Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's get more now on the big tech story. We
Speaker 2: could say it's two very different stories when it comes
Speaker 2: to the earnings overnight from Amazon and Apple. Joining us now,
Speaker 2: someone who follows these companies very closely, Gene Munster, the
Speaker 2: managing partner at Deepwater Asset Management. Gene, great to speak
Speaker 2: with you. As always, Let's start with what we can
Speaker 2: say is the good news based on the reaction to
Speaker 2: the results from Apple. The shares are up nearly two
Speaker 2: percent pre market, the fastest quarterly revenue growth for this
Speaker 2: company in more than three years. In your note, you're
Speaker 2: saying that this reaction should be a little bit better.
Speaker 1: Why yeah, Nathan, I guess if you'd put me in
Speaker 1: some sort of a stock lab, I would say the
Speaker 1: stock should be of five percent or seven percent today.
Speaker 1: This is the best quarter they've had and the best
Speaker 1: guide in the last three and a half years, and
Speaker 1: so revenue grew at nine percent and excluding that impact
Speaker 1: of terrorists, the street was looking for four percent, I mean,
Speaker 1: just at the most basic level. They guided revenue in
Speaker 1: the September quarter to be up about eight percent. Street
Speaker 1: was looking for up three percent. They guided margins up
Speaker 1: and the stock's up two percent. I think it really
Speaker 1: underscores this gap that we've seen really over the past
Speaker 1: six months with Apple, and that gap is that regardless
Speaker 1: of what's happening with the fundamentals, there's this concern that tariffs,
Speaker 1: that changes in regulatory environments and how it impacts their
Speaker 1: services growth and just a slowest start to AI is
Speaker 1: somehow going to cause this company to hit the wall.
Speaker 1: And I've been following Apple for a long time and
Speaker 1: I've never seen I think the reaction tonight to the
Speaker 1: stock and this morning relative to the guidance and the results,
Speaker 1: I think is as big of a gap as that
Speaker 1: I've seen, and so it is noteworthy, and I think
Speaker 1: it just begs the questions a very simple question, what's
Speaker 1: Apple going to grow at next year? In fiscal twenty six,
Speaker 1: the streets at five and a half percent growth, and
Speaker 1: my sense is it's probably going to be well above
Speaker 1: seven percent just based on what they have coming down
Speaker 1: on the pipeline, and so I'm in the camp that
Speaker 1: they are going to continue to grow well. But that
Speaker 1: is this really surprising gap that we have picked up
Speaker 1: on Apple.
Speaker 2: Just to play devil's advocate, is that gap warranted given
Speaker 2: the big strides that we've seen from a lot of
Speaker 2: Apple's competitors when it comes to the AI race In
Speaker 2: this sense that you mentioned from a lot of analysts
Speaker 2: watching this company, that Apple has more to do when
Speaker 2: it comes to showing that they're keeping up in the
Speaker 2: AI race.
Speaker 1: Well, at the service level, it would, but the substances
Speaker 1: is that there is no feature in consumer tech consumer
Speaker 1: tech hardware it's powered by AI that has changed people's behavior.
Speaker 1: And so Apple basically, even though the headlines are that
Speaker 1: they have been losing ground, they're not in the business
Speaker 1: of making a chatbot. And so I think that the
Speaker 1: results of the iPhone iPhone up thirteen percent that had
Speaker 1: a benefit from pull forward. You back that out, it
Speaker 1: would have been up eleven percent. You know, you don't.
Speaker 1: The reason why you have that kind of growth is
Speaker 1: because consumers are seeing that there's no other alternative out there,
Speaker 1: and so the narrative is warranted. They have to do more.
Speaker 1: They need to infuse AI into their products, There's no
Speaker 1: doubt about that. But I think that this concept that
Speaker 1: the fact that they're slow out of the gate is
Speaker 1: going to cause some sort of irreparable damage to the
Speaker 1: growth rate I think is misplaced.
Speaker 2: Well, they might not be in the business of making chatbots,
Speaker 2: but of course they are in the business of making products.
Speaker 2: And it has been quite a while since we've seen
Speaker 2: not only a really significant update to the iPhone line,
Speaker 2: but also something besides the Vision Pro that's been slow
Speaker 2: to take off as well. Does Apple need to do
Speaker 2: more when it comes to coming out with some kind
Speaker 2: of they can get investors excited.
Speaker 1: I mean they do. In the world of consumer tache,
Speaker 1: you always have to, and that's a fair criticism. This fall,
Speaker 1: we're likely going to see a new form factor, a
Speaker 1: new hardware on the iPhone, a much slimmer think of
Speaker 1: this as iPhone Air. It's probably going to be the
Speaker 1: biggest hardware redesign we've seen in the past four years. Now,
Speaker 1: that's that's incremental. It's something that will be good for
Speaker 1: the iPhone growth. But to your bigger questions, they knew,
Speaker 1: they knew something like a new category and it came
Speaker 1: up in a kind of a roundup houtway on the
Speaker 1: call last night. Is this conversation related to Johnny ive
Speaker 1: and moving to open AI. That, of course is the
Speaker 1: long time great at Apple who left a few years ago,
Speaker 1: but now with he's working on like this a screen
Speaker 1: list device that is AI powered, and Cook said they
Speaker 1: would work with the device, but I think the ringing
Speaker 1: between the lines, they probably want to compete with that device,
Speaker 1: and so that's probably a few years away, but that's
Speaker 1: something that's on the horizon.
Speaker 2: Speaking with Gene Munster, managing partner Deep Asset Management, who
Speaker 2: covers the tech space, let's move on from Apple to
Speaker 2: Amazon getting hammered pre market right now down seven and
Speaker 2: a half percent. Is that kind of reaction warranted to
Speaker 2: the results that we saw, particularly when it comes to
Speaker 2: the miss I guess on operating income from Amazon.
Speaker 1: That level of the reaction is not warranted. So what
Speaker 1: happened was AWS was up seventeen and a half percent.
Speaker 1: The whisper that was that it was going to be
Speaker 1: up twenty percent, and of course Azure grew at thirty
Speaker 1: nine percent. It accelerated almost six percentage points from March
Speaker 1: to from March to June, so you have a similar
Speaker 1: kind of acceleration from Google Cloud. So you have this
Speaker 1: big accelerations. Amazon did not do that on the call. Notably,
Speaker 1: they did say that backlog accelerated to twenty five percent,
Speaker 1: up from twenty percent three months ago. That's a good
Speaker 1: lead indicator. So reading between the lines, I mean, aws
Speaker 1: US is supply constrained. They've got more demand than they
Speaker 1: have capacity, but that investors don't want to hear kind
Speaker 1: of the explanation. They just want to see the results.
Speaker 1: And I think that if you look at what their
Speaker 1: guidance is, they got it revenue to thirteen percent growth
Speaker 1: for September the street was at nine percent. They guide
Speaker 1: it operating income up. So I think that, yeah, the
Speaker 1: stock should be down. I would have guessed that have
Speaker 1: been down a few percent, not down seven.
Speaker 2: A lot of attention as well on the record amount
Speaker 2: of spending, not just Amazon there and you know so
Speaker 2: many other of these companies that have been reporting this
Speaker 2: season thirty one point four billion dollars in cap x
Speaker 2: man was on ninety percent more than this time last year.
Speaker 2: Is that justified? Can Apple justify that kind of spending
Speaker 2: based on the results that they've put out there on.
Speaker 1: AI, I mean they can. And I think that you're
Speaker 1: getting to what really is the big story here over
Speaker 1: the last last two days, which is that the capex
Speaker 1: the expectations for Amazon is that it's going to grow
Speaker 1: now about forty seven percent this year. Before the call,
Speaker 1: the expectations that it was going to grow at twenty
Speaker 1: five percent. That's a similar step up that we saw
Speaker 1: at Meta for next year in terms of their CAPEX.
Speaker 1: We're seeing this across the board, and why that's so
Speaker 1: important is the capax results. On top of we are
Speaker 1: seeing real benefits in Amazon's business related to AI and
Speaker 1: their margins. Of course, in Meta and their growth rate,
Speaker 1: Microsoft and their growth rate, Google and what's happening and Search.
Speaker 1: All of this really points back to that this massive
Speaker 1: investment that these companies have had in infrastructure is paying off.
Speaker 1: And I think that this narrative that AI doesn't have
Speaker 1: an ROI has really been proven wrong. And I think
Speaker 1: that this was a turning moment. I feel very optimistic,
Speaker 1: more optimistic about these companies today than I did three
Speaker 1: days ago.
Speaker 2: So we are at the near the tail end of
Speaker 2: magnet in seven earning season. We're going to hear from Nvidia,
Speaker 2: I guess in a little while from now, But based
Speaker 2: on what we've seen Gene, is it still mag seven?
Speaker 1: Well, I think MAG seven is a good place to be.
Speaker 1: I don't think all mag seven's created equal. My bigger
Speaker 1: sense is that there's an opportunity, and with the bigger
Speaker 1: opportunities with some of these smaller cap companies. Some of
Speaker 1: the companies like Verted, for example, had a great quarter.
Speaker 1: They do power and cool management. So my sense is
Speaker 1: that you will still see a good performance in the
Speaker 1: MAG seven, but I think the outperformance is going to
Speaker 1: come with these companies that are sub five hundred billion
Speaker 1: in market cap, and just simply because they're not not
Speaker 1: as well that the valuations are more attractive.
Speaker 2: And in terms of which of the MAG seven have
Speaker 2: done better, which have done worse? How do you how
Speaker 2: do you see things going forward? Got about thirty seconds.
Speaker 1: Left going forward? I think you're gonna If I was
Speaker 1: going to pick a couple of top performers, I think
Speaker 1: Apple is actually going to be a top performer. The
Speaker 1: MAG seven. I think they're going to prove people wrong
Speaker 1: over the next nine months. Very low Ai bar and
Speaker 1: I think in Video is going to just keep cranking
Speaker 1: at least in the for all this hardware spend and
Speaker 1: benefits them. And finally, don't forget about Tesla. Yes, it's
Speaker 1: going to take them longer, but what they're doing around
Speaker 1: physical AI at scale is something that is unique amongst
Speaker 1: any company.
Speaker 2: Really appreciate your thoughts as always, Gene, thank you for this.
Speaker 2: Gene Munster is managing partner at Deepwater Asset Management and
Speaker 2: following the latest MAGS seven earnings