The biggest risk for everything, see, I don't mean risk is valuation, capex, do the use cases actually work? Is the spending net the biggest risk in the whole thing? And you can say it's tangentially related to energy, but it's like tech has a PR problem now. A lot of that's self-created. If you look like Dario from Anthropic, like all the jobs lost, this we're going to, you know, you look at Mustafa and Microsoft in terms like we're going to, you know, 50% of lawyers, we're going to cut that. Guess what? When you do that, you're below TSA lines in terms of surveys in the United States. And what that means, when data centers come on board, they have to get voted in by towns, by cities. If I tell the average American, AI is going to take away your job and it's going to increase your electricity bill.
Welcome to the Risk Reversal Podcast. I am Dan Nathan. That is Dan Ives. He's the managing director and senior equity research analyst at Wedbush Securities. Dan, welcome back to the podcast.
Great to be here as always.
All right, we have a great pod for you people today. We got so much to talk about. It is Tuesday afternoon. And we know later this week SpaceX is supposed to price, and we have a very special guest to join us.
Danny Moses of Moses Ventures, the host of the On the Tape podcast. He is also the Substack guy, likes to call the Substack is what are we doing with Vinnie and Porter. You know those guys really well. So Danny's going to join us. It's going to be only Dan's. He's going to talk SpaceX. So we're going to save that for the very end. You just got back on a red eye from Southern California, WWDC. So, we're going to do all things Apple. I want to talk data centers. My intern Ryan has done a lot of good work for me. So, I have a lot of data and really what the backlog is and what has really broken ground so far and expectations for demand and that sort of thing. If we're going to see a little drop off because that's one of the things we're going to talk about, this chip wreck and what's going on in semis over the last few trading days. I want to hit hyperscalers if we have the time because if you look at, you know, Microsoft's kind of stuck in the mud. Meta we'll just throw in there. Can't get out of its own way. So, some stuff going on there. But let's start with Apple.
Because this is one it ran into this WWDC. I'd say that expectations were fairly high. I want to get your take on it for a revamp Siri and what iOS 27 looks like and Apple Intelligence, that sort of thing. So, you were there, you were on the ground, you talked to developers, you talked to the company, you talked to media. What was your take into it? What did you hear and see? And you know, the stock's reaction wasn't particularly great over the last two days.
Yeah. And I think sometimes like with these events like price action could skew the real true narrative like in terms of like what it actually means for numbers. This was actually one where it was like they basically hit this 300 yards down the fairway in terms of finally now an AI foundation, actual technology for developers that they actually now have a horse in the race. They're never gonna be, they finally admitted they're never gonna be Anthropic or OpenAI.
But which as an analyst you don't want them to be.
But that goes back to two years ago when they're like, we're going to do, and that was all the excitement and basically 98% of it they never came out with.
All right, let me, and I think your point about price action is really important and I know you were out there in June of 2024, right? And there was a lot of hype into Apple Intelligence. It was kind of leaked. I'm sure Mark Gurman was like writing all about it and Bloomberg, that sort of thing. And when you looked at just how ChatGPT was doing and Claude coming on and Perplexity was a thing back then, you know, the expectations were that this is in Apple's sweet spot, right? And they totally flubbed it. But interestingly enough, a lot of analysts on the sell side came out. Gene who I love, you know, obviously everyone was really excited about it.
And it was a flop, right? But the stock rallied a lot afterwards.
Because remember that was okay now let's come out with the actual technology and that was where it's going to come out in a few months beta and it all.
And then they pushed out the Siri stuff, 25 WWDC, so.
That's exact, so now finally they actually have the foundation with Gemini really as the core as a partner perspective that's going to, all you have to do, like all the developers I talked to, give me a platform.
AI driven that I could build my app, my technology on.
They're, when they're there, they're talking to the developers. Now, in terms like consumers and what this means, this is basically the start of what's going to be a massive hardware cycle that they are actually going to come out with in terms of iPhones, glasses, you know, a lot of other sort of wearables.
Have confidence though in wearables other than let's say AirPods, Vision Pro, you know, from a consumer standpoint was a disaster. And I'm sure the technology, spatial, I hear you talking about spatial computing and you know, physical AI and all that sort of stuff and you got to beat on all that, you and Gene are like all over that, but they haven't demonstrated anything just yet.
And I think if this was a stock that was like a $400 stock then you'd be like.
My whole point is is that when you have 1.5 billion iPhones and 400 million of those have still not been upgraded the last two years. Even though iPhone 17 is actually a sneaky upgrade cycle, you are now setting the foundation. They're essentially going to be the toll collector on the highway for consumers as they head down the AI path. That and that's all you want them to be because as that you'll have an incremental.
All right. Why are you convinced of that right now? And the reason I ask it in that manner is that I have Claude. I have Gemini apps on my phone. They work really well and I can go to Claude and I can say right now I can say be my personal assistant and go into Gmail or go into my contacts and this or whatever. Why does it need to be on device is the thing? Because again I know Apple it's security and this and that whatever. But why do you have confidence that what they are going to come out with by the time they come out with it and it's not going to be on iOS 27, they're going to have some features when it launches in the fall. But why do you have confidence though that it's going to be, I get the toll collector. We know about the app store. We know about, you know, Apple Music and all that sort of stuff. I just right now they've not demonstrated anything that would lead you to believe or me to believe as a consumer.
It's no different than like early days of dial up and where that eventually went. As more and more consumers are using AI in every day and you're actually going to have agents working for you, you know, we talked about that with Adam, like you know, that can just be handled on the on-device is going to become more and more essential from a storage, from a sophistication as everything starts to launch. Today we're still talking rudimentary, the early part of AI.
And when you have, it comes down to like OpenAI, Meta, Google, what have they tried to do? Build devices, go after Apple. You basically can't because they've essentially built their castle. Now, it's about monetizing that castle with just, we'll call it adequate, good enough, but actually a solution that gets them in the game.
So that to me, that I come out of that being like finally, finally they actually have a strategy that's gonna put them at least.
Does it disappoint you though Dan? You're there and all the developers are looking at the whiz-bangy sort of stuff and you can't use it on the phone. It's not ready. Like how do they not have something that's going to release in three or four months that they actually can't show you something? It's all like fake believe. You know that sort of thing.
Well, this, I mean this is a little different because even developers, I mean you're actually playing around the technology. If you go back to the last two years, it was, I wouldn't say fiction, but you couldn't actually do anything with it. This you actually work with. I mean, as we get into the summer, like a lot of that stuff will start to get rolling out. It will roll out, roll out. Developers build it. But also, Dan, like they cannot, you get one bite at the apple. You cannot release this too early.
Yeah, that's very important.
All right. So, let me ask you this. I mean, you for a whole host of the names in your coverage, you know, like in some valuation has not mattered. We've seen massive, you know, multiple expansion and it's based on all this future sort of stuff. We hear about RPOs, we hear about backlog, whatever they want to call it. You know, OpenAI's thrown out all these contracts. Anthropic can't get compute fast enough. I mean, again and again, you know, Google just did the deal with SpaceX to get their compute. So, my question is like with an Apple, which is probably, you know, I hear about super cycle upgrades in hardware all the time and we generally don't see like a hockey stick. We just see something, you know, sort of gradual. How do you justify on next year, and maybe it doesn't matter, maybe I'm just being stupid, at 30 times, you know, 12% expected EPS growth, about 10% expected sales growth, you are seeing a bump in margin so it's showing a better mix shift I would say towards services and I'm suspecting that your bull case for putting a $400 target or whatever it is is that you're going to see acceleration in the AI apps and that's going to cause maybe GMs to go above 50% or something like that, and then you have a reacceleration on services where you get that back to like mid-teens. You actually start to spawn going into like, you know, 20th anniversary year, an actual, I won't call it super cycle because it's always dangerous, but like we're talking about something where you actually get 300 million that actually upgrade a device that's really built more, we call it an AI driven device. And then the other thing is is that when it comes to China, China now is a tailwind and that's, look, that is.
It hadn't grown what, in a bunch of quarters, right? In the last year was a high, it was decline. I mean.
Was it 20% growth in the last quarter?
Then if you go back, I mean there's pieces of it that were increasing 30, 40%. From a decline just given the geopolitical.
And now eventually you need Alibaba as a partner when it comes to, you know, in China. Did they say anything about China? Because again, they're going to need a local cloud provider, local, you know, models and stuff like that.
They just said it won't be available in China. We're working with regulators. Trust me, Cook will be spending a lot of time even though, you know, no longer CEO.
Yeah. Is he going to be chairman? What's, what's.
Chairman. But also as part of his political connections, you know, obviously Cook plays a huge role in terms of China.
All right. So, how do you like right now, stock is what, 290? It has sold off about 7% since the all-time highs which it was making when, you know, the event started on Monday. Where do you think the stock kind of settles out? Where do you think investors, I'm sure you've talked to dozens of investors over the last 24 hours. Where do you think they get interested again in the stock?
I think as they start to release some of these pieces into the community and you start to test them and because remember this is not just plain vanilla Gemini, it's actually essentially like a Gemini on steroids, in other words, in terms like what they've actually built relative to, you know, in the platform. I think as you test it out and you start to realize, wow, this is not Anthropic level, but for Apple, it's going to get them in the game.
All right. Where do you put Apple? As far as the names that you feel most confident to really be a part of this next leg, you've said on numerous occasions, I see it on TV. You've said it, you've said it to me over the last few months. You think we're second or third inning of the AI revolution, and you express that through your ETF, the Ives Wedbush AI ETF. Congratulations. I see you just got over a billion dollars. We were doing a little work. There's like 5,000 ETFs in the US and maybe, maybe there's high teens or 20% that get to that level. So, obviously there's investors who believe in your beliefs about AI. Where do you rank Apple as far as opportunities, let's say, going out until year end, that sort of thing?
Yeah. All in the AI30 research that we put out, ETF managed separately at Wedbush. But look, part of it to me is just, I continue to believe chips, specifically Nvidia and AMD, and I get like the chip selloff, but those continue to be two core sort of players, you know, as well as also on the memory side we talked about with SK Hynix, Micron, SanDisk. And then look, the hyperscalers right now, like I mean Google's obviously in a phenomenal position but Microsoft, Oracle, I'd say Meta sold off a lot which continues to be one of our top names. And then I look at like in cybersecurity, CrowdStrike, the way that those sold, I mean you actually have opportunities here, you know, even when you look at names like Palantir, I mean you have talked about from you many times.
I just think we're going through a digestion period with some of these IPOs, you're seeing money get taken off table, but I think it's just going to create the next leg as it shows fundamentally. Look at our Taiwan checks this weekend showed tighter supply over the last few weeks. So the point is like everything we're picking up in Asia, it's positive tea leaves going into early.
Well, how do you square that with just if you're doing some work and I know you guys do a lot of work on this on just the data center bills, the backlog for them. We've seen, you know, a tremendous amount of, you know, contracts that are equaling maybe 40 gigawatts over the next few years or so. It looks like there's basically 30% of what is expected to come along online maybe 27, early 28 are actually in production right now, meaning like, you know, the ground's being dug and you know that sort of thing. And so is the pause has to do with okay these kind of these hyperscalers are looking out and the neoclouds and they're saying am I going to have access to energy or, you know, heating and cooling or, you know, all these things that go into it. I'm just curious like how you're thinking about that.
The biggest risk for everything, see, I don't mean risk is valuation, capex, do the use cases actually work? Is the spending net the biggest risk in the whole thing? And you can say it's tangentially related to energy, but it's like tech has a PR problem now. A lot of that's self-created. If you look like Dario from Anthropic, like all the jobs lost, this we're going to, you know, you look at Mustafa and Microsoft in terms like we're going to, you know, 50% of lawyers, we're going to cut that. Guess what? When you do that, you're below TSA lines in terms of surveys in the United States. And what that means, when data centers come on board, they have to get voted in by towns, by cities. If I tell the average American AI is going to take away your job and it's going to increase your electricity bill.
Yeah, I want it. So that's why, right? And you've seen.
But how do they turn that around? I mean, like.
Look at Sam, dude. If you look at Altman's like the interview, you know, the idea with Faber.
That was a change in tone with Sam. If you notice, no longer he's like AI job because it is true.
But can I push back the change in tone in Sam? If you know Sam, I do not, but if you work there at OpenAI or you did work there at OpenAI or you're a partner, it seems like his MO is that he can change with the wind, that like, you know, what was the big article, I can't remember, maybe was in the New Yorker, going back a few months. It seems like that was well sourced and he's willing to say what is useful at the time to do it. So I'm just saying like I don't think people have a lot of confidence in what he's saying right now. But it does speak to there is a, the biggest issue when you talk about to your point, data centers are the hearts and lungs of the AI revolution. You need them approved, built out.
And that to some extent that is like right now going to be the biggest focus because it's happened across the board, like they're going to build data centers like by like a zoo in Nashville, like what does that mean for like, cool, you see those are.
And also like a Milken conference, like I bumped in and met with so many politicians that were there, Congress, senators because a big focus of there is like what does this mean in terms of jobs? What, now I believe it's going to create more jobs and take away, but that right now the biggest problem for tech.
It's more of a PR problem that each, yeah, I think each company needs to, you know, kind of look in the mirror and.
Okay. Away from the PR, and I think tech generally has, you know, a lot of issues in almost every cycle on that front, not job displacement or anything like that. But if I look at a Microsoft and this is a good example of a company that, you know, it gets punished for its spend, right? Meta is also in that camp, right? Google does not, you know, Amazon really hasn't for the most part. And when I think about Microsoft the problem that they have is yeah they own a big piece of OpenAI, they had this deal, OpenAI is diversifying away from Azure. We've known that for a while. OpenAI technology has not worked particularly well within Copilot, Microsoft's Copilot. They haven't seen.
And that's more a Microsoft.
Yeah. But I'm, yeah, not putting that on OpenAI. But what I'm saying is like Microsoft seems to have some problems here, right? Because you saw this reacceleration in growth meaningful in Amazon, right? AWS, you're seeing it in GCP. You know, you have Oracle and the Neoclouds, you know, really going after a lot of that market share. So, you know, Microsoft's being put in that category of disrupted by AI at the moment.
But I think some of that is true, some it's not because look, the enterprise, that's their backyard. I mean, if you look at the Azure growth, you look at the opportunity, it's still what, 10% paid in terms of like the monetization, like a lot of those deals are going to accelerate. Copilot, clearly they've needed to, you know, make some major changes there. You saw that build.
And they brought Anthropic, invested.
But look, but Dan, my view is like it's similar as like Apple where it's like if you look at Microsoft's install base, the opportunity now which is not baked into the stock and we think that's why I've talked like, you know, 550, 600 stock price as they execute, they're now going to about to hit their sweet spot in acceleration move.
And you're going to start to see it over the next few quarters.
Why do investors not see that Dan? Because you know what I mean? Because the stock's down 30 some percent from its all-time highs which it made, you know, mid 2025. And so you know one of the things that's confused me is like when you look at the memory and the storage and stuff like that a year ago you could have bought these things. I mean they're up a thousand percent. So if the companies didn't have the visibility they're looking around and they're looking like if you're Micron right and you have HBM and you know you say okay well they're geniuses over there. They know that if Nvidia is like, you know, sold out for 5 years and that sort of thing, why wouldn't they a year ago start putting on capacity, you know what I mean? Like, how could they not have the visibility, you know, to start doing that and putting on the capacity? And I know they're careful to do that, but like you don't understand what I'm saying? And so, like, I don't get that.
Look, in hindsight, they definitely were, you know, they should have been more aggressive in the buildout.
Because right now capex, if you think like capacity, it's probably taken off four or 500 bips of growth off Azure.
No, I'm saying if you think, if you actually, so part of it like why, why didn't you do that? And then you could go back to, you know, I think they were caught off guard in terms of just.
Yeah. I guess my point is is like why would you believe them now? You know what I mean? Where like if you could, if they couldn't see it, that seemed like it should have been an easy one because in the last four years, you know, we've seen Nvidia go from $200 billion in market cap to five and a half trillion and a lot of it has to do with the fact that they've been sold out for years, right? And so I just don't understand why Micron and they know that their main product needs to be attached to GPUs to get this sort of performance and that sort of thing. So my only point is if they didn't have the visibility a year ago, they didn't figure that out, then why would you believe them now that all of these contracts that they have over the next three to five years that they're going to be able to kind of have that demand, fill that, whatever the hell it is.
I think part of it goes back to the next layer in terms of enterprise use cases are accelerating. I mean, I actually think that's, we're now in a phase where there's not even a doubt. You see with Palantir, you see with Snowflake, you see with Datadog in terms of where we are and so I think if there was a question about that, there's not a question about it now.
Right? All right. Well, let's use Microsoft as that example. We'll finish that and we'll move on. I mean, so Microsoft, you know, they have 400 million Office 365 seats, right? And so I, you know, they're not seeing a massive uptake. I think two quarters ago it was 15 million right and then it was 20 million, this is for Copilot right or maybe a little more I can't remember and so you think about that I mean we're talking about, you know, single digits, you know what I mean, like percent of that installed base. You see that as an opportunity because they haven't figured out the product yet but when they do they have the ability to just sell it across, you know.
Similar philosophy with Apple to some extent, in other words like it's like once you have it built you can, and like, look, you're almost like a technology historian. Like, you know, we go back to many things that have happened in the '90s. Part of it is like when you have that install base, you can mess up one piece because that install base is not going to leave if you're able to ultimately figure it out.
That's where and I think that's my view of Microsoft. It's my view of Apple. It's my view of Oracle.
In terms of like it was my view of Google a year ago.
Yeah, you nailed that. All right, let me ask you on Google really quickly. So, do you think there'll be pressure on Microsoft Office possibly from the productivity suite of Google because Gemini is so well integrated with that right now and isn't that a much cheaper option? So if companies and you've seen small business creation is going through the roof they all are using Google like all these startups and.
The biggest problem is when you go to Global 2000, they need the all the standardization I guess you say or compliance, so that's that moot.
Yeah, the changing costs and all that sort of stuff, the risk to that, and IT departments basically built around.
Okay, so you know Microsoft down 30%, you're still bullish on, you know, Google, you've been bullish on, you seem like you're there, Apple, any weakness you're a buyer because you really see an inflection point coming in the fall, new operating system, new phones.
