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Speaker 1: Gene Munster joins US co founder deep Water Asset Management Gene.

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Speaker 1: I've got like eight ways to go. Let's start at

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Speaker 1: sixty thousand feet. I'm in the theme that if it

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Speaker 1: ain't broke, don't fix it. The next Magnificent seven had

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Speaker 1: a Magnificent twenty twenty three. I just don't buy the

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Speaker 1: idea it ends. Will it continue into this year and next.

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Speaker 2: For the year, I think it absolutely will. And what

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Speaker 2: we're seeing as a gravitational pull when it comes to

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Speaker 2: the AI opportunity with Magnificent seven and also what I

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Speaker 2: would call the Ordained fifteen, which are the private late

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Speaker 2: stage AI companies, and I think that's where all the

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Speaker 2: traction is going to happen. I would say there's a

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Speaker 2: mag seven on the public side, there's also going to

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Speaker 2: be this Magnificent seven or ten on the private side.

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Speaker 2: But yes, Tom, I think it's going to continue, I

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Speaker 2: would caution, and continue.

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Speaker 3: For the year.

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Speaker 2: I would caution this earnings period is going to be

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Speaker 2: a lot of intensity, a lot of focus from related

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Speaker 2: to commentary about AI contribution in twenty twenty four. I

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Speaker 2: think that is the a topic that's going to orbit

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Speaker 2: around the mag seven for this earnings period, and I

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Speaker 2: suspect that the commentary is going to be relatively muted,

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Speaker 2: or the commentary will be we expect some contribution the

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Speaker 2: good news, so I think that that could cause a

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Speaker 2: near term pause in some of these stocks. I think

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Speaker 2: the good news for a lot of these for the companies,

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Speaker 2: if you look at the estimates for the December quarter

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Speaker 2: for the growth rates and then for the full year

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Speaker 2: of twenty twenty four, December twenty three and twenty twenty four,

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Speaker 2: analysts aren't really expecting much contribution from AI. I think

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Speaker 2: psychologically it's a bigger topic than it is relative to

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Speaker 2: the numbers. But I just I think that these companies

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Speaker 2: are going to continue to do well. I do anticipate

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Speaker 2: this earnings period to be mixed in terms of the

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Speaker 2: stock reaction.

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Speaker 1: Early Gene Monster monsters so large. There's early Gene Monster,

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Speaker 1: Middle Gene Monster, and later Gene Monster. Early Gene Monster

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Speaker 1: was fourteen page or from Piper Jeffrey, which came in

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Speaker 1: at four pm and you had to read it by dinner.

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Speaker 3: You couldn't focus.

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Speaker 1: And in the back of it he always had these

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Speaker 1: brilliant some of the parts analysis Gene Monster for the

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Speaker 1: magnificent seven for Apple and Microsoft in particular. What does

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Speaker 1: some of the parts look like right now?

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Speaker 2: Well, there's some of the parts. It's ultimately when you

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Speaker 2: think about Apple, it's about services, it's about from you

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Speaker 2: put all this together, I think it's better than a

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Speaker 2: three trillion dollar company. I think the iPhone business today

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Speaker 2: it's just over half of their total revenue. I think

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Speaker 2: in aggregate that should be should trade at essentially a

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Speaker 2: thirty five multiple. I think that multiple is justified given

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Speaker 2: even though it doesn't grow much. I think it's justified

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Speaker 2: because these devices have become substance to our life. We

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Speaker 2: can't live without these Basically half the people in the

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Speaker 2: US can't live without these devices. And so I think

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Speaker 2: that you put this together, I think this is a

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Speaker 2: three plus trillion dollar company. I think that there is

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Speaker 2: a lot of uncertainty related to Apple at this time.

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Speaker 2: I haven't I haven't recalled a time in Apple's history

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Speaker 2: when there's been as much concern really going into this.

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Speaker 2: To a quarter, there's concern about the iPhone demand, he's

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Speaker 2: concerned about some of the delays that they've had, or

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Speaker 2: taking some of that watch half off the table because

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Speaker 2: of the blood oxygen monitoring, and there's also some concerns

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Speaker 2: related to how their app store policies are changing, specifically

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Speaker 2: related to steering in the impact on the app store revenue.

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Speaker 2: But I think that I think that you know when

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Speaker 2: you when you course these out, I think that this

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Speaker 2: is a three plus trillion dollar company. And when it

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Speaker 2: comes to Microsoft from some of the parts, there's two

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Speaker 2: basic parts to it. There's their cloud business. That business

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Speaker 2: say they have twenty two percent market share. Microsoft in

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Speaker 2: total is of two hundred and twenty billion dollar revenue company.

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Speaker 3: It's going to grow about.

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Speaker 2: Fifteen percent this year. But as you think about and aggregate,

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Speaker 2: their cloud business is worth even though it's called fifteen

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Speaker 2: percent of total revenue, given the profitability, it's thirty plus

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Speaker 2: percent of the valuation. The biggest lever when it comes

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Speaker 2: to Microsoft over the next year in terms of the

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Speaker 2: sum of the parts, is related to what's going on

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Speaker 2: with the upside and uptake with Microsoft their Copilot and

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Speaker 2: Office that contribution. So they of course have raised the

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Speaker 2: price call going from fifteen to thirty dollars a month.

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Speaker 2: That started back in November. There's about three hundred and

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Speaker 2: fifty million Office Office users, so the office business today

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Speaker 2: is about a sixty five million dollar business. Of that

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Speaker 2: two hundred and twenty total in revenue, but you could

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Speaker 2: build a case if ten if a third of those

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Speaker 2: people pay up for colpile, which I think is conservative,

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Speaker 2: you know that that can increase revenue by ten percent.

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Speaker 2: And that's probably the biggest sum of the parts. Lever

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Speaker 2: when it comes to Microsoft is what the uptake is

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Speaker 2: going to be. They haven't broken out what those numbers

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Speaker 2: have been. As I mentioned, it's started to November. All

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Speaker 2: they've said is that they've had a positive reception from

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Speaker 2: their early corporate beta testers with this coal Pilot, and

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Speaker 2: I suspect this is going to be a hit product

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Speaker 2: that's going to help you compose emails, help you do

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Speaker 2: powerpoints exactly. Yeah, taxes potentially.

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Speaker 1: So you thought that was funny, Lisa, Yeah, you want

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Speaker 1: to jump in here. What would you use co pilot for,

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Speaker 1: Lisa Mateo.

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Speaker 2: Let's see, I know what my kids would use it for.

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Speaker 3: Help with the homework. Of course, we're talking to Gene Monster,

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Speaker 3: managing partner and co founder deep Water Asset Management. Hey, Gene,

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Speaker 3: I think you know that in twenty twenty three, not

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Speaker 3: just in tech, but for the whole stock market. AI

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Speaker 3: was such a driver of positive sentiment, and I think

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Speaker 3: what a lot of investors who are pulling away and

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Speaker 3: just saying, let me just take a look at this

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Speaker 3: AI story. And the question I hear most often is

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Speaker 3: how much of this spending across tech over the next

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Speaker 3: several years for AI will be actually incremental to what

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Speaker 3: was already kind of a base case for tech spending.

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Speaker 3: And JA, do you have an idea how that might look?

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Speaker 2: So, yes, the answer is that it's it's a substantial

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Speaker 2: amount the twenty to twenty to thirty percent range. Meta

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Speaker 2: last week had some commentary about what their spend is

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Speaker 2: going to be on GPUs and if you look at

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Speaker 2: what their baseline spend was before they announced that it's

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Speaker 2: a thirty percent increase and spend is these You know,

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Speaker 2: there was this talk about pause in AI last summer.

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Speaker 2: There was this letter that went around that a bunch

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Speaker 2: of people, including ironically Elon must signed and there has

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Speaker 2: been no pause. Is that this has been These companies

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Speaker 2: continue to aggressively go after this, and I think that

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Speaker 2: that is one of the I think one of the

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Speaker 2: clearest signs how much investment is going on from these

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Speaker 2: companies that this AI that the AI substance is ultimately

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Speaker 2: going to exceed the hype. It may take several years

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Speaker 2: to get there, but yes, there the infrastructure spend is remarkable,

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Speaker 2: especially with the Magnificent seven, And of course that infest

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Speaker 2: structures spend helps a lot of companies, many companies, potentially

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Speaker 2: most companies to enable AI in their products in the

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Speaker 2: years to come.

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Speaker 3: Hey, Gene, one of the things that I think some

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Speaker 3: investors are waiting for when you think about AI is

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Speaker 3: that defining IPO. Like maybe Google was a defining IPO

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Speaker 3: for the search business, Facebook was the defining IPO for

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Speaker 3: the social media business. And you mentioned some private companies.

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Speaker 3: Do you see something like that in the next year

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Speaker 3: or two of a company or a group of companies

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Speaker 3: that say, wow, AI has really arrived as a standalone

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Speaker 3: kind of investment opportunity.

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Speaker 2: Absolutely, I think that's going to be the next leading class.

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Speaker 2: I think it's probably two to three years away, but

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Speaker 2: I think that that you know, these companies that are

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Speaker 2: AI first companies. So we look at the Magnificent seven.

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Speaker 2: I talked about the upside related to copile at Microsoft

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Speaker 2: and saying that that could add ten percent to their revenue. Well,

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Speaker 2: these companies that are AI peer plays, they're growing at

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Speaker 2: three hundred percent off small bases, but approaching more than

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Speaker 2: a billion in revenue some of them. And I think

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Speaker 2: that these AI peer plays, there will be this moment

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Speaker 2: ultimately when you put it together at deep Water, we

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Speaker 2: think we are going to enter an AI bubble in

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Speaker 2: the next three to five years. We don't think we're

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Speaker 2: anything close to it right now. We put this in

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Speaker 2: and put we think we're in like nineteen ninety five

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Speaker 2: and we still have five more years to go before

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Speaker 2: this really escalates. But I think that's going to be

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Speaker 2: one of those moments where it really gets some excitement

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Speaker 2: in the market once we get some of these IPOs

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Speaker 2: and who are they? You know it could be open

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Speaker 2: AI data Bricks is one hugging face. There's our mid journey.

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Speaker 2: Those are the kind of the four most obvious ones

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Speaker 2: that would be published.

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Speaker 1: That's a secret world of Gene muster there, Gene. The

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Speaker 1: fact of the matter is, mister Nadella is firing on

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Speaker 1: all cylinders. You mentioned co Pilot and all the applications

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Speaker 1: that we're seeing of actual money coming in twenty dollars

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Speaker 1: a person ten dollars thirty dollars a person, and I'm

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Speaker 1: enjoying a thirty eight multiple. Well, and maybe my monster

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Speaker 1: guestimate forward squeezes down to a thirty five multiple. What

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Speaker 1: do you do with a tech stock when all the

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Speaker 1: good news is in, like in Microsoft right now, Well, if.

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Speaker 2: Your view is that all the good news is in,

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Speaker 2: you probably sell it. And I think in the case

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Speaker 2: of you know that, you know owning, that is a

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Speaker 2: great way to build wealth, is to own and have

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Speaker 2: people agree with you later. And if you there's generally

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Speaker 2: a consensus that the good times are going to continue

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Speaker 2: for these large companies, and so I think that if

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Speaker 2: you have a view that maybe this is as good

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Speaker 2: as it gets, that this is absolutely the time to

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Speaker 2: sell because you'll get multiple compression. I of course don't

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Speaker 2: believe that that's the case, and I just want to

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Speaker 2: put one put some a little bit of perspective on

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Speaker 2: that in terms of, you know, how on earth I

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Speaker 2: really strive to be level headed when it comes to

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Speaker 2: these tech trends and making sure that I'm not getting

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Speaker 2: carried away in yeah and some of the overall hype

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Speaker 2: on and when I think of AI, I'm in the

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Speaker 2: camp that electricity is one hundred, the mobile phones are

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Speaker 2: twenty five in terms of scale of importance, the Internet's

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Speaker 2: of fifteen. I think AI is probably a ninety. I

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Speaker 2: think this is ultimately wow, And if in fact that

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Speaker 2: ends up playing out, then we really haven't seen. I'll

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Speaker 2: give you another example is that we were buying Meta

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Speaker 2: over the last couple of years and it's done well recently,

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Speaker 2: and we debated about internally about should we use this

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Speaker 2: a stock that we should sell. It's had a good run,

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Speaker 2: Let's take our money and go other places. But then

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Speaker 2: we just thought more about the impact that day I

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Speaker 2: was going to have in their business, and it just

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Speaker 2: felt like this is one to continue to hold. And

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Speaker 2: so that's what we're doing.

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Speaker 1: Single most important inside of the week. You just heard

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Speaker 1: it from Gean at Munster with war wounds of selling

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Speaker 1: too soon, and he said he has a winner in Facebook.

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Speaker 1: Guess what he and his team said, extend that and that, Paul,

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Speaker 1: you and I know how much money have I left

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Speaker 1: on the table. I'm in triple levers doll cash, I'm

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Speaker 1: leveraged up with a fifteen percent gross and I go

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Speaker 1: now lighting up and I'm wrong every time.

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Speaker 3: Hey, Gene, one of the I'm just trying to think

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Speaker 3: of some headwinds here for the tech space. I mean,

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Speaker 3: do I have to worry about Washington, DC here in

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Speaker 3: terms of regulations more just broadly defined on tech and

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Speaker 3: maybe even specific for AI. How are you guys framing

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Speaker 3: that risk out?

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Speaker 2: Well, when it comes to AI, there's going to be

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Speaker 2: more regulation. Of course, we've got that letter that I mentioned.

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Speaker 2: Tim Cook has been he hasn't said anything in the

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Speaker 2: prepared commentary on their earnings calls in twenty twenty three

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Speaker 2: related to AI. He has made comments more recently outside

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Speaker 2: of the earnings calls and said that regulation is important.

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Speaker 2: He's mentioned that also in their Q and A. I

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Speaker 2: think when you have a company like Apple inviting regulation

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Speaker 2: in I think it's probably something that is going to

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Speaker 2: play out as far as the impact on the business

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Speaker 2: and how profound this growth can be. I don't think

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Speaker 2: it's going to have an impact on it. And I

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Speaker 2: think that a lot of the regulation is going to

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Speaker 2: come around things like water marking related to images to

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Speaker 2: try to help prevent deep fakes and the use of

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Speaker 2: AI for you know, whether it's for for malice behavior.

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Speaker 2: But I don't think that I think that this aggressive

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Speaker 2: investment cycle is ultimately going to continue. The broader topic

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Speaker 2: beyond AI and regulation in Washington is something that has

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Speaker 2: orbited obviously for years, and we have at the end

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Speaker 2: of this month, Meta and Snapchat and TikTok is are

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Speaker 2: they're all going to be and on Capitol Hill and

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Speaker 2: talk about some of the latest issues related to some

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Speaker 2: of the targeting that's going on on those platforms. The

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Speaker 2: simple answer is that regulation sounds bad, and really the

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Speaker 2: substance of it hasn't played out, and it's a little

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Speaker 2: bit hard for me to imagine why now is the

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Speaker 2: time when this would have start to have an impact.

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Speaker 1: Really generous time with us today. Gene Monster, thank you

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Speaker 1: so much. Deep Water Management there on your view of

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Speaker 1: tech