Big Technology Podcast: Detailed Summary Episode Title: The Apple Paradox, Trump’s Impact on Markets, NVIDIA Demand — With Dan Ives and Stephanie Link
Host: Alex Kantrowitz
Release Date: October 23, 2024

1. Introduction

In this episode of the Big Technology Podcast, host Alex Kantrowitz engages in an in-depth discussion with returning guests Stephanie Link, Chief Investment Strategist at Hightower Advisors, and Dan Ives, Managing Director of Equity Research at Wedbush Securities. The conversation delves into the current state of major tech giants, focusing on Apple’s surprising market performance, the potential impact of a Trump presidency on markets, NVIDIA’s burgeoning demand, Amazon’s strategic positioning, and the escalating antitrust concerns surrounding big tech.

2. Apple’s Surprising Market Performance

Apple's Stock Surge:
Alex Kantrowitz opens the discussion by highlighting Apple's paradoxical situation—despite certain product slowdowns and challenges in key markets, Apple's stock has surged by 42% since April, reaching a valuation of approximately $3.5 trillion.

Dan Ives' Perspective on Apple’s Growth Drivers ([02:38]):
Dan emphasizes three primary factors driving Apple's growth:

1. iPhone Upgrade Cycle: With 300 million iPhones expected to upgrade within four years, he forecasts an unprecedented year with over 240 million units sold.
2. AI Integration: He posits that 20% of the global population will engage with AI via Apple devices within the next 12-18 months, potentially generating an additional $10-15 billion annually in services.
3. Shift to Services: Ives believes Apple is evolving into a services-centric company, projecting the valuation of its services segment to approach $2 trillion as annual revenues reach $125-150 billion.

Stephanie Link on Contrarian Investment Strategy ([05:00]):
Stephanie explains her strategic decision to increase her Apple holdings during a period of pessimism in the spring, capitalizing on underappreciated growth potential:

• Market Positioning: Apple holds a 6.4% weighting in the S&P 500, prompting her to bolster her position when sentiment was negative.
• Global Sales Dynamics: Despite challenges in China, Apple's expansion in India presents significant growth opportunities, aligning with Tim Cook's strategic goals.
• Long-Term Growth: She anticipates continued growth in Apple’s services and AI-driven applications, suggesting a patient investment approach to capitalize on future gains.

Debate on Apple Intelligence vs. Upgrade Cycle ([09:37]):
Alex raises the question of whether Apple's growth is primarily driven by its AI initiatives or the natural upgrade cycle of its devices. Dan defends the importance of both, asserting that even without AI, the upgrade momentum alone would sustain Apple's growth. He emphasizes Apple's strategic positioning as a gateway for consumer AI interaction, likening it to Oracle’s role in enterprise AI.

3. Trump’s Potential Impact on Markets

Trade War and Tariffs:
The conversation shifts to the implications of a potential Trump presidency, particularly concerning trade relations with China. Both guests express concerns about increased tariffs and the resultant strain on Apple's revenue streams, given that China constitutes about 20% of its earnings.

Dan Ives on Market Sentiment ([21:19]):
Dan outlines the negative repercussions of a Trump win:

• Trade Tariffs: Potential doubling or tripling of tariffs could hurt consumer-facing companies like Apple.
• Antitrust Stance: A Trump administration might adopt a more aggressive antitrust approach, further pressuring big tech companies.

Stephanie Link’s Insights ([19:07]):
Stephanie elaborates on the broader market impacts:

• Consumer Discretionary Stress: Increased tariffs would elevate costs for consumer goods, adversely affecting companies reliant on consumer spending.
• Political Gridlock: She notes that a divided Congress could lead to legislative gridlock, limiting the administration's ability to implement sweeping changes, which the market generally prefers for its predictability.

Market Certainty Post-Election ([22:18]):
Both guests acknowledge the historical trend of market acceleration following presidential elections due to the newfound certainty. However, they discuss whether this cycle will continue or if political dynamics under a Trump administration might alter this pattern.

4. NVIDIA’s Explosive Demand

Blackwell Chip Success ([30:01]):
Alex shifts focus to NVIDIA, highlighting the overwhelming demand for its new Blackwell chip despite skepticism about its necessity given the potential for custom chip solutions.

Dan Ives on Supply-Demand Dynamics ([30:01]):
Dan underscores the robust demand, citing a 15:1 demand-to-supply ratio in Asia, and anticipates NVIDIA's market cap reaching the $4 trillion mark within months based on projected earnings of $6 per share and a 30x multiple.

Stephanie Link’s Valuation Concerns ([30:32]):
Stephanie expresses caution regarding NVIDIA's high valuations, noting that although the demand is strong, investors should diversify rather than concentrate solely on NVIDIA due to its elevated price-to-earnings ratios.

Broader Implications for AI Infrastructure ([33:25]):
Dan elaborates on the interconnectedness of AI advancements with other industries, such as energy and data centers, highlighting the necessity for substantial investment in infrastructure to support AI growth.

5. Amazon’s Strategic Positioning

Cultural and Leadership Challenges ([36:21]):
Stephanie addresses recent cultural issues within Amazon, particularly criticisms of CEO Andy Jassy’s leadership and concerns over strategic spending on initiatives like satellite internet.

Growth Drivers: AWS and Advertising ([36:21]):
Despite these challenges, Stephanie emphasizes Amazon’s robust growth in:

• Amazon Web Services (AWS): Growing at 19-20% with 33% margins.
• Advertising: Expanding at low double digits with 50% margins, contributing significantly to Amazon's profitability.

Advertising Business Success ([39:01]):
Stephanie attributes Amazon’s burgeoning advertising success to its vast consumer data and AI-driven analytics, positioning it as a formidable competitor to established ad giants.

Dan Ives on Leadership and Cloud Expertise ([40:10]):
Dan praises Jassy’s expertise in cloud computing, comparing his strategic acumen to a top-tier player in the industry, and anticipates continued growth driven by Amazon’s leadership in AWS.

Valuation and Market Perception ([41:08]):
Stephanie notes that Amazon is trading at a more attractive valuation than Apple, with a forward P/E of 32 compared to Apple’s 35. She suggests that Amazon’s strong free cash flow and strategic growth areas make it a compelling investment despite current market sentiments.

6. Antitrust Issues Facing Big Tech

Government Scrutiny and Legal Battles ([42:32]):
The discussion turns to the increasing antitrust actions against major tech companies, with Google recently losing a significant antitrust case that could lead to business model adjustments.

Dan Ives on Long-Term Implications ([42:32]):
Dan draws parallels to Microsoft’s lengthy antitrust battles, suggesting that while immediate impacts may prompt business model tweaks, fundamental operations of companies like Google are unlikely to be dramatically altered in the short term.

Stephanie Link on Potential Spin-offs ([43:09]):
Stephanie speculates that antitrust pressures might lead to spin-offs, potentially unlocking greater value by allowing companies to focus on their core competencies without the burden of regulatory overhang.

Alex’s Analogy to Elon Musk’s Twitter Acquisition ([44:18]):
Alex compares the current antitrust environment to Elon Musk’s contentious acquisition of Twitter, noting a shift from big tech’s perceived immunity to government intervention towards a new era of regulatory challenges.

7. Concluding Remarks

As the episode wraps up, Alex briefly touches on geopolitical tensions, particularly regarding Taiwan and potential conflicts in the seas, and their uncertain impacts on the U.S. economy. Guests reiterate the importance of long-term investment strategies amidst political and economic uncertainties, emphasizing diversification and patience.

Key Takeaways:

• Apple’s Growth: Driven by a robust iPhone upgrade cycle and strategic expansion into AI services.
• Market Volatility: Potential Trump presidency poses risks through increased tariffs and antitrust actions, but market reactions remain nuanced.
• NVIDIA’s Demand: Exceptional chip demand supports strong stock growth, though valuations warrant caution.
• Amazon’s Expansion: Despite internal challenges, Amazon’s AWS and advertising sectors present significant growth opportunities.
• Antitrust Scrutiny: Increasing regulatory pressures may lead to structural changes in big tech, necessitating adaptive investment strategies.

Notable Quotes:

• Dan Ives on AI and Apple’s Services:
  “Next 12, 18 months, 20% of the world ultimately is going to access AI... it’s going to be an incremental 10, 15 billion per year of services.” ([02:38])

• Stephanie Link on Contrarian Investing:
  “I added to it because I kind of felt like I wanted to be the other side. I wanted to be the contrarian.” ([05:00])

• Dan Ives on NVIDIA’s Market Potential:
  “You're probably going to be looking at $6 or earnings for Nvidia and then like where you put a 30 multiple on it.” ([30:01])

• Stephanie Link on Amazon’s Advertising Success:
  “Advertising is still very small and it's very cyclical... margins are crazy at 50%.” ([39:01])

• Dan Ives on Antitrust Impacts:
  “Eventually, it’s gonna be Apple also and others coming down the pikes... settlements and business model tweaks, not massive changes.” ([43:09])

This comprehensive summary encapsulates the key discussions and insights shared by Alex Kantrowitz, Dan Ives, and Stephanie Link, providing listeners with a thorough overview of the episode’s main topics and expert analyses.