Welcome to Market Overtime. I'm Sam Vardis. Dan Ives is known for his flashy, colorful suits and tech bullishness and recently stepped into a new role at Yorkville Ives and Co. On today's show, we'll discuss the AI trade, the outlook for mega cap names like Apple, Tesla, and SpaceX, and the biggest risks facing tech investors right now. Dan Ives, thank you so much for joining me.
Before we dig into all that tech stuff though, it's great to see you as well. Let's talk about you, Dan, because we just learned of your career change, pivot, whatever you want to call it. It felt like it came out of the blue, a bit of a surprise to the market. I'm just wondering why you did that and why now.
Yeah, and it's great to see you as always. Look, for me, it was like the next evolution of my career. I mean, I had a phenomenal eight years at Wedbush and, you know, all my other places I've been, FBR and others throughout the, you know, 26 years on Wall Street, but I felt like this was the time for me to build something, to build it with the right partners, especially given the AI revolution and where we are in terms of this buildout, to do a modern merchant bank, you know, Yorkville, and to find great partners. It's something I'm just so excited about seeing around the corners, seeing the opportunities, and that's why I just felt like this was the right time for me to do something like this.
Sure. So, a modern merchant bank. Just explain exactly what that was. Like, if you were speaking to your Uber driver and trying to explain it to them, Dan.
Yeah. Modern merchant bank is if you go back, I'd say in the 90s it was companies where they're investment banks and you go back to Thomas Weisel, the Robbie Stevens, they have sales, they have research, they have banking, but they also have the ability where they have their own capital and they could deploy that capital. And I think it's really having the ability, I won't say it's skin in the game, but the merchant bank, that's what's different about that model. It's having the capital as well as the capabilities of an investment bank.
All right, let's dig into AI and this moment that we're in. Dan, I mean, I'm just wondering what the biggest thing you think that investors are getting wrong right now about this trade.
I think it's the scale and scope of just how big this is going to be. Look, Sam, I mean, and me and you've talked about before, four to five trillion that's going to be spent next few years is the multiplier. If every dollar is spent on capex, there's a four, five, $6 multiplier on that across the rest of tech. I think it's you're starting to now see some of that come to fruit. And I think you've seen in the latest earning season, but I think that is something where investors have been kind of missing in terms of just the scale and scope across infrastructure, across software, across energy. I think that's what, you know, I think maybe investors have missed in the AI revolution.
But the recent quarterly reports, Dan, Q2 has been quite encouraging, hasn't it? I mean, we've started to see monetization proof. I'm just wondering who you believe is the best example of that right now. Who has really figured it out? Is it Microsoft or is it more than that?
Well, I think that Microsoft quarter was the inflection point for tech because Microsoft is the one that's so tied in on enterprise on Azure revenues was really in the penalty box to some extent, you know, going into the quarter. The monetization that they're starting to see, I think is a huge barometer. I think you combine that with what you're seeing with Palantir, I think that's been something for the industry that's extremely important. I think hyperscale earnings were so important as well in terms of what we're just seeing on overall cloud from Alphabet to Amazon to Microsoft but it comes down to you need to see monetization and I think that's the tug of war going on between investors.
You mentioned Palantir, I mean that was an incredible move off the back of that earnings report. It surged nearly 40% in a week post Q2 earnings. I mean you have remained bullish on that particular name even as the valuation, Dan, has got increasingly demanding, I mean over a hundred times. I'm just wondering what you say to those who say there's no room for error with this one, that this is priced for perfect execution.
Okay. So, it's always my view that for a name like Palantir, any of these other, you know, high growth names, you have to have a longer term view in terms of, you know, as they grow into valuations. And it's something where if you go back to the early days of Amazon, you go back to Meta, you go back to everything that we've seen, that's something that investors have to have a longer term view in terms of where this ultimately is heading. And I think that's where investors sometimes they get for the right reasons caught up, you know, sometimes like in near-term valuations, but for the longer term names, I think that's the best way you have to view it.
Would there be anything out there, you know, as far as potential risks that would change your bullish view on a name like Palantir?
Yeah. And again, we like, you know, obviously at Yorkville as right now still waiting for a research license. So I'm not officially covering names right now, you know, in terms of traditional ratings, but what I would say is I think the biggest risk overall in terms of AI is government, you know, in terms of just data center buildouts, the politicization to some extent of it. I think that continues to really be some of the, you know, biggest risks when you think about the AI buildout.
And Nvidia obviously playing such a big part in this and I understand with respect to your research license where you stand on certain stocks but let's just use that as for instance a linchpin to talk about the broader industry particularly because of the performance this year, Dan. I mean it's not the sort of parabolic path that we're used to with a name like Nvidia. The narrative this year has been one of valuation compression and consolidated growth. It's still stable. I mean the fundamentals still look good. What are your expectations then, you know, moving forward for the broader AI trade given what we've seen in that particular name?
Yeah, look, I think first of all, it all starts with chips and as much as there's been focus in terms of memory chips and SK Hynix and what we see Korea, look, Nvidia, they've been the epicenter of AI, you know, relative to what we see in terms of there's really one chip in the world that's fueling AI revolution, right? I think Nvidia and Jensen has the best viewpoint in terms of what demand looks like. Look and we said from our last Asia trip demand and supply is 13 to 1 in terms of demand and supply. So I think as that plays out in terms of the broader trade and there's always a debate is it chips, is it infrastructure, is it hyperscale or is it software, it's a combination of all of them when you all start to put it together in terms of where it's headed.
You have spent so much time in Asia, you go there often. You and I have spent time in Asia together over the years. I'm just wondering do you think that Jensen will be able to sell his chips to China at some point?
That's look, that's a big risk because not necessarily just to Nvidia, but I think overall if Jensen and Nvidia are not able to sell into China, it's China that strengthens. Huawei strengthens. And that's why I think when you think about what's happened to the beltway, there's such this quagmire going on in terms of what's happened in terms of the China market because I think in the tech industry and it's my view, they understand that by not selling into China that hurts US names because it makes China that much stronger and it's an arms race between us and China. And I think that that's like a very important point where we are today.
Let's talk about another big US corporate who obviously has strong ties to China and that is Apple. The Wall Street Journal out with a piece the other day which said the Trump administration does not want Apple to buy memory chips from China. Apple may do so anyway. What do you make of corporate America's approach to China versus what the governments want?
It's a hot button issue because there's the national security piece and I look, I somebody, you know, spend so much time in DC I understand those risks. You don't want Chinese chips in obviously an Apple 2.5 billion iOS devices, 1.5 billion iPhones, but then it comes down to cost because if you think about Apple there's pressure in terms of memory in terms of just increased cost that's going toward Apple. That's why the reality is that government is going to play, they're going to play a more outsized role in terms of, you know, regulation and making sure what's a green light and what's a red light relative to US and China and this is a very, very important topic especially for the big tech companies where if you can't go to China that means you have to pay up for ultimately what you're going to need in terms of US chips.
And obviously the government isn't just playing a role in the US China relationship. I mean there is a big debate around how much of a role they should be playing in the AI infrastructure build out here at home as well. I'm just wondering how much of a feature, how much of a role do you believe the debate around innovation versus regulation will play in the upcoming midterms?
It's, I think this is probably the biggest risk to the AI trade and it's the biggest hot button issue because regulatory stifles innovation. For the first time in 30 years, the US has a head of China when it comes to tech. Part of the problem is that you do need oversight whether it's on cyber security or on some of the data center buildouts. But then data centers, that's the foundation of AI. So when you vote down data centers in the local municipalities or it becomes much more politicization or grandstanding in midterm elections, that becomes a risk and that's also why I think like the tech industry has created a lot of their own problems in terms of like black eye moments because if you scare people saying that you're going to all white collar jobs are wiped down 18 months and your electricity bill is going to go higher and you're going to lose your job. You know, that's part of I think how we're in this situation. So that becomes I think what's going to be a big challenge for the tech industry to navigate that in this midterm election.
If we haven't figured out how to regulate data centers on Earth here, Dan, it's interesting how this is all going to play out in space, which takes me to Elon Musk and what he's been up to. I mean, let's talk about SpaceX. Has anything surprised you about the performance of this stock since it IPOed?
Look, I think when you look at SpaceX and you look at Musk in terms of what investors are betting and obviously this is unprecedented relative to the size, the lockup, the indexing, you know, and everything that we've seen. Look, I think a lot of these companies like when they go public, the success will be built not over months but over many years. And that really for investors I think that are for SpaceX, that's the opportunity and the challenge for Musk in terms of building that out and in this fourth industrial revolution the role that space is going to play.
And what about cyber security, Dan? I mean you've heard of all these stories about models jumping out of sandboxes into the internet. I mean name it, half a dozen companies just in the last two weeks where we've heard of reports of their models doing such a thing. I'm just wondering who exactly is AI helping right now. Is it the attackers or the defenders?
Look, I think cyber security budgets, they're going to double over the coming years because especially with agent surface areas where everything's heading. So, I think they're just going to create more and more opportunity for cyber security. But with the models, the hacks, that's a risk. And I think that goes into, you know, one of the biggest challenges now in terms of government regulation is that does it stifle competition given what we see in terms of the cyber security concerns and that's just going to get worse and worse and I think the stakes just get higher given what we're dealing with.
