The Apple Paradox, Trump’s Impact on Markets, NVIDIA Demand — With Dan Ives and Stephanie Link

Summary

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.

Transcript

[Alex]

2 All Star Stock watchers join us to talk about Apple's fascinating state of affairs. Plus plenty more on Nvidia, Amazon, Meta and others. That's coming up right after this.

[Michael Kovnat]

Hey, I'm Michael Kovnat, host of the Next Big Idea Daily. The show is a masterclass in better living from some of the smartest writers around. Every morning, Monday through Friday, we'll serve up a quick 10 minute lesson on how to strengthen your relationships, supercharge your creativity, boost your productivity and more. Follow the Next Big Idea Daily wherever you get your podcasts.

[Tomer Cohen]

I'm Tomer Cohen, LinkedIn's chief product officer. In my new podcast, Building One, I interview some of the best product builders out there. People at the intersection of dreaming and building and learning. Together, you and I will learn from their experiences. If you're just as curious as I am, follow Building One wherever you listen and check out the conversation on LinkedIn.

[Alex]

Welcome to Big Technology Podcast, a show for cool headed nuanced conversation of the tech world and beyond. We are going to go deep into the state of big tech, especially Apple, but also Nvidia, Amazon, Meta and others. And we have such a great group here with us today because we're joined by Stephanie Link, the chief Investment Strategist in portfolio Portfolio Manager at Hightower Advisors. Stephanie, welcome.

[Stephanie Link]

Thanks for having me, Alex.

[Alex]

And Dan Ives is also here. He's the Managing Director of Equity Research at Wedbush Securities. Dan, great to see you. Thanks for coming back on the show.

[Dan Ives]

Great to be here.

[Alex]

Awesome and great to see you both. Both repeat guests. And we're going to take the show on the road in Savannah at the Hightower Conference. Stephanie, looking forward to that. That's going to be on Thursday, right?

[Stephanie Link]

Yeah, Wednesday and Thursday. And we have over 250 advisor teams and we're going to be doing lots of videos with both Dan, hopefully to talk to and show how smart you are to everyone in the technology world.

[Alex]

Looking forward to it. And now I want to talk about Apple because Apple is a paradox to me. Apple is up 42% since April. 42%. And it's like a three and a half trillion dollar company. And so I'm like okay, well what is going to make Apple so special? And I'm looking at the bets. Apple Intelligence. To me, I don't want to say it's a dud, but it really is not that impressive. Objectively looking at like the advance in technology, the Vision Pro is nearing dud territory. I don't know, maybe it has a long term path, but I Don't see it as that impressive. And then of course the company has had slowdowns in China. So why are the headlines and the action in the stock so different? Dan, what do you think?

[Dan Ives]

And look out me and you've talked about this one for years, right? And I know like we, we've differed in our views. I mean my look, my fundamental thesis, it's really threefold. One, there's 300 million iPhones that have an upgrade in four years. So regardless of what you want to say about Apple intelligence, if it's going to be rolled out in October, November, January, February, in the next for this fiscal year, this will, unless some black swan event happens, be the strongest iPhone unit year ever historically. So I think over 240 million in terms of units. The second is that it's our view, regardless of timing, next 12, 18 months, 20% of the world ultimately is going to access AI, especially as more developers build apps through an Apple device. So just as Nvidia and Jensen control enterprise AI along with Microsoft, my view is from a consumer AI perspective the monetization here we think it'd be ultimately an incremental 10, 15 billion per year of services. And the third is look I think and Stephanie tobag from evaluation and I just continue to view this as more and more it's essentially a services company, a software services multiple and that services piece that at one point was valued 500 billion. I think it's going to be closer to 2 trillion in terms of the valuation as that reaches 125, 150 billion per year. That's that at the core is our thesis.

[Alex]

Okay, one quick follow up to then we're going to go to Stephanie. But you know there have been all these people with old iPhones that are like poised to upgrade and it seems like that pool has not upgraded as fast as everybody's expected and that's why the service has become so important. But didn't Apple have like five of six or four or five quarters of revenue deceleration? And the company is just like it. This, it is an iPhone company. It's reliant on the iPhone. People are hanging on to them longer which is okay, great companies making a good product, we'll celebrate that. But the services revenue hasn't exactly made up for the fact that people are hanging onto these phones for so long.

[Dan Ives]

Yeah, it's a great point. I what I'd say is that first off Dave gained about 300bps of market share in China in the last two years. So despite all the Sort of doomsday scenario. They've gained about 300 bips of market share from essentially Android users or Huawei to Apple. Clearly over the last year that's been a decline. But Alex, if you look at comps, the next year China's going to be up 15, 20%. And that's why, like the bears, when they come out of hibernation mood with iPhone, mathematical gymnastics, trying to scare people. The reason the stock's not doing anything, because institutional investors are reading through it and seeing ultimately numbers probably have to come up 10, 15% for the year.

[Alex]

Right. Are you calling me one of the bears doing the gymnastics or.

[Dan Ives]

Oh, I don't think you're a bear. I think there's many that have been bearish on this for the last 2 trillion.

[Alex]

Yes.

[Dan Ives]

And every iPhone cycle they come out with pre. I mean, we've been, we've been to Asia, what, two times in the last eight weeks. So the point is, I feel pretty good with our supply chain checks. And that's why I always say, like, it's hard for the bears to find AI in their spreadsheets.

[Alex]

Right. I'm going to talk about China in a bit, but let's go to Stephanie. I mean, Stephanie, is it not puzzling at all to you that we have like again, these kind of bad headlines, but unbelievable growth?

[Stephanie Link]

Well, Alex, I think it's all about positioning first and foremost in the S&P 500. This is about a 6.4% weighting. It's a big weighting. Right. If you're going to own the weighting, you have to have 6% of your portfolio in this thing. And I would say the majority of people, especially in the spring, were way underweight, by the way, myself included. Totally myself included. I've had like a 1% weighting in the beginning of the year. And then all of a sudden like April and May came and it was gloom and doom and downgrades and numbers were getting cut and there was no line of sight of any growth of any kind for Apple in the springtime. And that's actually when I thought, okay, I gotta start adding to this position because it was so. People are so negative and so offside and maybe they had a reason to be somewhat cautious because the last, the prior four quarters were really nothing to be so excited about. It was a transition four quarters. So I added to it because I kind of felt like I wanted to be the other side. I wanted to be the contrarian. And everybody was on the other side of the boat. So that was Number one, and I totally believed at the time that AI would be certainly a positive. Would it be the super cycle? Is 16 going to be the super cycle? I'm still not convinced of it, but it would be the beginning of a change of tone. So that was Number one. Number two, as Dan mentioned, you've got 300 million people around this world that haven't upgraded an iPhone in four years. So I mean, my goodness, even if you took half of that number number, that is still more than what people at the time in the spring were forecasting because they really did cut numbers. And at the same time, I totally believe what Dan said. In terms of China, oh my goodness, the sentiment was terrible. China was never going to grow an iPhone again and they were losing all kinds of market share. And so I thought the setup was pretty good. In the meantime, during all of that kind of malaise over the prior four quarters, gross margins and operating margins rose in every single region except China. This company has done a masterful job. We know the free cash flow and the buyback that they had in place back in the spring. And so I liked this setup. Fast forward to today. We're up 37% since May, since when I was adding to it. And that's a heck of a move. That's a heck of a move. And everybody now has gone the other way of like iPhone 16 is going to be the revolutionary phone. I'm not quite sure. I think that maybe 17 and 18. I feel really good about those phones. I'm not so sure that 16 is going to be the blow away, but the expectations are still kind of muted. But I'm going the other way and I've been taking some profits in it, only because when I have Apple now trading at 35 times forward estimates with a 37% rally, I think that there are other names out there to be more excited about. In fact, I know we're going to get there. But Amazon is actually cheaper than Apple at this point in time and has majorly lagged. So I'm kind of looking for where is a little bit of the offset now. Long term services I do think is going to be a home run. I think AI is going to be an absolute home run for the apps business. So I think you just have to be patient.

[Alex]

But we've talked about this like in this conversation and let's just kind of put a point on it. Is it Apple intelligence or is it just the fact that like Apple's poised for an upgrade cycle because maybe the headline is that it's Apple Intelligence. But the upgrade cycle might be the thing.

[Dan Ives]

I think that's always been our, that's always been our contention, right? Like in other words like a lot of people, you know, we, we hear so much negativity like oh you're wrong. I'm like look, this upgrade cycle in itself without AI, the stock's going to work. The AI piece is ultimately the start of how most consumers in the world are going to eventually interact with AI. And I think look, WWDC me and you were there together, right? Like stocks 190 investors like oh this is so disappointing. Think about that's, you know, in June and I remember like we would talk, right? Like our whole view is like Apple basically said we now will be the castle for AI and if you want access to it, you got come through Apple Intelligence clearly open AI. I eventually think meta Google are going to have to make the same move. I think Alex, in my opinion, I think that's more the call.

[Alex]

I hear what you're saying. I'm not fully buying it but I think that we could debate it forever and we won't really know until this stuff starts to get. You're like, you're right get into the hands of and you have great views.

[Dan Ives]

And you have great. Every time like we, we talk you'll see things where I'm like that's, you don't know because that's, I think it's very important a name like this, you always want to like, you want to hear different points of views. I think a lot of times that's, that's sometimes big people biggest downfall. Right? You want to understand like both sides of it, right?

[Alex]

I could be wrong. So let's see but let's talk about. I'm just going to, you know, keep on this line of questioning because we've talked about China a couple times in this conversation and Apple's had like quite a decline in China in terms of revenue there. And China makes up what, 20% of Apple's revenue. So the numbers came in and they looked quite good for the first three weeks of the iPhone 16. The iPhone 16, according to Counterpoint Research, is selling 20% more than the last cycle of the last iPhone, iPhone 15. And that's great. It looks like Apple is going to be reversing this trend. But then you look at the total sales of Apple and Counterpoint says that Apple has still dropped 2% in China because the older models are not selling as well because Huawei phones are starting to take that share. So Dan, I'VE heard you say that the state of the art Huawei phones are as good as an iPhone 14. And that sort of computes right, because if you're, you know, deciding between a Huawei and an older iPhone, seems like people in China are going with the Huawei, which is hurting Apple's total sales. What do we think about that?

[Dan Ives]

Yeah, I mean, look, we've seen that share shift over the last year, but it goes back to the last two few years. They've gained 300 bips of market share. They could give back 100 bips. But if you look the biggest opportunities, you have 100 million iPhones in China that are in a window of an upgrade opportunity. And then I think the big X variable Does Baidu and Apple strike a deal where Baidu becomes ultimately the AI partner. If that, like if you said to me the biggest catalyst that could happen on the name, it's that.

[Stephanie Link]

See, I actually think a big opportunity for Apple is India. I mean, we can worry all you want about China. I get it, I understand it's a big part of their business. But you know, Tim Cook makes one iPhone for every seven in India, and his goal is to get from one iPhone to every four in India. And they have 1.46 billion people. And 40% of those people are 25 years old and younger. Who's your iPhone buyer? 25 years or younger maybe. But the point of it is the consumer is going to double between now and 2030. And you know, we can talk about other things. I know we all, we want to talk about technology in general, but I got to say, like, Prime Minister Modi is pro growth in every way and he is pro consumer in every way. And so to me, you have on the margin companies that are leaving China and going elsewhere. That's part of this whole onshoring reshoring thing that everyone's talking about now. They weren't talking about it a year ago, but that's what you're. Whenever you talk to these companies, they'll tell you that they don't want to be in China as much. They don't want to be as dependent on China. They want to be more diversified. And so I think when Tim Cook goes over to India, oh, by the way, once a month, like, that's pretty cool. And I think that that's where your opportunity is. It's not going to be next year. It's not. So we have to think more like three to five years down the road. But to think of that many people in a country, they're going to be the third largest country in the world by 2030. So I think they want to have a piece of that pie for sure.

[Alex]

Yeah, that's an excellent point. And this idea of companies hedging away from China, I mean, one of the questions I had written down before we hopped on is, is Apple intelligence ever going to be available in China? Because China reviews very closely what AI products roll out. And maybe not, by the way, maybe it will never be available in Europe because of European regulation.

[Dan Ives]

I mean, the way Europe's going, I mean, you're going to have every country in the world is going to be ahead of Europe when it comes to AI, scare their own shadow.

[Alex]

But it is also one of those things that computing phones are going to become more important. We're not in the AR AI world right now. Phones are going to be important. And as more of the world becomes, you know, comes online and, you know, decides that it wants the state of the art phones, it's good news for the state of the art phone maker to have massive, effectively yet to be saturated markets like India that they can grow in.

[Stephanie Link]

And it's funny, Alex, I think when I think of AI and how powerful it is, it makes me actually even more bullish on cybersecurity. I mean, I think that those are your two themes. You talk to, you guys talk to ctos more than I do. But I talked to my own company, cto and they only have a budget, a finite budget, and they actually are spending in two places. It's AI because they have no idea what it means for their business and it's cyber because they can't wake up one day and lose their business. And so you're going to see double digit growth in both AI and in cyber. I hope somebody gets it right in cyber because so far you have way too many vendors and no one's talking to each other and you got cybersecurity companies getting cyber attacks in and of itself. So I actually think that people talk about AI as, you know, this whole, it's huge, total addressable market. It is, but cybersecurity is just as big and if not bigger because of AI. And so I think that's another area, another theme that should be owned within the next decade or so.

[Dan Ives]

Yeah. Now just on that point, and I know Stephanie, a huge fan of CrowdStrike, you know, and like we've talked, I think like pow. Although zscale. I think the other thing that's starting to happen, we've seen it happen over the last few Months. Based on all of our checks in cyber. You're now starting to see as more and more workloads move to the cloud, more and more of these LLMs, even on the experimental side, you gotta protect it. AI is gonna be a direct beneficiary for Cyber. Call it second, third derivative. That's just gonna add CyberArk, Palo, Zscaler, CrowdStrike, Octa, others.

[Alex]

Yeah, I will say that I'm working with a company right now too, that's taken some of my podcast episodes and has effectively cloned my voice so it can read like narrate some of my newsletter articles. And that's a good use. I mean we have a deal. There's a, you know, we, it's consensual. Right. But like there's a negative side of that, which is that what if a company. I don't even want to give. Speak this into the universe. But what I should speak to my family about this right now. A company takes my episodes, clones my voice and like calls, you know, one of my relatives panicked on the side, you know, saying I'm on the side of the road and I need you to send me money right now. It could happen. So there's a negative. And that's why I think cybersecurity becomes important. But I really shouldn't give.

[Dan Ives]

Yeah, but Alex, if this idea, if, if all of a sudden I heard your voice and it wasn't a 516 area code, I'd hang.

[Alex]

That's right. I know they'd have to spoof Long island. So thank you for sharing.

[Dan Ives]

I know, I mean it's about 5, it's about 51 6. Right? So if it's not 516 9. Alex. So let's just be clear.

[Alex]

Let's do it. So scammers, stay away from the Long island area code because I will, I'll find you and there'll be a price to pay. Last thing about Apple, because how could we have this conversation and not mention it? What happens to Apple if Donald Trump is elected? Because he is going to start a trade war with China. And you know, maybe over time this India thing is going to be fine, but they still need that 20% of revenue coming in from China. What do you think, Stephanie?

[Stephanie Link]

Wow. I think it's not going to just be Apple, unfortunately. I think it's going to be. I think the initial knee jerk reaction will be sell Apple, sell semiconductors and in spades because they've all done so well over the last several years, even with the President Biden's tariffs because we know that he kept a lot of tariffs on. But you know, you listen to what Trump is saying and he's talking about doubling and tripling the tariffs over there. So. And it's not going to just be technology. I mean, I think one of the reasons why today, and you know, you guys focus a lot on tech. I focus on a lot of the market in general. I don't know if you saw but like consumer discretion got hit so hard today because of that. All of a sudden the, if Trump gets in, how are these companies going to get goods? And it's going to be more expensive. It's going to be across the board probably for a lot of consumer companies. And that is really Apple. It's at its true core. It is a consumer company. So it will get hit. Maybe that's your opportunity. That's why I say, you know, when everybody goes from one side of the boat to the other and the stock rallies, it's not bad. It takes them off the table again from an active portfolio management basis. But if you're a long term holder, you're going to survive it. Maybe the Trump tariffs are more of just kind of like a threat and a bargaining chip. I don't know. He seems to be pretty serious about it, but the level, we just won't know. But I think that is that certainly was starting to creep into the marketplace because it will not be good news.

[Alex]

Right. Dan, I want you to weigh in on that. And then also there's this notion that the stock market tends to accelerate and do quite well after the presidential election, no matter who wins. Because this area, you know, these, these months of uncertainty that you finally have certainty, the market likes certainty, there's a new president, that's going to be the president. Stocks go up. I'm curious, like, again, like think, tell us a little bit about what you think the impact of a Trump election will be. But then also more broadly, is this going to be like one of those elections that bucks that trend where no matter if it's Trump or if it's Kamala, because we all know a lot of part big portion of the business community is in favor of Trump and probably betting that he's going to win with their investments. If it's Kamala, do they end up pulling out of the market? So could we end up seeing a very different result than we've seen in previous elections?

[Dan Ives]

Yeah. And I'd say like especially just getting back from a few weeks in Asia, like on the investors, I mean that's always Like a, like a top two or three question. Look, we view it pretty simplistically where Trump gets in, if he gets in it is very negative for the AI trade initially semis tariffs retaliatory for Apple, Tesla, JD Vance likely keeps con in. Right. From an antitrust person, I think the view is Harris gets elected despite all the, you know, sort of antics. I think cons out so which would be bullish for tech from an FTC perspective. So no doubt like I don't. When you say the biggest risk to the mark from attack trade it's not like inflation earnings demand to me it's really Trump gets in. Stephanie talked about that jolts the trade because of the fear what's ahead that.

[Stephanie Link]

I would say this. So just be careful because. And that's why you want to look for opportunity because if Trump gets in and you got to mix Congress, he's not going to be able to get as much as he wants to get done. If you have a, if you have a red or a blue sweep, that's problematic for the overall markets just in general. So that's why it's more Congress in my mind. And then I would just simply say without getting. I don't not want to get into politics but I would say this. Whoever gets in, they are both spenders, they just spend it differently. So if you think that we are going to address the deficit, which is another big question when I talk to clients as are we ever going to fix this thing? I think you're going to fix it for quite some time. I think my 17 year old and our 17 year olds are going to probably have to deal with it later down the road because we kicked the can. But for sure tariffs are a headline risk. But watch the mix to see exactly if that's an opportunity or not. I think if it's a mix it is an opportunity down the long term.

[Dan Ives]

And the split, nothing gets done in the beltway which is bullish.

[Stephanie Link]

That's right.

[Alex]

Let's just pause there and talk about that because it's so interesting to me that the market just doesn't want the government to operate. I mean you would think it would be the opposite, right? Why, why is that good for markets and is it short surprise?

[Stephanie Link]

The market doesn't like surprise. The market doesn't like to. We do climb a wall of worry on a lot of things, but we always climb a wall of worry. In fact, I worry when we don't worry because that means we're complacent. But if you have a Split Congress and not a lot gets done. It's gridlock. There's only a few things that the president can really address now. Tariffs are one of them for sure. But you do need approval and you do. Yet you do need a process has to be put in place. They'll, he'll also be able to deal with immigration a little bit more and that sort of thing. So there are things that can get done. But for the most part, overarching sweeping changes will be very, very difficult to get done. And that's what the market likes because if it is a sweep, then we have no idea what's going on and we have no idea what's going to get passed.

[Alex]

Yeah. Okay, last thing about this, let's say we do end up in some sort of trade war. We've seen China be quite aggressive in the seas, especially around Taiwan. And there's some fears maybe that there could be a blockade there. I mean obviously that could be go even further to a takeover. But what do we think about that in terms of what would happen actually to the US economy if that situation played out?

[Dan Ives]

I just, I mean just being, I just come back from Taiwan in the air, I, I think there's a view that that's just very low likelihood that that's going to happen. Now look, in Hong Kong you definitely sense some seat changes in terms of what we see. But look, we're always going to have these sort of as Stephanie talks about a lot like black swan tail event. I just continue to view it as just a, just a very low possibility. But I, look, I get it's a risk and if that happens it definitely becomes a little more pronounced.

[Stephanie Link]

What happens is also business capex and investments freezes and consumers go into hiding because we just don't know if something were to happen. It depends on how severe it is. It depends on the circumstances, the situation, how long does it last, what does it lead to? So there's a lot of questions, but that's why businesses will all of a sudden say going to cut back my spending and consumers are going to say I don't really know what's going to happen. So maybe I'm not going to go to the mall or I'm not going to go out to the restaurant or certainly not going to go traveling internationally. That is I think a short term view, but we just don't know. And it's so hard. Like I kind of find, I don't know about you guys, but I find it very hard to try to invest on politics. Number one and any kind of war. Number two, I kind of like to look at which just from an investment point of view, I don't mean to be insensitive, but when things like that happen and stocks pull back hard, I'm trying to think three, five years down the road. I know you guys are too. And it's like, okay, can I get apple back to 160? You know, like, wow, I would love to get apple back to 160.

[Dan Ives]

Right? No, I wouldn't like it. But I get your point from an investor.

[Stephanie Link]

You know what? You have to buy low and sell high. Most people say they do and they don't. They buy high and sell low because it's hard to do.

[Dan Ives]

I mean, Alex, I will tell you. Alex, I'll tell you a story. Like, I remember when Meta. And then you go out, people like revisions like, oh, I like the stock now. You're like, what? You hate it? To me, Stephanie, we're sitting there and Meta legitimately added to low the day like the disaster. Maybe stocks 85. And I. I mean, it will always be like a vivid memory where you're like, there's just. There's just no way that you don't make big money here. You pound the tape. I always remember that in terms of.

[Stephanie Link]

That day, hard to do, but thank you. I wasn't my only buy, unfortunately.

[Dan Ives]

Of course.

[Stephanie Link]

But that's how you do. But that's how you actually make money. It's like you try to dollar cost average. You know, Kramer used to tell me, and I worked for him for seven years, you want to buy a stock and then you kind of sort of hope. If you really have conviction, you hope it goes down so that you can keep buying a little bit. A little bit. A little bit. Because you don't know when it might reverse. But Meta was really, I mean, just a. Wow. Talk about everybody got on the same boat. Wow. They got really negative on that, right?

[Alex]

Yeah. Well, I do hope that we. We come out of the cycle and we're. We're in good shape. But I'm. I'm planning to visit Beijing for the first time in January, so fingers crossed, the flights are booked. Let's just everybody chill till February and I gotta go see the wall and then we can figure it out after that.

[Dan Ives]

So you're saying wait for like if the US If Trump gets in tariffs, you got to wait till you fly back to. Then we could then at least do.

[Alex]

Whatever you need to. We're going right before inauguration of whoever it is because we're going to get a new president. Everybody has to relax until then and then duke it out. I got to go see the wall. All right, we're going to talk about Nvidia and some other companies on the other side of this break. We'll be back right after this.

[Tomer Cohen]

I'm tomorrow Cohen, LinkedIn's chief product officer. If you're just as curious as I am about the way things are built, the insight behind what it takes to create world renowned products, then join me for my new podcast, Building One. Together we'll get to learn from leaders around the world, people with diverse backgrounds across multiple industries. Each will share insights into their craft. So listen and follow my new show Building One on Apple Podcasts or wherever you get your podcasts and check out the conversation on LinkedIn. It's going to be great.

[Alex]

And we're back here on big Technology Podcast with Dan Ives, the Managing Director of Equity research at Wedbush securities, and Stephanie Link, the chief Investment strategist and Portfolio Manager at Hightower Advisors. Well, we have 20 minutes and so many companies to talk about. Why does it always happen like this? So let's just quickly go through Nvidia, Amazon and Google and see where we get after that. Nvidia, big new chip, the Blackwell chip is apparently selling like crazy, despite the fact that so many folks in the tech world have said you can custom create chips to do the AI workload and you won't need to spend 40 grand on Nvidia chips. Dan, what do you think about the state of this Blackwell chip and why is it selling so well despite all these claims that people could do what Nvidia did better?

[Dan Ives]

And those claims, I mean, I'm going to play in the NBA this season. I mean, the point is like in Asia, we just, it was 15 to 1 demand to supply, really, for four months ago, it was 12 to 1. So I just view it as like you're probably going to be looking at $6 or earnings for Nvidia and then like where you put a 30 multiple on it. I mean the point is like you could easily start to get to a stock with a 2 in front of it.

[Stephanie Link]

Wow.

[Alex]

Which would put the valuation at, I.

[Dan Ives]

Mean, I think you're looking at $4 trillion mark cap again in the next three to six months. I mean that's, I think them and Apple, they battle it out for that finish line to get the 4 trillion.

[Alex]

Stephanie, are you concerned about all this, with all this AI talk that people are spending a lot of money, investing a lot of money in the AI trade, but the return on investment is not quite clear yet in terms of what you're getting for all this money.

[Stephanie Link]

Yeah, you know, and it's a really good question. It's hard to answer, but I would say this. I feel. And I don't own Nvidia, but I own Broadcom and I own Lam Research. And I got plays, I got ways on playing it. So it's fine. I think there's a lot of ways you can play it. But what I would say is because a lot of people compare this to the dot com bubble and we didn't have earnings in the dot com bubble. We were valuing companies on eyeballs, which is absurd in retrospect, but we actually have real earnings. And if Dan is right and earnings continue to go higher, then these stocks aren't nearly as expensive. Are they all over owned? Yes, they are. There is no question. I was buying Broadcom when I traded at 14 times forward estimates. It's now at 27 times, which makes me a little worried. But it's also changed, it stripes a bit in terms of software and diversification. And they have the AI and they're the number one, the number two player. So I think that's important, number one. Number two, if we didn't see these hyperscalers spending as much money as they are spending on this effort, then I would be worried. But you've got the hyperthe big hyperscalers that are actually going to invest $241 billion this year. That's up 41% and next year up 278 billion. That's up 17%. So that's real money. Are they double ordering? Of course they are. Of course they are. They can't get anything. So at some point we may like have to just recalibrate. But for the time being, the demand is there, the earnings trajectory for all of these companies is there. It's higher. And so you know, do you want to put all your eggs in Nvidia? I don't think so. I think there's a whole ton of ways you play AI. And by the way, it goes way over the gamut into the industrial space. Right? If you think, if you believe in AI, you need data centers and that's fine. We all understand that if you need, if you need double the data centers, triple the data centers, you need power. That's why everyone's talking about natural gas and nuclear power, wind and all of that. So that's a totally different way of playing it. However, the grid has not been invested in incrementally in the last 50 years. And so for all of this to work, for AI to work, you need to invest in the grid and that we are going to spend $4 trillion between now and 2050 on the whole energy part of the cycle. So that's another way of playing. I think you just spread, this is pun intended, spread your chips around in various different, in various different stocks.

[Alex]

But all this money that's being spent in all of these earnings that we're talking about, these are again, these are in the component parts, it's in the chips, it's in the servers, it's in the power, it's in the Amazons and the Microsoft's that are selling this compute to companies. The problem is that companies haven't quite figured out what to do with it. And maybe that's controversial, but if you think about the way that OpenAI, we just took a look at OpenAI's financials on a recent episode and they expect ChatGPT, not the API, to be the main driver of revenue for them in the future. So I mean, maybe this is provocative, but Dan, I like it.

[Dan Ives]

It's provocative. I love it, man.

[Alex]

It's folks, for those who are listening, I just saw quite a look from Dan being very MA of me right now, but I have to ask the questions.

[Dan Ives]

No, it's a. I love it. That's why I love the way you do. I But the one thing I'd say is look at the messy of AI Palantir. I mean that is the perfect example in terms of use cases on enterprise that are exploding. Look at what McDermott's doing at service now. I mean, so I think for the most part, I think I it's still in front of us, but the use cases are happening. I mean we, you know, we talk to customers all the time and that to me is what makes us the most bullish when we see the use cases exploding.

[Stephanie Link]

It's. I think it's going to take a long time for us to really get comfortable with the monetization of all of this. I don't think though, if we just wait for that to happen, I think you're going to lose a lot of money in the meantime or you're going to miss out on a lot of things. And I'm not saying again, own everything in Nvidia. I'm not, I'm saying find some spots where you want to have exposure. And oh, by the way, the other industry that's exploding higher is utilities for the same reason as industrials. The same reason as AI. So there are plenty of ways to play this. If we wait for these companies to show supreme results. I just, I think that's, I think you're going to miss some. I think you are.

[Dan Ives]

Because to some extent it's like you focus on trying to draft Brady's six round A.D. michigan, 2000 draft, not 10 years later. Right. Like in other words, like if you shoot bulls and already the goat, that's the hard part. Right. It's like it's making those bets.

[Stephanie Link]

I mean, I got Aaron Rodgers, you know, like, what does that got me here?

[Alex]

Nothing.

[Stephanie Link]

So sorry, but there's that.

[Alex]

Yeah, yeah. Okay. Let's, let's go to Amazon. So Amazon, cultural issues there, don't we. We think there's some cultural issues. They're trading cheaper than most folks. We had Josh Brown on last week said there's no coherent story on it, which I think is right. Stephanie, you just bought a bunch of Amazon. And by the way, I think it's a good point in the show to say this is just for informational purposes, not investment advice. But I'm curious what you see in Amazon that others don't.

[Stephanie Link]

So it goes back to sentiment. So since Amazon reported last quarter, it's up 1.9%, the Nasdaq is up 6.9%. All of a sudden we have some downgrades, some lowering of numbers. There's now cultural issues that came out of left field that Jassy went from hero to dud. He doesn't know what he's doing. He's overspending. Now look, a lot of the concerns have to do with the fact they are spending a lot, especially on this remote broadband, which I would love to get both of your opinions on if you think that really makes sense. But if I look at the numbers in terms of what they're spending on remote broadband, satellite Internet is what I'm talking about. It's going to be like $338 million in the second half of this year and it'll be about 1 billion next year. That's less than 0.4% of opex. They are going to generate free cash flow this year of $48 billion. So let's just put that to bed right there. Now, I think retail is certainly not struggling, but certainly not doing barn burner numbers. But I think it's because you have an uneven consumer. You have the haves and the have nots. You have Walmart, Costco, Target, Amazon, the haves. And you got dollar stores and you got department Stores that have not, you won't want to touch those. I don't care how cheap they get. So if I don't think they're going to spend, crazy, and I think they're going to spend, but it's not going to be that crazy. And I think retail is going to hold in. And the margin side, North American margins can get to like upper single digits, which I think they can. That's okay. But I think the real story of Amazon is AWS growing 19, 20% with 33% margins. You have advertising growing up low double digits with 50% margins. And collectively those two businesses are right now they are about 24% of total revenue. That's going to get to 31% by the end of this decade. And I know a lot can happen between now and the end of the decade, but just hear me out. Like you're going with your two highest margin businesses expanding as a percentage of the total pie. And I think you're going to see a CAGR of about 20% for the next five years at this company versus Meta at 13% and versus Google at 12.8%. So I think the growth is there. The expectations are really low. This stock always goes from hated to loved to hated to loved. And right now it's hated.

[Alex]

Okay, but let's talk about this advertising side of things because it seems to me like Amazon has built an advertising business out of nowhere and it's like one of the most successful. Like if it was a standalone business, it would be one of the most successful ad businesses. It's contributing so much to Amazon profit. I mean, how important is this ad business and how did they do it, Stephanie?

[Stephanie Link]

Oh, okay. So how do they do it? Well, I mean, I think number one, a lot of it is AI behind the scenes and I think it is, you know, a lot of the technology that they have put in place, I think they have talk about eyeballs. We know how many eyeballs they have in a lot of their different businesses. And so I think there's a couple of ways that you can win, to be honest with you. So advertising is still very small and it's very cyclical. So let's not forget that. Let's remember that during COVID it fell dramatically over 50%. Everybody's advertising business did. But if you believe, like I believe the US economy is actually a little bit stronger than expected and will stay a little bit stronger than expected. Clearly this is where the eyeballs are going to. They're not going to legacy tv. I mean, we haven't even talked about kind of all the prime and NFL and all the other things that are happening. But there's so many ways to win on the advertising front into a strong economy. And I think maybe even if we do slow, maybe we get back to 1 1/2% growth in GDP, maybe you'll see a slowdown. But I think some of these other businesses, they're getting so entrenched with people and so that's why I think that business can grow. I mean margins are crazy. Town at 50%.

[Dan Ives]

Dan, Alex, I would just add this first of all, Jassy, in my opinion it's a top three or four individual in the world that understands cloud okay.

[Alex]

Yes, I would hope so. I mean he ran aws, built it from the ground up.

[Dan Ives]

So built it from ground up. I mean so the point is Jassy plays chess. Others checkers in terms of overall AWS and Cloud2 to STEM is advertising streets given no credit here and I think incrementally this is something that could actually as a percent of rev really start to increase the model. The AI story given no credit to me. Risk reward here. Risk reward. I mean I think there's a stock that could be up 25, 30%, maybe call it 5%, type down. The risk award here is a table pounder in our opinion. And I think New York City Cab driver is bearish on Amazon relative to large cap tech.

[Stephanie Link]

Well, it is trading cheaper than Apple. It's at 32 times forward and Apple's at 35 times. So that's crazy. That to me was crazy.

[Dan Ives]

And I don't really do it on crazy.

[Stephanie Link]

I don't really look at it on a PE basis because if I did, I would never buy it because it would be too expensive for me. But if you look at EBITDA, it's traded about 14 times. The average long term is almost, almost 18 times. So yeah, I mean I think it's. You can get your arms around it. I might be wrong. It might not be a great quarter, but I do think the next six months, 12 months are going to be good for them.

[Alex]

And then on the ad side, Dan, just to you, how much does data, the fact that Amazon has this like unbelievable treasure trove of retail data.

[Dan Ives]

That's the gold. That's the goal. Like, I mean it just goes back to like no one ever gave Apple any crowd for services. Look where we are now. Yeah, Amazon, it's going to be the same thing in my, in my view.

[Alex]

Okay. All right, a couple of minutes left. Let's Talk quickly about this antitrust thing, which we touched on briefly. Antitrust is factoring more with big tech than I think it has in the past. I mean, in the past, I would kind of laugh at it being like, they're never going to do anything. The government's weak, the companies are strong. But Google did just lose this antitrust case, and now the remedies include potentially a breakup. I don't know if it's going to go that far, but all of a sudden, antitrust matters a lot more than it did previously. And like, yes, the breakup might get the headlines, but this is going to meaningfully change the way companies like Google, for instance, which lost the case, do business. Don't you think, Dan?

[Dan Ives]

I mean, just as someone. Or doj, clearly, you know, trophy case, they won in terms of that case. They got sealegs. But I mean, the precedent's there with Microsoft. I mean, in covering Microsoft back then. Ultimately they won that on appeal. I'm not. There's gonna be business model tweaks, but my view is this is not gonna dramatically change the business model of Google because then eventually it's gonna be Apple also and others coming down the Pikes. I'm just. This is going to be fought out in court for many years, and I think it will be settlements and business model tweaks, not massive changes.

[Stephanie Link]

Dan, how long did Microsoft's. The big case that they had, how long did that take?

[Dan Ives]

12 years.

[Stephanie Link]

Yeah, right. I was going to say I thought.

[Dan Ives]

It was about 12 years.

[Stephanie Link]

12 years. I mean, this is going to take such a long time. Who the heck even knows who's going to be the DOJ and the eu and you have no idea how it's all going to play out. There's no question it's an overhang. But I feel like we said this on Microsoft and look what Microsoft has done over the years.

[Alex]

Yeah, they figured it out, but, yeah.

[Stephanie Link]

They'Ll figure it out.

[Dan Ives]

But I do agree with you, Alex. It is becoming. It's not just a like, oh, EU cup of coffee. It is more legit because doj.

[Alex]

Yeah. And like, all right, I'm just going to use one, One analogy. It's not the same thing or anywhere close, but when Elon signed the deal to buy Twitter and the courts forced him to go ahead and make that. Make that purchase, or they were going to, and he just said, okay, I'm going to do it. Despite the lawsuit, it seemed at that, up until that moment that tech, big tech, was impervious to the law. And now it's starting to seem like governments are going. I mean, the Europe thing is becoming big. It's changing the way these companies operate, and then the US Government is also winning cases against them. It seems to me like it's a new chapter.

[Stephanie Link]

I don't know, maybe if Google were to spin off some of their businesses, actually the sum of the parts could be more that worth more. Right. Like, by the way, even if they spin out and the. And the growth isn't the same, which I totally wouldn't buy because I think spin outs work brilliantly. Just ask General Electric. But spin out. If they spin it out and then you don't have that overhang, and then you have managements that are focused solely on those businesses and growth can actually accelerate just on that alone.

[Alex]

Yeah. Dan, Stephanie, thank you so much for coming on. And I can't wait to see you both in Savannah.

[Stephanie Link]

Thank you guys.

[Dan Ives]

Can't wait. Thank you.

[Alex]

Thanks, everybody for listening. We'll see you next time on Big Technology Podcast.