WEBVTT - Deepwater Asset Management's Gene Munster Talks Apple, Amazon

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<v Speaker 1>Apple and Amazon delivered earnings after the close of regular trading.

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<v Speaker 1>Apple shares this morning they're down one percent and Amazon

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<v Speaker 1>Amazon shares right now six percent higher in pre market trading.

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<v Speaker 1>Let's break it down for you now with Gene Monster,

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<v Speaker 1>managing partner at Deepwater Asset Management. Gene, good morning, Thanks

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<v Speaker 1>for being with us this morning. Thank you hey for Apple.

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<v Speaker 1>What are the immediate pressure points that investors are looking at?

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<v Speaker 2>You nailed that.

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<v Speaker 3>The first is that the guidance for the December quarter

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<v Speaker 3>was a little bit muted. They basically guide it to

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<v Speaker 3>around five to six percent year every year growth. The

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<v Speaker 3>street was at six percent. And I think what it

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<v Speaker 3>speaks to is this acceleration around Apple intelligence still is

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<v Speaker 3>not impacting the business. We're not seen it in the

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<v Speaker 3>December quarter. I'm a believer that these tools, adding AI

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<v Speaker 3>to twenty percent of the world's population is going to

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<v Speaker 3>have a meaningful impact on iPhone growth, but we're just

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<v Speaker 3>not seeing it in the Sember guidance. And part of

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<v Speaker 3>the reason is that, of course these features really don't

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<v Speaker 3>have the substance that they will have fast forwarding to

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<v Speaker 3>the March quarter. They're pretty subtle. The improvements in your

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<v Speaker 3>phone right now with AI, but they will improve. There's

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<v Speaker 3>going to be another update in December, and then a

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<v Speaker 3>couple other significant ones in the months of February and March,

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<v Speaker 3>and so I think the big picture here, John, is

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<v Speaker 3>that for optimistic investors in Apple, they kind of this

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<v Speaker 3>lift off of growth isn't going to happen in the

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<v Speaker 3>December quarter. But still the setup is positive that we're

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<v Speaker 3>going to see that acceleration into next year. And I

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<v Speaker 3>just want to put one final point on this. What

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<v Speaker 3>is acceleration and growth? Is that the streets at five

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<v Speaker 3>percent iPhone growth for this year.

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<v Speaker 2>For fiscal twenty five, which just kicked off, I think

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<v Speaker 2>it's going to be closer to ten percent.

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<v Speaker 1>Well, what are the what are the features? And are

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<v Speaker 1>they to resonate with customers if I'm upgrading? Do I

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<v Speaker 1>have to have this?

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<v Speaker 2>I think today the answers know.

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<v Speaker 3>I think that most people who have done the beta

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<v Speaker 3>present Company included find the features nice but not like

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<v Speaker 3>must have. But I think they will be must have

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<v Speaker 3>within the next six months. And just to kind of

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<v Speaker 3>frame in a couple of them. They have the built

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<v Speaker 3>in writing tools that many of you use for with GPT,

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<v Speaker 3>but that's within text messages and email. They have a

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<v Speaker 3>photo editing app that uses artificial intelligence. They also have

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<v Speaker 3>this is available today. They have the ability to essentially

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<v Speaker 3>read your email and notify which ones that are most important.

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<v Speaker 3>And I've found that feature particularly helpful, especially with spam

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<v Speaker 3>and trying to sift through all that. But as we

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<v Speaker 3>fast forward into next year, essentially you get into what

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<v Speaker 3>is referred to is a gentic ai, which is the

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<v Speaker 3>ability for third party developers to build smart apps that

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<v Speaker 3>run on your phone.

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<v Speaker 2>So I think one example could be an app.

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<v Speaker 3>That helps to figure out if you have a dispute

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<v Speaker 3>with your cable company, for example, and would be able

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<v Speaker 3>to reach out to the cable company actually get any

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<v Speaker 3>work that's done on a phone or a computer can

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<v Speaker 3>automate that. And that's when things really start getting exciting

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<v Speaker 3>and these features become must have.

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<v Speaker 2>Is when a gentic ai kicks in.

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<v Speaker 1>It sounds like you're saying the rollout is a little

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<v Speaker 1>too slow for your taste.

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<v Speaker 3>Well, it's slow. I would say that it's what they

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<v Speaker 3>had projected. But from my perspective, I can't wait. I

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<v Speaker 3>can't wait for these features. I mean, this is something

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<v Speaker 3>that I think is going to have a profound impact

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<v Speaker 3>on how we use our devices, and so it's slow,

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<v Speaker 3>It's as expected, and I think this is going to

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<v Speaker 3>be a case where Apple investors just need to be patient.

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<v Speaker 3>I think this acceleration ultimately is going to be coming

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<v Speaker 3>real quick.

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<v Speaker 1>Just finally on Apple, you believe in a super cycle

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<v Speaker 1>for Apple? Is that still on track?

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<v Speaker 2>It is. I mentioned that kind of ten percent growth.

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<v Speaker 3>I think the streets at five percent of the next year,

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<v Speaker 3>but in twenty twenty six, so investors will be quickly

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<v Speaker 3>thinking about this. I think that they can grow at

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<v Speaker 3>fifteen to twenty percent in the streets at seven, So

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<v Speaker 3>I think you really get to a year and a

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<v Speaker 3>half two years of elevated growth, which I believe is

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<v Speaker 3>going to be positive for shares.

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<v Speaker 1>What is standing out for Amazon this morning? For you?

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<v Speaker 3>It was a there's two factors that drove they're driving

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<v Speaker 3>the stock higher. The first is the operating income guidance

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<v Speaker 3>for the December quarter. Typically they guide down versus the street.

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<v Speaker 3>They did something rare here as they actually guided up

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<v Speaker 3>slightly versus the street for December, and so the profitability

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<v Speaker 3>piece is getting better for Amazon. So that was kind

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<v Speaker 3>of the first leg up the stack was up around

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<v Speaker 3>three percent on that news, and then it kind of

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<v Speaker 3>moved another three percent Hired following a comment on the

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<v Speaker 3>earnings call where they said that AWS they were constrained. Essentially,

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<v Speaker 3>they could have done had more growth if they had

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<v Speaker 3>better capacity. It was up nineteen percent and they basically

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<v Speaker 3>said that the growth is going to continue to accelerate

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<v Speaker 3>and they're going to be able to do that more profitably.

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<v Speaker 3>And so I think those were the two factors that

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<v Speaker 3>drove Amazon shares higher.

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<v Speaker 1>The cost cutting there, that's I guess, an effort to reallocate.

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<v Speaker 1>It's not just standard cost cutting. They're reallocating resources.

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<v Speaker 2>Right they are.

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<v Speaker 3>They've been pulling away from things like Alexa more recently

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<v Speaker 3>and some of a lot of these devices, these different

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<v Speaker 3>hardware devices that probably many of your listeners have never

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<v Speaker 3>even knew that Amazon was doing. But they've canceled those

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<v Speaker 3>projects and are kind of reallocating them, of course to

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<v Speaker 3>things related to anything AI.

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<v Speaker 2>AWS is a big factor.

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<v Speaker 3>There also more automation tools that improve a profitability, and

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<v Speaker 3>last is better tools for consumers to understand or get

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<v Speaker 3>better shopping tools. So this rufous feature that they rolled

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<v Speaker 3>out a few months ago, they're continuing to invest.

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<v Speaker 1>In that twenty seconds impressions of Microsoft at failed six percent.

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<v Speaker 3>Surprised at that. I think bottom line is that Microsoft,

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<v Speaker 3>I think needs to inspire investors that they can have

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<v Speaker 3>some measurable acceleration and revenue growth, not just keeping it

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<v Speaker 3>flat at fourteen percent. They failed to do that, and

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<v Speaker 3>I think that that's what's up for them for the

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<v Speaker 3>next three months is to convince investors.

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<v Speaker 1>Gene always a pleasure. Thanks very much for doing this

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<v Speaker 1>this morning. Gene Monster, managing partner at Deepwater Asset Management,