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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 3: Always I'm Bloomberg Radio, the Bloomberg.
Speaker 2: Terminal, and the Bloomberg Business app being to get right
Speaker 2: to this right now, Dan, I have joined us in
Speaker 2: web bush share all over the media course as we.
Speaker 3: Go into the Mag eight. Frenzy Warren Buffet, he's part
Speaker 3: of the mag eight right now.
Speaker 2: Sixty five buys on Nvidia eight old snowsls that you
Speaker 2: don't follow in Vida.
Speaker 3: You got a thug at webbush that follows it, right.
Speaker 4: Yeah, So our view and Nvidio. You know, we have
Speaker 4: one hundred and thirty eight hour probably start bult cases
Speaker 4: one seventy five.
Speaker 3: Bergstein went to one fifty this morning, and.
Speaker 4: I think this is just the star. I mean, look,
Speaker 4: I think this by the end of the day or
Speaker 4: even the next twenty four hours, this is a stock
Speaker 4: that should be in the green based on everything we
Speaker 4: saw from Godfather of Ai Jensen the video, Well.
Speaker 3: Get one more in here and I will so good.
Speaker 5: So Dan, give us a sense. What did you hear
Speaker 5: from nvidiot last night? They beat numbers? Maybe the guidance
Speaker 5: wasn't where the street was expecting. But what did you
Speaker 5: really take away from Nvidia last night?
Speaker 3: So three things?
Speaker 4: One demand, because the question is is they're double ordering?
Speaker 4: What is enterprise demand demands actually accelerating. And there's no
Speaker 4: better perch in terms of everything we're seeing from AI
Speaker 4: than what Jensen sees. To Blackwell, all the fears right,
Speaker 4: the words is that Gan delayed. They essentially put those
Speaker 4: fears to rest, and that was so important.
Speaker 3: You know, I'm the only one that does Matthews. You
Speaker 3: not all this fancy Dan eyes talk.
Speaker 2: You take the ten billion share bibic of Apple, They've
Speaker 2: been doing it for years, divided by free cash flow.
Speaker 2: You take a fifty billion statistic divided by Invidia's free
Speaker 2: cash flow. To me, it was a ginormous announcement. Everybody's
Speaker 2: saying it's not a big deal. Was a share buy
Speaker 2: back a big deal?
Speaker 4: It's a monster deal. And also this also goes to
Speaker 4: a company you go back six months ago out year
Speaker 4: by twenty five two dollars and earnings. Now it's gonna
Speaker 4: be five to six hours.
Speaker 3: I'm extended time here this morning with Dan.
Speaker 2: I's we welcome you all around the world on YouTube,
Speaker 2: on Android, Android auto, Apple car play as well. Okay,
Speaker 2: I go to Apple, I go to the famed aggregation
Speaker 2: of Tom Secunda in the Bloomberg News, and I'm just
Speaker 2: going to read these Paul quickly mashable Apple music playlists
Speaker 2: now transferable to YouTube music. University of Wisconsin denied new
Speaker 2: trial as that go after somebody. Apple orders ten percent
Speaker 2: more iPhones than last year. Apple iPhone seventeen rumored to
Speaker 2: arrive at the Sweeney House before September fifteenth. And on
Speaker 2: the last headline, Dan ives on Bloomberg Right now, I mean,
Speaker 2: here's the news out of Tokyo Shock.
Speaker 3: There's more iPhone orders. How do you translate that?
Speaker 4: I mean, this is the start of an AI driven
Speaker 4: super psych with iPhone sixteen. I think it's gonna be
Speaker 4: historical period. Look, we've talked about a lot on the show.
Speaker 4: Three hundred million of one point five billion iPhones, including Sweeney,
Speaker 4: haven't upgraded in four plus years AI. Twenty five percent
Speaker 4: of the world is going to access AI through an
Speaker 4: Apple device. The consumer revolution all starts top of.
Speaker 3: A push against you.
Speaker 2: Tom Keen and Paul Sweeney don't give a damn about AI.
Speaker 2: We just want an iPhone to know where our kids are.
Speaker 2: What's a big deal about AI if Paul Sweeney's not
Speaker 2: going to use it?
Speaker 4: So that's today. If you look at the app, there's
Speaker 4: gonna be hundreds of apps built on Apple Intelligence that
Speaker 4: are gonna be AI driven as well as this open AI.
Speaker 4: It's good. It's essentially gonna be a personal assistant that
Speaker 4: really from a data perspective, understands Paul Simat understands, can
Speaker 4: understand your habits. This is gonna change. This is how
Speaker 4: most consumers are now going to interact with AI.
Speaker 5: China. What's the latest on China? My concern always in
Speaker 5: the back of my mind is that the average Chinese
Speaker 5: consumer is saying, I'm just not buying an American. Is
Speaker 5: that an issue for Apple in terms of market share?
Speaker 4: I mean, as someone that spends time in the region.
Speaker 4: The average Chinese consumer wants the best product in the world,
Speaker 4: which is an Apple DEVICEE. So I'm not saying that
Speaker 4: there aren't some geopolitical headwinds. We're actually seeing more taal
Speaker 4: wins out of China, especially with iPhones sixteen. You have
Speaker 4: one hundred million iPhones that are basically having upgrade in
Speaker 4: four years. So I think any headwinds there have started
Speaker 4: now come downents. That's why I cook ninety percent CEO,
Speaker 4: ten percent politician.
Speaker 1: Right, yeah, it's smart.
Speaker 5: How about Indian We were just I was just talking
Speaker 5: about this with somebody at the club last night, Tom
Speaker 5: at the bar. We were talking iPhones in India. How
Speaker 5: that came about? I have no idea.
Speaker 2: I want to Were you at the club last night?
Speaker 1: There's no club that would take I want to be
Speaker 1: in that club I was.
Speaker 4: Or were you at the watch party for an video?
Speaker 2: Yes, Wisan Thalt was that whatever.
Speaker 4: I thought Sweeney was going to be at that watch
Speaker 4: but I at.
Speaker 2: Least stay trading off his couch at the cottage. I
Speaker 2: can only say my club last night, I was a club.
Speaker 3: Do the dishes club.
Speaker 1: India?
Speaker 5: What's the opportunity there for Apple in India. Don't they
Speaker 5: have to have a lower price phone in that market.
Speaker 4: But in India you've actually had a rising middle class,
Speaker 4: and I think if you that's always been a tough
Speaker 4: market for Apple. Three percent iPhones we think called it.
Speaker 4: By the next two years, it's going to be ten
Speaker 4: to twelve percent overall iPhones. India is actually going to
Speaker 4: be robust for Apple, especially on different price points.
Speaker 2: How many iPhones are purchased one on a plan from
Speaker 2: a phone company and not where somebody spends eight hundred
Speaker 2: or one thousand dollars on.
Speaker 4: The toy I mean it's a huge number. I mean
Speaker 4: it's a huge number. And if you look at the
Speaker 4: carrier discounts that's gonna come and this is the big thing.
Speaker 2: Do you have information on them you'd like to break
Speaker 2: on Bloomberg.
Speaker 4: So everything we're seeing, we think it was going to
Speaker 4: essentially be unprecedented types of promotion from especially US carriers,
Speaker 4: just because this is the time. In other words, when
Speaker 4: you think about five G when that came out and
Speaker 4: now essentially AI this is really going to be the
Speaker 4: opportunity in terms of carrier discounts and what really starts
Speaker 4: to about maturity on a smartphone cycle. This is now
Speaker 4: that consumer AI revolution that actually will go through Cooper Tino,
Speaker 4: and we think that's how we have a four trillion
Speaker 4: dollar mark cap as we you know, go into early
Speaker 4: next year.
Speaker 2: Do you have some of the parts on Apple you
Speaker 2: can update?
Speaker 4: Yes, so we have one point seven trillion. Is what
Speaker 4: I view is the services value. And when you sort
Speaker 4: of some of the parts that that's something where you know,
Speaker 4: you got about one hundred billion a rev growing mid
Speaker 4: teens free cash margins will double the hardware business. You
Speaker 4: combine it, it's over four trillion. I think bull cases
Speaker 4: ultimately you know over over three.
Speaker 5: Hundred Microsoft, which I know you've been very bullish on Microsoft.
Speaker 1: What's the thought these days?
Speaker 4: You look in a videos call last night, you also
Speaker 4: buy Microsoft because Nadella and Rednu are leading. Then on
Speaker 4: the software side, you look at open Ai, they're really
Speaker 4: dominating in that amount rushmore. That's where Nadella is along
Speaker 4: with Jensen.
Speaker 2: Does Blackwell compete with Azure or do they cohabitate?
Speaker 4: They're complementary. Thing about black I don't so essentially Blackwell
Speaker 4: is almost the architecture, the foundation of a house. Microsoft
Speaker 4: is the actual house, The actual rooms will be different
Speaker 4: software players service now you know called salesforce and others.
Speaker 4: What protects the house, cybersecurity names like pale Auto and others. Look,
Speaker 4: I continue to think in Vidia today, it's Lebron in
Speaker 4: high school. That's essentially where they are. Lebron in high school,
Speaker 4: in Vidia, that's where they are.
Speaker 5: So I guess when we think about this AI spending here,
Speaker 5: the numbers are just almost numbing.
Speaker 1: That is so big.
Speaker 5: How much of the AI capital spending the is it
Speaker 5: incremental versus just taken away from other tech budgets like
Speaker 5: it or something.
Speaker 4: So I'd say about eight hundred billion of the trillion
Speaker 4: is incremental. Wow, so there's two hundred billion that. Of
Speaker 4: course there's accounibalization impact and there will be losers on that,
Speaker 4: but it really is incremental and it just speaks to
Speaker 4: strong and get stronger in tech. And then you can
Speaker 4: say about about regulatory. Regulatory is in a minivan going
Speaker 4: forty miles an hour in the right lane, and the
Speaker 4: technologies in a Ferrari key in the Ferrari left lane
Speaker 4: going one hundred miles an hour.
Speaker 2: What is the free cash flow growth of the mag
Speaker 2: seven When you aggregate them together. There's a secret Excel
Speaker 2: spreadsheet in the basement of the ives.
Speaker 4: Free cash for growth of mag seven is i'd say
Speaker 4: upper teams into potentially.
Speaker 3: Really, you're gonna give me a two zero one.
Speaker 4: I think it could start to now get that high
Speaker 4: as we go into next two three. And that's why, look,
Speaker 4: I get it. The bears continue to you know, they
Speaker 4: sit there with their spreadsheets DCF being negative on tacking.
Speaker 2: But I'm gonna stop there. This is too important. You're
Speaker 2: going to DCF. I asked this with Paul yesterday. How
Speaker 2: do you do with terminal value on these juggernuts? This
Speaker 2: does not see FA one on one, but.
Speaker 4: You have to ultimately trajectory out what the cap BAX
Speaker 4: looks like, what's the incremental dollars and what that ultimately
Speaker 4: means to the wall.
Speaker 3: How far out this dan IVES go.
Speaker 4: You basically have to go out six, eight, ten years
Speaker 4: to actually do a trajector like when you look at
Speaker 4: Microsoft the way they you get four and a half
Speaker 4: five trillion, Okay, just for you have to be it's say,
Speaker 4: how much of percentage of cappacks they're gonna get? What demonization?
Speaker 4: What does the free cash will incrementally look like and
Speaker 4: that's where all these stories change. But then there's other
Speaker 4: names like a pall Andeer, the Messi of AI. It
Speaker 4: wasn't even on the radar.
Speaker 2: Now there n their core AI play.
Speaker 5: Hey Dan, one of the key actributes of your research
Speaker 5: is that you travel the globe.
Speaker 1: You see people all over the place. What's your next trip?
Speaker 4: So we'll be going to Asia on Monday, be there
Speaker 4: for two weeks and look to me, that's where we've got.
Speaker 4: That's where we get edged because I think a lot
Speaker 4: of investors how they've missed AI revolution. They try to
Speaker 4: find it on the Metro North Jersey transit on the
Speaker 4: tenth four of their office building in New York or
Speaker 4: San France. You gotta travel to see it, and I
Speaker 4: think that.
Speaker 2: So what do you see when you go to We see.
Speaker 4: The suppliers, we see the component players. I also think
Speaker 4: by seeing global investors you get a very good ends
Speaker 4: in terms of where things are, and I think it
Speaker 4: just gives you a little more perspective.
Speaker 2: Final, can you convince John Tucker to upgrade this time around?
Speaker 6: No?
Speaker 4: I think I look, I think I think Tucker after
Speaker 4: going to the In Video Watch party last night, that
Speaker 4: he might now potentially upgrade to an iPhone.
Speaker 1: Occursonally Blackwell ship Where have I heard that name? Remember
Speaker 1: mister Blackwell, the guy who did the best and worst
Speaker 1: stress less Oh yeah? Where would.
Speaker 4: I think Kean would be at the top? Keen would
Speaker 4: be at the top, and I'd be and maybe like
Speaker 4: the like other.
Speaker 2: Category and travels hugely valuable. Will curse feature mister Ryes
Speaker 2: mister Munster together today on Bloomberg Surveillance.
Speaker 3: That's the way that we will blog.
Speaker 2: Richie joins us right now for tier price or they
Speaker 2: are wonderful academics out of Beth and l see as
Speaker 2: well Ballerina.
Speaker 3: We had HSBC in here.
Speaker 2: I think it was yesterday, day before with a brilliant
Speaker 2: separation of the consumer in America, not you know, East West, right,
Speaker 2: left politics or anything, but the haves and the have nots.
Speaker 2: How polarized is the American consumer?
Speaker 6: I think there are a couple of ways in which
Speaker 6: you can characterize this. One is the fact that the
Speaker 6: savings buffer and the bounce sheet of the consumer at
Speaker 6: the bottom twenty to forty percent is significantly weaker than
Speaker 6: the rest more well off consumers in the economy. They
Speaker 6: ran out of a pandemic savings sooner, they didn't build
Speaker 6: their cash buffers as much. And also, the other thing
Speaker 6: that has been hitting the lower end consumer more than
Speaker 6: upper income quantiles is inflation. We know that this proportion
Speaker 6: of the enemy spends more on necessities like food and
Speaker 6: energy gas at the pump station, and this is where
Speaker 6: inflation has hit the hardest. I think what has compensated
Speaker 6: a bit for this hardship in terms of inflation and
Speaker 6: cash balances has been the fact that the labor market
Speaker 6: has been so strong and so hot that income growth
Speaker 6: and wage increases have been higher for those workers at
Speaker 6: the lower end of the skill or the lower end
Speaker 6: of the income distribution. So we've seen average hourly earnings
Speaker 6: for retail hospitality increase more than other services parts of
Speaker 6: the economy.
Speaker 5: So Blarina, what did you make given that backdrop of
Speaker 5: this economy is still pretty solid position? But the FED
Speaker 5: on Friday add in Jacksonville, FED Chairman jpald seemed to
Speaker 5: really really signal that they are open to cutting ridge
Speaker 5: as soon as September. Is that seen reason to you?
Speaker 6: So? I think this has been he telegraphed pretty well
Speaker 6: that September is now a done deal, and I think
Speaker 6: for the market is the question is what will be
Speaker 6: the size of the cuts initially and the pace going forward.
Speaker 6: We still don't have much clarity about the terminal rate
Speaker 6: in this business cycle. And notable that Sir Powell again
Speaker 6: did not comment on our star and at Librium interest rates.
Speaker 6: So I think we have a bit more uncertainty about
Speaker 6: the pace of cuts and the terminal rate. But we're
Speaker 6: starting the cutting cycle. To your question, is this the
Speaker 6: right thing? Why are we starting to have interest rates
Speaker 6: at this point? We go back to the labor market.
Speaker 6: When you look at the July payroll report, we're talking
Speaker 6: about the magnificent sevens in the stock market. We have
Speaker 6: a magnificent five in the labor market, with government, education,
Speaker 6: health services, retail, hospitality driving about one hundred k of
Speaker 6: the job increase. In total, the economy produced one hundred
Speaker 6: and forty k net jobs, so you see how much
Speaker 6: of job creation is being driven by this subsector. And
Speaker 6: I think the FED is worried that tight interest rates
Speaker 6: are high interest rates are restricting growth in the other
Speaker 6: more interest rates sensitive parts of the economy, and that's
Speaker 6: why I think they don't want to be behind the curve.
Speaker 6: They want to start that easy cycle to make sure
Speaker 6: we don't have a more abrupt labor market correction.
Speaker 2: Okay, I'll go there, but give me the horse in
Speaker 2: the cart, Loreina. This is what you do when you
Speaker 2: when you have a master some lscy nail the horse
Speaker 2: in the cart, Laurina, give me the horse in the cart.
Speaker 2: The bond market's clearly signaling price up, yield down.
Speaker 3: Not like China.
Speaker 2: It's a different story. Is the bond market ahead of
Speaker 2: the Fed? Or when the Fed cuts, do we get
Speaker 2: further price up yield down in bonds.
Speaker 6: I think the market is ahead of the Fed. My
Speaker 6: view is that we do have such softening inactivity and
Speaker 6: some loosening in the labor market, but the economy is
Speaker 6: not weak, and so what we're seeing in this business
Speaker 6: cycle is that the market gets way ahead of the Fed.
Speaker 6: This happened back in December January as well. That loosens
Speaker 6: financial conditions, and in some way it provides a bit
Speaker 6: of a positive impulse, growth impulse to the economy. I
Speaker 6: think we're doing that again now. But the economy overall
Speaker 6: is not weak. I don't think we are about to
Speaker 6: enter a recession, and so the market I think has
Speaker 6: gone ahead of itself, is probably pricing in more cuts
Speaker 6: than the FED needs to deliver. Now, let's be clear.
Speaker 6: I think the FED wants to start easing monetary policy,
Speaker 6: wants to bring interest rates in a place where they
Speaker 6: are more balanced, not as restrictive as they are right now.
Speaker 6: But I don't think that they'll go all the way
Speaker 6: to where the market is in the next twelve months.
Speaker 5: Blarina, we had the you mentioned you were talking about
Speaker 5: the labor market here, we had the s rule presumably
Speaker 5: indicated that we're in a recession. Does that seem reasonable
Speaker 5: to you?
Speaker 6: I mean, this is a very interesting question. It's chir
Speaker 6: Powell characterized it as a statistical normalcy, something that has
Speaker 6: tended to happen historically, and it's very unusual that this
Speaker 6: time round we're seeing this type of increase in the
Speaker 6: unemployment rate with the economy being as strong as it is. Historically,
Speaker 6: when the unemployment rate has increased so much, we've had
Speaker 6: negative consumer spending growth, We've had weakness in industrial production,
Speaker 6: much more pronounced than where it is right now. So
Speaker 6: I think there is something here we need to take
Speaker 6: signal from the loosening in the labor market, but I
Speaker 6: don't think that the predictive power of the sum rule
Speaker 6: this time around is as powerful as it's been in
Speaker 6: the past.
Speaker 2: Blurina, thank you for the brief this morning with t
Speaker 2: Rowe Price, Baltimore.
Speaker 3: The Blurina arote you with.
Speaker 2: US joining US now does better math then Sarah House,
Speaker 2: US economist.
Speaker 3: It will's Fargo.
Speaker 2: Sarah, excuse me, am, I off the mark to take
Speaker 2: three percent real GDP, add in a GDP price index
Speaker 2: a two point five, and I've got nominal GDP above
Speaker 2: five percent.
Speaker 7: That's how you do it. You're the math twist on.
Speaker 2: Well, what's its signal? I'm sorry, that's a solid ecadomy.
Speaker 2: That's morning in America right now.
Speaker 7: It still signals that the US economy is in very
Speaker 7: good shape. I think that upward revision in consumer spending
Speaker 7: is pretty telling that even I think with some of
Speaker 7: the slow down in income growth, it doesn't seem like
Speaker 7: there's much to stop the US consumer as of now.
Speaker 7: So still looking like pretty good momentum as we head
Speaker 7: into the third quarter, and I think as we look ahead,
Speaker 7: though still expecting a moderation just given that in some ways,
Speaker 7: well despite all the strength that there, it is difficult
Speaker 7: to sustain, I think, given that that income back in here.
Speaker 2: But let me just finish the thought, let me close
Speaker 2: the loop. What is the Wells Fargo micro data of
Speaker 2: the quarter ending September thirty.
Speaker 7: Yeah, so we're looking for a step down in consumer spending,
Speaker 7: even as you did get a very strong start to
Speaker 7: the quarter. So we saw that in the July retail sales.
Speaker 7: We're expecting another pretty strong print in tomorrow's personal personal
Speaker 7: spending numbers. But I think as we move through the quarter,
Speaker 7: this down shift that we've seen in job growth, the
Speaker 7: downshift that we've seen in nominal wage growth, the fact
Speaker 7: that the excess savings from the pandemic have run dry
Speaker 7: for most households, and also credit growth is running below
Speaker 7: inflation for the consumer sector, it does mean that I
Speaker 7: think this almost three percent pace of consumer spending that
Speaker 7: we saw on the second quarter isn't going to be maintained.
Speaker 5: All right, Sarah, given that backdrop for the consumer spending,
Speaker 5: giving the backshop of the GDP print we just saw today,
Speaker 5: how do you put in context what we heard from
Speaker 5: FED Chairman j Palas Friday and Jackson Hole that the
Speaker 5: time has come for policy to adjust I think that's right.
Speaker 7: So when we look across the US economy, again, the
Speaker 7: consumer is still spending, but the fundamentals are weakening. And really,
Speaker 7: when it comes down the consumer, it's increasingly important what's
Speaker 7: happening with the jobs market. And so I think given
Speaker 7: the moderation that we've seen in hiring, so forget even
Speaker 7: the backward looking benchmarks, but even just over the past
Speaker 7: four months, where you've seen hiring at just a little
Speaker 7: over a one hundred and fifty thousand pace, what we're
Speaker 7: seeing in terms of the increase in the unemployment rate,
Speaker 7: not just the temporary layoffs but the permanent job losers.
Speaker 7: That the labor market has softened quite a bit. It's
Speaker 7: back to where it was before the pandemic, if not
Speaker 7: a little bit softer. So if we don't want to
Speaker 7: see the labor market break, it's time to dial back
Speaker 7: the degree of restrictiveness that we currently have said policy.
Speaker 5: At DoD they dial it back by twenty five basis
Speaker 5: points or fifty basis points in September, and does that
Speaker 5: even matter.
Speaker 7: So coming out of the jobs report that we got
Speaker 7: on August second, we thought that they would would perhaps
Speaker 7: go fifty basis points that's still our current call. But
Speaker 7: I think it's really going to come down to what
Speaker 7: we get out of the August jobs report on September sixth.
Speaker 7: Given that you have seen, I think some of the
Speaker 7: activity data hang in there, better claims have come back down,
Speaker 7: as we saw again this morning. But also I think
Speaker 7: you just haven't heard I think that that appetite from
Speaker 7: the FOMC other members of the committee. So I think
Speaker 7: it's going to be really hard to get a fifty
Speaker 7: basis point cut at this point unless you see a
Speaker 7: sharp weakening again in the jobs numbers coming out of
Speaker 7: the next of the next viral report. But I think
Speaker 7: it does look pretty clear that they will be cutting
Speaker 7: to some degree. It just it's a bit of a
Speaker 7: taller order for fifty, I think based on some of
Speaker 7: the data and fed Skik recently.
Speaker 2: Sir, one of the themes this week for US is
Speaker 2: this sharped economy and consumption seventy percent of.
Speaker 3: The economy between the halves and the head havenots.
Speaker 2: What do you guys do immense work on this with
Speaker 2: the Wells Fargo heritage. What is a polarization rather not that,
Speaker 2: what is the polarity or barbell of the American consumer today.
Speaker 7: Yeah, it is pretty stark where you know, I mentioned
Speaker 7: some of that excess liquidity and estimate show it's run
Speaker 7: dry for your lower end, and I think you are
Speaker 7: seeing that stress when we look at things like delinquencies
Speaker 7: among credit cards and autos or at the highest going
Speaker 7: back since we're coming out of the financial crisis. But
Speaker 7: again you're still seeing an aggregate putting up pretty strong
Speaker 7: income and spending numbers because the upper echelons are still
Speaker 7: doing pretty well, you know, So they're benefiting from still
Speaker 7: being employed, they're benefiting from wealth increases that we've seen
Speaker 7: coming out of the housing market and financial markets as well,
Speaker 7: and so that's been able I think to mask some
Speaker 7: of the ongoing stress that we've seen at the lower
Speaker 7: end and keep consumer spending positive even if even as
Speaker 7: we have seen I think some of the jobs numbers
Speaker 7: we can and also just a slow down in average
Speaker 7: hourly earnings at the lower end of job earners.
Speaker 5: Sure question, but thank you. This is a big, big question,
Speaker 5: big picture question kind of Sarah deficits the national debt.
Speaker 5: I mean, do I have to worry about this in
Speaker 5: my lifetime here?
Speaker 7: So this is something I don't think there's a crisis moment.
Speaker 7: There's no you know, set debt to GDP that all
Speaker 7: of a sudden things go sideways. But I do think
Speaker 7: that the trajectory that we've seen it is it is
Speaker 7: concerning when we think about the rising cost of interest
Speaker 7: on the debt and what that means for other forms
Speaker 7: of spending. So particularly when you think about all these
Speaker 7: budget battles that we have each and every year, we
Speaker 7: can't get a budget passed on time. We're fighting over
Speaker 7: a very small piece of the total spending pie that
Speaker 7: that discretionary spending, whether it's defense or non defense. And
Speaker 7: as that interest cost increases as well as you have
Speaker 7: the upward trajectory and the mandatory entitlement spending, I think
Speaker 7: it does make some of those those battles and even
Speaker 7: more contentious. And I think you have perhaps less less
Speaker 7: productive investment from the US government. So there's no crisis moment,
Speaker 7: but I do think it has some erosion in terms
Speaker 7: of the US economy.
Speaker 3: Sara, I'm putting it on Twitter and LinkedIn now. Something
Speaker 3: I did, I don't know.
Speaker 2: On the trip back from Jackson Hole, Paul Bramo took
Speaker 2: the Gulf Stream took me like three days back, I
Speaker 2: was on a covered wagon outside you know, co Zed Nebraska.
Speaker 2: Sarah at the Brookings Institute, Peter Orzag of Lazard, Murdoch
Speaker 2: of Lazard, and Robin Brooks put together a three part
Speaker 2: essay which says, everybody calmed down. Most of what we're
Speaker 2: talking about was the duration, the length, the unknown of
Speaker 2: the effect of the pandemic.
Speaker 3: Do you buy that?
Speaker 7: I think so in terms of I think just how
Speaker 7: long it's taken us to normalize has been a lot
Speaker 7: longer than anyone expected. I think we saw that up
Speaker 7: from the transitory issue of knew that there were a
Speaker 7: lot of distortions caused from the pandemic. I just think
Speaker 7: it was underappreciated how how long those those would last.
Speaker 7: I think we've seen this in terms of just the
Speaker 7: financial position of households coming out of the pandemic, given
Speaker 7: all the support we had, the tale of how low
Speaker 7: rates were early on that allowed a lot of people
Speaker 7: to refinance their homes and haven't felt the impact of
Speaker 7: higher rates. And so I think we you know, in
Speaker 7: this more instant gratification society where everything's so fast, I
Speaker 7: think I think it's been difficult for us to wrap
Speaker 7: our heads around that it does take time for I
Speaker 7: think some of these some of these effects to unwind,
Speaker 7: and it's something we're still grappling with here in mid
Speaker 7: to late twenty twenty four.
Speaker 3: That's the camp. I'm in Sarah House. Thank you. So
Speaker 3: I'm in the Sarahause campus. Oh yeah, yeah, wells Fargo,
Speaker 3: thank you for that.
Speaker 2: Gene Monster joins us here on the technology of the moment.
Speaker 3: Geene Monster, I want to go bigger.
Speaker 2: Broader with you because we sort of beat the death
Speaker 2: you know, the Minutia News and all that on in
Speaker 2: video and more iPhones out of Nikai saying Apple's doing better.
Speaker 2: Scott Galloway is one of the wisest people I know,
Speaker 2: and in some interview Gene Monster, Scott Galloway said, basically
Speaker 2: the single most important thing in his life is he's
Speaker 2: never listened to people who said sell Microsoft, sell Apple,
Speaker 2: and now sell Invidia. Time Magazine Norman Seth the famous
Speaker 2: photograph nineteen eighty four of Steve Jobs cross legged on
Speaker 2: a living room floor with that ugly mac. The rich
Speaker 2: kids owned it a million years ago. How does gene
Speaker 2: Monster react emotionally when it's out there these tech juggernauts
Speaker 2: sell Microsoft, sell Apple sell Nvidio.
Speaker 8: Well, I think the how I think about it is
Speaker 8: just what's the long term. You got to think the
Speaker 8: long term play, and there's the near term, and that's
Speaker 8: what's the vortex that's going around in Vidia today. And
Speaker 8: I generally react to a view of where the world
Speaker 8: is going. In the case of within Vidia, it's a belief,
Speaker 8: a strong belief. I'm staking my career that AI is
Speaker 8: going to be a bigger event, bigger impact than the Internet.
Speaker 8: And if that's the case, this trading around in Vidia
Speaker 8: today is largely noise, even though it is a three
Speaker 8: trillion dollar company. And the reason why I still am
Speaker 8: comfortable and think of this in that same class as
Speaker 8: Apple and Microsoft is that, ultimately is if you believe
Speaker 8: that AI is going to be is transformative, more transformative
Speaker 8: than the Internet. And there's a second belief you have
Speaker 8: to have is that the way to get there is
Speaker 8: through scaling laws, which basically say you have to throw
Speaker 8: more compute in data at the problem to solve for intelligence.
Speaker 8: Then in video is going to be a winner, and
Speaker 8: I think that it is in a great place. I
Speaker 8: do want to add one an angle to an additional
Speaker 8: angle to the context of just buying hold forever. Is
Speaker 8: that deep water we own in video. I think the
Speaker 8: next two years are going to be far better than
Speaker 8: what people are expecting today. But at some point, when
Speaker 8: you're a hardware only company, there is a point of
Speaker 8: deceleration that needs to be taken into consideration. And I
Speaker 8: think that two years, three years from now, this may
Speaker 8: be a position that will trim, but we think today
Speaker 8: is the time to own it.
Speaker 5: Gen when somebody like you, Geene Montreal says are staking
Speaker 5: their career on this, that really really resonate for a
Speaker 5: lot of our listeners and viewers.
Speaker 2: Can you just.
Speaker 5: Remind us how you view AI in the context of
Speaker 5: the internet, electricity stuff like that, because that really hit
Speaker 5: home when you I first heard you say that.
Speaker 8: So I mean, I guess that believe that this is
Speaker 8: going to be transformed a kind of struggle for the
Speaker 8: right analogy. Is it the internet is a mobile? Is
Speaker 8: it electricity? And at the core of humanity is intelligence
Speaker 8: and the concept of having intelligence in real time at
Speaker 8: scale is something that it's hard to put a value
Speaker 8: on it. I think it's much more valuable than connecting
Speaker 8: machines and connecting data. As powerful as that has been.
Speaker 8: I think intelligence is a powerful a more powerful aspect
Speaker 8: to it, and so there is a piece of a
Speaker 8: huge missing piece around the substance of what does that
Speaker 8: actually mean, like how is that going to impact our lives?
Speaker 8: And the use cases and the examples have been few
Speaker 8: and far between about how a eyes like profoundly impacting
Speaker 8: our lives. I just want to give one quick example.
Speaker 8: If we'd go back on a time machine in ninety
Speaker 8: five and be talking about the potential of the Internet,
Speaker 8: we could easily frame out what that Facebook was going
Speaker 8: to happen with social connecting over the internet. We could
Speaker 8: see what that Netflix was coming around the corner with
Speaker 8: video over the internet. But it would have been impossible
Speaker 8: for us to understand that the smartphone was going to
Speaker 8: come because that was obviously enabled by the Internet. Those
Speaker 8: kind of second and third derivatives. And that's kind of
Speaker 8: similar to how I think about AI more broadly. And
Speaker 8: I'm not concerned that we don't have these killer use
Speaker 8: cases today because I think that those will present themselves
Speaker 8: as we reach closer to general and eventually super intelligence,
Speaker 8: which is where it really gets crazy.
Speaker 2: Were you surprised by the iPhone build out reported by
Speaker 2: Nike today in Nikai rather in Tokyo.
Speaker 3: Did that surprise your team.
Speaker 8: Gene, I'm not surprised. I think what is most important
Speaker 8: is that when I think about this next iPhone cycle,
Speaker 8: you have to it comes back to this belief and
Speaker 8: do you think that these features are going to be
Speaker 8: exciting for people? And I just I don't worry about
Speaker 8: what kind of the near term builds are, whether they're
Speaker 8: positive or negative. What I think about is like, is
Speaker 8: are these features people will want? And I just quickly
Speaker 8: go back for I look back over kind of last
Speaker 8: seventeen iPhone cycles and try to compare what these AI
Speaker 8: features are going to do for demand, and I think
Speaker 8: it's similar to the iPhone six plus that was the
Speaker 8: first large.
Speaker 2: Right, Oh yeah you have the iPhone six plus.
Speaker 5: Yeah, I think so, But I'm uprating soon, Jeane.
Speaker 3: That's good.
Speaker 4: You're right there.
Speaker 8: You're only ten years ten years in and it's time, Paul.
Speaker 8: But the iPhone growth I went from twelve percent for
Speaker 8: the iPhone five cycle to fifty two percent. I mean
Speaker 8: it add a profound impact on how people got excited
Speaker 8: about these devices. One just more quick thought about how
Speaker 8: I think about the X cycle is that the If
Speaker 8: we look at the total number of iPhones that are
Speaker 8: out there, there's about one point five billion active iPhones.
Speaker 8: The act the life is just over five years average
Speaker 8: life of an iPhone. And if you take the next tranch,
Speaker 8: so take not the one that typically upgrades this year,
Speaker 8: but the one that's going to typically upgrade in late
Speaker 8: twenty twenty six, and you assume ten percent of those,
Speaker 8: just ten percent of those see these AI features and
Speaker 8: say yes, I'm going to buy it. A year early,
Speaker 8: the iPhone growth goes from seven to fifteen percent, and
Speaker 8: so the sensitivity around just getting a small piece of
Speaker 8: that massive pool to move forward is going to have
Speaker 8: a measurable impact on the business.
Speaker 2: Gene, thank you, Gene monster with us, thank you, I say,
Speaker 2: really really appreciating. This is a Bloomberg Surveillance podcast bringing
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