Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's get more into what is driving this positive sentiment
Speaker 2: in tech shares. The earnings from Apple. The iphonemaker posted
Speaker 2: weaker sales of its flagship cell phone and saw big
Speaker 2: revenue plunge in China during the holiday quarter. But it's
Speaker 2: the forecast for what's to come this quarter that seems
Speaker 2: to be giving the stock a boost this morning and
Speaker 2: reassurance to investors for more. We are joined by someone
Speaker 2: who follows this company very closely, Genemunster, the managing partner
Speaker 2: at Deepwater Asset Management.
Speaker 3: Gene, Good morning. We heard from CEO Tim Cook.
Speaker 2: They're looking for load of mid single digit increases in
Speaker 2: revenues in the current quarter.
Speaker 3: Is that enough and can Apple pull through on that? Well?
Speaker 1: That might seem modest that load of mid single digit
Speaker 1: and growth when we think about some of the growth
Speaker 1: what's going on around AI. But in the world of Apple,
Speaker 1: that is a win, and it's an even bigger win
Speaker 1: when it's put in the context of what they just
Speaker 1: report in the December As you mentioned, they missed the iPhone.
Speaker 1: The miss was the streets looking for a percent and
Speaker 1: a half growth. They came in at down one percent,
Speaker 1: and so that to see them essentially maintain the guidance
Speaker 1: for March after them missing the iPhone guidance and the
Speaker 1: overall guidance after missing December, I think was just a
Speaker 1: big boost of confidence for investors that this narrative that
Speaker 1: they will accelerate iPhone growth based on the backs of
Speaker 1: Apple intelligence is intact. And so that's kind of the
Speaker 1: substance I would say this is also as the call
Speaker 1: went on, it became more clear that their benefit from
Speaker 1: this channel inventory adjustment. Essentially they've got they had a
Speaker 1: negative headwind from an adjustment in China and their channel inventory,
Speaker 1: but that was temporary and they'll reverse that in the
Speaker 1: March quarter. And I just want to shine a little
Speaker 1: bit more light on that China piece, is that their
Speaker 1: China iPhone business was probably down around fourteen percent, their
Speaker 1: overall China business down eleven but Cooke mentioned on the
Speaker 1: call that half of that decline was that adjustment and
Speaker 1: channel inventory. They will again reverse that in the March quarter.
Speaker 1: And so putting this all together is that December we'll
Speaker 1: call it a good quarter. But the outlook is that
Speaker 1: this trajectory for them accelerating growth on the backs of
Speaker 1: Apple intelligence is intact.
Speaker 2: Well, we've seen Apple try to diversify and it to
Speaker 2: some extent putting more of its production in India. Is
Speaker 2: Apple going to have to do more to diversify from
Speaker 2: China given the threat that we've heard once again from
Speaker 2: President Trump that tariffs on China could be coming quickly.
Speaker 1: Absolutely right now, about sixty percent of excuse me, forty
Speaker 1: five percent of Apple's revenue is built in China, and
Speaker 1: they've been diversifying that down That was sixty percent about
Speaker 1: four years ago, and so they've been doing more outside
Speaker 1: of China and that's going to continue. India is a
Speaker 1: smaller part of that, but the bigger theme is that
Speaker 1: they want to diversify from China. It's probably the single
Speaker 1: biggest risk to the Apple story is just the whole
Speaker 1: China logistics piece, and so it's less about the you know,
Speaker 1: so that is just a trend in general. The tariff's
Speaker 1: question came up was the second to last question on
Speaker 1: the call. I'm surprised it took that long for analysts
Speaker 1: to ask the question, but Cook had a really quick
Speaker 1: and short answer, which was a non answer, that they
Speaker 1: are monitoring the situation and so I think, you know,
Speaker 1: the big picture related to production in China, it's less
Speaker 1: about tariffs, it's more just about wanting to have diversification
Speaker 1: away from China.
Speaker 2: How do you see Apple competing on artificial intelligence given
Speaker 2: the drop in sales that we saw for the newest
Speaker 2: iPhone that becomes equipped with Apple Intelligence.
Speaker 1: So the message was pretty clear that they reiterated this
Speaker 1: three times on the call, that in the regions that
Speaker 1: Apple Intelligence is available and most of that is the US,
Speaker 1: they've got other English speaking regions, is that the iPhone
Speaker 1: performed better than in the regions where it was not available.
Speaker 1: And then more broadly, they said that the upgrade take
Speaker 1: of iPhone sixteen has been better than iPhone fifteen, and
Speaker 1: obviously sixteen is this is the first year we've had
Speaker 1: Apple Intelligence in those regions, and so they're building the
Speaker 1: case that Apple Intelligence is having an impact, and I
Speaker 1: think that that's accurate, but I think that the true
Speaker 1: breakout impact of this just really hasn't been unlocked. And specifically,
Speaker 1: this is Apple's game plan. They typically are a little
Speaker 1: bit slow to get into a market and then eventually
Speaker 1: they have a great product, and I think their Apple
Speaker 1: Intelligence product, even in the US and the countries that
Speaker 1: it's available. It still hasn't quite hit the mark where
Speaker 1: consumers are using it and going out to their friends
Speaker 1: and telling them they have to have this, and I
Speaker 1: think that that day is coming. I think we're probably
Speaker 1: a year away from that. But ultimately it is having
Speaker 1: a positive impact, and the product still in my view,
Speaker 1: is not complete, and then of course they need to
Speaker 1: roll it out to Europe and to China to get
Speaker 1: further uptakes. So the outlook is still the opportunity and
Speaker 1: potential around Apple Intelligence is still there. I think that
Speaker 1: it's going to be core features. It's just taking a
Speaker 1: little bit longer for those features to really hit stride.
Speaker 2: We're going to get more mag seven earnings next week.
Speaker 2: What is your outlook for Amazon and Google parent Alphabet.
Speaker 1: It's still obviously all about the cappex question, and my
Speaker 1: sense is that it's going to go in the same
Speaker 1: direction that we heard from Meta and Microsoft and what
Speaker 1: just an incredible reversal in the last few days that
Speaker 1: around this whole deep seek and that's the a topic
Speaker 1: of course around earnings is just what's going on with
Speaker 1: this AI trade, And just to give everyone kind of
Speaker 1: the bottom line is that that Deep Seek was an improvement,
Speaker 1: but it's I think improvements have been embellished in at
Speaker 1: least what the big tech companies that are saying and
Speaker 1: what the venture community is seen around this upcoming raise
Speaker 1: for open AI that could double its valuation over the
Speaker 1: past six months. It's pretty clear that they're not seeing
Speaker 1: this is a negative what happened with deep Seek, rather
Speaker 1: a positive. And so that's what is going to be
Speaker 1: the primary focus for next week, obviously, is those capex
Speaker 1: numbers related to the AI spend.
Speaker 3: Yeah, thinking about the capex.
Speaker 2: We just got a note this morning from a Bank
Speaker 2: of America strategist Michael Hartnett, who coined the phrase Magnificent seven.
Speaker 2: He's saying that these stocks could become the Lagnificent seven.
Speaker 3: Your thoughts on that in our last minute.
Speaker 1: I think you're going to start to see that shift.
Speaker 1: I believe you should still own some the mag seven.
Speaker 1: We're starting to do more focus on frontier tech. We
Speaker 1: have the Deep Water Frontier Tech Index. It basically invests
Speaker 1: in companies that are below it's an ETF that's below
Speaker 1: five hundred billion. It's been around for five years, but
Speaker 1: I think these are tech companies that are power and AI,
Speaker 1: and I think that that opportunity on kind of these
Speaker 1: smaller companies sub five hundred billion is probably where some
Speaker 1: of the outperformance shifts over the next few years.
Speaker 2: And just quickly, why is Microsoft lagging compared to some
Speaker 2: of these other stocks right now?
Speaker 1: They're guidance This is really splitting here is but was
Speaker 1: about a half a percent below where the street was
Speaker 1: for the March quarter. And when you guide in line
Speaker 1: in this environment, it's a slight negative. When you guide down,
Speaker 1: it's a little bit more of a negative. And that's
Speaker 1: why Microsoft got clipped yesterday.
Speaker 2: I really appreciate this Gene monster talking tech with us
Speaker 2: from deep Water Asset Management.
Speaker 3: Gene Thank you.