Stock picking, I think, has become and will stay so important in this market. Two names could be drastically different positions, and if they are, like, you have to own the one that's right. Welcome to the OK Computer podcast. I'm Dan Nathan. This is my very good friend Dan Ives, partner at Yorkville Ives, a new firm. Dan, you and I have a ton to talk about. I definitely want to hit your firm in a second, but you know, we're recording this Monday morning right after the opening, and we're seeing a little bit of a follow-through from Friday's action. Friday's action, man, you had the NASDAQ down what, three and a half percent, you had the SOX down six and a half percent, something like that. A lot of the MAG7s were getting killed, follow-through from what we saw at Meta and Google, the kind of weakness there. Want to talk about who's winning, who's losing in the AI sort of trade. We want to talk about the funding, the cap raising, you know, Anthropic, is it gonna come? What should investors be doing? I keep getting asked that question. You're getting asked that question. Mine is more from retail investors. Yours is obviously interacting with a lot of, you know, hedge funds, mutual funds, institutions in general. And I'd love to get the vibe there, and a whole host of, you know, other things. Let's talk about, is the SaaS apocalypse back? That sort of thing. So, thank you for being here again. And I think this is probably like the 10th time you've been on the pod over the last few years, and we really appreciate your time.
I love it. I mean, because also we're able to sort of glean out and kind of dig deeper into key topics that I think so many people want to understand.
Well, I think our listeners and our viewers have gotten very used to the fact that you do not mind being challenged in your view, and really a lot of it comes down to time horizon. So we're going to give you the opportunity to kind of talk about what's going on right now relative to how you see it playing out over two, three, five years. You are taking the long view. You have said consistently, whether it's on CNBC or on podcasts, that sort of thing, that, you know, we are in the first inning, right, of this whole thing. So first things first, let's talk about your firm, my man.
Yeah. So it's been great. I mean, you know, me...
What are you doing? Because you were at Wedbush, you had an ETF there, the Wedbush Ives ETF. We want to know if that's still going, but what's going on at the new firm?
Yeah. And that ETF, we have a relationship and we put out a press release with Wedbush. So I'm still 100% associated with it. It's really nothing changes. The only difference is the research comes from Yorkville Ives instead of coming from Wedbush. Yes, we've hired about 25 people now at Yorkville Ives, and we call it a modern merchant bank, but basically it's a new investment bank with a hedge fund that's longstanding in terms of Yorkville, and we're focused on tech, energy, infrastructure. I mean, the whole reason we built it is my view of wanting to be like a white-glove service, not just for companies but for investors institutionally, to do more things around ETFs and other products, because I think now is that time, obviously, in the disruption that we're seeing. I think opportunities. We've had, you know, 25 people we've hired, super excited about how...
You're building out an equity research platform, which is what you've done. So the investing is both public and private markets.
Yeah, and on the private side, we launched about three, four weeks ago an IPO, like the IVAI, that's the Ives Ultra Fund, which is really the first tech, really the first public company to invest in private AI tech companies. So we launched that, and that's super exciting because, you know, that was a $200 million IPO, but it speaks to my view of democratization that's happening, where I want to give institutional or retail investors the opportunity to invest in private AI tech companies through a public vehicle.
Let's actually start there. That's a great way to do it because, you know, I go back to the 90s, and I know that you had a front-row seat for this kind of dot-com... I mean, it ended up being a bubble the whole way in the 90s, great, great returns, not too different actually if you think about it. I think from '95 to '99, the S&P averaged like 20-plus percent gains, like year over year over year. You know, we've been in that mode since 2022, where we had this kind of bear market — wasn't kind of, it was a bear market — but '23, '24, '25, here we are in '26, and you know, maybe it might be tough to get above those 20%. So we saw that, you know, all the comparisons to dot-com, but a lot of those companies were public, like Yahoo was public after like a year, year and a half. So right now we're seeing these companies private for longer. We're seeing these mega, mega IPOs. You're, I assume, investing in some of the stuff that you see in the application layer. So give me a sense for that, because that is very different. VC was much smaller in the 90s than it is right now.
No doubt. I mean, but also it's like, look, I learned just like you did, I learned being an analyst during the bubble and burst, like, okay, going back in hindsight, like what were the signs comparing relative to today? You know, are there things that remind you of it? And I just continue to say, like, this is the first time where I view it like the dot-com bubble moment was almost the beginning of, I'll call it, a 30, 40-year cycle, whether it's laying the fiber, laying the foundation to actually where we are today, because the use cases for AI are real. Like, you know, it's like this is being funded by big tech, trillion dollars in the balance sheet, three to four hundred billion a year free cash flow across all the major... And I just truly think it's like called 20 times earnings. If you go back to March 2000, the average tech company was 32 times revenues. Profitability wasn't there. So of course there's always going to be parallels and people would try to draw conclusions, but I view it just apples to oranges, just given where I believe this is truly year three of an 8 to 10-year, potentially, damn, 12-year buildout of the AI revolution. And that's that. And as someone like myself who spends so much time — like we were in Korea a few weeks ago, whether it's on the chip side, on memories, understand where their demand is. Last week I was with 80 customers, you know, these are all Fortune 500 companies in terms of who are going down the AI path when it comes to...
Very early, right? Some of these, you know, consulting firms have these reports out, they're talking about like 5% of like Fortune...
We think it's about three and a half percent.
Really? Okay, and so to you, that's bullish, right?
So to me, I'm not saying that we're not going to go through, just like we are in white-knuckle periods, almost between the capex and the buildout to the monetization. As an investor, and this is like the big issue for institutions, specifically hedge funds, like in that air-pocket period, just like you saw this week with ServiceNow or Alphabet or whatever, you can't just be like longer-term, three to five year. No, because you could lose your job if you're not positioned right. So I think it's what makes this such a complex environment to navigate, and not to necessarily get scared, but to understand like who are the winners? What are the names you buy on dips? What are the names that you stay away from? So I think that's what we've been trying to do with investors.
Okay. So, you know, we've seen change of fortunes, right? Like if you think about, you know, the hyperscalers were some of the early beneficiaries, obviously Nvidia, a handful of other chip companies, but, you know, then we saw the trade sort of broaden out a bit. And, you know, it's interesting that you guys are covering energy because I think your view is that that is one of the huge bottlenecks, and, you know, to have the continued growth there, and I think that makes sense to kind of figure out other ways to express views, you know, that sort of thing. I know that you've been picking and choosing within the software space because there will be some clear winners. We know the SaaS apocalypse was baby with the bathwater. How do you figure out, like, let's just talk about Microsoft and Meta for instance. And without getting into their fundamentals, but like the stocks have had each one of them like three... you know, Microsoft was down 35% from its 52-week highs, this is going back a few months ago, and then it rallied, you know, like I don't know, 40, 50%, and now it's come in just a very little bit. It shows great relative strength. Meta is a great example, is that it was down 30-some percent, this is going back, you know, really in late summer, they introduced Meta AI, so it was getting punished for the capex, right? And then you found a way in which folks thought that they were going to monetize it, but then they announced their spending, and now it comes back, it gives up most of the move that it's had. How do you navigate that? Because investors are getting turned around, and is it like, it seems harder than it looks to pick the ones that are going to be successful long-term, because we will see changing of fortunes too.
I mean, like, look, Microsoft's a good example. See, for Microsoft, all they do is enterprise, so when you think about it, it would be no different than like, you could say Palantir, government as well, but like when it comes to AI, it's not like there's another piece of the business that's getting cannibalized because of AI. So from Microsoft on the enterprise, my view is just a very simple one. It's like we talk about three and a half, four percent. As more enterprise move to AI with Azure, cloud growth is significantly underestimated. It was up like 50% or something. And I think if I look at street numbers, probably underestimated 15, 20% next 18, 20, like 24 months, that will ultimately continue to come through, and the stock's going to go higher because under some of the parts, I mean, we talk about 650, $700, like you could rationalize that pretty easily as these numbers come through.
And sticking with Microsoft for a second. So you have one component which is Azure. The other component is the uptake of Office 365 Copilot on that. Are they dependent on each other? Because obviously Azure, you know, they want to capture more and more customers, you know, leveraging off their compute. This is one of the reasons why they have these contracts with neo-clouds because they have their own, you know, pace in which they can build out their own compute, and then they go to a CoreWeave or something like that. Like, is there a scenario where Azure starts to lose a little bit of market share? I mean, GCP grew 100% year-over-year in that last quarter. AWS has massively accelerated. I think it bottomed out in low teens. Now it got back up to 39% year-over-year growth. How important or how connected is Azure growth to 365 Copilot growth?
It's like hearts, it's interconnected. So that's why if you go back to like when you had like the significant sell-off of Microsoft, a lot was like Copilot, a lot of the frustration of customers, like could this be the albatross to some extent. They've been able to smooth a lot of that out, and at the end of the day, if you're a core Microsoft customer on the enterprise, I wouldn't say you don't have a choice, but the path of least resistance is to go with Microsoft. So when we view like where Google is and where Amazon, I could argue like all three hyperscalers could have significant growth over the next two years. Oracle is different because they're trying to build themselves into a hyperscaler...
Just for one customer, though, for the most part.
For basically 300 billion of the 600 is because of OpenAI. SpaceX is essentially building itself into a hyperscaler. The ones that are best positioned are these three. Now, Alphabet is, there's a separate issue because of the advertising piece, and this was obviously like the first quarter where it's like, whoa, like...
Two quarters in a row on search.
It's too good. But this quarter in particular, it's like, okay, like is AI cannibalizing the future of the advertiser? The golden goose.
And Anthropic has said they will not put advertising on Claude, but OpenAI did start an advertising business. And when you think about it, and my good friend Joe Marchese, who you know, he wrote a book, it's coming out next week, and he's going to be on the podcast. We're going to give a bunch of those away. You got to write a book, by the way. And, you know, he's got a couple really great taglines in the description of the book. I just started reading it. And he's talking about like basically the entire economy that we live in, the digital economy has been, you know, built on digital ads, and it's subsidizing everything else. And if you start to see, you know, these chatbots really do a number on digital ads, I mean, some of these business models that were built on them, it's not just Google might have a difficult time over the next few years as this whole model is being challenged, and then investors are kind of digesting this.
No, look, I mean, but it speaks to for Google, as well positioned as they are in GCP, the advertising piece, it's like a race against the clock. Gemini market share, they need to ultimately accelerate market share, but then also they have to almost try to figure out the way that they're going to monetize on the advertising side relative to what we're seeing on a search query perspective. I mean, I think the street is modeling, like if you think about the decline that we've seen, that this is a sustainable thing. I disagree, just relative to like so many CMOs that we talked to, so many that rely on this. The view is that they're going to, similar as Microsoft figured out Copilot, that they're going to be able to figure out the monetization engine to ultimately see this thing.
Well, as bad as that quarter was, and you know, Sundar did talk about, you know, Gemini for Enterprise and all that, and how weird names for all these things, man. It's like really hard. And the Chinese ones are weird too. But he's talking about this as really their first agentic product for the enterprise. And so the idea that this might be, you know, if you think about what's going on with search, this might be the sort of next leg despite, let's say, the cannibalization to some degree of using AI mode and that sort of thing. And I'm just curious, if you were trying to look for silver linings in the Google quarter, was that it? And what else, other than GCP growth, could you look at that makes you feel, I guess, less bad about the sell-off that we saw?
If you look at the queries and you look at maybe like some of the conversion data perspective, like I could argue over the coming quarters, this will be viewed as more of like an air pocket interim period rather than the start of some secular trend on the advertising business. Look, they're, you know, a lot of times like my view, and even on like the private side, is like you invest in very smart people that they figure it out. When it comes to like what we're seeing in Alphabet, I think now it's about them, they have the install base, they have the engine, now it's them figuring out the monetization piece. I think that, but if you look at what's in the stock right now, investors are probably putting a 30 to 40% discount on the future advertising business of Google. My argument would be like, I'm not saying it doesn't get dinged, but if you think it's anywhere better than like this worst case that's being factored in, this is a stock that has significant upside here.
All right. So how do you deal? And I'm just going to ping-pong around a little bit. So hopefully listeners will kind of get, you know, some of the vibe here. So, you know, going back to Microsoft and being very differently positioned, you know, than Google...
And Microsoft was there. Microsoft was one... not to call you out, but Microsoft was one where it was like that from a thesis perspective was like a table-pounder relative, like you could be wrong on a quarter, but the checks were such that when the stock was like 360, you almost knew outside like some, like, you know...
But how do investors deal with that volatility? So let's talk about, you know, obviously to some degree institutions can manage risk, right, in a portfolio fashion. There's a lot of, you know, obviously they can use derivatives and that sort of thing. But as you know, retail investors, self-directed investors, it's kind of really hard. I mean, these stocks, you know, they go up on these massive spikes and then they get flushed out, and it just doesn't seem like, you know, we're at this period anymore where it's a nice, you know what I mean, like, you know, like bottom left, upper right sort of thing. And it really comes down to stock picking, but like every quarter it seems like, you know, like it could go back and forth in that chop. And we're not just talking about 10%, you know what I mean? We're talking about 25, 30% decline.
It came back to reality. I mean, look, look at this quarter. I mean, with like Intel in the 30% sell-off and ServiceNow and the sell-off.
So when you're selling a stock like Intel down 30%, the government invested at 20 bucks, Nvidia invested at 25. This is going back to the summer of '25. These stocks were up hundreds of percent, you know what I mean? And then they come down like this. It's like, that's a hard way to invest because a lot of folks are just buying it because they're taking a long-term view, and they're like, and then they're down 30%. Like that's a huge hit. So how do you manage that risk if you are just kind of out there, you believe in, let's say, some very bullish folks like on podcasts or CNBC or yourself, that sort of thing, and they don't have the ability to manage risk that way?
Well, first of all, I think it's the... like Intel is like not a name that like I, you know, a huge supporter of, but the point is like for me it's like it's trying to have like the 20 to 30 stock, what's called the 20...
Which is what your ETF is.
Yeah, and be like, and some of those there could be thesis changers that then you have to move, you got to basically just move, you move forward with.
But a lot of them, it's ones where like when you navigate periods, whether it's Palantir, whether it's Salesforce, whether it's ServiceNow, whether it's Microsoft, whether it's Nvidia, whether it's AMD, again to me it's more like that's all the work that we do, you know, why we travel so much. It's trying to have a thesis based on like chip demand, what CIOs are telling us, what we're seeing in terms of sales and just demand relative to hyperscalers, what we're seeing on use cases, what's happened on cybersecurity. There's times like in terms of navigating from a retail investor, it's just like, but if you just have a thesis over 60 days, 90 days in this market, I think, I think it's a very dangerous... it's a dangerous way to navigate because I think you have to view it as like what your risk profile is, what are the names you love, and ultimately when they get just crushed to these levels, are they at points where like could they be a downside? Could there be another 10, 15% downside? Of course, but like risk-reward is one that you own them.
