1 00:00:02,520 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,400 --> 00:00:10,680 Speaker 2: Let's get more into what is driving this positive sentiment 3 00:00:10,760 --> 00:00:15,280 Speaker 2: in tech shares. The earnings from Apple. The iphonemaker posted 4 00:00:15,320 --> 00:00:18,880 Speaker 2: weaker sales of its flagship cell phone and saw big 5 00:00:18,920 --> 00:00:21,640 Speaker 2: revenue plunge in China during the holiday quarter. But it's 6 00:00:21,680 --> 00:00:25,320 Speaker 2: the forecast for what's to come this quarter that seems 7 00:00:25,360 --> 00:00:27,200 Speaker 2: to be giving the stock a boost this morning and 8 00:00:27,520 --> 00:00:31,240 Speaker 2: reassurance to investors for more. We are joined by someone 9 00:00:31,280 --> 00:00:35,479 Speaker 2: who follows this company very closely, Genemunster, the managing partner 10 00:00:35,520 --> 00:00:37,519 Speaker 2: at Deepwater Asset Management. 11 00:00:37,920 --> 00:00:40,560 Speaker 3: Gene, Good morning. We heard from CEO Tim Cook. 12 00:00:40,600 --> 00:00:44,320 Speaker 2: They're looking for load of mid single digit increases in 13 00:00:44,440 --> 00:00:46,400 Speaker 2: revenues in the current quarter. 14 00:00:46,640 --> 00:00:51,879 Speaker 3: Is that enough and can Apple pull through on that? Well? 15 00:00:51,920 --> 00:00:54,480 Speaker 1: That might seem modest that load of mid single digit 16 00:00:54,520 --> 00:00:56,240 Speaker 1: and growth when we think about some of the growth 17 00:00:56,280 --> 00:00:58,960 Speaker 1: what's going on around AI. But in the world of Apple, 18 00:00:59,040 --> 00:01:02,840 Speaker 1: that is a win, and it's an even bigger win 19 00:01:02,920 --> 00:01:05,039 Speaker 1: when it's put in the context of what they just 20 00:01:05,120 --> 00:01:08,039 Speaker 1: report in the December As you mentioned, they missed the iPhone. 21 00:01:08,800 --> 00:01:11,679 Speaker 1: The miss was the streets looking for a percent and 22 00:01:11,720 --> 00:01:14,840 Speaker 1: a half growth. They came in at down one percent, 23 00:01:14,959 --> 00:01:19,800 Speaker 1: and so that to see them essentially maintain the guidance 24 00:01:20,319 --> 00:01:24,600 Speaker 1: for March after them missing the iPhone guidance and the 25 00:01:24,640 --> 00:01:27,840 Speaker 1: overall guidance after missing December, I think was just a 26 00:01:27,880 --> 00:01:31,840 Speaker 1: big boost of confidence for investors that this narrative that 27 00:01:32,280 --> 00:01:35,200 Speaker 1: they will accelerate iPhone growth based on the backs of 28 00:01:35,240 --> 00:01:39,120 Speaker 1: Apple intelligence is intact. And so that's kind of the 29 00:01:39,120 --> 00:01:41,640 Speaker 1: substance I would say this is also as the call 30 00:01:41,720 --> 00:01:44,760 Speaker 1: went on, it became more clear that their benefit from 31 00:01:44,880 --> 00:01:48,640 Speaker 1: this channel inventory adjustment. Essentially they've got they had a 32 00:01:49,960 --> 00:01:55,440 Speaker 1: negative headwind from an adjustment in China and their channel inventory, 33 00:01:55,640 --> 00:01:59,000 Speaker 1: but that was temporary and they'll reverse that in the 34 00:01:59,040 --> 00:02:01,960 Speaker 1: March quarter. And I just want to shine a little 35 00:02:01,960 --> 00:02:04,320 Speaker 1: bit more light on that China piece, is that their 36 00:02:04,480 --> 00:02:09,560 Speaker 1: China iPhone business was probably down around fourteen percent, their 37 00:02:09,600 --> 00:02:13,280 Speaker 1: overall China business down eleven but Cooke mentioned on the 38 00:02:13,320 --> 00:02:16,000 Speaker 1: call that half of that decline was that adjustment and 39 00:02:16,080 --> 00:02:20,040 Speaker 1: channel inventory. They will again reverse that in the March quarter. 40 00:02:20,080 --> 00:02:25,200 Speaker 1: And so putting this all together is that December we'll 41 00:02:25,200 --> 00:02:28,359 Speaker 1: call it a good quarter. But the outlook is that 42 00:02:28,440 --> 00:02:31,679 Speaker 1: this trajectory for them accelerating growth on the backs of 43 00:02:31,720 --> 00:02:33,359 Speaker 1: Apple intelligence is intact. 44 00:02:33,800 --> 00:02:37,640 Speaker 2: Well, we've seen Apple try to diversify and it to 45 00:02:37,639 --> 00:02:40,359 Speaker 2: some extent putting more of its production in India. Is 46 00:02:40,400 --> 00:02:43,800 Speaker 2: Apple going to have to do more to diversify from 47 00:02:43,960 --> 00:02:47,600 Speaker 2: China given the threat that we've heard once again from 48 00:02:47,639 --> 00:02:51,200 Speaker 2: President Trump that tariffs on China could be coming quickly. 49 00:02:52,840 --> 00:02:56,840 Speaker 1: Absolutely right now, about sixty percent of excuse me, forty 50 00:02:56,880 --> 00:03:00,400 Speaker 1: five percent of Apple's revenue is built in China, and 51 00:03:00,440 --> 00:03:03,840 Speaker 1: they've been diversifying that down That was sixty percent about 52 00:03:03,880 --> 00:03:07,400 Speaker 1: four years ago, and so they've been doing more outside 53 00:03:07,440 --> 00:03:10,320 Speaker 1: of China and that's going to continue. India is a 54 00:03:10,360 --> 00:03:12,600 Speaker 1: smaller part of that, but the bigger theme is that 55 00:03:12,639 --> 00:03:16,040 Speaker 1: they want to diversify from China. It's probably the single 56 00:03:16,080 --> 00:03:19,600 Speaker 1: biggest risk to the Apple story is just the whole 57 00:03:19,680 --> 00:03:25,160 Speaker 1: China logistics piece, and so it's less about the you know, 58 00:03:25,720 --> 00:03:29,240 Speaker 1: so that is just a trend in general. The tariff's 59 00:03:29,280 --> 00:03:32,960 Speaker 1: question came up was the second to last question on 60 00:03:32,960 --> 00:03:35,880 Speaker 1: the call. I'm surprised it took that long for analysts 61 00:03:35,920 --> 00:03:40,200 Speaker 1: to ask the question, but Cook had a really quick 62 00:03:40,240 --> 00:03:43,720 Speaker 1: and short answer, which was a non answer, that they 63 00:03:43,720 --> 00:03:47,440 Speaker 1: are monitoring the situation and so I think, you know, 64 00:03:47,480 --> 00:03:50,240 Speaker 1: the big picture related to production in China, it's less 65 00:03:50,280 --> 00:03:54,760 Speaker 1: about tariffs, it's more just about wanting to have diversification 66 00:03:55,040 --> 00:03:55,960 Speaker 1: away from China. 67 00:03:56,440 --> 00:04:00,520 Speaker 2: How do you see Apple competing on artificial intelligence given 68 00:04:00,600 --> 00:04:03,480 Speaker 2: the drop in sales that we saw for the newest 69 00:04:03,560 --> 00:04:06,520 Speaker 2: iPhone that becomes equipped with Apple Intelligence. 70 00:04:07,800 --> 00:04:12,720 Speaker 1: So the message was pretty clear that they reiterated this 71 00:04:12,800 --> 00:04:15,600 Speaker 1: three times on the call, that in the regions that 72 00:04:15,880 --> 00:04:18,440 Speaker 1: Apple Intelligence is available and most of that is the US, 73 00:04:18,480 --> 00:04:21,960 Speaker 1: they've got other English speaking regions, is that the iPhone 74 00:04:22,000 --> 00:04:25,320 Speaker 1: performed better than in the regions where it was not available. 75 00:04:25,760 --> 00:04:28,839 Speaker 1: And then more broadly, they said that the upgrade take 76 00:04:29,000 --> 00:04:32,080 Speaker 1: of iPhone sixteen has been better than iPhone fifteen, and 77 00:04:32,080 --> 00:04:34,760 Speaker 1: obviously sixteen is this is the first year we've had 78 00:04:34,760 --> 00:04:38,240 Speaker 1: Apple Intelligence in those regions, and so they're building the 79 00:04:38,279 --> 00:04:41,560 Speaker 1: case that Apple Intelligence is having an impact, and I 80 00:04:41,560 --> 00:04:45,320 Speaker 1: think that that's accurate, but I think that the true 81 00:04:45,480 --> 00:04:50,479 Speaker 1: breakout impact of this just really hasn't been unlocked. And specifically, 82 00:04:50,520 --> 00:04:54,000 Speaker 1: this is Apple's game plan. They typically are a little 83 00:04:54,000 --> 00:04:55,920 Speaker 1: bit slow to get into a market and then eventually 84 00:04:55,960 --> 00:04:58,359 Speaker 1: they have a great product, and I think their Apple 85 00:04:58,400 --> 00:05:00,839 Speaker 1: Intelligence product, even in the US and the countries that 86 00:05:00,880 --> 00:05:04,160 Speaker 1: it's available. It still hasn't quite hit the mark where 87 00:05:04,320 --> 00:05:06,599 Speaker 1: consumers are using it and going out to their friends 88 00:05:06,600 --> 00:05:09,039 Speaker 1: and telling them they have to have this, and I 89 00:05:09,040 --> 00:05:11,440 Speaker 1: think that that day is coming. I think we're probably 90 00:05:11,440 --> 00:05:15,400 Speaker 1: a year away from that. But ultimately it is having 91 00:05:15,400 --> 00:05:18,560 Speaker 1: a positive impact, and the product still in my view, 92 00:05:18,680 --> 00:05:21,360 Speaker 1: is not complete, and then of course they need to 93 00:05:21,480 --> 00:05:23,880 Speaker 1: roll it out to Europe and to China to get 94 00:05:23,920 --> 00:05:28,000 Speaker 1: further uptakes. So the outlook is still the opportunity and 95 00:05:28,080 --> 00:05:31,520 Speaker 1: potential around Apple Intelligence is still there. I think that 96 00:05:31,560 --> 00:05:33,720 Speaker 1: it's going to be core features. It's just taking a 97 00:05:33,760 --> 00:05:37,000 Speaker 1: little bit longer for those features to really hit stride. 98 00:05:37,200 --> 00:05:40,240 Speaker 2: We're going to get more mag seven earnings next week. 99 00:05:40,320 --> 00:05:44,280 Speaker 2: What is your outlook for Amazon and Google parent Alphabet. 100 00:05:45,800 --> 00:05:51,200 Speaker 1: It's still obviously all about the cappex question, and my 101 00:05:51,400 --> 00:05:52,839 Speaker 1: sense is that it's going to go in the same 102 00:05:52,880 --> 00:05:56,120 Speaker 1: direction that we heard from Meta and Microsoft and what 103 00:05:56,400 --> 00:05:59,440 Speaker 1: just an incredible reversal in the last few days that 104 00:05:59,480 --> 00:06:02,840 Speaker 1: around this whole deep seek and that's the a topic 105 00:06:03,040 --> 00:06:05,520 Speaker 1: of course around earnings is just what's going on with 106 00:06:05,600 --> 00:06:08,680 Speaker 1: this AI trade, And just to give everyone kind of 107 00:06:08,680 --> 00:06:12,720 Speaker 1: the bottom line is that that Deep Seek was an improvement, 108 00:06:12,800 --> 00:06:16,400 Speaker 1: but it's I think improvements have been embellished in at 109 00:06:16,480 --> 00:06:18,640 Speaker 1: least what the big tech companies that are saying and 110 00:06:18,640 --> 00:06:22,000 Speaker 1: what the venture community is seen around this upcoming raise 111 00:06:22,160 --> 00:06:24,920 Speaker 1: for open AI that could double its valuation over the 112 00:06:24,960 --> 00:06:28,839 Speaker 1: past six months. It's pretty clear that they're not seeing 113 00:06:29,320 --> 00:06:31,599 Speaker 1: this is a negative what happened with deep Seek, rather 114 00:06:31,680 --> 00:06:34,159 Speaker 1: a positive. And so that's what is going to be 115 00:06:34,160 --> 00:06:37,239 Speaker 1: the primary focus for next week, obviously, is those capex 116 00:06:37,320 --> 00:06:39,640 Speaker 1: numbers related to the AI spend. 117 00:06:39,920 --> 00:06:41,320 Speaker 3: Yeah, thinking about the capex. 118 00:06:41,360 --> 00:06:43,360 Speaker 2: We just got a note this morning from a Bank 119 00:06:43,360 --> 00:06:47,800 Speaker 2: of America strategist Michael Hartnett, who coined the phrase Magnificent seven. 120 00:06:47,880 --> 00:06:51,839 Speaker 2: He's saying that these stocks could become the Lagnificent seven. 121 00:06:52,360 --> 00:06:54,080 Speaker 3: Your thoughts on that in our last minute. 122 00:06:56,040 --> 00:06:57,800 Speaker 1: I think you're going to start to see that shift. 123 00:06:58,040 --> 00:07:00,880 Speaker 1: I believe you should still own some the mag seven. 124 00:07:01,600 --> 00:07:04,719 Speaker 1: We're starting to do more focus on frontier tech. We 125 00:07:04,800 --> 00:07:08,120 Speaker 1: have the Deep Water Frontier Tech Index. It basically invests 126 00:07:08,120 --> 00:07:11,800 Speaker 1: in companies that are below it's an ETF that's below 127 00:07:11,840 --> 00:07:14,160 Speaker 1: five hundred billion. It's been around for five years, but 128 00:07:14,560 --> 00:07:17,480 Speaker 1: I think these are tech companies that are power and AI, 129 00:07:17,560 --> 00:07:20,320 Speaker 1: and I think that that opportunity on kind of these 130 00:07:20,320 --> 00:07:23,800 Speaker 1: smaller companies sub five hundred billion is probably where some 131 00:07:23,880 --> 00:07:26,280 Speaker 1: of the outperformance shifts over the next few years. 132 00:07:26,600 --> 00:07:30,600 Speaker 2: And just quickly, why is Microsoft lagging compared to some 133 00:07:30,640 --> 00:07:31,760 Speaker 2: of these other stocks right now? 134 00:07:32,480 --> 00:07:36,680 Speaker 1: They're guidance This is really splitting here is but was 135 00:07:37,080 --> 00:07:39,960 Speaker 1: about a half a percent below where the street was 136 00:07:40,880 --> 00:07:43,880 Speaker 1: for the March quarter. And when you guide in line 137 00:07:43,960 --> 00:07:47,360 Speaker 1: in this environment, it's a slight negative. When you guide down, 138 00:07:47,760 --> 00:07:49,280 Speaker 1: it's a little bit more of a negative. And that's 139 00:07:49,320 --> 00:07:51,040 Speaker 1: why Microsoft got clipped yesterday. 140 00:07:51,240 --> 00:07:54,480 Speaker 2: I really appreciate this Gene monster talking tech with us 141 00:07:54,480 --> 00:07:56,480 Speaker 2: from deep Water Asset Management. 142 00:07:56,560 --> 00:07:57,280 Speaker 3: Gene Thank you.