Here for a tech check is Dan Ives, tech analyst at Ives & Company. Dan, welcome back. Great to have you.
No, great to see you as always.
All right, Dan. So, we had a brutal week for tech. White knuckle moments, as you say, and we're seeing a bit of a rebound today. Actually, a pretty substantial rebound for some of these names. Do you think the worst is behind us? Are we in the clear to start buying tech stocks again?
Look, I think it's just it's a nervous period. I mean last week was definitely a disaster for tech investors and then the earnings I think was pretty mixed right because the hyperscaler you saw the strength you saw the strength in terms of cloud but it's the disruption that's happening right now that I think's causing just this panic but we've said it look it goes back to even like the SaaS apocalypse earlier this year these are not the times to panic you have to own ultimately the winners and navigate the storm and that's essentially what this storm is.
Well, you said that big tech earnings would be the real test of the AI trade. So, now that we've seen a lot of these results, did they deliver?
I think it's it's mixed. I think to some extent like the capex, the hyperscale, the cloud growth, that's a huge check. But I think the part that was surprising I I think you I think to to the market and you know and we talked about I think it's the level of disruption that's happening across the whole tech ecosystem from the security side with Fortinet, what you saw with ServiceNow, the memory side with Intel, the advertising with Alphabet. I mean Karen, I think that's the thing that I think shocked investors just the level of disruption that's happening.
So as you take a look at stock prices now, which tech stock is on steepest sale right now and looks attractive and which selloff do you think is justified?
I think Alphabet continues to be the one where you know if you're believers like we are that they're going to monetize on that advertising side, the cloud is going to continue to be robust and they're going to get on to the other side. The risk-reward here, you you you own this. Now, in terms of like the names that have sold off that, you know, we're still not necessarily huge believers in yet, being bypassed in AI or Oracle would probably be the one just because the level of debt that they're taking on still makes us nervous.
Okay. Kind of sticking with that, you've been really bullish on AI across the board, but your latest note that I saw come through bright and early this morning when I was awake at 5:00 a.m. as well, acknowledges that AI is already hurting some software companies. So, aside from Oracle, which stocks are most vulnerable?
Probably Adobe, Intuit. I think those would be probably the names that I think would be the most vulnerable relative to those business models. Hey, look like Salesforce, like we're still a believer in Salesforce. I'm still a believer in ServiceNow. So, but we're going through I think the level of disruption has been something that caught the market off guard. And look again part of the problem is is that as a institutional investor, as a retail investor, it's it's hard to navigate these periods because you know this level of volatility there, it's violent.
And I guess that's the big question. How do we navigate it as retail investors? You mentioned that you still like Salesforce and ServiceNow. What makes them winners rather than the next victims of AI?
I think it's install base. I mean me and you've talked about it so far. I think install base is what separates companies and it's do is they're going to be able to monetize their AI platform. And I believe Salesforce is one like they were late to the game, but they're going to be able to monetize it. ServiceNow, same thing. But when you go through these periods where not just earnings but just the nervousness that we're seeing in the market I think it creates the opportunities but it it also speaks to our view like why we've done so much work whether it's in Asia whether it's here in the US just to try to understand the themes and the data points where sometimes they don't always show up in numbers in that given quarter.
But doesn't a name like Adobe have a big user base as well?
It does, but it's on the wrong side, I think, of a lot of these trends because I think a lot of their market's getting cannibalized. Now, look, new CEO, you know, obviously new strategy, but the next six to nine months will determine if they're able to get onto the other side of this.
So after the shakeout that we've seen, Dan, do you see more upside in software stocks from here or chipmakers?
Well, I think I see more upside in chips just relative to I don't think you have the equilibrium till late 2028, early 2029, but I do think also like 2027 is really going to be the year for software. I mean to some extent like software stocks from cyber security to the application to the infrastructure layer should actually be the ones that could really start to see that monetization ramp.
With CRM and ServiceNow at the top of the leadership board. Any other names that we should have on our radar or that we should be buying?
I think like Palantir, Snowflake, MongoDB, despite even like the the management changes. I mean those are probably ones that are probably closest to it, Datadog and others like you know ones where I think they're more at the front relative to these sort of buildouts that they're happening. But when you look at Salesforce and ServiceNow, those are probably the two best barometers for ones that you know, I ultimately believe will be able to turn this around.
What happened with Oracle? Because I know that was one of your big AI bets earlier this year. You even thought it could double and now you've taken it off your AI30 winners list. Is there a price where Oracle becomes attractive again or have the risks fundamentally changed?
Oracle. The big thing was just the level of cuts and the people that have had to, you know, that basically have left Oracle. They've cut into muscle and bone and Karen like that was something where them taking on debt, them going after the opportunity with OpenAI, you know, that that that huge believer in, but not at the expense of what's going to happen at their current business. And I think that was something that as I started to get my arms around just the level of sacrifice in between cuts and and everything else, that was one where I think it's going to be hard for Oracle as a stock to significantly outperform till they're able to clear through this period.
Meanwhile, CoreWeave has been hammered over concerns about debt and financing as well, but you've called it a golden buying opportunity. So why are you willing to bet on CoreWeave but not Oracle?
Yeah. And and again I'm talking about golden buying opportunity in terms of broader software, right? I mean like when it comes to CoreWeave, I think they're going to be one of the Neoclouds that successfully navigate this. I think Nebius is probably in a much better position than CoreWeave. So if I had to think that like from a Neocloud perspective, I would probably rather own Nebius than CoreWeave, but CoreWeave is going to be one of the longer term survivors. I mean, they're going to be able to navigate this period, but there's going to be a shakeout and you're seeing it happen on the Neoclouds.
And I see Iron on your AI30 list as well. So that's another name that you think will ultimately survive this.
And again, it's not just about surviving. It's like I view them as one that like is well positioned to capitalize on this AI three to four trillion of spending that we're going to see in terms of the buildout. But that's another one that they're also going through this gut check moment that they need to navigate to show investors that they're going to be a winner because look this is it's a gut check moment for so many of these companies even though even the hyperscalers Alphabet needs to show that they're going to be able to monetize the advertising piece which is obviously the golden goose throughout some of the disruption that's happened in the model.
And then we have Apple reporting tonight. A company that hasn't spent all of this money on AI. You have a $400 price target on Apple. I was just taking a look. It's currently trading around 340 right now. What do we need to hear from Apple to keep the rally alive?
Look, Apple, I mean, I continue to believe 20% of the world's going to access AI through an Apple device. I think like on the consumer side, they're going to continue like they will be the one that I think significantly monetizes the consumer AI revolution. They're going through with still a very strong product cycle on the iPhone side. iPhone 18 obviously will be successful as well. Services continues to outperform. I think for them and for investors it's gonna really be about monetizing the AI piece over the the next 12 to 18 months but that's like another example like go back to the last year and a half the narrative on Apple for so long was like they missed out on AI which is true but it's that install base is the reason that if you look where it is today and then have to spend the capex they're now in just a massive position of strength.
But when does Apple get punished for a Siri that doesn't really work?
So, I don't think that happens. I think they basically have probably a year until what I view is the 20th anniversary of the iPhone, which would be probably the first true AI enabled device. I think that's where rubber meets the road a little for Apple. But I think in the near term, it's about building up to that moment.
Apple reclaimed the title of the world's most valuable company from Nvidia on Friday. Do you think that Apple is really the best AI investment though? Does it deserve that top spot?
Look, I think it's one of our top picks perennial, you know, relative to to my view where tech's heading over the coming years. But I still think Nvidia is the best positioned AI play in in the market, especially where that stock's trading, you know, called 11, 12 times earnings. I think market significantly discounting I think what numbers could look like for Nvidia over the coming years.
We also have Amazon bouncing back today. Are investors right to be buying the dip right now or does Amazon still have something to prove?
No, I think I thought I thought that quarter was a very good quarter really across the board. If I go back to, you know, what Jassy and Amazon are doing, I mean, they're essentially playing catchup to where they maybe should have been a year ago. And I think I think they're actually in an extremely well position. It's my view from a hyperscale perspective. Microsoft best positioned, Google 2, Amazon 3, but everything we're talking about with Oracle. Oracle essentially is turning themselves into the next hyperscaler.
SpaceX is doing the same thing. Go back to the list of three. That was the list of best positioned for what?
If you think about the hyperscalers, Microsoft's the best positioned hyperscaler because it's their core enterprise. But what Amazon and Google have done is just so impressive and you're seeing in the numbers.
But if you could only buy three tech stocks after earnings, which would they be?
I think it's Nvidia, it's Microsoft, and it's Apple. I mean those to me are just the three. Now I'd add Palantir and obviously others but if I had them at three how those are positioned I think makes them I think uniquely positioned to to to go after this market.
Even though Apple is only 3% away from the highs and we have like an Alphabet that's now substantially below the highs. Because Alphabet is like 30% off the highs as you think about value.
Well, because I think AI could ultimately add $75 per share to Apple's valuation. I mean, that's my I mean, so so I we're we're believers in Alphabet as we talked about, but I'm just saying the AI piece I don't think is really been factored in to where Apple can go.
Is there an AI stock you think investors are paying too much for right now?
I think a lot of that look I mean you could argue maybe like you know the selloffs that we saw last week I think a lot of that's reflected I mean it's hard to look at a name right here that hasn't been significantly cut and I think in this sort of selloff across the board that we saw I think it's created opportunities for those that want to play this AI revolution.
I noticed that you also added Dell and SpaceX to your AI30 winners list. Why specifically those names? I mean SpaceX, we know you love Elon, I guess. Why Dell?
And because I think Dell I think like Dell because of these when I think about data center and GPU buildouts and what's happened 800 to 1,000 data centers are going to get built in the US next 12 to 18 months. I think Dell is incrementally well positioned from an infrastructure perspective. Now look, I think what Michael Dell and the team have done is phenomenal the last few years, but it's to my view like as this all as this buildout happens, I think Dell is going to be the one that's you along with Microsoft and so many of these core infrastructure players are just extremely well positioned.
I saw that you know and this is something you've been talking about for quite some time now that you've assigned an 80 to 90% probability to a Tesla SpaceX merger by the end of next year. If you're right, which stock is the better investment today, Tesla or SpaceX?
Well, Tesla, I think Tesla just because that would have to probably happen at 500 or above as a stock. Like we love SpaceX, but I just think Tesla in that situation is is the better one to own.
Okay. As we think about risks, what worries you more right now? That companies are spending too much on AI or that the returns won't justify the spending?
It's probably if there was a thing that worries me it's the time that they have to show the spending resulting in monetization because as investors the patience wears thin, credit spreads have increased, there's more nervousness, it gives them maybe a smaller window to prove it and I think that's probably that makes them most nervous.
How big do you think that window is?
I think it's probably like there's like a six-month window that they need to ultimately prove this out and I think that's why we're we're in this pivotal period to you know I think in this in this AI race.
You've made the case though that the AI buildout is largely funded and backed by real demand. Which companies are most at risk if that demand doesn't materialize as quickly as expected?
I mean, in that situation would probably be the neoclouds, right? Relative to what their business model is. But I just think more and more the validation for the AI buildout. We're seeing it by the day, not just in terms of chips, but we're seeing in terms of enterprises and in terms of what we're seeing in terms of real use cases.
So if 2027 is sort of this inflection point for AI monetization, what's the clearest sign investors should watch for that AI is actually paying off?
I think it's the cloud and data center buildout. It's the capex reacceleration and then it's the use cases building out with names like Palantir, Snowflake, eventually Salesforce, ServiceNow. I mean I think if you're kind of putting the puzzle together I think those are so important.
And if we don't see that happen does that change your bullish outlook?
Of course but I mean I would just tell you we are more confident in the thesis today than we were six months ago or a year ago. So I just think you know and I I but that's also why like we spend so much of our time with customers but we were in Korea a few weeks ago anyways trying to just understand like where all these trends are heading.
Okay Dan we have a whole bunch of audience questions. So I'm going to kind of do these as rapid fire. But the first one I want to ask you is something that I I sometimes have asked you before. I thought do you ever stop to think what if I'm wrong? What if monetization will hit a wall and all of this beautiful thesis will come crashing down?
Of course, but that's of course I always think about that. But that's why that motivates me to talk to the incremental customer partner another trip to Asia. I don't just sit here thinking that thesis is right and then just go on the treadmill or Peloton.
All right. So, what time is it at the AI party and what time does it end? Another audience question.
11:00, 11:30 p.m. and it ends at 4:00 a.m.
Okay. And that that's what inning?
We're still third inning. But it's like that third third inning.
There there could be glass on the dance floor. DJ stops playing music. Cops come to break it up for noise violation. But the party will continue. The bears that have called 10 of the last two downturns will continue to watch this party through the windows.
Okay, moving on to the next audience question. If you could only own five tech stocks for the next five years, which would they be?
So, I'll call if I was like Tom Hanks Castaway type of go into an island with the volleyball. Palantir, Microsoft, Nvidia, Apple, Costco.
Ah, no Alphabet there. Okay. AMD or Nvidia?
