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Speaker 2: The other big story here in the world of technology
Speaker 2: is Apple. The US Justice Department and sixteen Attorneys General
Speaker 2: sued Apple, accusing the iphonemaker violating antitrust laws by blocking
Speaker 2: rivals from accessing hardware and software features on its popular devices.
Speaker 2: The stocks trading off about three and a half percent
Speaker 2: here today. It's certainly been an underperformer versus some of
Speaker 2: the other big tech names that are really riding in
Speaker 2: the wave of AI. There's concern here about Apple, not
Speaker 2: just with these legal issues, but also with China as
Speaker 2: well in terms of demand and supply chain. So let's
Speaker 2: check it out with anarag Rana along with man Deepca.
Speaker 2: He's our leader of our technology coverage at Bloomberg Intelligence.
Speaker 2: An Rock, what do you make of this latest legal
Speaker 2: challenge from the US Justice Department against Apple.
Speaker 3: So it's been long time coming. There's been, you know,
Speaker 3: so much pressure, legal pressure on them from all over
Speaker 3: the world. Apple is a closed system. Everybody knew that,
Speaker 3: so but you know, it's going to be fun to
Speaker 3: see how these things get proof that they were anti competitive.
Speaker 3: But having said that, big overhang on the stock headline risk,
Speaker 3: nothing good going on for them right now, iPhone saying
Speaker 3: is blowing down, So there's this is going to be
Speaker 3: a tough year for Apple.
Speaker 4: What paulm I were talking about earlier is that what
Speaker 4: problem is this trying to solve for me as a consumer?
Speaker 3: Basically saying, you know, we have a closed system and
Speaker 3: you can't transact outside the system. But Apple would argue
Speaker 3: that that's what makes the iPhone and the Apple ecosystem
Speaker 3: far safer than the open source or the open ecosystems.
Speaker 3: And that's really what a lot of the fight is about.
Speaker 4: Frankly, And it's also like it's easier, Like it makes
Speaker 4: our life, it's easier.
Speaker 5: Don't we want that one click?
Speaker 2: Just just back on the redis story indication a little
Speaker 2: bit higher here. They raised the indication.
Speaker 5: Forty four to forty eight. It was forty two to
Speaker 5: forty six.
Speaker 2: So pushing that indication up a little bit will stay
Speaker 2: on top of that. So we've seen this play before,
Speaker 2: and I know you have ANURAG with your research coverage
Speaker 2: of Microsoft. Is this something where Apple, you know, over
Speaker 2: the next several five ten years, pay some fines, write
Speaker 2: some checks, maybe put some workarounds in their business. How
Speaker 2: do you think this plays out for the company?
Speaker 3: I think you called it right. That's exactly what's going
Speaker 3: to happen. And it could even pressure their services revenue
Speaker 3: a little bit, their app store fee. They'll have to
Speaker 3: figure out to reduce that in certain areas. But I
Speaker 3: would argue that they have the capacity to do make
Speaker 3: it from you know, advertising revenue that they really don't
Speaker 3: generate that much at this point. So you know, the
Speaker 3: ecosystem is there. I don't think you can shake that.
Speaker 3: But it's going to be, as I said, a headline
Speaker 3: risk for the stock for for a long time.
Speaker 4: Now, what do you think resolves it? Like if they
Speaker 4: fix this issue is or something else? What else is
Speaker 4: going to happen? How when is the bottom for this?
Speaker 3: Yeah, I think it's going to be a mix of
Speaker 3: a little bit of fines plus some compression in the
Speaker 3: feast that they charge. But I don't think any structural
Speaker 3: change is going to come out of how Apple does it.
Speaker 4: I mean, that doesn't sound good though, does it? Like
Speaker 4: that's that feels like a big overhang to have to reevaluate.
Speaker 2: Now, this is something that and Honor I've remember is this.
Speaker 2: I mean, this is something that I think the market
Speaker 2: learned from the Microsoft See situation, which was a twenty
Speaker 2: twenty five year issue that at some point and even
Speaker 2: to the tobacco industry, you just kind of power through
Speaker 2: this this overhang. What's the company saying on I mean
Speaker 2: when when they talk about these issues.
Speaker 3: Yeah, they're going to find that. And you know, it
Speaker 3: would have been a different story if iPhone sales were
Speaker 3: really good. But the problem is iPhone sales are also
Speaker 3: not good. The product sales are not there, so there
Speaker 3: isn't much to hangle your hat on. If you're an investor,
Speaker 3: you're looking at, you know, two percent growth in terms
Speaker 3: of top line, maybe five percent bottom or EPs. So
Speaker 3: it's not that exciting right now. Now that may change
Speaker 3: if by summer roared by the end of this year,
Speaker 3: we find out they've done to deal with Google and
Speaker 3: they are able to use Google's large language model on
Speaker 3: their phones, and that leads to foster refresh cycle of
Speaker 3: the iPhone so there is some hope, but you know,
Speaker 3: there is a lot of different butts in between.
Speaker 4: So if I'm looking at this valuation real quick, is
Speaker 4: it worth twenty six times estimated price to earnings?
Speaker 3: There I try not to look at estimated earnings. I
Speaker 3: try to look at free cash flow one hundred plus
Speaker 3: billion growing at three to five percent for a long
Speaker 3: period of time. You know, there isn't a company that
Speaker 3: has better financials than this one. So I you know,
Speaker 3: if I was to look at from that point, you know,
Speaker 3: the yardstick is a bit different.
Speaker 5: Yeah, it's interesting.
Speaker 2: I think this June Developer conference is going to be
Speaker 2: key for Apple. They need to try to get an
Speaker 2: AI narrative.
Speaker 5: Out there for the company.
Speaker 2: On rag Rana, thanks so much for joining us on
Speaker 2: a rag Ruana Senior Technology annels for Bloomberg Intelligence. Just
Speaker 2: talking about the Justice Department suing Apple. They got some
Speaker 2: issues that they're gonna have to work Workaround's going to
Speaker 2: be a long drawn out process, as they typically are.
Speaker 2: The question is, you know, how does the stock perform
Speaker 2: with that overhang.
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Speaker 2: All right, now we all turn to Reddit. Here Man
Speaker 2: deep sing joints and sees a senior technology anels for
Speaker 2: Bloomberg Intelligence.
Speaker 5: Reddit.
Speaker 2: Is this just another social media company, like a Pinterest,
Speaker 2: like a I don't know what, like a smaller meta.
Speaker 5: What is Reddit?
Speaker 6: Yeah?
Speaker 7: I think the best way to think about Reddit is
Speaker 7: it's very similar to Twitter in the sense that it
Speaker 7: is a community interest based platform. But the difference is
Speaker 7: obviously if you've heard about Wall Street bets and you
Speaker 7: know how meme stocks really originated and the whole trend
Speaker 7: originated on Reddit. So it's got a different type of
Speaker 7: community aspect to it. And in terms of user base,
Speaker 7: it's very similar to Twitter or pinterest or Snapchat, so
Speaker 7: it's of the same size. The one big difference is
Speaker 7: reddits engagement when it comes to DAUS to MAUS, which.
Speaker 5: Is daily active users to monthly after users.
Speaker 8: You want them to be more active, right exactly, And
Speaker 8: so that's where they have struggled over the course of
Speaker 8: their fifteen to Eighteen years is years, folks, not months.
Speaker 4: Yeah, it's been like I mean, haven't they been around
Speaker 4: for like twenty years?
Speaker 7: They have been around for eighteen years.
Speaker 4: I mean something.
Speaker 5: I'm still still not making money, I know, that's the thing.
Speaker 4: So I'm just wondering, like what they want to get
Speaker 4: out of this. What would success look like for this
Speaker 4: IPO based in the fact that they're an unprofitable social
Speaker 4: media company. That's not like a popular sentence to say, yeah, and.
Speaker 7: Social media companies, I mean, the ones that have done
Speaker 7: well are the ones with scale and notably meta other
Speaker 7: ones snap Pinterest, Stock hasn't gone anywhere if you look
Speaker 7: at you know, long term eight to ten years, these
Speaker 7: stocks haven't. Yes, they had their way up during the pandemic,
Speaker 7: but then they came down sharply. So clearly profitability is
Speaker 7: a concern for a lot of the smaller social media names,
Speaker 7: and Reddit is no exception. The thing that excites me
Speaker 7: the most is their data licensing part. I think that's
Speaker 7: the part. The timing of it is quite good with
Speaker 7: the Genai wave and everyone focusing on these large language models.
Speaker 7: I mean, at the end of the day, these llms
Speaker 7: have to be trained and retrained every two three months.
Speaker 7: And the way you can retrain these algorithms is through
Speaker 7: the corpus of data like Reddit possesses or like Twitter possesses,
Speaker 7: And that to me is something that every company will
Speaker 7: license from them. We know Google already has a two
Speaker 7: hundred million dollar license. I wouldn't be surprised if Apple
Speaker 7: or Microsoft or others start doing the same, and there
Speaker 7: will be a gold rush for training data at some point,
Speaker 7: like there is for semis.
Speaker 5: So a couple of.
Speaker 2: Hours ago, right an hour ago, we had Men Deep
Speaker 2: in here talking about Reddit to Bailey and I and
Speaker 2: I Billy, and I asked them to pitch us, like
Speaker 2: we're a couple of head fund man and why we
Speaker 2: should buy this thing.
Speaker 5: And I did put in ten percent orders. So we'll
Speaker 5: see how I do today.
Speaker 2: Say, but it is all about that data aspect, is
Speaker 2: Men Deep was highlighting. And so if you're an investor,
Speaker 2: I think you if you're buying stock this morning, I
Speaker 2: think you have to buy off that this is a
Speaker 2: viable aspect to the investment story, that in fact they
Speaker 2: can monetize their data to people that need you know,
Speaker 2: that are running these larger language models.
Speaker 4: So this would be like a third derivative of AI. Yeah,
Speaker 4: is that a fair thing to say?
Speaker 7: And right now everyone is too fixated on semis and
Speaker 7: getting the chips. In the end, it comes down to
Speaker 7: how does AI solve your problem? Whether it's a chatbot
Speaker 7: or a copilot. What does a copilot need to be intelligent?
Speaker 7: It needs data?
Speaker 4: See this is so interesting because I feel like AI
Speaker 4: conversation is now broadening out to different sectors. Paul and
Speaker 4: I talked yesterday. I was just in Houston, and all
Speaker 4: the energy companies are talking about is power demand for
Speaker 4: the data centers for AI? And there just isn't enough
Speaker 4: and like how to solve for that? So now you
Speaker 4: have the AI craze going to social media, and you
Speaker 4: have it going to energy and then chips and then software.
Speaker 4: It's it's kind of.
Speaker 5: Cool, it is, And that's why I.
Speaker 4: Kind of cool. AI is kind of cool. There we
Speaker 4: go drop the mind.
Speaker 5: I think this Internet thing is it's just it's just
Speaker 5: gonna pass.
Speaker 2: Actually, I actually gave that advice once to an analyst
Speaker 2: colleague mind who was following the newspaper industry and they
Speaker 2: asked him and he's a highly ranked analist, and there's
Speaker 2: this little thing called America Online out there and some
Speaker 2: stuff that was coming along Netscape and things like that,
Speaker 2: and they wanted him to drop his coverage where he
Speaker 2: had a franchise and go do this internet thing. You
Speaker 2: know what, I told him, stick with newspapers, baby, to be.
Speaker 4: Fair, to be fair. Where's Netscape?
Speaker 5: Yeah, but I mean aol.
Speaker 2: He Fortunately he ignored me and went on to great
Speaker 2: fame and fortune. So good for landing. Okay, So what's
Speaker 2: the feeling out there about digital advertising in general, because
Speaker 2: that still is, at least in the near term, the
Speaker 2: big driver for Reddit.
Speaker 7: It is, and I think when it comes to ads, clearly,
Speaker 7: Meta has a clear dominance when it comes to showing
Speaker 7: the users the most targeted ads. That's where Twitter struggle.
Speaker 7: That's where I think Reddit struggles to an extent as well,
Speaker 7: is that ad targeting and advertisers go to platforms with
Speaker 7: scale and the best at targeting. So overall environment seems
Speaker 7: to be getting better. But what Meta has going for
Speaker 7: them right now is they're actually applying large angrod models
Speaker 7: for improving their ad targeting. It's not possible for a
Speaker 7: company of Reddit scale or Twitter scale or Snap scale
Speaker 7: to do that because they just don't have that kapex
Speaker 7: investment going in terms of applying large angroid models. So
Speaker 7: that's what it comes down to, scale of investments.
Speaker 4: Okay, before we let you go, they also put like
Speaker 4: what eight percent aside to like regular Reddit users. Are
Speaker 4: they gonna buy it? Are they gonna short? What are
Speaker 4: they gonna do?
Speaker 7: I think, Given again, Wall Street Bets is such a big,
Speaker 7: powerful community on Reddit, I wouldn't be surprised if they
Speaker 7: are interested in buying their own stock. And that's where
Speaker 7: I feel the IPO was priced relatively attractively when it
Speaker 7: comes to, you know, a first dapop up, I wouldn't
Speaker 7: be surprised if if you do end up seeing that
Speaker 7: kind of pop and the eight percent allocation goes to
Speaker 7: moderators and the advanced using way.
Speaker 5: I'm glad I don't.
Speaker 2: I don't have to like moderate the trading this the
Speaker 2: first few days, like as the bookmaker, because I don't
Speaker 2: know what these redditors are gonna do. I don't know
Speaker 2: if they're gonna go crazy like they do for some
Speaker 2: of these other Why would they.
Speaker 7: Shot their own stocks? Give me one good reason.
Speaker 2: I agree.
Speaker 4: They've been talking about like not buying, they've been talking
Speaker 4: about it though, haven't they.
Speaker 2: I don't know this scene could it could be one
Speaker 2: of those things where the you know, the marketmakers like,
Speaker 2: I don't know where these buyers are coming from, but
Speaker 2: they're flooding me in with these one hundred chair orders
Speaker 2: left and right. All right, men Deep saying thank you
Speaker 2: so much for joining us. Man Deep saying he's a
Speaker 2: senior tech industry analyst for Bloomberg Intelligence. He doesn't melod in, folks.
Speaker 2: He comes into the studio just like John Tucker, coming
Speaker 2: and showing up every day.
Speaker 5: A big part of life.
Speaker 9: Is just showing up every day.
Speaker 4: Ain't that the truth? A big part of life is
Speaker 4: showing It's just showing up every day.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 4: Well, we get that economic data that came out about
Speaker 4: fifteen minutes ago, that was the pmis over at SMP Global.
Speaker 4: That they came in a little light. So what we
Speaker 4: like to do with you here is get the guy
Speaker 4: who did the data right after they dropped Chris Williamson,
Speaker 4: his chief business economist over at SMP Global Market Intelligence,
Speaker 4: and he joins us Now, what is my read from
Speaker 4: the uspmis right now?
Speaker 10: The April read is one of further solid growth in
Speaker 10: March ends quite a good first quarter. So we're running
Speaker 10: at levels that are realy indicted of GDP rising and
Speaker 10: annualized rate around two percent, which I think matches a
Speaker 10: lot of other sort of NowCast models. So quite a
Speaker 10: good quarter. What's interesting is I think the split of data,
Speaker 10: because we've got signs of demand shifting back towards manufacturing now,
Speaker 10: which is really doing quite well again. Services growth slipping slightly.
Speaker 10: It looks like we're seeing some demand shift come back
Speaker 10: from services towards goods.
Speaker 2: So on the manufacturing side again, it came into fifty
Speaker 2: two point five. The consensus was fifty two I'm sorry,
Speaker 2: fifty one point eight, so well above consensus for this
Speaker 2: month and a little bit higher than last month as well.
Speaker 2: So is that simply manufacturer saying, hey, we've taken our
Speaker 2: inventories down, it's time to start refilling and start making
Speaker 2: stuff again.
Speaker 10: No, it's not just that, it's it's overall demand levels
Speaker 10: as well starting to rise, So the inventory cycle is
Speaker 10: playing a part in that, but it's also final demand
Speaker 10: sharing signs of picking up nice So it's a more
Speaker 10: broad based picture than just turn in the stocking cycle.
Speaker 10: And if you look beyond that headline PMI, if you
Speaker 10: look at something like the output index, I mean that
Speaker 10: was up fifty four point nine.
Speaker 9: That's really quite a respectable reading. That's the highest since
Speaker 9: May twenty twenty two.
Speaker 10: So it really does thing look like production is starting
Speaker 10: to turn around quite quite nicely.
Speaker 4: Now, so here's my question then, I mean, let's get
Speaker 4: to the raid cut situation in the second, but what
Speaker 4: are prices when it comes to manufacturing and also services?
Speaker 4: And that really does lead to the FED, right, because
Speaker 4: if we get cuts, is it just sort of jumpstart
Speaker 4: demand even more and then jumpstart infletion.
Speaker 10: Well that's the kicker, yeah, because the price gauges are
Speaker 10: on the rise again the manufacturing. So we've got two
Speaker 10: lots of price gauges. They one is input costs and
Speaker 10: one is their prices that they charge to customers for
Speaker 10: manufacturing series. All those gauges rose in March coming and
Speaker 10: say they're costs a rising because of increasing wages as
Speaker 10: well as the oil and gas prices starting to come
Speaker 10: through hitting costs is well, so they're passed these on
Speaker 10: to their customers. So rates the selling price inflation they
Speaker 10: accelerated really quite sharply, in manufacturing at a thirteen month
Speaker 10: high now and services at an eight month high now.
Speaker 10: The peer this overall gauge of selling price inflation is
Speaker 10: around the highest for a year now. It's done a
Speaker 10: good job of anticipating where CPI is going to go,
Speaker 10: and it tracked the upturning the downturn through the pandemic
Speaker 10: really quite nicely. And this latest reading means that having
Speaker 10: come down to sort of closed store maybe even passing
Speaker 10: two percent target, you're climbing back up to a sort
Speaker 10: of four percent rate again with these numbers.
Speaker 2: Hey, Chris, based upon the data that you guys see,
Speaker 2: do you feel like this recent I guess pick up
Speaker 2: an inflation?
Speaker 5: Is it short term? Is it just a blip?
Speaker 2: Or is it maybe something a little bit more longer term?
Speaker 10: But there's a lot of speculation, isn't there that there
Speaker 10: might be some seasonality creeping into inflation numbers. At the moment,
Speaker 10: it's too early to say, is the honest answer. We've
Speaker 10: seen gas prices come up and the oil price come up.
Speaker 10: That's feeding through. So it's fairly obvious where that's coming from.
Speaker 10: The wage growth. I mean that that's still being passed
Speaker 10: through now that The hope is, of course, and this
Speaker 10: applies to the other central backs as well as the FED,
Speaker 10: is that as you get your headline inflation numbers come down,
Speaker 10: then that feed through to wake away weaker wage negotiations.
Speaker 10: So there's always going to be a bit of a
Speaker 10: lag there. So what's hoped is that this little up
Speaker 10: to him we've got is still a bit of that
Speaker 10: lag feeding through and as the year goes on, this,
Speaker 10: as we move into the summer, hopefully you'll see those
Speaker 10: wage day to come down.
Speaker 6: Yep.
Speaker 5: Excellent, Chris, thanks so much for jumping on with us.
Speaker 5: Really appreciated.
Speaker 2: Chris Williamson, chief business economist at SMP Global Market Intelligence,
Speaker 2: joining us from London via zoom.
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Speaker 4: I want to get more insight here and sort of
Speaker 4: how you manage the momentum, how you manage the market.
Speaker 4: Nicole Web the senior vice president financial advisor at Wealth
Speaker 4: Enhancement Group, and she joins us, now, okay, you can't
Speaker 4: get in the way of this momentum, right, No, can't
Speaker 4: do You buy into it? You do even at these levels.
Speaker 6: I'm sorry, but you do. And I think this is
Speaker 6: where it's really It's an interesting moment and it's supported
Speaker 6: by the breath we're seeing in the rustle, It's supported
Speaker 6: by credit spreads, it is supported by earnings. You take
Speaker 6: fed off the table, you still can look at earnings
Speaker 6: and profitability. And then you look at the forefront of digitization,
Speaker 6: and you mentioned Micron, and here we see just so
Speaker 6: clearly the thirst, the hunger for the next leg of AI.
Speaker 6: And it's interesting so storage speed all of these things.
Speaker 2: And then we and then we had, you know, for
Speaker 2: a lot of people. Was another confirming piece of data.
Speaker 2: Astera Labs comes out public yesterday. The stock just Rips
Speaker 2: was up seventy percent yesterday on's first day of trading.
Speaker 2: It's some of the nineteen percent today. Again, I guess
Speaker 2: you could say, well, it's a cour like one of
Speaker 2: our reporters sources said, well, of course this sing ripped.
Speaker 5: My mother could have taken this public, that's how good
Speaker 5: a story it was.
Speaker 2: But still it's a great performance. We're going to see
Speaker 2: with Reddit see how that trades today. But the IPO
Speaker 2: market is maybe a little bit of a confirming factor here.
Speaker 6: Yeah, I think the IPO market is really interesting, and
Speaker 6: I think there's going to be differences in the names
Speaker 6: that are brought forward. You know, the one thing I
Speaker 6: want to go back to when we think about going
Speaker 6: down the cap spectrum, when we think about investors taking
Speaker 6: bets maybe on names that they don't know at the
Speaker 6: headline level. In the same way, what we also know
Speaker 6: intrinsically is that there's been trimming of positions. If you
Speaker 6: had a META in your portfolio and it was three percent,
Speaker 6: it's now nine percent, you trimmed that back to five.
Speaker 6: And so you're hearing some of these mega tech names
Speaker 6: likened to being atm machines for reinvestment, and so you
Speaker 6: know the amount of cash that was on the sidelines,
Speaker 6: and then the trimming of positions, and so you're seeing
Speaker 6: some of this down the cap weighting momentum trade and
Speaker 6: even that little bit of fade out that we're seeing
Speaker 6: in momentum around semis and so when we look to
Speaker 6: the IPO market, you know, redd, it's going to be
Speaker 6: a really interesting test case and that it's not profitable.
Speaker 6: It's been a round for a long time. What is
Speaker 6: that narrative though? About the deep language that they own,
Speaker 6: what kind of learning? What can you translate that into?
Speaker 6: And I think that story is yet to unfold, but
Speaker 6: we have to see kind of what enthusiasm comes from that.
Speaker 5: Now we're just.
Speaker 4: Talking about like Reddit being a third derivative AI play
Speaker 4: because of the language models needed, So that sort of
Speaker 4: is different than just hey, your unprofitable social media company
Speaker 4: at the end of the day. Okay, so help me
Speaker 4: understand what the next catalyst is going to be. Deutsche
Speaker 4: Bank was talking over the weekend that you know, maybe
Speaker 4: we priced in sort of higher growth and higher inflation,
Speaker 4: higher for longer rates now, so it's really going to
Speaker 4: be the growth narrative that leads. Others are saying no,
Speaker 4: straight up fundamental, straight up profit, like what is going
Speaker 4: to be the now?
Speaker 6: Yeah, I think that those two things are intrinsically true.
Speaker 6: We went from a FED pivot. I mean it was
Speaker 6: called a pivot. I don't know if it was really
Speaker 6: the pivot, but back in December a little bit, the
Speaker 6: wording's a little strong for me. Then we went into
Speaker 6: the momentum of AI and then all of that was
Speaker 6: supported by earnings, by GDP revisions to the upside above
Speaker 6: trend growth expectation. You have Viisa who just continues to say,
Speaker 6: the consumer actually looks pretty good. When we put all
Speaker 6: of that together, what you get is just this fundamental
Speaker 6: belief that companies will continue to be profitable, that earnings
Speaker 6: will be there. We were so unsure of the ten
Speaker 6: percent earnings per share growth that was baked into the
Speaker 6: SMP at the beginning of the year, and now that
Speaker 6: sounds likely, and so you have kind of all of
Speaker 6: this momentum. The more interesting thing, I think is what
Speaker 6: is that catalyst to the first pullback here? And then
Speaker 6: is the pullback of a self fulfilling prophecy for everybody
Speaker 6: who's been sitting on the side lines feeling like they
Speaker 6: missed the opportunity, and so it's short lived, And you know,
Speaker 6: I think that's where I continue to say the same thing.
Speaker 6: I'm grateful to not be a trader in this market.
Speaker 6: I am grateful to be an investor in this market.
Speaker 6: This market has a lot of opportunity for investors.
Speaker 2: One of the names is really missing out, arguably on
Speaker 2: the AI plays Apple, Yes, and that's one of the
Speaker 2: big issues. I know they're having a developer conference in June,
Speaker 2: but what's your take on Apple?
Speaker 1: Here?
Speaker 5: Have they missed AI? I can't imagine, but they're certainly
Speaker 5: late to it. I guess.
Speaker 6: Okay, So I'm not everybody's favorite in our investment committee
Speaker 6: meetings right now because I am a bullish on Apple.
Speaker 6: I mean I find a lot. I think they're playing
Speaker 6: chessnut checkers. I mean not to use that analogy, but
Speaker 6: when you step away from the production of cars, but
Speaker 6: you know, below the surface, there's a lot coming with
Speaker 6: Apple car play that's interesting to me. What if it
Speaker 6: is more of a technology development and watching the likes
Speaker 6: of Tesla being there's just nothing positive that's coming out
Speaker 6: of right now. The narrative around Tesla is, oh, should
Speaker 6: we price them like a car company? Right because you know,
Speaker 6: what if you spin off robotics. When I think about
Speaker 6: the Apple just saying we're going to use Gemini, well
Speaker 6: that's natural. You were using chrome already. I already think
Speaker 6: it's interesting that with Gmail we have so much deep
Speaker 6: language learning accessible to Google. So you know, for me,
Speaker 6: I think the next leg of AI has the potential
Speaker 6: to really be the ISO operating platform, the hardware sales,
Speaker 6: and the services infrastructure that goes hand in hand, because
Speaker 6: if you continue to be the platform for application based technology,
Speaker 6: then you're going to need the systems behind it to operate.
Speaker 4: And the thing with Apple is, as we know, the
Speaker 4: car thing aside is that they get into all of
Speaker 4: this stuff, they just get in late. They want to
Speaker 4: see what everyone else is doing, they want to see
Speaker 4: the best model, and then they're going to spend money
Speaker 4: to do it. So would you be buying Apple as
Speaker 4: a valuation play looking ahead to them, or it is
Speaker 4: by Apple because you know why not?
Speaker 6: We all have iPhones you got to keep it. I
Speaker 6: think you can buy Apple for both of those reasons.
Speaker 6: Where it sits today. It's not historically cheap and it's
Speaker 6: not historically expensive. And I don't think that the last
Speaker 6: launch of the iPhone. And I say this as an
Speaker 6: eye statement because again there's a lot of people out
Speaker 6: there who wouldn't be of consensus with this, but they
Speaker 6: launched the last iPhone to buy themselves time. I believe
Speaker 6: that the next iterations of iPhone are meaningful and they
Speaker 6: drive sales, and they drive sales globally because there will
Speaker 6: need to be a platform. When we look at some
Speaker 6: of these analyst reports out of Meadow, or we hear
Speaker 6: what they have in store when they build upon the
Speaker 6: meta platforms, they want to bring in applications that generate revenue,
Speaker 6: where people can buy add ons to lay over AI.
Speaker 6: All of that has to be supported speed, memory, battery life.
Speaker 6: I mean, you can go on and on, and Apple
Speaker 6: is the products platform for that.
Speaker 4: Are you worried about the China exposure though?
Speaker 6: I think the China exposure continues to be incredibly opaque
Speaker 6: and slightly confusing. And I believe that that the read
Speaker 6: through from China affects businesses across the board always. But
Speaker 6: I wouldn't say that's a reason to not invest in Apple.
Speaker 5: Interesting.
Speaker 2: How about Intel. Let's talk about you know tech one point,
Speaker 2: oh if you will.
Speaker 6: Yeah, Intel and on shoring production of chips is also
Speaker 6: feels innately necessary, and government support to bring us up
Speaker 6: to speed to you know, propel that forward quickly seems
Speaker 6: also necessary. You had the CEO of Navidia a few
Speaker 6: weeks ago, what was it three weeks ago, now already
Speaker 6: sitting in Dubai saying we all countries need to be producer,
Speaker 6: sovereign producers of chips. I mean, it is just going
Speaker 6: to be that necessary, you know. I think there was
Speaker 6: some confusion over some money going to Taiwan Semi, some
Speaker 6: money going to Samsung, But at the end of the day,
Speaker 6: to onshore that piece of supply, it's going to take
Speaker 6: three to four years, and so we also need to
Speaker 6: continue to have access to the production today.
Speaker 2: I mean, just on Apple, it's news crossing tape. US
Speaker 2: Justice Apartment sues Apple an antitrust case over iPhone thirty seconds.
Speaker 5: How do you kind of factor that in?
Speaker 6: I think that it's like it's it's a constant. I mean,
Speaker 6: the anti trust is a constant, especially with all of
Speaker 6: these big technology names. How you think about that. You
Speaker 6: don't want the big to get so big that they
Speaker 6: can own everything. You also don't want to over respond
Speaker 6: to any of these issues because they will continue to
Speaker 6: forge forward, and so in that way, I think, you know,
Speaker 6: to an over response, one looks at it as again
Speaker 6: not a trader, but an investor, perhaps an opportunity to
Speaker 6: think about an.
Speaker 4: Entry point great stuff. Really appreciate that, Nicole Webb, Senior
Speaker 4: vice president, Financial advisor at Wealth Enhancement Group. And to
Speaker 4: the point of like say, for example, TikTok, right, like
Speaker 4: if you have to divest it, who's buying it?
Speaker 5: Exactly?
Speaker 4: I mean aside from anution, it's going to be a
Speaker 4: tech company, So you're gonna let that go through. And
Speaker 4: then how does that make? So there you know, sometimes
Speaker 4: one plus one does ant equal five?
Speaker 2: Yep, and interesting to see. I mean, Applestock is trading
Speaker 2: off a little bit here. It's been under pressure all
Speaker 2: year for a variety of reasons. As Nicole was, youre
Speaker 2: just mentioning here, but it's Apple, I.
Speaker 4: Don't know exactly.
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Speaker 4: Let's go to the ag space. So if you eat food,
Speaker 4: you want to know about this company. This company is Agco.
Speaker 4: It's trading up by about four tenths of one percent.
Speaker 4: It's about one hundred and eighteen dollars a share. So
Speaker 4: it's an American agricultural machinery manufactured company. So it's basically,
Speaker 4: if you're a farmer and you need stuff, you're going
Speaker 4: to go to the companies like AGCO, Deer that kind
Speaker 4: of thing. It's a huge EG equipment industry, and farmers
Speaker 4: are it's so important, particularly as we grow the population
Speaker 4: by billions. Everyone's going to need to eat. So let's
Speaker 4: talk to the CEO of ag CO joining US now,
Speaker 4: Eric han Sotia. He joins us. Eric, it's great to
Speaker 4: get your perspective and everything. So I just want to
Speaker 4: start macro. Usually, higher rates are not good for farmers.
Speaker 4: Plus it's been a tough year if you've been a
Speaker 4: farmer house business.
Speaker 11: Well, we've had two or three extremely strong years over
Speaker 11: the last three years. It's cooling a little bit in
Speaker 11: twenty twenty four. You know, an ag is not so
Speaker 11: much tied to general GDP or interest rates. It's more
Speaker 11: tied to how much grain is in the world and
Speaker 11: grain prices, and that's cooled off a little bit. Interest
Speaker 11: higher interest rates is a bit of a headwind because
Speaker 11: most of these farmers finance their equipment and that costs
Speaker 11: a little bit more to when they want to finance.
Speaker 9: So it's a little bit of a hitd wind, but
Speaker 9: not the biggest issue.
Speaker 2: All right, Eric, I know you guys are involved right
Speaker 2: now and in acquiring an eighty five percent interest in Trimble.
Speaker 2: Tell us what Trimble is, tell us what this deal is.
Speaker 5: Why are you doing it?
Speaker 3: Yeah?
Speaker 11: Yeah, Well you know, if you start with our vision
Speaker 11: of our company, it's to become the trusted partner for
Speaker 11: industry leading smart farming solutions. And essentially what that means
Speaker 11: is machines that have sensors on them that can understand
Speaker 11: their environment, see changes in the soil or the crop,
Speaker 11: and then make onboard calculations, often using AI engines, to
Speaker 11: be able to optimize their own performance. We invest in
Speaker 11: six tech companies over the last several years, increased our
Speaker 11: engineering budget for by sixty percent since I've been leading
Speaker 11: the company, and so we've been gaining a lot of momentum.
Speaker 11: But then Rob Painter, the CEO of Trimble, and I
Speaker 11: had this notion of.
Speaker 9: We could be better together.
Speaker 11: He's got the very best egg tech team that we
Speaker 11: would be able to add to our team. And so
Speaker 11: the combination of that group coming together with our ECO
Speaker 11: group is going to rapidly accelerate our ability to deliver
Speaker 11: solutions for farmers. Machines can do more for themselves, increase
Speaker 11: yields and reduce costs.
Speaker 4: Eric, So, okay, Eric, are you still an Egg company?
Speaker 4: Are you a tech? Egg? A tech company? And I
Speaker 4: know you're going to say you're an agg tech company,
Speaker 4: but like seriously, like where should the valuation be?
Speaker 11: Absolutely for this this type of our work, We're absolutely
Speaker 11: a tech company.
Speaker 9: Uh, there's no question about that.
Speaker 11: That's where all of our investment is, That's where our
Speaker 11: new hiring is, that's where our focus is. Probably two
Speaker 11: thirds of our engineering budget is now on either smart
Speaker 11: machines or clean energy solutions.
Speaker 2: That's interesting, Eric, do you actually manufacture this the equipment
Speaker 2: or is this your a technology that you licensed out
Speaker 2: to other manufacturers?
Speaker 5: How does that work?
Speaker 9: So this is an interesting point.
Speaker 11: We build our own machines, so tractors, combines, sprayers, planters,
Speaker 11: and those types of things. So we provide all the
Speaker 11: machines the farmer needs to do their farming all the
Speaker 11: way through the cropping cycle.
Speaker 9: That's what you would expect.
Speaker 11: The thing that's unique about ag CO is we've also
Speaker 11: got this whole tech division that sells retrofit technology modules
Speaker 11: onto an existing machine, maybe a five year old planter,
Speaker 11: and it brings that capability of that pl sprayer or
Speaker 11: combine from where it was from a dumb machine up
Speaker 11: to a smart machine. And the other unique thing about
Speaker 11: that is that we do it on all brands of equipment,
Speaker 11: So we don't just do it on customers that bought
Speaker 11: from us in the past. We'll do it on John
Speaker 11: to the equipment case, new Holid equipment, others.
Speaker 9: You know, we do it for every farmer.
Speaker 11: We want to be the most farmer focused company in
Speaker 11: the industry, so we want to serve all farmers either
Speaker 11: with buying new from us or upgrading their existing machines
Speaker 11: with technology from us.
Speaker 4: Interesting, so it's like a different way of being a
Speaker 4: services company in essence to farmers. So straight up, so
Speaker 4: what's demand like, Like, what's your backlog look like, how's demand,
Speaker 4: what's your visibility?
Speaker 11: And the general machinery business demand is cooling. We had
Speaker 11: incredible demand over these last two or three years. We've
Speaker 11: been running to try and catch up to it had
Speaker 11: actually unhealthy long back orders for the last.
Speaker 9: Couple of years.
Speaker 11: It's still higher than we would target, but it's coming
Speaker 11: back down to normal back order levels. You know, it's
Speaker 11: the frothiness is is coming out. So you know, in
Speaker 11: that regard on the machinery business, it's cooling and getting
Speaker 11: back to a more normal backlog level. On the technology business, though,
Speaker 11: because of this retrofit opportunity, there's a lot of farmers
Speaker 11: that in this kind of a year where they're not
Speaker 11: going to buy a big machine, they may say, you
Speaker 11: know what, I'll upgrade my existing machine with new technology
Speaker 11: to have that capability. So our retrofit business continues to grow,
Speaker 11: We're going to have a growing ear even though the
Speaker 11: industry is cooling.
Speaker 2: Give us a sense just kind of how receptive are
Speaker 2: your customers, the farmer out there, how receptive are they
Speaker 2: to technology.
Speaker 11: Well, the whole thing they don't want to go out
Speaker 11: and buy a technology, but they want to do is
Speaker 11: buy an easier solution. So like, for example, on our planter,
Speaker 11: we've got this thing called smart Firmer. It's a sensor
Speaker 11: that runs on the planter through the soil. It uses
Speaker 11: AI measures soil properties and it can automatically for the farmer. Then,
Speaker 11: since when the planter is running through higher organic matter,
Speaker 11: which means more higher fertility, and I'll tell the planter
Speaker 11: plant more here or adjust the depthomatically to plant into moisture.
Speaker 11: We're the only one that has that kind of capability.
Speaker 11: And essentially that's what the farmer's buying. If buying a
Speaker 11: new capability that does something automatically that improves their yield
Speaker 11: and uses less inputs like seed, chemical, fertilizer, things like that.
Speaker 11: Got a sprayer that uses vision systems they can see
Speaker 11: the difference between a weed and the plant automatically only
Speaker 11: spray the weed, not the plant, save seventy percent of
Speaker 11: the chemical going across the field. That's what they're buying
Speaker 11: and they're really excited about.
Speaker 4: So Eric. In my day as a reporter, I have
Speaker 4: definitely been on some farms, pig farms. I've done the
Speaker 4: thing I have. I feel like if I asked any
Speaker 4: of your peers, they would say something similar about, yes,
Speaker 4: we provide this kind of technology to farmers now too.
Speaker 4: It's much more of a tech industry than an egg industry.
Speaker 4: Where do you differentiate.
Speaker 11: This whole area of retrofit is where we differentiate on product.
Speaker 11: So we have our machines. Fent is our brand that's
Speaker 11: the best of the best. It's that the premium end
Speaker 11: of the market. So we really feel like we're growing
Speaker 11: that segment very fast in North America and South America
Speaker 11: as we globalize it. But where we big time differentiate
Speaker 11: is this retrofit upgradating existing people's machine of any brand
Speaker 11: to have more capability. And then the second thing is
Speaker 11: how we think about going to market. We just launched
Speaker 11: what we call Farmer Core and we're shifting from Instead
Speaker 11: of the farmer having to come into a brick and
Speaker 11: mortar store all the time, we want to be able
Speaker 11: to flip it on its ear one hundred and eighty
Speaker 11: degrees and do everything on farm using digital tools remotely
Speaker 11: monitoring the machines. We want to take all of the service, maintenance, repair,
Speaker 11: all that attack activity out to the farm so the
Speaker 11: farm can engage, farmer can engage digitally, or we can
Speaker 11: remotely monitor and do things. Essentially, it's moving from the
Speaker 11: mall to Amazon. Instead of the customer going to the store,
Speaker 11: the store comes to the customer.
Speaker 4: Smart pitch the Amazon of ag. There you go. You
Speaker 4: just did it all right, Eric, thanks a lot, Eric
Speaker 4: Hanzodia ag co CEO. We appreciate the time. Today.
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