, slow consumption, 0:12:28.480 --> 0:12:31.000 and by extension, slow the economy and result in more 0:12:31.040 --> 0:12:34.240 benign inflation. But when we look at this consumer, there 0:12:34.320 --> 0:12:37.040 is still a good amount of spending and borrowing power 0:12:37.080 --> 0:12:39.679 out there in the economy. So clearly the FED has 0:12:39.679 --> 0:12:42.600 not done enough to slow, let alone break, the consumer 0:12:43.040 --> 0:12:46.840 to ensure a return to price stability. 0:12:47.400 --> 0:12:52.439 What's the response of your clients, and particularly your institutional clients, lindsay, 0:12:53.080 --> 0:12:55.480 when you say this, I mean, you know, I'm not 0:12:55.480 --> 0:12:57.600 going to say you're an outlier call here. I think 0:12:57.679 --> 0:13:01.680 Jim Biako's really led with the idea disinflation vectors out 0:13:01.679 --> 0:13:05.559 of tune. But these are really aggressive comments you're making. 0:13:06.600 --> 0:13:09.560 What is the response of your institutional clients to this. 0:13:10.480 --> 0:13:12.920 Well, again, this is what I would hope the FED 0:13:12.960 --> 0:13:15.560 would do. But when we look at our forecast, when 0:13:15.600 --> 0:13:18.079 we look at the messaging from the FED, the FED 0:13:18.160 --> 0:13:23.280 does appear willing to tolerate above target inflation. So again, 0:13:23.559 --> 0:13:26.520 our expectation is that the FED will offer at least one, 0:13:26.559 --> 0:13:28.640 if not two rate cuts by the end of the year, 0:13:29.120 --> 0:13:33.480 given their desire to continue to perpetuate these solid conditions 0:13:33.480 --> 0:13:36.680 in the economy. But when we look at I think 0:13:36.720 --> 0:13:40.160 the longer run stability of the economy, the longer run 0:13:40.440 --> 0:13:43.600 ability for us to get back to price stability. That's 0:13:43.640 --> 0:13:46.720 where I struggle because historically we see that the FED 0:13:46.760 --> 0:13:49.520 does need to raise rates above the previous speak in inflation. 0:13:50.000 --> 0:13:52.640 Well, when Kashkari's out the door and you're the president 0:13:52.640 --> 0:13:56.599 of the Federal Reserve Bank of Minnesota, Lindsay Piegs, just 0:13:56.920 --> 0:13:59.600 simply if we get a PIEGSA rate rise, does that 0:13:59.600 --> 0:14:00.920 push send a recession. 0:14:02.600 --> 0:14:06.439 I don't necessarily think a recession is necessary to get 0:14:06.480 --> 0:14:09.480 price stability, but I do think that a much slower 0:14:09.520 --> 0:14:12.160 growth rate would likely be the outcome, which is not 0:14:12.320 --> 0:14:16.079 necessarily again, is something that we need to avoid at 0:14:16.080 --> 0:14:19.080 all costs. That the normal fluctuations of the business cycle 0:14:19.120 --> 0:14:22.880 are very healthy, but the biggest issue is getting us 0:14:22.920 --> 0:14:27.040 back to a point where inflation is under control and 0:14:27.080 --> 0:14:30.440 that allows everyone to enjoy and participate in the economy. 0:14:30.840 --> 0:14:32.680 I just sent one of our interns of note, lindsay, 0:14:32.680 --> 0:14:34.440 I want to get you on next week after PCE. 0:14:35.280 --> 0:14:37.800 I mean, I think these folks, these are wild comments. 0:14:37.840 --> 0:14:40.800 These are you know, and again this is a prescriptive idea. 0:14:41.480 --> 0:14:45.720 Paul should of it could and you're saying, what will 0:14:45.760 --> 0:14:47.680 they do? They're just going to hold rates here, lindsay, 0:14:47.720 --> 0:14:48.760 until they see more data. 0:14:49.920 --> 0:14:52.000 I do think the FED is on an extended pause 0:14:52.040 --> 0:14:55.520 for now. But again, if inflation stabilizes at these levels, 0:14:55.920 --> 0:14:59.400 with the FED willing to tolerate above target inflation, I 0:14:59.440 --> 0:15:01.480 think the FED would be willing to give us twenty 0:15:01.480 --> 0:15:03.760 five or fifty basis points of cuts by year end, 0:15:04.240 --> 0:15:08.040 But if we don't see further improvement in the inflation data, 0:15:08.320 --> 0:15:11.120 they would likely return to the sideline for a second round. 0:15:11.200 --> 0:15:14.000 Extended ouse, Lindsey, thank you, thank you, thank you, just 0:15:14.040 --> 0:15:17.440 superb We'll feature that on Single Best Idea Today out 0:15:17.480 --> 0:15:22.120 on ample podcasts. Those are stunning statistics from Doctor Pigs 0:15:22.120 --> 0:15:29.920 at Aero Rana in Chicago's Encyclopedic going to Cloud a 0:15:30.000 --> 0:15:33.440 Man Deep saying picks up the pieces on Meta as well. 0:15:33.560 --> 0:15:36.240 Thrilled to have them with us right now into this 0:15:36.440 --> 0:15:40.400 tech earnings season, I guess I gotta go to Meta first. 0:15:40.480 --> 0:15:43.440 Facebook is what I call does change the symbol, Man 0:15:43.760 --> 0:15:47.760 saying this is simply Zuckerberg. Did he start all this 0:15:47.960 --> 0:15:51.880 cost cutting? Is Zuckerberg the one that gave the billionaire 0:15:51.960 --> 0:15:54.080 set permission to cut costs? 0:15:54.360 --> 0:15:57.160 Yeah, and he was quite aggressive, and he was right 0:15:57.240 --> 0:16:01.560 in terms of pivoting to AI and the three hundred. 0:16:01.320 --> 0:16:03.880 And fifty eight percent from the Man Deep sing bottom 0:16:04.160 --> 0:16:06.360 after sings and shut up and buy it. Yeah. 0:16:06.440 --> 0:16:10.600 Look, I think everyone had their doubts whether this company 0:16:10.640 --> 0:16:13.920 can ever grow double digit again the top line, and 0:16:14.040 --> 0:16:17.880 they have shown, you know, they have executed around their 0:16:17.880 --> 0:16:21.440 cost cuts and also from a product perspective, they have 0:16:21.600 --> 0:16:24.360 made a lot of changes in terms of the ad stack. 0:16:24.520 --> 0:16:27.560 Pivot to AI. I think kind of. 0:16:27.520 --> 0:16:30.800 Moving away from metaverse last year was a great bet 0:16:30.920 --> 0:16:33.520 and it's paid off in terms of you know what 0:16:33.600 --> 0:16:36.520 they are doing with ad impressions and pricing versus what 0:16:36.560 --> 0:16:37.720 the other players are doing. 0:16:38.040 --> 0:16:42.400 Hey, an rag out in Chicago, the tech hub of Chicago. 0:16:43.800 --> 0:16:47.160 I got the stock Microsoft. I'm surprised it's only up 0:16:47.200 --> 0:16:48.320 eight percent yearnit date. 0:16:48.400 --> 0:16:49.560 I thought it would have been more. 0:16:49.600 --> 0:16:52.920 It seems like these guys are just hitting on all cylinders. 0:16:52.960 --> 0:16:55.640 It's a great AI play. What is the story on 0:16:55.680 --> 0:16:58.000 Microsoft these days? What do you expect to hear from them, 0:16:58.040 --> 0:16:59.200 see from them from their earnings. 0:17:00.120 --> 0:17:02.880 It's still trading at over thirty times earnings compared to 0:17:03.000 --> 0:17:05.520 you know, Apple at twenty three times. So always remember 0:17:05.560 --> 0:17:07.800 that that, you know, the market gap is so high 0:17:07.840 --> 0:17:11.200 at this point, so some of those expectations already baked 0:17:11.200 --> 0:17:13.720 in for what they're going to realize, whether it's on 0:17:13.760 --> 0:17:17.000 the AI side or whether it's on the you know, 0:17:17.040 --> 0:17:20.600 the GitHub or Office three sixty five. So there's a 0:17:20.640 --> 0:17:22.440 lot of that. I would say it is currently baked 0:17:22.440 --> 0:17:23.119 into the price. 0:17:23.680 --> 0:17:25.120 Oh good, No, I. 0:17:25.080 --> 0:17:29.439 Was saying me, Man deep Facebook Google again, Tom and 0:17:29.440 --> 0:17:33.120 I we go old school verbiag here Facebook Google. It's 0:17:33.119 --> 0:17:36.480 a play on digital advertising in very large part. What's 0:17:36.520 --> 0:17:39.000 the state of the digital advertising market out there? Because 0:17:39.840 --> 0:17:42.119 you look the linear television and all they have is 0:17:42.200 --> 0:17:45.240 healthcare ads for various diseases. They don't have any real 0:17:45.280 --> 0:17:46.240 advertisers anymore. 0:17:46.280 --> 0:17:47.159 Are they all on digital? 0:17:47.440 --> 0:17:49.919 And so that secular move is still playing out. I 0:17:50.000 --> 0:17:53.359 would say that, you know, the sentiment around small businesses 0:17:53.480 --> 0:17:56.080 is still pretty weak, and when you look at a 0:17:56.200 --> 0:17:59.960 company like Meta, they are exposed more to small business 0:18:00.160 --> 0:18:04.240 ad spending. So I'm surprised they're able to grow top 0:18:04.280 --> 0:18:08.200 line twenty five percent even with the SMB spending being weak. 0:18:08.280 --> 0:18:11.040 And some of it is easier comps, so that'll get 0:18:11.040 --> 0:18:13.879 tougher in the second half, but still it is pretty remarkable. 0:18:13.960 --> 0:18:16.520 And now for all of you worldwide, we go CFA 0:18:16.600 --> 0:18:18.960 with Enterragriana and Man Deep Sing. Okay, I want to 0:18:18.960 --> 0:18:21.480 look at discount of cash flow, and there's this idea 0:18:21.520 --> 0:18:24.199 of terminal value. Now the triple leverage all cash fund 0:18:24.560 --> 0:18:27.080 is on a perpetuity terminal value. I mean, we're just 0:18:27.119 --> 0:18:31.040 going out forever, Man Deep Sing in tech in general, 0:18:31.119 --> 0:18:34.320 in these magnificent four, five, six, eight, whatever it is, 0:18:34.800 --> 0:18:39.000 How do you study terminal value or is that impossible? 0:18:39.600 --> 0:18:39.679 No? 0:18:39.880 --> 0:18:43.119 I think with companies of these sizes in terms of 0:18:43.160 --> 0:18:46.600 where their top line is clearly, you know, for them 0:18:46.640 --> 0:18:49.439 to keep growing double digit, it's extremely tough, and so 0:18:49.480 --> 0:18:52.800 you've got to model and growth decelerating. But what they 0:18:52.800 --> 0:18:55.840 have shown us in the past eighteen months is there's 0:18:55.880 --> 0:18:58.880 so much leverage to be gained from cost cuts. They 0:18:58.920 --> 0:19:01.920 were not crunning efficiently. And that's what I think is 0:19:01.960 --> 0:19:02.520 a key driver. 0:19:02.880 --> 0:19:04.919 Icly framed your interet around how do you do a 0:19:05.000 --> 0:19:08.480 terminal value, for example, on Microsoft? Because I got double 0:19:08.520 --> 0:19:10.800 digit revenue growth, I got to model that in maybe 0:19:10.840 --> 0:19:15.200 it's a harmonic deceleration whatever whatever you're doing. And then 0:19:15.359 --> 0:19:18.920 and Mandy correctly says, there's a new religion in cost cuts. 0:19:19.240 --> 0:19:22.120 So where's your terminal on Microsoft? You go on a decade? 0:19:23.280 --> 0:19:25.680 Yeah, and you know with Microsoft there's a slight difference 0:19:25.720 --> 0:19:28.280 because they are spending a lot on data centers. So 0:19:28.359 --> 0:19:30.560 I have a concept that is, you know, you want 0:19:30.560 --> 0:19:32.600 to look at operating cash flow more than you want 0:19:32.600 --> 0:19:35.200 to look at free cash flow right now, because their 0:19:35.240 --> 0:19:37.760 capex is more than three times. So if you see 0:19:37.760 --> 0:19:39.840 the operating cash flow growing at the face, so it 0:19:39.880 --> 0:19:42.600 is it's actually getting to a point that it's getting 0:19:42.640 --> 0:19:45.919 better than Apple at this point with the potential of 0:19:46.000 --> 0:19:49.400 growing top line between ten to fifteen percent at least 0:19:49.400 --> 0:19:51.960 for the next five years. So I think Microsoft is 0:19:52.000 --> 0:19:54.800 in a better position than any other tech company right 0:19:54.800 --> 0:19:57.640 now in our view because of the ability to drive 0:19:57.680 --> 0:19:58.840 those operating cash flows. 0:19:59.160 --> 0:20:02.320 And Tom's just going to fa function for Microsoft. Cappecs 0:20:02.520 --> 0:20:05.640 Capex in their fiscal twenty twenty year was fifteen billion 0:20:06.320 --> 0:20:09.800 this year for the June twenty four year forty three 0:20:09.800 --> 0:20:10.600 billions of forecast. 0:20:10.640 --> 0:20:14.879 The operating margin on Microsoft folks is forty four percent. 0:20:15.640 --> 0:20:17.960 When did these get too big? Bandeep? I mean the 0:20:18.000 --> 0:20:20.840 first business book I read was I to Turble Standard 0:20:20.880 --> 0:20:23.600 Will I'm fifteen years old, I'm reading I to Tarble. 0:20:23.720 --> 0:20:28.840 I didn't have an okay, but just thank you Lisa. 0:20:28.920 --> 0:20:31.479 When did they just get too big? For Washington? I mean, 0:20:31.480 --> 0:20:35.439 if you extrap a light out and Rod Rana is 0:20:35.600 --> 0:20:40.160 operating cash flow, there's a point where they're too big, right, Yeah? 0:20:40.200 --> 0:20:42.640 I mean, and I would use Meta as a proxy. 0:20:42.760 --> 0:20:46.800 Before they started investing in reality labs, their operating margin 0:20:46.920 --> 0:20:49.600 was nor till fifty percent. So it got to a 0:20:49.640 --> 0:20:51.879 point where they had to do something with all the 0:20:51.920 --> 0:20:54.439 cash that they were generating, and they started investing in 0:20:54.520 --> 0:20:58.359 reality labs and look the regulators they are looking at 0:20:58.440 --> 0:21:01.760 all of these companies, including partnerships. That's a new way 0:21:01.760 --> 0:21:05.199 to acquire for a lot of these companies. But in 0:21:05.240 --> 0:21:08.080 the end, you know, they are terrific business models, and 0:21:08.359 --> 0:21:10.600 they are sustainable. 0:21:10.240 --> 0:21:15.320 Free cash flow, pre pandemic. Facebook twenty one gazillion, it's 0:21:15.359 --> 0:21:18.560