WEBVTT - Daybreak Special: Tech in Focus with Gene Munster and Dan Ives

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. You are listening to

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<v Speaker 1>Bloomberg day Break. We want to get right back to

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<v Speaker 1>the tech earning story. Microsoft and Google parent Alphabet are

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<v Speaker 1>both on the rise this morning, delivering results for both

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<v Speaker 1>companies that suggest investments in artificial intelligence and cloud computing

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<v Speaker 1>are paying off. Now for more on these results. Are

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<v Speaker 1>really pleased to be joined by Gene Munster, managing partner

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<v Speaker 1>at Deepwater Asset Management, and Dan Ives in our studio

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<v Speaker 1>this morning, the Interactive Broker Studio, senior equity research analyst

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<v Speaker 1>at Webbush Securities, for a roundtable discussion on these results.

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<v Speaker 1>It's great to have both of you back on with

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<v Speaker 1>us this morning. Gene, I'll start off with you. Is

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<v Speaker 1>the AI narrative back on track now?

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<v Speaker 2>Absolutely?

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<v Speaker 3>I think the only off track was what happened with

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<v Speaker 3>interest rates, and I think it kind of spooks some

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<v Speaker 3>tech investors. But this is a pretty unique dynamic We're

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<v Speaker 3>seen not only in terms of the demand side, whether

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<v Speaker 3>it's Nvidia or AMD, they're just breathtaking reacceleration, but also

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<v Speaker 3>on the demand side for the actual products, not just building,

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<v Speaker 3>but what we saw with Google Cloud and Azure growth

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<v Speaker 3>thirty one percent versus thirty percent in December twenty nine percent.

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<v Speaker 3>That is an acceleration by definition. The same thing is

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<v Speaker 3>going on with Google Cloud. We'll wait to see next

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<v Speaker 3>week from Amazon. But I think the big picture here

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<v Speaker 3>is the building blocks of AI are coming nicely into place.

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<v Speaker 3>We're still a year, two, three years out before the

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<v Speaker 3>applications really take off, but this is I think still

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<v Speaker 3>the first stage of a three to five year bowl

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<v Speaker 3>market that's going to ultimately end in a bubble. Dan.

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<v Speaker 1>I think I saw you on Bloomberg Television earlier this week,

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<v Speaker 1>after we got the disappointing results from Meta platforms. You

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<v Speaker 1>were saying, the knives are out between the bulls and

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<v Speaker 1>the bears. Are we going to be on a continued

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<v Speaker 1>dispersion between where some companies go with tech, like Microsoft

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<v Speaker 1>and Alphabet, and where companies like Meta go with it.

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<v Speaker 2>Yeah. Look, but when you look at Meta, they're spending

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<v Speaker 2>like nineteen eightys rock stars, but where they spending on AI?

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<v Speaker 2>And I think the AI revolution is here. I think

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<v Speaker 2>gene As always did a phenomenal job summarizing if you

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<v Speaker 2>look at these results last night, this was a drop

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<v Speaker 2>to mic movement for AI from Alphabet from Microsoft. This

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<v Speaker 2>nineteen ninety five moment is just starting, and that's why

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<v Speaker 2>I think the bears for tech continue to go in

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<v Speaker 2>their caves into hibernation mode.

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<v Speaker 1>We are seeing from both these companies, though Gene, that

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<v Speaker 1>they are expecting that they're going to have to continue

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<v Speaker 1>ramping up spending on this technology. Could that potentially pose

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<v Speaker 1>a headwind if we continue to see a ramp up

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<v Speaker 1>in capex.

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<v Speaker 3>Let's put the capex. The simple answer is investors need

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<v Speaker 3>to get their heads around what this is going to

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<v Speaker 3>cost for an investment phase and agree with Dan, this

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<v Speaker 3>is the right move to be making these investments. Just

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<v Speaker 3>to put some quick context on this, as Google's capec

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<v Speaker 3>screw ninety one percent the year over year in the

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<v Speaker 3>March quarter, the CAPEX number was twenty one percent higher

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<v Speaker 3>than analysts were looking for for March, and yet the

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<v Speaker 3>stock is up and the reason is last quarter they

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<v Speaker 3>said three times to expect a significant acceleration capex. So

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<v Speaker 3>they did a good job of explaining to investors and

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<v Speaker 3>I think this is the absolute right move for these companies.

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<v Speaker 3>A question I had for Dan is just ultimately, well,

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<v Speaker 3>might well will Apple as they start to talk about

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<v Speaker 3>their AI initiatives have some moment coming up, maybe on

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<v Speaker 3>May second, where they start to talk more about their

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<v Speaker 3>capex and how do you think are going to do that?

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<v Speaker 2>I look, I think Gene summarises right now with Apple

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<v Speaker 2>because the AI story is going to becoming a Coupertino

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<v Speaker 2>and you know, g and I will both be you know,

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<v Speaker 2>focused on WWDC. This is just the next phase now

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<v Speaker 2>of Cooper Tina betting on AI, and that is going

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<v Speaker 2>to create a ripple effect where we believe this is

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<v Speaker 2>a trillion dollars of incremental spend over the next decade.

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<v Speaker 2>Betting against that, in my opinion, it's like betting against

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<v Speaker 2>the Knicks in his playoffs.

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<v Speaker 1>Still the ways to go on both those counts though,

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<v Speaker 1>But looking ahead to the whatever announcement we get from

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<v Speaker 1>Apple next week, I mean, we saw the disappointment from

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<v Speaker 1>Meta platforms. They're focused as well on some of the hardware,

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<v Speaker 1>the Quest device and what that could mean in terms

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<v Speaker 1>of applying artificial intelligence into that. How high is the

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<v Speaker 1>bar for Apple to show that? You know, there's been

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<v Speaker 1>so much question about whether they're actually implementing AI quickly

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<v Speaker 1>enough to put it into their vision pro product.

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<v Speaker 2>Dan look, and I think actually right now, expectations are

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<v Speaker 2>very very low and extremely negative. I think New York

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<v Speaker 2>City cab drivers, Parish and Apple. And that's why I

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<v Speaker 2>love to hear Gene's view. My view is in terms

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<v Speaker 2>of this renaissance of growth, it will be on the horizon.

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<v Speaker 2>They're navigating challenges. But as AI's coming to the services

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<v Speaker 2>as well as iPhone sixteen, that is not what I

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<v Speaker 2>view as sort of a small moment. I think this

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<v Speaker 2>could be a big moment. I like to get Gene's

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<v Speaker 2>thoughts there.

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<v Speaker 3>Yeah, I'm on the same page. I think investors are

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<v Speaker 3>largely dismissive of what Apple's going to do in AI,

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<v Speaker 3>and they've got just a wonderful opportunity ahead of them.

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<v Speaker 3>Specifically related to this agent or personalized AI or Zuckerberg

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<v Speaker 3>referred to it on the call as agentic AI, but

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<v Speaker 3>because of Apple's forward view on privacy, I think that

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<v Speaker 3>gives them an opportunity to build this next generation of

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<v Speaker 3>AI agents that basically will get things done for you.

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<v Speaker 3>We're not going to see that in a WWDC. Agree

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<v Speaker 3>with Dan, that's going to be a big event for

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<v Speaker 3>AI and Apple, but that will probably be more related

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<v Speaker 3>to Syrians. Some improvements there. But I think this concept

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<v Speaker 3>of agentic AI and what it can mean for Apple's

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<v Speaker 3>business longer term is grossly underappreciated by investors.

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<v Speaker 1>Speaking with Gene Munster, their deep water asset management managing partner,

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<v Speaker 1>along with Dan Ives of Webbush Securities, the senior equity

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<v Speaker 1>research analyst, in terms of what we saw guys from

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<v Speaker 1>Microsoft and Alphabet, I mean there's a lot of focus

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<v Speaker 1>as well on the enterprise customer. The application of this

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<v Speaker 1>technology in the cloud is that where the growth is

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<v Speaker 1>as opposed to some of these more consumer facing products

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<v Speaker 1>like what Meta is offering in the Metaverse, or perhaps

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<v Speaker 1>Vision Pro from Apple.

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<v Speaker 2>I mean to me, it's all about the enterprise and

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<v Speaker 2>in the near term, this AI revolution is playing out in

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<v Speaker 2>front of our eyes, and now the second third fourth

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<v Speaker 2>derivatives across software arrest attack we're seeing play out. Of course,

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<v Speaker 2>it starts with the godfather of AI, Jensen Nvidia. But

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<v Speaker 2>when when Redman and the Della talks, everyone listens, and

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<v Speaker 2>that's why I think it was another drop to mic quarter,

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<v Speaker 2>not just for Microsoft, but of course Alphabet now getting

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<v Speaker 2>in on the AI party.

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<v Speaker 1>So this sets us up as well for what we're

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<v Speaker 1>going to get from Amazon next week in terms of

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<v Speaker 1>their offerings in the cloud, Amazon Web Services, GENE. How

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<v Speaker 1>high is the bar now for Amazon to deliver the

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<v Speaker 1>kind of results that we did see from Microsoft and

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<v Speaker 1>Alphabet last night.

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<v Speaker 3>It's pretty high. I mean it's last quarter. They grew

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<v Speaker 3>their AWS at thirteen percent. That compared to twelve percent

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<v Speaker 3>in September, so they saw a slight uptick. Again, we're

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<v Speaker 3>talking twenty nine thirty one one percent for average for

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<v Speaker 3>Azure in Google Cloud. So AWS, even though they have

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<v Speaker 3>leading market share, they've been losing share. They've got to

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<v Speaker 3>show an acceleration. The street estimates are for fifteen percent

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<v Speaker 3>growth in AWS, and I think they need to exceed

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<v Speaker 3>that to kind of comfort investors that AAWS has a

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<v Speaker 3>seat at the table. And the other piece to all

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<v Speaker 3>this is, of course Google has what they're doing Gemini

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<v Speaker 3>that helps feed GPC their cloud GCP, and separately, of

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<v Speaker 3>course what Opening Eye is doing with Azure. All that benefits.

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<v Speaker 3>But when it comes to AWS, they have a relationship

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<v Speaker 3>with Anthropic, but they still just don't have that punch

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<v Speaker 3>when it comes to really integrating AI. And so I

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<v Speaker 3>think that investors they always scrutinize the AWS number. It's

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<v Speaker 3>going to be hyper scrutinized next week.

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<v Speaker 1>Gene. I'm glad you mentioned Gemini product because there was

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<v Speaker 1>that stumble over how it depicts race of some people.

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<v Speaker 1>They had to pull back on that, Dan. Did Microsoft

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<v Speaker 1>get past that in terms? I'm sorry, did Google get

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<v Speaker 1>past that in terms of what they're offering on Gemini.

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<v Speaker 2>Look black eyed moments that they saw. They're past it,

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<v Speaker 2>and I think this is the mood jo now returning

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<v Speaker 2>to Google. I think you're really starting to see a

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<v Speaker 2>new phase in terms of AI. But it comes down

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<v Speaker 2>to in this AI party, they're no longer outside in

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<v Speaker 2>the cold waiting online to get in. They're now in

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<v Speaker 2>the party with nadellagens and a video.

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<v Speaker 1>And speaking of Nadella and Microsoft, you recently, Dan raised

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<v Speaker 1>your price target on Microsoft to five hundred. Are you

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<v Speaker 1>thinking things might need to go up even further after

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<v Speaker 1>these results?

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<v Speaker 2>I think it's get out the popcorn movement. This is

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<v Speaker 2>just getting started. I think a year from now to

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<v Speaker 2>four trillion dollar markp.

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<v Speaker 1>Where are you on that? Gene? I mean, the growth

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<v Speaker 1>of these companies has been so staggering. I mean, just

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<v Speaker 1>in this quarter they deliver for investors what's the runway

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<v Speaker 1>for big tech over the next several years.

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<v Speaker 3>I think you have to ask yourself the question, do

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<v Speaker 3>you believe that AI can be transformative? And to what

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<v Speaker 3>level you believe that? And you listen to Dan and

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<v Speaker 3>I you can sense the optimism we have around this.

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<v Speaker 3>If you have that level of optimism, these companies are

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<v Speaker 3>going to continue to go higher because they have data,

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<v Speaker 3>because they have infrastructure. The small companies aren't going to

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<v Speaker 3>come out of nowhere. We do private investing, and it

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<v Speaker 3>is really hard to compete with the big dogs. And

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<v Speaker 3>so I think despite all the value the creation over

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<v Speaker 3>last decade from some of these big companies, we're going

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<v Speaker 3>to see a next wave because what's happening in AI

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<v Speaker 3>puts what happened on mobile internet and PC. Those are

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<v Speaker 3>small paradigm shifts relative to what's going on, and these

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<v Speaker 3>companies got the pole position.

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<v Speaker 1>I'm going to close this out with you.

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<v Speaker 2>Dan.

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<v Speaker 1>Of course, with this kind of growth, it raises the

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<v Speaker 1>questions for a lot of critics about whether this technology

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<v Speaker 1>is growing too fast, whether it could be dangerous. Your

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<v Speaker 1>thoughts on.

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<v Speaker 2>That look, I mean, I think even to really show

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<v Speaker 2>how strong this technology is, you see it last night

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<v Speaker 2>the technology is going ninety five miles an hour left

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<v Speaker 2>lane or ferrari. The regulatory is in a beat up

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<v Speaker 2>minivan going forty five miles an hour in a right

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<v Speaker 2>land with no radio. The point is that it's going

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<v Speaker 2>to be an issue, but it is not stop in

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<v Speaker 2>this free train, and that's something that's going to be

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<v Speaker 2>more self regulation. But to me, it's all about the growth.

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<v Speaker 2>And I think when you look at last night, it

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<v Speaker 2>was a droping mic moment for tech.

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<v Speaker 1>And we are seeing that certainly reflected in the price

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<v Speaker 1>action this morning. Both companies leading tech shares as a

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<v Speaker 1>whole hire, with Microsoft leading the I'm sorry with Google

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<v Speaker 1>parent Alphabet leading the way again of more than eleven

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<v Speaker 1>and a half percent following results for the Google parent,

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<v Speaker 1>and Microsoft is higher by nearly four percent as well

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<v Speaker 1>this morning. Guys, both of you, thank you so much

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<v Speaker 1>for giving us some insights on these earnings. Dan Ives

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<v Speaker 1>senior equity research analyst at Webush Securities, along with Gene Munster,

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<v Speaker 1>managing partner at Deepwater Asset Management