Speaker 1: Hello, and a very happy new year to you and
Speaker 1: your family. Welcome to this special edition of Bloomberg Daybreak.
Speaker 1: Markets are closed as we ring in twenty twenty six.
Speaker 1: I'm Nathan Hager coming up at this hour. We're gonna
Speaker 1: look at what's ahead for the sector that has led
Speaker 1: the way for the stock market the last couple of years.
Speaker 1: Big Tech. Twenty twenty five was once again bullish for technology,
Speaker 1: but not without its bumps and bruises. A deep sell
Speaker 1: off in April, followed by a powerful rally, then another
Speaker 1: sell off of many of the biggest names in the
Speaker 1: final quarter. So what could be in store for twenty
Speaker 1: twenty six? Who better to ask than two of the
Speaker 1: most prominent analysts on the street. Gene Monster, managing partner
Speaker 1: in Deepwater Asset Management, is with us along with Dan Ives,
Speaker 1: global head of Tech Research at web Bush Securities.
Speaker 2: For the full hour.
Speaker 1: It is great to have both of you back on
Speaker 1: what has become a semi annual tradition here on Bloomberg Daybreak.
Speaker 1: But before we look ahead to twenty twenty six, let's
Speaker 1: look back at what both that you had to say
Speaker 1: about tech the last time we were all together here
Speaker 1: back on the fourth of July. Gene, let's start with you.
Speaker 1: You were pretty enthusiastic.
Speaker 3: I actually am so bullish on AI. I think that
Speaker 3: it has the power for these companies to continue to
Speaker 3: move higher over the next three to five years, despite
Speaker 3: what is going to happen, what could happen with the
Speaker 3: overall macro And I don't like being out on a
Speaker 3: limb that farart and the right approach is that AI
Speaker 3: is just much more impactful.
Speaker 1: Of course, Gene, that was before the rotation at the
Speaker 1: end of twenty twenty five. Are you still as enthusiastic
Speaker 1: about big tech as you were then?
Speaker 3: Yeah, nothing has changed in that optimism. I still think
Speaker 3: we're going to see the AI trade outperform the Nasdaq
Speaker 3: for next year. I think that the Nasdaq is going
Speaker 3: to be up call it five ten plus percent. So
Speaker 3: still optimistic, still believe we're I'd put it in the
Speaker 3: second inning of all this and understand that that may
Speaker 3: come across as seemingly out of touch with reality, given
Speaker 3: I think some of the towards the end of the year,
Speaker 3: some of that, some of that concern that has poked
Speaker 3: its head up around the AI trade, some issues that
Speaker 3: investors have had about the amount of investment that have
Speaker 3: been made in the market at times just shrugging off
Speaker 3: good news. But Ayden, I think that this is still intact.
Speaker 3: I think the transformation really hasn't even begun, and I
Speaker 3: think that patients will pay off when it comes to
Speaker 3: wealth creation over the next few years.
Speaker 1: All Right, I want to turn down to you, Dan
Speaker 1: over at Wedbush. I think I have a feeling what
Speaker 1: you might say. But let's listen back to what you
Speaker 1: told us back in July.
Speaker 2: This is a fourth Industrial revolution, this tact bull market.
Speaker 2: It's another three years ahead. And that's why I think
Speaker 2: it's the popcorn get the Champagne Islands handing slowing it down.
Speaker 1: Do you see anything slowing it down since then?
Speaker 2: Dan, Look, I'm more bullish on the theme today than
Speaker 2: I was back in the summer, given my monization, given
Speaker 2: what we've seen with the spend, given themes like Pallentier
Speaker 2: and others. Is the use cases are built out and
Speaker 2: now going into robotics and autonomous. To me, look, it's
Speaker 2: two more years left this technical market. I'm not gonna
Speaker 2: say we're not gonna have white knuckles as me and
Speaker 2: you always talk about. But nothing in any way makes
Speaker 2: me get off as AI train to some extend. It's
Speaker 2: more in bolden.
Speaker 1: I want to turn back to you, Gene. You say
Speaker 1: it's the second inning in the AI trade. I think
Speaker 1: in the times that we've spoken before, it's kind of
Speaker 1: been where it's been before, right, I mean, I think
Speaker 1: I've heard you say we're in the second inning for
Speaker 1: quite some time. When do we get to the third?
Speaker 3: Well, earlier in the year, I guess at the beginning
Speaker 3: of twenty five, I thought we're in the third inning,
Speaker 3: and so I guess what happened to make me believe
Speaker 3: that we're in this second inning? Just like to put
Speaker 3: some specifics on it, and it's this is what I
Speaker 3: love about this the year end is we can look
Speaker 3: back and just look at the kind of the arc
Speaker 3: of what's happened. At the beginning of the year, the
Speaker 3: street was looking for in Vidia to have eighteen percent
Speaker 3: growth for calendar twenty six. If you look at what
Speaker 3: they said at the end of November. This excludes anything
Speaker 3: from the H two hundreds in China, but they're going
Speaker 3: to do somewhere around the mid sixty percent growth. So
Speaker 3: this is a company that this is not a one
Speaker 3: to two billion dollar revenue company. This is a two
Speaker 3: hundred and fifty three hundred billion dollar company that's seen
Speaker 3: an acceleration. And why in Vidia, of course is so
Speaker 3: important when it comes to kind of gauging what inning
Speaker 3: we're in is this is the brain that think of
Speaker 3: the hardware piece, what in Vidia powers is the size
Speaker 3: of the brain. And when you think about this accelerating
Speaker 3: spend around the size of the brain, it makes me
Speaker 3: more optimistic that the output, this is the critical piece,
Speaker 3: the utility that brain will kick out eventually will be
Speaker 3: more powerful, which makes me have higher confidence that were
Speaker 3: earlier than what I thought at the beginning of the year.
Speaker 1: I want to ask you Dan, where you think we
Speaker 1: are in the AI race, and to talk a little
Speaker 1: bit more about in Nvidia, because just in the last
Speaker 1: few months, we've seen I think it's safe to say
Speaker 1: quite a bit more at least chipping away or at
Speaker 1: least attempts to at Nvidia's dominance. When you think about
Speaker 1: Google's TPUs and this investment by open ai or by
Speaker 1: Amazon into open Ai, with its potential competitor to the
Speaker 1: Nvidia chip, does in Nvidia continue to keep this motor
Speaker 1: around itself that it's had over the last couple of
Speaker 1: years now in the AI chip space.
Speaker 2: Look, I love what how Gene puts it with the
Speaker 2: brain and the utility, because I think that's so true
Speaker 2: in terms of where in Vidia. Please look, coming back
Speaker 2: from me three weeks there demand the supplies twelve to
Speaker 2: one for in video chips. The reality is Nathan like,
Speaker 2: customers can't get enough that they have to go, whether
Speaker 2: it's AMD, whether it's Google on TPU, whether it's others.
Speaker 2: But that's not a bad thing. It speaks to our
Speaker 2: view that like the lms are going to get cheaper.
Speaker 2: You got more competition when it comes to AI chips,
Speaker 2: but at the end of the day, in video continues
Speaker 2: to be three to four years maybe, you know, like
Speaker 2: in terms of a head of competition, and that's why
Speaker 2: I think it's still a very cheap stock. Two fifty
Speaker 2: two seventy five, you know, twenty twenty six is where
Speaker 2: I see this stock playing out.
Speaker 1: We're speaking with Dan Ives, global head of Tech Research
Speaker 1: at web Bush Securities and deep Water Asset Management Managing
Speaker 1: Director Gene Munster. Gene, that's a very interesting point that
Speaker 1: Dan just made there. The idea of Nvidia being a
Speaker 1: cheap stock because there has been all this discussion over
Speaker 1: the last few months about the value of the Magnificent seven,
Speaker 1: How do you view Nvidia's valuation right now along with
Speaker 1: the rest of the mag seven? Are these still stocks
Speaker 1: that can keep getting into these sky high valuations?
Speaker 3: I mean Dan's doing the right thing. I mean he's
Speaker 3: looking beyond the appreciation that we've had and asking the
Speaker 3: question like what is on the come And ultimately that's
Speaker 3: the question, the central question we all have to answer.
Speaker 3: And I think when we get to the question about
Speaker 3: like valuation and where this market potentially go, it can
Speaker 3: boil down to something as simple as your just your
Speaker 3: view on how the utility of AI will play out.
Speaker 3: So if you take the perspective that we've had a
Speaker 3: good run and that AI is going to be impactful,
Speaker 3: but it's not going to be a total game changer,
Speaker 3: it's not going to exceed the high expectations that are
Speaker 3: out there in terms of how it's going to impact
Speaker 3: the world. If you take that approach, there's little that
Speaker 3: I think anybody could say that is to get you
Speaker 3: optimistic about where this is ultimately going to go. If
Speaker 3: you're in the camp where you believe that these companies
Speaker 3: you know, Dan mentioned Comes like Palenteer. You think about
Speaker 3: some of the MAG seven, some of the small caps
Speaker 3: as well. If you believe that ultimately that that we're
Speaker 3: still early, therefore their their valuations are are going to
Speaker 3: be lower in the future because they're going to have
Speaker 3: faster earnings growth. And so that's I mean, is I mean,
Speaker 3: that's effectively what we're faced with is this question about
Speaker 3: the degree the pace of this and how it impacts.
Speaker 3: If you look at NATA, just the numbers, like let's
Speaker 3: let's forget about that and forget about where we're going
Speaker 3: and just look at where the stocks are. They are
Speaker 3: trading higher than a normal if you look at, for example,
Speaker 3: the MAG seven kind of over the next twelve months
Speaker 3: trading around a twenty seven times multiple excluding Tesla, that's
Speaker 3: as a.
Speaker 2: One hundred plus multiple.
Speaker 3: But so they are higher, but it's not like easy high.
Speaker 3: As a reminder, back in two thousand, the Nasdaq was
Speaker 3: trained at one hundred times next twelve months. Now, the
Speaker 3: dynamic of the market's different today because these megacaps were
Speaker 3: not going to ever unlikely we'll ever see that hundred x.
Speaker 3: But I think it's reasonable that a twenty seven x
Speaker 3: on what potentially could be multiple years of fifteen twenty
Speaker 3: percent growth is positive.
Speaker 1: Dan, how do you answer some of the critics who
Speaker 1: point out a lot of these companies, you know, spending
Speaker 1: hundreds of billions of dollars into this technology that is
Speaker 1: then getting you know, more circularly invested into the companies themselves.
Speaker 1: The idea that you know, open Ai and others are
Speaker 1: getting all this investment from companies that are going to
Speaker 1: be benefiting from their business, like the hyperscalers.
Speaker 2: Yeah, but I would say, and G and I have
Speaker 2: talked about a bunge. I don't view this like a
Speaker 2: vendor financing circular financing late nineties that we both saw.
Speaker 2: I mean, my view is open Ai for every dour
Speaker 2: that they invest, every dour and video vest, they're getting ten, twelve,
Speaker 2: fifteen dollars back over the course of the next five
Speaker 2: ten years. And that's a bet that they'll meet because look,
Speaker 2: they're building out a new economy for consumers and new
Speaker 2: economy for enterprises. So I don't view it as sinister
Speaker 2: red flag the circular financing concept to some extent, I
Speaker 2: view it as you want to be associated with open Ai,
Speaker 2: not away from them. And even though right now those
Speaker 2: stocks are you know, really have a huge sort of
Speaker 2: black cloud over them. It's like is it bad. No,
Speaker 2: it's actually good because they are at the epicenter of
Speaker 2: this AI build out.
Speaker 1: Is it important, though, Gene, for open Ai to turn
Speaker 1: a profit in twenty twenty six to justify all this spend.
Speaker 3: No, it has I mean, this is the beauty of
Speaker 3: everything that's going on is that you have very rational
Speaker 3: people that say profit is important, and there's other rational
Speaker 3: people that say it's just about building the framework. And
Speaker 3: so the key question about this cash burn with opening
Speaker 3: and we can talk about the rumor around this eight
Speaker 3: hundred and thirty billion dollars round that's rumored to be
Speaker 3: going on, but the key question ultimately is eventually call
Speaker 3: it twenty thirty, can they be profitable? And part of
Speaker 3: that is to dance point like can they continue to
Speaker 3: raise money to fund this impressive expansion and impressive expansion
Speaker 3: I just want to put some numbers around it. It's
Speaker 3: one hundred percent growth expected next year, in the year
Speaker 3: after and the year after for the next three years.
Speaker 3: And so I think that when you think about the
Speaker 3: profitability question when it comes to Opening Eye, like that
Speaker 3: that really doesn't matter. What matters is do they ultimately
Speaker 3: can they get enough financing? Can they raise enough equity
Speaker 3: to the tune of about one hundred to one hundred
Speaker 3: and fifty billion of the next three years to continue
Speaker 3: to build out to get to that profitability piece in
Speaker 3: twenty thirty And I think the answer is overwhelmingly yes.
Speaker 3: It's just too big of a prize. And you know,
Speaker 3: Dan and I are well ware what's going on in
Speaker 3: the private markets. There's just a ton of investor demand
Speaker 3: to participate in this, and so they're going to be
Speaker 3: able to have the money to power through this cash
Speaker 3: burn that they're going to have for the next few years.
Speaker 1: We're going to continue this conversation take an even closer
Speaker 1: look at the Magnificent seven stocks as this special New
Speaker 1: Year's Day Tech Hour continues with Gene Munster, Managing Partner,
Speaker 1: Deepwater Asset Management and Webbush Securities Global Head of Tech Research,
Speaker 1: Dan Ives on the special edition of Bloomberg Daybreak for
Speaker 1: the New Year. I'm Nathan Hager, and this is Bloomberg.
Speaker 1: Welcome back to the special New Year's edition of Bloomberg Daybreak.
Speaker 1: I'm Nathan Hager, and even though markets are closed. On
Speaker 1: this first day of twenty twenty six, we got a
Speaker 1: high tech power Hour going. We're speaking with Dan Ives,
Speaker 1: global head of Tech Research at wet Bush Securities and
Speaker 1: Gene Monster, managing partner at Deepwater Asset Management. Dan, let's
Speaker 1: pick up where we left off in the last segment
Speaker 1: talking about some of the valuations, some of the financing
Speaker 1: that's going into these startups that are possibly getting into
Speaker 1: really really big valuations like open Ai. Do you see
Speaker 1: that continuing when you know there is still so much
Speaker 1: competition along among some of these large language models that
Speaker 1: are competing with open Ai.
Speaker 2: Look, I'm not saying that you won't have a bubble
Speaker 2: or maybe frof in ensuring the areas of the market
Speaker 2: over the next twelve eighty months. But to look at
Speaker 2: the core winners and to say that they're expensive and
Speaker 2: just kind of painted with a brush, I think's the
Speaker 2: wrong way to view it. Because my view is like, look,
Speaker 2: I have three to four trillion being spent next few
Speaker 2: years in terms of the build out to ripple effect.
Speaker 2: Every dollar spent on videoship, there's an eight ten dollars
Speaker 2: multiply across the rest of the tech. So investors like
Speaker 2: they're looking non next one two years, they're looking beyond
Speaker 2: that to understand who the core winners are and will
Speaker 2: they grow into valuations. I mean it goes back to like,
Speaker 2: you know, if you go back to some of the
Speaker 2: Amazon days, some of Meta somewhere in video was twenty
Speaker 2: twenty one two down twenty two, you know. I think
Speaker 2: that sort of the view in terms of this transformation
Speaker 2: that we continue to believe, like you only have three
Speaker 2: percent of companies in the US that have fully gone
Speaker 2: down the AI path, and for the first time globally
Speaker 2: in thirty years, the US is headed China when it
Speaker 2: comes to tech.
Speaker 1: I think I heard Dan talk about the idea of
Speaker 1: winners and losers here in the large language models. Gane,
Speaker 1: how are you thinking about winners and losers right now
Speaker 1: in that space?
Speaker 3: Well, I think that there's basically four or five depending
Speaker 3: how you count Meta as the large language models, and
Speaker 3: I think that when there's this let me just take
Speaker 3: a step back, is there is a view that ultimately
Speaker 3: it's a race to the bottom, that these companies are
Speaker 3: creating intelligence and therefore they will that the pricing is
Speaker 3: going to go down to a level where we're going
Speaker 3: to have five losers. Essentially, they're going to spend all
Speaker 3: this money. And our belief is that actually what you'll
Speaker 3: see is even though the pricing will come down, the
Speaker 3: value will increase to a point where the pricing. This
Speaker 3: gets back to this Gevins paradox that's been talked about
Speaker 3: for the past year or so, that yes, pricing comes down,
Speaker 3: but the value increases. Therefore, the usage increases that more
Speaker 3: than offsets that decline in pricing. And so I think
Speaker 3: that all these two different degrees are going to be winners.
Speaker 3: One piece that is kind of like below the surface
Speaker 3: that doesn't get talked about as much as the personalities
Speaker 3: of the models, and the way we think about it
Speaker 3: is the world isn't doesn't run on one personality, and
Speaker 3: that's what these models are. They have personalities. You ask
Speaker 3: one model, you ask five different models, five different questions,
Speaker 3: and you get slightly different answers. And so I think
Speaker 3: that there is something to be said about This isn't
Speaker 3: a political statement, but some models lean right, some models
Speaker 3: lean left. Organizations are going to want to build on
Speaker 3: top of models that align more with their personality, and
Speaker 3: so I think that that is going to create an opportunity.
Speaker 3: It's probably you're probably going to see a couple on
Speaker 3: the right and a couple on the left, and so
Speaker 3: it's hard really at this point to say, you know
Speaker 3: which one is the losers. I think I look at
Speaker 3: it more of the conversation about them all being losers,
Speaker 3: about this race to the bottom misses the fun a
Speaker 3: mental point, which is, as value comes from the intelligence,
Speaker 3: people will pay out for it. I realized that that
Speaker 3: that is a bold statement, but I think that's the
Speaker 3: piece that is missing in terms of how these companies
Speaker 3: continue to how Opening Eye, for example, can be a
Speaker 3: choin and a half dollar company.
Speaker 1: Well that's a really interesting idea, And I wonder Dan
Speaker 1: if that's something that you've thought about as well, whether
Speaker 1: there could be a scenario where companies are using multiple
Speaker 1: large language models as opposed to settling on just one look.
Speaker 2: I think what Ginge just said there is gold, because that,
Speaker 2: to me, that summarizes the whole the crux of everything
Speaker 2: we're seeing in terms of this AI build out, Winners, losers.
Speaker 2: You could pick your open A, I pick your Gemini.
Speaker 2: Pick you know whether even in China some of the
Speaker 2: models there. To me, it's all going to be about
Speaker 2: hyperscalers and the data that it's built on. That continues
Speaker 2: to be such a core piece of this AI, which
Speaker 2: when you do about the hyperscoalurs and the infrastructure, it's
Speaker 2: about the data the infrastructure to build out.
Speaker 1: I want to talk about the theme that has really
Speaker 1: driven this market for the last few years, of course,
Speaker 1: that is the Magnificent seven, and take a look at
Speaker 1: where those stocks in particular could go in the next year. Gene,
Speaker 1: do you see the mag seven continuing to drive the
Speaker 1: rally all boats lifted together in that space?
Speaker 3: I do think simple answer is no. I think that
Speaker 3: we're going to see some pockets. Some of them are
Speaker 3: going to outperform really well, and some of them won't
Speaker 3: perform as much. I mean, my sense is that the
Speaker 3: small cap piece is going to continue to be an
Speaker 3: important part. I want to be clear that I think
Speaker 3: you should own many of the mag seven. I think
Speaker 3: that they're going to continue to generate a better return
Speaker 3: than just being in the queues, for example. But I
Speaker 3: think that there is a little bit of a dynamic
Speaker 3: when it comes to the mag seven, the two that
Speaker 3: I'm focus most on. This wasn't your question, but I
Speaker 3: do want to Highlight.
Speaker 2: This is sure.
Speaker 3: I'm kind of split in airs here in terms of
Speaker 3: how to think about the winners in the MAGS seven
Speaker 3: four for calendar twenty six. I think Apple I'm putting
Speaker 3: that as the top performer for the front half of
Speaker 3: the year just because I think there's going to be
Speaker 3: multiple expansion going into the new series, which is code
Speaker 3: named for the new Apple Intelligence, and they land that
Speaker 3: after being i think more or less viscerated over what's
Speaker 3: happened so far with AI, they land that the multiple
Speaker 3: on Apple is likely going up. So I think that
Speaker 3: Apple's going to have be the best performing MAG seven
Speaker 3: through the first half of the year, and then if
Speaker 3: you look at the full year, I think Google is
Speaker 3: in a unique place just given you know, they're really
Speaker 3: doing a great job of taking this the search traffic
Speaker 3: and starting to find ways to get people to interact
Speaker 3: with their products more, which obviously more shots on that.
Speaker 3: It's good for the revenue growth within search, and of
Speaker 3: course they've got their cloud, and so those are the
Speaker 3: two that I would focus on most. Again, I'm not
Speaker 3: it doesn't mean that the other ones won't do well,
Speaker 3: but I think those are the ones that will do
Speaker 3: the best.
Speaker 1: Dan what are you looking at in the mag seven?
Speaker 1: Do you see winners and losers in there?
Speaker 2: I mean Gene preaching to the quiet, like what did
Speaker 2: he say about Apple? And Look, and it's been a
Speaker 2: battle because they've essentially been invisible with the AI strategy.
Speaker 2: But now with Google when the DOJ, that queers a
Speaker 2: path for a bigger geminideal that comes out in the spring.
Speaker 2: And I think there's no multiple for Apple given because
Speaker 2: of AI with the biggest install based in the world,
Speaker 2: I could already add seventy five hundred hours to share.
Speaker 2: So I think I agree one hundred percent. And me
Speaker 2: and Gene it's a very small Apple fan club. You
Speaker 2: stick together there, okay, all right? And then and then
Speaker 2: i'd also I agree with Google, but I think Microsoft, Look,
Speaker 2: I think Microsoft here is so over sold. Just feel
Speaker 2: like best is in the rear view mirror. It's now
Speaker 2: about Google, Amazon, They're in the enterprise, the enterprise market
Speaker 2: it's in that's Redmond's do me and I'm telling you,
Speaker 2: like to me, that's the one that I focused on.
Speaker 2: It just a table pounder here.
Speaker 1: Interesting because it does seem like there is a pretty
Speaker 1: more heated competition in the cloud space as well, Gene,
Speaker 1: how are you looking at that? When it comes to
Speaker 1: the competition between Microsoft, Azure, Google Cloud, and Amazon Web Services,
Speaker 1: I think the bar.
Speaker 3: Is lowest with AWS just because the growth has been lowest,
Speaker 3: and you know, they just haven't seen that breath taking
Speaker 3: into the thirty almost forty percent growth that Azure and
Speaker 3: Google have experienced more recently off of a bigger number
Speaker 3: because their market shares more so, it's it's harder to
Speaker 3: grow at those rates. But I think that I mean,
Speaker 3: this is, uh, you know, not the cleanest answer, but
Speaker 3: I think all of them are going to do well.
Speaker 3: I think if you go back to kind of where
Speaker 3: Dan and I are at in terms of just the
Speaker 3: broader build out that's going on, if if that in
Speaker 3: fact does happen, all of them are going to benefit
Speaker 3: the one. There's a contrarion piece in me that wants
Speaker 3: I like what Dan saying about Microsoft. I agree that
Speaker 3: that's definitely it's a contrarian on the top pick. Therefore
Speaker 3: it probably happens. But the contri piece around AWS is
Speaker 3: that that they end up being kind of the surprise
Speaker 3: to go back to, uh, they had their AWS event.
Speaker 3: The CEO of AWS said that they may even have
Speaker 3: the exact his exact quota. I was just looking up
Speaker 3: this morning on December fourth. This is Matt Garman. He said,
Speaker 3: demand keeps skyrocketing or only speeding up that infrastructure build out,
Speaker 3: so uh, you know, halfway through the quarter, three quarters,
Speaker 3: two thirds of the way through the quarter. He says
Speaker 3: that it's probably a good sign for ws D.
Speaker 2: And your reaction to that, I mean, look, I agree,
Speaker 2: and I'd almost further and say, I think one of
Speaker 2: the biggest surprise as we go into twenty six, I
Speaker 2: think it's going to start off with Jensen's keener at CEES,
Speaker 2: you know, which will be at is just about the overall
Speaker 2: demand that's accelerating across the whole universe. And I think
Speaker 2: that's something where investors, I think are underestimating the scale
Speaker 2: and scope of what this is going to look like
Speaker 2: and also going to have a huge impact not just
Speaker 2: on earnings, but I think even on increased capbacks and
Speaker 2: on accelerate monization of the AI theme going in twenty
Speaker 2: twenty six, Gene.
Speaker 1: Are these hyperscalers going to have to continue to find
Speaker 1: ways to cut costs to keep up the hundreds of
Speaker 1: billions of dollars they're spending on AI.
Speaker 3: Well, I think if I think they will try to
Speaker 3: continue to cut costs, a lot of it is because
Speaker 3: they're they're they're using, they're eating their own products, they're
Speaker 3: implementing more. Think about how much they're using, whether it's
Speaker 3: micro Soft to Meta and Google. In terms of code
Speaker 3: creation today something like more than half is now generated
Speaker 3: by machines. So but you know, do they have to
Speaker 3: to grow this if you just some really high level
Speaker 3: math here, but think about the average mag seven excluding
Speaker 3: teslas generating about one hundred billion per year in free
Speaker 3: cash flow, and so they're spending call it you know,
Speaker 3: that's by the way, that one hundred billion includes them
Speaker 3: spending fifty seventy five billion a year on infrastructure, and
Speaker 3: so they can increase by twenty thirty percent and still
Speaker 3: be bringing home fifty seventy five billion dollars. And so
Speaker 3: they're a long way away. And that's I think one
Speaker 3: of the big differences that we're experiencing today versus twenty
Speaker 3: five years ago is the cash flow generation. They can
Speaker 3: just keep feeding this machine and so inevitably investors do
Speaker 3: care in the near term about earnings. Look what happened
Speaker 3: with Meta. Meta just said after their September quarter that
Speaker 3: next year the expenses were going to grow faster than revenue.
Speaker 3: They have very upbeat commentary about revenue and the stock
Speaker 3: I forget what it was down fifteen to twenty percent
Speaker 3: over a short period, and so they do care in
Speaker 3: the near term. But the reason why I stress that
Speaker 3: near term, I think the long term investors will have
Speaker 3: a sense like this money is going to good use.
Speaker 3: And even if they're and they've got plenty of money,
Speaker 3: to continue to invest in the business. And most importantly
Speaker 3: that's the right thing for them to do, because if
Speaker 3: they don't make those investments, obviously it poses them at
Speaker 3: some bigger existential risk longer term.
Speaker 1: We're going to keep this conversation going on the Mag
Speaker 1: seven and more of the big tech sector as we
Speaker 1: continue this special New Year's Day edition of Bloomberg Daybreak
Speaker 1: with a look at another big piece of the Mag
Speaker 1: seven that would be the Tesla coming up. I'm Nathan Hager,
Speaker 1: and this is Bloomer. Thanks again for being with us
Speaker 1: for this special edition of Bloomberg Daybreak. Markets are closed
Speaker 1: for the New Year's Day holiday. I'm Nathan Hager. Wrapping
Speaker 1: up our special high tech roundtable. We have been spending
Speaker 1: the full hour with Dan Ives, global head of tech
Speaker 1: research at Webbush Securities and Deepwater Asset Management's managing partner,
Speaker 1: Gene Monster. We could keep this conversation going for the
Speaker 1: entire day, but we got to wrap this up. Starting off,
Speaker 1: guys with a stock that I know both of you
Speaker 1: follow very closely. That would be Tesla. Both of you
Speaker 1: have made some pretty bold calls on the electric vehicle maker,
Speaker 1: but does it continue to be driven by the evs
Speaker 1: headed into twenty twenty six, Dan.
Speaker 2: I first off just want to say, I mean I
Speaker 2: could listen to Gene I've had some sour pats, kids
Speaker 2: and media tabernet, I costendim talk tech the whole day. Yes.
Speaker 2: Now then now with that said, look Tesla, they're entering
Speaker 2: the most important year ever autonomous and robotics, weave thirty cities,
Speaker 2: web robotaxis, you know, in twenty twenty six, and this
Speaker 2: is the year AI revolution comes to Tesla. And I
Speaker 2: think when it comes to physical AI, the two best
Speaker 2: physical AI please in the world on Nvidia and Tessa,
Speaker 2: And I think now musk Wartime CEO and really is
Speaker 2: going into the next such an important chapter in the
Speaker 2: Tesla story.
Speaker 1: A great way to describe him as a wartime CEO,
Speaker 1: I think gene because Elon Musk has been through a
Speaker 1: lot just throughout twenty twenty five, between the political moves
Speaker 1: and coming back to Tesla with the renewed focus. Where
Speaker 1: do you see tech going in twenty twenty six?
Speaker 3: I think you know, Dan summed it up. It's about
Speaker 3: the robo taxi, It's about autonomy. I mean, that's those
Speaker 3: are the headlines that are going to be of most focus.
Speaker 3: There is the question like I think that's what matters most.
Speaker 3: There is a question like what happens with deliveries. I
Speaker 3: don't think i'd be curious Dan your take on this.
Speaker 3: I don't know if investors really care if they beat
Speaker 3: the numbers a little bit. But just for some context,
Speaker 3: this is as of a week ago, the shoot was
Speaker 3: looking for sixteen percent delivery growth for calendar twenty six.
Speaker 3: I think it's probably going to be more like flat
Speaker 3: to up five percent. A little bit of a miss there,
Speaker 3: and again when you start talking about some of these
Speaker 3: negative things misses the point. I agree with Dan's highest level,
Speaker 3: which is one of the best positioned physical AI companies
Speaker 3: full stop. But I do wonder. I'll stand, like, do
Speaker 3: people care let's say deliveries. Let's say they missed deliveries
Speaker 3: for twenty twenty six. Does it matter?
Speaker 2: I mean, this should be like going to carb going
Speaker 2: to Miami for the water. The point is you're you're
Speaker 2: focused on autonomous and robotics. That is the focus of deliveries. Look, Gene,
Speaker 2: there's a stabilization, and nasal investors want to see your bobs.
Speaker 2: It continues to still be very depressed. But I think
Speaker 2: as long as you see a steabilization and you're seeing that,
Speaker 2: that's fine enough. But you own the stock beers about
Speaker 2: Thomas and robotics.
Speaker 3: Indeed, I do own it. Yeah, and that's well said.
Speaker 3: I think the stabilization piece is really important. One other
Speaker 3: thing just to kind of play for it. So who
Speaker 3: knows my senses, they're probably going to be a little
Speaker 3: bit too high for the you know, for the for
Speaker 3: calendar twenty six, But I don't think it really changes
Speaker 3: the big picture. Like when I see what Ford did
Speaker 3: at the end of twenty twenty five, basically, what was
Speaker 3: it a two and a half billion charge five and
Speaker 3: a half billion charge, these these bees and the becoming
Speaker 3: all noise at some point. But the reality that they're
Speaker 3: taking this big step back. I ask a question like,
Speaker 3: if they want to participate in autonomy is and they're
Speaker 3: not investing in the EV piece. Are they envisioning I
Speaker 3: don't know the answer to this, but are they envisioning
Speaker 3: a world where it's like hybrids are going to be autonomous?
Speaker 3: I think that is not the world. I think it's
Speaker 3: going to be all electric. But I think when you
Speaker 3: look at what's going to happen with the delivery numbers
Speaker 3: this year, beat them or miss some, the stabilization is
Speaker 3: really important. I love that perspective, Dan. And then the
Speaker 3: second piece is like just look at the big picture,
Speaker 3: is that these other carmakers they're not only nowhere to
Speaker 3: be found when it comes to autonomy, but they're they're
Speaker 3: running towards profitability at giving back for the cost of
Speaker 3: the future.
Speaker 1: Yeah, I look, I agree.
Speaker 2: I The one thing I'd say is like, you look
Speaker 2: what's happening. I mean, like, GM's handler a lot better
Speaker 2: than Ford, but if you look what Ford's done, they're
Speaker 2: basically thrown in the white towel. In the extent to
Speaker 2: Jean's point you're gonna have to eventually see when it
Speaker 2: comes to autonomous they're gonna ultimately I could see Tesla
Speaker 2: at a point partnering with some of the big US
Speaker 2: auto makers as they ultimately go down this past.
Speaker 1: That would be an interesting idea. But I'm curious, Gene
Speaker 1: just to go back to a called Dan made earlier
Speaker 1: about robotaxi in thirty cities. I mean, we've seen Elon
Speaker 1: Musk set deadlines and let deadlines go quite a few
Speaker 1: times over the years. Does Tesla need to expand robotaxi
Speaker 1: to that extent to keep investors satisfied?
Speaker 2: I just love that Bowld call.
Speaker 3: They don't need to get there, and I guess is
Speaker 3: Dan's sense is the same. They don't need to get
Speaker 3: to that level to satisfy expectations in the movie the
Speaker 3: stock higher. So at a point of reference there in
Speaker 3: two cities today. They recently in Austin went to no
Speaker 3: safety driver, but there's also no customers in there either,
Speaker 3: and it usually takes three to six months. I've recently
Speaker 3: done some deeper work in terms of how the approval
Speaker 3: process works in terms of local municipalities up to the
Speaker 3: state level, and it is the state's playoff of each other.
Speaker 3: And so to Dan's point is that they, let's say
Speaker 3: three six months from now, they start to get some
Speaker 3: good feedback in terms of how they're doing without a
Speaker 3: safety driver in the car. Other cities will use that
Speaker 3: to quickly turn it on. And the beautiful thing about
Speaker 3: Tessa's model of courtse is they can turn it on
Speaker 3: in a heartbeat. I mean they can build these cars
Speaker 3: at thirty thousand a piece. That's for like a Model
Speaker 3: Y autonomous and eventually the cybercab and Waymo just can't
Speaker 3: do that. I mean they're at one hundred thousand plus.
Speaker 1: In the time we have left with Dan Ives, global
Speaker 1: head of Tech Research at web Bush Securities and Deep
Speaker 1: Water Asset Management spnaging partner gene Monster. I want to
Speaker 1: look outside the mag seven to some of the other
Speaker 1: big techs that you guys follow, what we should be
Speaker 1: looking at in twenty twenty six as we think about
Speaker 1: this sector. Dan, I'll start with you, which companies are
Speaker 1: you really focused on in the new year to outperform BOK.
Speaker 2: It continues to be you know, MESSI AI pallunteer in
Speaker 2: terms of front and center on the use cases. But
Speaker 2: I think you're going to see Snowflake, Mango, dB, those
Speaker 2: are going to be some significant performers. I like when
Speaker 2: I look at the infrastructure and NEBIS that continues to
Speaker 2: be a name that Richud bullsh on, Iron Iri e
Speaker 2: n That's one where it's also a power play along
Speaker 2: with ge Veranova, It's one of our favorites. I think
Speaker 2: you have to focus on the second third fourth derivatives cybersecurity,
Speaker 2: crowdstrikes another one front and center along with Powell out there.
Speaker 1: Interesting because a lot of those running into the same
Speaker 1: kind of potential criticisms in terms of valuations. I'm thinking
Speaker 1: of Pallenteer in particular. Ge what do you think of
Speaker 1: some of what Dan's talking about there and what companies
Speaker 1: are you keeping an eye on that could outperform?
Speaker 3: It all makes sense, and you know his he'll forget
Speaker 3: a day or he just knows infinitely more on some
Speaker 3: of those companies than I know. And when I think
Speaker 3: about kind of the expectations around some of these, and
Speaker 3: I mentioned Apple and Google on the mega cap and
Speaker 3: then it'll be kind of fun we maybe we can
Speaker 3: play this sound.
Speaker 2: By when we joined in the middle of the year,
Speaker 2: how this is going.
Speaker 3: But I think that the small cap index, which we'll
Speaker 3: just use the PSCT as that it is going to
Speaker 3: outperform the cues. And so that's kind of the sub
Speaker 3: five hundred billion dollars. Still believe you should own the
Speaker 3: mega caps, but I think you're going to see better
Speaker 3: performance from some of these small caps in twenty twenty six.
Speaker 1: You keeping an eye on some small caps, Dan, okay.
Speaker 2: I mean there's a handful of small caps, you know,
Speaker 2: specifical on like cybersecurity. I think there's number names like
Speaker 2: Tenable Qualis. I think there's a number of names that
Speaker 2: on the power side that could be super interesting. Names
Speaker 2: on the software side like PEGAS Systems. Look, I think
Speaker 2: you look at like as Gene said, second, third, fourth
Speaker 2: derivatives across AI. That's where I think some of these,
Speaker 2: you know, gold maybe at the end of the rainbow
Speaker 2: could be interesting.
Speaker 1: So does that point to the idea that we could
Speaker 1: see something of a rotation, like there's been a debate
Speaker 1: on in the broader market within big tech, maybe a
Speaker 1: rotation or a broad dig away from the magnificent seven
Speaker 1: names into more of the tech space, Dan, Or is
Speaker 1: that something you're thinking about.
Speaker 2: I think it's a broadening out. But it's still going
Speaker 2: to be led by big tech and led by the
Speaker 2: core AI revolution names, but it's it spread to second, third,
Speaker 2: fourth derivative, and you're gonna see that spreading out. And
Speaker 2: I could argue even you're gonna have an AI ripple
Speaker 2: effect to financials or healthcare, a broadening of the market.
Speaker 2: But do remember text no lef Lean one hundred miles
Speaker 2: an hour in a Ferrari. I'd rather have that, Yeah,
Speaker 2: you'll get some speeding tickets rather than being in value.
Speaker 2: You in the right lane forty five miles an hour
Speaker 2: with a bumper sticker saying Mike kez nanotuonent in third grade.
Speaker 1: So still with a very polish call on the tech sector, Gene,
Speaker 1: where are you when it comes to that kind of
Speaker 1: thinking about big tech in twenty twenty six.
Speaker 3: I'm still just thinking about that bumper sticker, big deck
Speaker 3: in twenty twenty six. I think that it's I think
Speaker 3: you should own some big tech, And I mean, this
Speaker 3: is what kind of makes some fun. I mean, Dan
Speaker 3: and I on the exact same page at the bigger
Speaker 3: picture here, there's a little nuance that I have related
Speaker 3: to some of the small cap and we'll see how
Speaker 3: ps CT does relative to the cues and companies, you know,
Speaker 3: smaller ones, smaller and cool one hundred and fifty billion
Speaker 3: dollars a risk of networks or very on the power
Speaker 3: cooling side. I mean, these companies have had just breathtaking moves.
Speaker 3: But if we're right on the bigger picture here of
Speaker 3: how much infrastructure is going to be put into place,
Speaker 3: those companies like that should do well. And I think
Speaker 3: that's going to be a positive for the small cat trade.
Speaker 2: And Nathan, I would also just say, I, you know,
Speaker 2: and I just keep trying to figure out, besides the
Speaker 2: AI revolution, how do we get Gene to wear a
Speaker 2: pink sports shock. That's something that we have to we
Speaker 2: have to just we have to figure that out. We
Speaker 2: only should.
Speaker 3: Let's we need to come up with some like market number.
Speaker 3: Then people will say, well, that's going to be the
Speaker 3: peak of the market, but I'll purchase a pink sport
Speaker 3: code at We'll figure out that number, Dan and be
Speaker 3: back to Nathan.
Speaker 1: If Dan ives and Gene Munster switch wardrobes, we will
Speaker 1: know that we have gotten somewhere in the.
Speaker 3: Text, right, I think you'd recognize either of us.
Speaker 1: But seriously, not to end this on a downer, but
Speaker 1: just quickly before we let you guys go, what should
Speaker 1: investors avoid like the plague in the tech space in
Speaker 1: twenty twenty six, gene Monster Just quickly.
Speaker 3: Well, I guess I'm just so optimistic about how early
Speaker 3: we are. I'm reluctant to pick kind of a avoid
Speaker 3: like avoid like the plague. I think we'll see how
Speaker 3: this plays out when the companies go vertical and in
Speaker 3: short amounts of time, then we could maybe have evaluation.
Speaker 2: But I'm not.
Speaker 3: I just don't have anything on my list.
Speaker 1: All right, Well, we'll end it there now, but again,
Speaker 1: always a pleasure getting you guys together this time of
Speaker 1: the year. That's Gene Monster managing partner Deepwater Asset Management
Speaker 1: and dan Ives Global Ahead of Tech Research at web
Speaker 1: Bush Securities. Thanks to both of you for spending the
Speaker 1: entire hour with us, and thanks to you as well
Speaker 1: for bringing in part of your new year with us.
Speaker 1: I'm Nathan Hager, wishing you many happy returns tech or
Speaker 1: otherwise in twenty twenty six. Stay with us Top stories
Speaker 1: global business headlines coming up right now.