December 31, 2025 • 39 mins
Artificial Intelligence and Big Tech dominated market sentiment in 2025. Now, we look to what may come in the new year. In this episode, Nathan Hager speaks with Wedbush Managing Director and Senior Equity Research Analyst Dan Ives and Deepwater Managing Partner and Co-Founder Gene Munster. Ives and Munster offer their short and long-term outlook for the technology industry heading into 2026.
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Speaker 1 (00:01):
Hello, and a very happy new year to you and
your family. Welcome to this special edition of Bloomberg Daybreak.
Markets are closed as we ring in twenty twenty six.
I'm Nathan Hager coming up at this hour. We're gonna
look at what's ahead for the sector that has led
the way for the stock market the last couple of years.
Big Tech. Twenty twenty five was once again bullish for technology,
(00:24):
but not without its bumps and bruises. A deep sell
off in April, followed by a powerful rally, then another
sell off of many of the biggest names in the
final quarter. So what could be in store for twenty
twenty six? Who better to ask than two of the
most prominent analysts on the street. Gene Monster, managing partner
in Deepwater Asset Management, is with us along with Dan Ives,
(00:46):
global head of Tech Research at web Bush Securities.
Speaker 2 (00:49):
For the full hour.
Speaker 1 (00:50):
It is great to have both of you back on
what has become a semi annual tradition here on Bloomberg Daybreak.
But before we look ahead to twenty twenty six, let's
look back at what both that you had to say
about tech the last time we were all together here
back on the fourth of July. Gene, let's start with you.
You were pretty enthusiastic.
Speaker 3 (01:09):
I actually am so bullish on AI. I think that
it has the power for these companies to continue to
move higher over the next three to five years, despite
what is going to happen, what could happen with the
overall macro And I don't like being out on a
limb that farart and the right approach is that AI
(01:29):
is just much more impactful.
Speaker 1 (01:32):
Of course, Gene, that was before the rotation at the
end of twenty twenty five. Are you still as enthusiastic
about big tech as you were then?
Speaker 3 (01:43):
Yeah, nothing has changed in that optimism. I still think
we're going to see the AI trade outperform the Nasdaq
for next year. I think that the Nasdaq is going
to be up call it five ten plus percent. So
still optimistic, still believe we're I'd put it in the
second inning of all this and understand that that may
(02:03):
come across as seemingly out of touch with reality, given
I think some of the towards the end of the year,
some of that, some of that concern that has poked
its head up around the AI trade, some issues that
investors have had about the amount of investment that have
been made in the market at times just shrugging off
good news. But Ayden, I think that this is still intact.
(02:26):
I think the transformation really hasn't even begun, and I
think that patients will pay off when it comes to
wealth creation over the next few years.
Speaker 1 (02:35):
All Right, I want to turn down to you, Dan
over at Wedbush. I think I have a feeling what
you might say. But let's listen back to what you
told us back in July.
Speaker 2 (02:44):
This is a fourth Industrial revolution, this tact bull market.
It's another three years ahead. And that's why I think
it's the popcorn get the Champagne Islands handing slowing it down.
Speaker 1 (02:56):
Do you see anything slowing it down since then?
Speaker 2 (02:58):
Dan, Look, I'm more bullish on the theme today than
I was back in the summer, given my monization, given
what we've seen with the spend, given themes like Pallentier
and others. Is the use cases are built out and
now going into robotics and autonomous. To me, look, it's
(03:18):
two more years left this technical market. I'm not gonna
say we're not gonna have white knuckles as me and
you always talk about. But nothing in any way makes
me get off as AI train to some extend. It's
more in bolden.
Speaker 1 (03:32):
I want to turn back to you, Gene. You say
it's the second inning in the AI trade. I think
in the times that we've spoken before, it's kind of
been where it's been before, right, I mean, I think
I've heard you say we're in the second inning for
quite some time. When do we get to the third?
Speaker 3 (03:51):
Well, earlier in the year, I guess at the beginning
of twenty five, I thought we're in the third inning,
and so I guess what happened to make me believe
that we're in this second inning? Just like to put
some specifics on it, and it's this is what I
love about this the year end is we can look
back and just look at the kind of the arc
of what's happened. At the beginning of the year, the
(04:11):
street was looking for in Vidia to have eighteen percent
growth for calendar twenty six. If you look at what
they said at the end of November. This excludes anything
from the H two hundreds in China, but they're going
to do somewhere around the mid sixty percent growth. So
this is a company that this is not a one
(04:33):
to two billion dollar revenue company. This is a two
hundred and fifty three hundred billion dollar company that's seen
an acceleration. And why in Vidia, of course is so
important when it comes to kind of gauging what inning
we're in is this is the brain that think of
the hardware piece, what in Vidia powers is the size
of the brain. And when you think about this accelerating
(04:55):
spend around the size of the brain, it makes me
more optimistic that the output, this is the critical piece,
the utility that brain will kick out eventually will be
more powerful, which makes me have higher confidence that were
earlier than what I thought at the beginning of the year.
Speaker 1 (05:12):
I want to ask you Dan, where you think we
are in the AI race, and to talk a little
bit more about in Nvidia, because just in the last
few months, we've seen I think it's safe to say
quite a bit more at least chipping away or at
least attempts to at Nvidia's dominance. When you think about
Google's TPUs and this investment by open ai or by
(05:36):
Amazon into open Ai, with its potential competitor to the
Nvidia chip, does in Nvidia continue to keep this motor
around itself that it's had over the last couple of
years now in the AI chip space.
Speaker 2 (05:50):
Look, I love what how Gene puts it with the
brain and the utility, because I think that's so true
in terms of where in Vidia. Please look, coming back
from me three weeks there demand the supplies twelve to
one for in video chips. The reality is Nathan like,
customers can't get enough that they have to go, whether
(06:11):
it's AMD, whether it's Google on TPU, whether it's others.
But that's not a bad thing. It speaks to our
view that like the lms are going to get cheaper.
You got more competition when it comes to AI chips,
but at the end of the day, in video continues
to be three to four years maybe, you know, like
in terms of a head of competition, and that's why
(06:32):
I think it's still a very cheap stock. Two fifty
two seventy five, you know, twenty twenty six is where
I see this stock playing out.
Speaker 1 (06:40):
We're speaking with Dan Ives, global head of Tech Research
at web Bush Securities and deep Water Asset Management Managing
Director Gene Munster. Gene, that's a very interesting point that
Dan just made there. The idea of Nvidia being a
cheap stock because there has been all this discussion over
the last few months about the value of the Magnificent seven,
(07:02):
How do you view Nvidia's valuation right now along with
the rest of the mag seven? Are these still stocks
that can keep getting into these sky high valuations?
Speaker 3 (07:14):
I mean Dan's doing the right thing. I mean he's
looking beyond the appreciation that we've had and asking the
question like what is on the come And ultimately that's
the question, the central question we all have to answer.
And I think when we get to the question about
like valuation and where this market potentially go, it can
(07:35):
boil down to something as simple as your just your
view on how the utility of AI will play out.
So if you take the perspective that we've had a
good run and that AI is going to be impactful,
but it's not going to be a total game changer,
it's not going to exceed the high expectations that are
out there in terms of how it's going to impact
the world. If you take that approach, there's little that
(07:58):
I think anybody could say that is to get you
optimistic about where this is ultimately going to go. If
you're in the camp where you believe that these companies
you know, Dan mentioned Comes like Palenteer. You think about
some of the MAG seven, some of the small caps
as well. If you believe that ultimately that that we're
still early, therefore their their valuations are are going to
(08:23):
be lower in the future because they're going to have
faster earnings growth. And so that's I mean, is I mean,
that's effectively what we're faced with is this question about
the degree the pace of this and how it impacts.
If you look at NATA, just the numbers, like let's
let's forget about that and forget about where we're going
and just look at where the stocks are. They are
trading higher than a normal if you look at, for example,
(08:46):
the MAG seven kind of over the next twelve months
trading around a twenty seven times multiple excluding Tesla, that's
as a.
Speaker 2 (08:54):
One hundred plus multiple.
Speaker 3 (08:56):
But so they are higher, but it's not like easy high.
As a reminder, back in two thousand, the Nasdaq was
trained at one hundred times next twelve months. Now, the
dynamic of the market's different today because these megacaps were
not going to ever unlikely we'll ever see that hundred x.
But I think it's reasonable that a twenty seven x
(09:20):
on what potentially could be multiple years of fifteen twenty
percent growth is positive.
Speaker 1 (09:26):
Dan, how do you answer some of the critics who
point out a lot of these companies, you know, spending
hundreds of billions of dollars into this technology that is
then getting you know, more circularly invested into the companies themselves.
The idea that you know, open Ai and others are
(09:49):
getting all this investment from companies that are going to
be benefiting from their business, like the hyperscalers.
Speaker 2 (09:57):
Yeah, but I would say, and G and I have
talked about a bunge. I don't view this like a
vendor financing circular financing late nineties that we both saw.
I mean, my view is open Ai for every dour
that they invest, every dour and video vest, they're getting ten, twelve,
fifteen dollars back over the course of the next five
(10:18):
ten years. And that's a bet that they'll meet because look,
they're building out a new economy for consumers and new
economy for enterprises. So I don't view it as sinister
red flag the circular financing concept to some extent, I
view it as you want to be associated with open Ai,
not away from them. And even though right now those
(10:40):
stocks are you know, really have a huge sort of
black cloud over them. It's like is it bad. No,
it's actually good because they are at the epicenter of
this AI build out.
Speaker 1 (10:52):
Is it important, though, Gene, for open Ai to turn
a profit in twenty twenty six to justify all this spend.
Speaker 3 (11:01):
No, it has I mean, this is the beauty of
everything that's going on is that you have very rational
people that say profit is important, and there's other rational
people that say it's just about building the framework. And
so the key question about this cash burn with opening
and we can talk about the rumor around this eight
hundred and thirty billion dollars round that's rumored to be
(11:23):
going on, but the key question ultimately is eventually call
it twenty thirty, can they be profitable? And part of
that is to dance point like can they continue to
raise money to fund this impressive expansion and impressive expansion
I just want to put some numbers around it. It's
one hundred percent growth expected next year, in the year
(11:45):
after and the year after for the next three years.
And so I think that when you think about the
profitability question when it comes to Opening Eye, like that
that really doesn't matter. What matters is do they ultimately
can they get enough financing? Can they raise enough equity
to the tune of about one hundred to one hundred
and fifty billion of the next three years to continue
(12:06):
to build out to get to that profitability piece in
twenty thirty And I think the answer is overwhelmingly yes.
It's just too big of a prize. And you know,
Dan and I are well ware what's going on in
the private markets. There's just a ton of investor demand
to participate in this, and so they're going to be
able to have the money to power through this cash
(12:27):
burn that they're going to have for the next few years.
Speaker 1 (12:29):
We're going to continue this conversation take an even closer
look at the Magnificent seven stocks as this special New
Year's Day Tech Hour continues with Gene Munster, Managing Partner,
Deepwater Asset Management and Webbush Securities Global Head of Tech Research,
Dan Ives on the special edition of Bloomberg Daybreak for
(12:49):
the New Year. I'm Nathan Hager, and this is Bloomberg.
Welcome back to the special New Year's edition of Bloomberg Daybreak.
I'm Nathan Hager, and even though markets are closed. On
(13:10):
this first day of twenty twenty six, we got a
high tech power Hour going. We're speaking with Dan Ives,
global head of Tech Research at wet Bush Securities and
Gene Monster, managing partner at Deepwater Asset Management. Dan, let's
pick up where we left off in the last segment
talking about some of the valuations, some of the financing
that's going into these startups that are possibly getting into
(13:32):
really really big valuations like open Ai. Do you see
that continuing when you know there is still so much
competition along among some of these large language models that
are competing with open Ai.
Speaker 2 (13:44):
Look, I'm not saying that you won't have a bubble
or maybe frof in ensuring the areas of the market
over the next twelve eighty months. But to look at
the core winners and to say that they're expensive and
just kind of painted with a brush, I think's the
wrong way to view it. Because my view is like, look,
(14:05):
I have three to four trillion being spent next few
years in terms of the build out to ripple effect.
Every dollar spent on videoship, there's an eight ten dollars
multiply across the rest of the tech. So investors like
they're looking non next one two years, they're looking beyond
that to understand who the core winners are and will
they grow into valuations. I mean it goes back to like,
(14:26):
you know, if you go back to some of the
Amazon days, some of Meta somewhere in video was twenty
twenty one two down twenty two, you know. I think
that sort of the view in terms of this transformation
that we continue to believe, like you only have three
percent of companies in the US that have fully gone
down the AI path, and for the first time globally
(14:49):
in thirty years, the US is headed China when it
comes to tech.
Speaker 1 (14:52):
I think I heard Dan talk about the idea of
winners and losers here in the large language models. Gane,
how are you thinking about winners and losers right now
in that space?
Speaker 3 (15:04):
Well, I think that there's basically four or five depending
how you count Meta as the large language models, and
I think that when there's this let me just take
a step back, is there is a view that ultimately
it's a race to the bottom, that these companies are
(15:24):
creating intelligence and therefore they will that the pricing is
going to go down to a level where we're going
to have five losers. Essentially, they're going to spend all
this money. And our belief is that actually what you'll
see is even though the pricing will come down, the
value will increase to a point where the pricing. This
(15:46):
gets back to this Gevins paradox that's been talked about
for the past year or so, that yes, pricing comes down,
but the value increases. Therefore, the usage increases that more
than offsets that decline in pricing. And so I think
that all these two different degrees are going to be winners.
One piece that is kind of like below the surface
(16:07):
that doesn't get talked about as much as the personalities
of the models, and the way we think about it
is the world isn't doesn't run on one personality, and
that's what these models are. They have personalities. You ask
one model, you ask five different models, five different questions,
and you get slightly different answers. And so I think
that there is something to be said about This isn't
(16:28):
a political statement, but some models lean right, some models
lean left. Organizations are going to want to build on
top of models that align more with their personality, and
so I think that that is going to create an opportunity.
It's probably you're probably going to see a couple on
the right and a couple on the left, and so
(16:49):
it's hard really at this point to say, you know
which one is the losers. I think I look at
it more of the conversation about them all being losers,
about this race to the bottom misses the fun a
mental point, which is, as value comes from the intelligence,
people will pay out for it. I realized that that
that is a bold statement, but I think that's the
(17:09):
piece that is missing in terms of how these companies
continue to how Opening Eye, for example, can be a
choin and a half dollar company.
Speaker 1 (17:18):
Well that's a really interesting idea, And I wonder Dan
if that's something that you've thought about as well, whether
there could be a scenario where companies are using multiple
large language models as opposed to settling on just one look.
Speaker 2 (17:30):
I think what Ginge just said there is gold, because that,
to me, that summarizes the whole the crux of everything
we're seeing in terms of this AI build out, Winners, losers.
You could pick your open A, I pick your Gemini.
Pick you know whether even in China some of the
(17:51):
models there. To me, it's all going to be about
hyperscalers and the data that it's built on. That continues
to be such a core piece of this AI, which
when you do about the hyperscoalurs and the infrastructure, it's
about the data the infrastructure to build out.
Speaker 1 (18:06):
I want to talk about the theme that has really
driven this market for the last few years, of course,
that is the Magnificent seven, and take a look at
where those stocks in particular could go in the next year. Gene,
do you see the mag seven continuing to drive the
rally all boats lifted together in that space?
Speaker 3 (18:25):
I do think simple answer is no. I think that
we're going to see some pockets. Some of them are
going to outperform really well, and some of them won't
perform as much. I mean, my sense is that the
small cap piece is going to continue to be an
important part. I want to be clear that I think
you should own many of the mag seven. I think
(18:47):
that they're going to continue to generate a better return
than just being in the queues, for example. But I
think that there is a little bit of a dynamic
when it comes to the mag seven, the two that
I'm focus most on. This wasn't your question, but I
do want to Highlight.
Speaker 2 (19:03):
This is sure.
Speaker 3 (19:04):
I'm kind of split in airs here in terms of
how to think about the winners in the MAGS seven
four for calendar twenty six. I think Apple I'm putting
that as the top performer for the front half of
the year just because I think there's going to be
multiple expansion going into the new series, which is code
named for the new Apple Intelligence, and they land that
after being i think more or less viscerated over what's
(19:28):
happened so far with AI, they land that the multiple
on Apple is likely going up. So I think that
Apple's going to have be the best performing MAG seven
through the first half of the year, and then if
you look at the full year, I think Google is
in a unique place just given you know, they're really
doing a great job of taking this the search traffic
(19:49):
and starting to find ways to get people to interact
with their products more, which obviously more shots on that.
It's good for the revenue growth within search, and of
course they've got their cloud, and so those are the
two that I would focus on most. Again, I'm not
it doesn't mean that the other ones won't do well,
but I think those are the ones that will do
the best.
Speaker 1 (20:09):
Dan what are you looking at in the mag seven?
Do you see winners and losers in there?
Speaker 2 (20:14):
I mean Gene preaching to the quiet, like what did
he say about Apple? And Look, and it's been a
battle because they've essentially been invisible with the AI strategy.
But now with Google when the DOJ, that queers a
path for a bigger geminideal that comes out in the spring.
And I think there's no multiple for Apple given because
(20:37):
of AI with the biggest install based in the world,
I could already add seventy five hundred hours to share.
So I think I agree one hundred percent. And me
and Gene it's a very small Apple fan club. You
stick together there, okay, all right? And then and then
i'd also I agree with Google, but I think Microsoft, Look,
I think Microsoft here is so over sold. Just feel
(21:00):
like best is in the rear view mirror. It's now
about Google, Amazon, They're in the enterprise, the enterprise market
it's in that's Redmond's do me and I'm telling you,
like to me, that's the one that I focused on.
It just a table pounder here.
Speaker 1 (21:13):
Interesting because it does seem like there is a pretty
more heated competition in the cloud space as well, Gene,
how are you looking at that? When it comes to
the competition between Microsoft, Azure, Google Cloud, and Amazon Web Services,
I think the bar.
Speaker 3 (21:29):
Is lowest with AWS just because the growth has been lowest,
and you know, they just haven't seen that breath taking
into the thirty almost forty percent growth that Azure and
Google have experienced more recently off of a bigger number
because their market shares more so, it's it's harder to
grow at those rates. But I think that I mean,
this is, uh, you know, not the cleanest answer, but
(21:53):
I think all of them are going to do well.
I think if you go back to kind of where
Dan and I are at in terms of just the
broader build out that's going on, if if that in
fact does happen, all of them are going to benefit
the one. There's a contrarion piece in me that wants
I like what Dan saying about Microsoft. I agree that
that's definitely it's a contrarian on the top pick. Therefore
(22:14):
it probably happens. But the contri piece around AWS is
that that they end up being kind of the surprise
to go back to, uh, they had their AWS event.
The CEO of AWS said that they may even have
the exact his exact quota. I was just looking up
this morning on December fourth. This is Matt Garman. He said,
(22:36):
demand keeps skyrocketing or only speeding up that infrastructure build out,
so uh, you know, halfway through the quarter, three quarters,
two thirds of the way through the quarter. He says
that it's probably a good sign for ws D.
Speaker 2 (22:49):
And your reaction to that, I mean, look, I agree,
and I'd almost further and say, I think one of
the biggest surprise as we go into twenty six, I
think it's going to start off with Jensen's keener at CEES,
you know, which will be at is just about the overall
(23:11):
demand that's accelerating across the whole universe. And I think
that's something where investors, I think are underestimating the scale
and scope of what this is going to look like
and also going to have a huge impact not just
on earnings, but I think even on increased capbacks and
on accelerate monization of the AI theme going in twenty
(23:34):
twenty six, Gene.
Speaker 1 (23:35):
Are these hyperscalers going to have to continue to find
ways to cut costs to keep up the hundreds of
billions of dollars they're spending on AI.
Speaker 3 (23:46):
Well, I think if I think they will try to
continue to cut costs, a lot of it is because
they're they're they're using, they're eating their own products, they're
implementing more. Think about how much they're using, whether it's
micro Soft to Meta and Google. In terms of code
creation today something like more than half is now generated
by machines. So but you know, do they have to
(24:09):
to grow this if you just some really high level
math here, but think about the average mag seven excluding
teslas generating about one hundred billion per year in free
cash flow, and so they're spending call it you know,
that's by the way, that one hundred billion includes them
(24:30):
spending fifty seventy five billion a year on infrastructure, and
so they can increase by twenty thirty percent and still
be bringing home fifty seventy five billion dollars. And so
they're a long way away. And that's I think one
of the big differences that we're experiencing today versus twenty
five years ago is the cash flow generation. They can
(24:53):
just keep feeding this machine and so inevitably investors do
care in the near term about earnings. Look what happened
with Meta. Meta just said after their September quarter that
next year the expenses were going to grow faster than revenue.
They have very upbeat commentary about revenue and the stock
I forget what it was down fifteen to twenty percent
(25:14):
over a short period, and so they do care in
the near term. But the reason why I stress that
near term, I think the long term investors will have
a sense like this money is going to good use.
And even if they're and they've got plenty of money,
to continue to invest in the business. And most importantly
(25:35):
that's the right thing for them to do, because if
they don't make those investments, obviously it poses them at
some bigger existential risk longer term.
Speaker 1 (25:44):
We're going to keep this conversation going on the Mag
seven and more of the big tech sector as we
continue this special New Year's Day edition of Bloomberg Daybreak
with a look at another big piece of the Mag
seven that would be the Tesla coming up. I'm Nathan Hager,
and this is Bloomer. Thanks again for being with us
(26:14):
for this special edition of Bloomberg Daybreak. Markets are closed
for the New Year's Day holiday. I'm Nathan Hager. Wrapping
up our special high tech roundtable. We have been spending
the full hour with Dan Ives, global head of tech
research at Webbush Securities and Deepwater Asset Management's managing partner,
Gene Monster. We could keep this conversation going for the
entire day, but we got to wrap this up. Starting off,
(26:37):
guys with a stock that I know both of you
follow very closely. That would be Tesla. Both of you
have made some pretty bold calls on the electric vehicle maker,
but does it continue to be driven by the evs
headed into twenty twenty six, Dan.
Speaker 2 (26:55):
I first off just want to say, I mean I
could listen to Gene I've had some sour pats, kids
and media tabernet, I costendim talk tech the whole day. Yes.
Now then now with that said, look Tesla, they're entering
the most important year ever autonomous and robotics, weave thirty cities,
(27:15):
web robotaxis, you know, in twenty twenty six, and this
is the year AI revolution comes to Tesla. And I
think when it comes to physical AI, the two best
physical AI please in the world on Nvidia and Tessa,
And I think now musk Wartime CEO and really is
(27:36):
going into the next such an important chapter in the
Tesla story.
Speaker 1 (27:41):
A great way to describe him as a wartime CEO,
I think gene because Elon Musk has been through a
lot just throughout twenty twenty five, between the political moves
and coming back to Tesla with the renewed focus. Where
do you see tech going in twenty twenty six?
Speaker 3 (28:01):
I think you know, Dan summed it up. It's about
the robo taxi, It's about autonomy. I mean, that's those
are the headlines that are going to be of most focus.
There is the question like I think that's what matters most.
There is a question like what happens with deliveries. I
don't think i'd be curious Dan your take on this.
I don't know if investors really care if they beat
the numbers a little bit. But just for some context,
(28:25):
this is as of a week ago, the shoot was
looking for sixteen percent delivery growth for calendar twenty six.
I think it's probably going to be more like flat
to up five percent. A little bit of a miss there,
and again when you start talking about some of these
negative things misses the point. I agree with Dan's highest level,
which is one of the best positioned physical AI companies
(28:47):
full stop. But I do wonder. I'll stand, like, do
people care let's say deliveries. Let's say they missed deliveries
for twenty twenty six. Does it matter?
Speaker 2 (28:57):
I mean, this should be like going to carb going
to Miami for the water. The point is you're you're
focused on autonomous and robotics. That is the focus of deliveries. Look, Gene,
there's a stabilization, and nasal investors want to see your bobs.
It continues to still be very depressed. But I think
(29:19):
as long as you see a steabilization and you're seeing that,
that's fine enough. But you own the stock beers about
Thomas and robotics.
Speaker 3 (29:28):
Indeed, I do own it. Yeah, and that's well said.
I think the stabilization piece is really important. One other
thing just to kind of play for it. So who
knows my senses, they're probably going to be a little
bit too high for the you know, for the for
calendar twenty six, But I don't think it really changes
the big picture. Like when I see what Ford did
(29:48):
at the end of twenty twenty five, basically, what was
it a two and a half billion charge five and
a half billion charge, these these bees and the becoming
all noise at some point. But the reality that they're
taking this big step back. I ask a question like,
if they want to participate in autonomy is and they're
(30:11):
not investing in the EV piece. Are they envisioning I
don't know the answer to this, but are they envisioning
a world where it's like hybrids are going to be autonomous?
I think that is not the world. I think it's
going to be all electric. But I think when you
look at what's going to happen with the delivery numbers
this year, beat them or miss some, the stabilization is
really important. I love that perspective, Dan. And then the
(30:34):
second piece is like just look at the big picture,
is that these other carmakers they're not only nowhere to
be found when it comes to autonomy, but they're they're
running towards profitability at giving back for the cost of
the future.
Speaker 1 (30:48):
Yeah, I look, I agree.
Speaker 2 (30:50):
I The one thing I'd say is like, you look
what's happening. I mean, like, GM's handler a lot better
than Ford, but if you look what Ford's done, they're
basically thrown in the white towel. In the extent to
Jean's point you're gonna have to eventually see when it
comes to autonomous they're gonna ultimately I could see Tesla
(31:10):
at a point partnering with some of the big US
auto makers as they ultimately go down this past.
Speaker 1 (31:16):
That would be an interesting idea. But I'm curious, Gene
just to go back to a called Dan made earlier
about robotaxi in thirty cities. I mean, we've seen Elon
Musk set deadlines and let deadlines go quite a few
times over the years. Does Tesla need to expand robotaxi
(31:37):
to that extent to keep investors satisfied?
Speaker 2 (31:41):
I just love that Bowld call.
Speaker 3 (31:43):
They don't need to get there, and I guess is
Dan's sense is the same. They don't need to get
to that level to satisfy expectations in the movie the
stock higher. So at a point of reference there in
two cities today. They recently in Austin went to no
safety driver, but there's also no customers in there either,
and it usually takes three to six months. I've recently
(32:05):
done some deeper work in terms of how the approval
process works in terms of local municipalities up to the
state level, and it is the state's playoff of each other.
And so to Dan's point is that they, let's say
three six months from now, they start to get some
good feedback in terms of how they're doing without a
safety driver in the car. Other cities will use that
(32:28):
to quickly turn it on. And the beautiful thing about
Tessa's model of courtse is they can turn it on
in a heartbeat. I mean they can build these cars
at thirty thousand a piece. That's for like a Model
Y autonomous and eventually the cybercab and Waymo just can't
do that. I mean they're at one hundred thousand plus.
Speaker 1 (32:47):
In the time we have left with Dan Ives, global
head of Tech Research at web Bush Securities and Deep
Water Asset Management spnaging partner gene Monster. I want to
look outside the mag seven to some of the other
big techs that you guys follow, what we should be
looking at in twenty twenty six as we think about
this sector. Dan, I'll start with you, which companies are
(33:10):
you really focused on in the new year to outperform BOK.
Speaker 2 (33:14):
It continues to be you know, MESSI AI pallunteer in
terms of front and center on the use cases. But
I think you're going to see Snowflake, Mango, dB, those
are going to be some significant performers. I like when
I look at the infrastructure and NEBIS that continues to
be a name that Richud bullsh on, Iron Iri e
n That's one where it's also a power play along
(33:37):
with ge Veranova, It's one of our favorites. I think
you have to focus on the second third fourth derivatives cybersecurity,
crowdstrikes another one front and center along with Powell out there.
Speaker 1 (33:48):
Interesting because a lot of those running into the same
kind of potential criticisms in terms of valuations. I'm thinking
of Pallenteer in particular. Ge what do you think of
some of what Dan's talking about there and what companies
are you keeping an eye on that could outperform?
Speaker 3 (34:07):
It all makes sense, and you know his he'll forget
a day or he just knows infinitely more on some
of those companies than I know. And when I think
about kind of the expectations around some of these, and
I mentioned Apple and Google on the mega cap and
then it'll be kind of fun we maybe we can
play this sound.
Speaker 2 (34:27):
By when we joined in the middle of the year,
how this is going.
Speaker 3 (34:30):
But I think that the small cap index, which we'll
just use the PSCT as that it is going to
outperform the cues. And so that's kind of the sub
five hundred billion dollars. Still believe you should own the
mega caps, but I think you're going to see better
performance from some of these small caps in twenty twenty six.
Speaker 1 (34:50):
You keeping an eye on some small caps, Dan, okay.
Speaker 2 (34:54):
I mean there's a handful of small caps, you know,
specifical on like cybersecurity. I think there's number names like
Tenable Qualis. I think there's a number of names that
on the power side that could be super interesting. Names
on the software side like PEGAS Systems. Look, I think
you look at like as Gene said, second, third, fourth
(35:18):
derivatives across AI. That's where I think some of these,
you know, gold maybe at the end of the rainbow
could be interesting.
Speaker 1 (35:26):
So does that point to the idea that we could
see something of a rotation, like there's been a debate
on in the broader market within big tech, maybe a
rotation or a broad dig away from the magnificent seven
names into more of the tech space, Dan, Or is
that something you're thinking about.
Speaker 2 (35:46):
I think it's a broadening out. But it's still going
to be led by big tech and led by the
core AI revolution names, but it's it spread to second, third,
fourth derivative, and you're gonna see that spreading out. And
I could argue even you're gonna have an AI ripple
effect to financials or healthcare, a broadening of the market.
(36:08):
But do remember text no lef Lean one hundred miles
an hour in a Ferrari. I'd rather have that, Yeah,
you'll get some speeding tickets rather than being in value.
You in the right lane forty five miles an hour
with a bumper sticker saying Mike kez nanotuonent in third grade.
Speaker 1 (36:23):
So still with a very polish call on the tech sector, Gene,
where are you when it comes to that kind of
thinking about big tech in twenty twenty six.
Speaker 3 (36:34):
I'm still just thinking about that bumper sticker, big deck
in twenty twenty six. I think that it's I think
you should own some big tech, And I mean, this
is what kind of makes some fun. I mean, Dan
and I on the exact same page at the bigger
picture here, there's a little nuance that I have related
to some of the small cap and we'll see how
(36:56):
ps CT does relative to the cues and companies, you know,
smaller ones, smaller and cool one hundred and fifty billion
dollars a risk of networks or very on the power
cooling side. I mean, these companies have had just breathtaking moves.
But if we're right on the bigger picture here of
how much infrastructure is going to be put into place,
(37:18):
those companies like that should do well. And I think
that's going to be a positive for the small cat trade.
Speaker 2 (37:22):
And Nathan, I would also just say, I, you know,
and I just keep trying to figure out, besides the
AI revolution, how do we get Gene to wear a
pink sports shock. That's something that we have to we
have to just we have to figure that out. We
only should.
Speaker 3 (37:39):
Let's we need to come up with some like market number.
Then people will say, well, that's going to be the
peak of the market, but I'll purchase a pink sport
code at We'll figure out that number, Dan and be
back to Nathan.
Speaker 1 (37:53):
If Dan ives and Gene Munster switch wardrobes, we will
know that we have gotten somewhere in the.
Speaker 3 (38:00):
Text, right, I think you'd recognize either of us.
Speaker 1 (38:03):
But seriously, not to end this on a downer, but
just quickly before we let you guys go, what should
investors avoid like the plague in the tech space in
twenty twenty six, gene Monster Just quickly.
Speaker 3 (38:16):
Well, I guess I'm just so optimistic about how early
we are. I'm reluctant to pick kind of a avoid
like avoid like the plague. I think we'll see how
this plays out when the companies go vertical and in
short amounts of time, then we could maybe have evaluation.
Speaker 2 (38:36):
But I'm not.
Speaker 3 (38:37):
I just don't have anything on my list.
Speaker 1 (38:39):
All right, Well, we'll end it there now, but again,
always a pleasure getting you guys together this time of
the year. That's Gene Monster managing partner Deepwater Asset Management
and dan Ives Global Ahead of Tech Research at web
Bush Securities. Thanks to both of you for spending the
entire hour with us, and thanks to you as well
for bringing in part of your new year with us.
(39:01):
I'm Nathan Hager, wishing you many happy returns tech or
otherwise in twenty twenty six. Stay with us Top stories
global business headlines coming up right now.
Hello, and a very happy new year to you and
your family. Welcome to this special edition of Bloomberg Daybreak.
Markets are closed as we ring in twenty twenty six.
I'm Nathan Hager coming up at this hour. We're gonna
look at what's ahead for the sector that has led
the way for the stock market the last couple of years.
Big Tech. Twenty twenty five was once again bullish for technology,
(00:24):
but not without its bumps and bruises. A deep sell
off in April, followed by a powerful rally, then another
sell off of many of the biggest names in the
final quarter. So what could be in store for twenty
twenty six? Who better to ask than two of the
most prominent analysts on the street. Gene Monster, managing partner
in Deepwater Asset Management, is with us along with Dan Ives,
(00:46):
global head of Tech Research at web Bush Securities.
Speaker 2 (00:49):
For the full hour.
Speaker 1 (00:50):
It is great to have both of you back on
what has become a semi annual tradition here on Bloomberg Daybreak.
But before we look ahead to twenty twenty six, let's
look back at what both that you had to say
about tech the last time we were all together here
back on the fourth of July. Gene, let's start with you.
You were pretty enthusiastic.
Speaker 3 (01:09):
I actually am so bullish on AI. I think that
it has the power for these companies to continue to
move higher over the next three to five years, despite
what is going to happen, what could happen with the
overall macro And I don't like being out on a
limb that farart and the right approach is that AI
(01:29):
is just much more impactful.
Speaker 1 (01:32):
Of course, Gene, that was before the rotation at the
end of twenty twenty five. Are you still as enthusiastic
about big tech as you were then?
Speaker 3 (01:43):
Yeah, nothing has changed in that optimism. I still think
we're going to see the AI trade outperform the Nasdaq
for next year. I think that the Nasdaq is going
to be up call it five ten plus percent. So
still optimistic, still believe we're I'd put it in the
second inning of all this and understand that that may
(02:03):
come across as seemingly out of touch with reality, given
I think some of the towards the end of the year,
some of that, some of that concern that has poked
its head up around the AI trade, some issues that
investors have had about the amount of investment that have
been made in the market at times just shrugging off
good news. But Ayden, I think that this is still intact.
(02:26):
I think the transformation really hasn't even begun, and I
think that patients will pay off when it comes to
wealth creation over the next few years.
Speaker 1 (02:35):
All Right, I want to turn down to you, Dan
over at Wedbush. I think I have a feeling what
you might say. But let's listen back to what you
told us back in July.
Speaker 2 (02:44):
This is a fourth Industrial revolution, this tact bull market.
It's another three years ahead. And that's why I think
it's the popcorn get the Champagne Islands handing slowing it down.
Speaker 1 (02:56):
Do you see anything slowing it down since then?
Speaker 2 (02:58):
Dan, Look, I'm more bullish on the theme today than
I was back in the summer, given my monization, given
what we've seen with the spend, given themes like Pallentier
and others. Is the use cases are built out and
now going into robotics and autonomous. To me, look, it's
(03:18):
two more years left this technical market. I'm not gonna
say we're not gonna have white knuckles as me and
you always talk about. But nothing in any way makes
me get off as AI train to some extend. It's
more in bolden.
Speaker 1 (03:32):
I want to turn back to you, Gene. You say
it's the second inning in the AI trade. I think
in the times that we've spoken before, it's kind of
been where it's been before, right, I mean, I think
I've heard you say we're in the second inning for
quite some time. When do we get to the third?
Speaker 3 (03:51):
Well, earlier in the year, I guess at the beginning
of twenty five, I thought we're in the third inning,
and so I guess what happened to make me believe
that we're in this second inning? Just like to put
some specifics on it, and it's this is what I
love about this the year end is we can look
back and just look at the kind of the arc
of what's happened. At the beginning of the year, the
(04:11):
street was looking for in Vidia to have eighteen percent
growth for calendar twenty six. If you look at what
they said at the end of November. This excludes anything
from the H two hundreds in China, but they're going
to do somewhere around the mid sixty percent growth. So
this is a company that this is not a one
(04:33):
to two billion dollar revenue company. This is a two
hundred and fifty three hundred billion dollar company that's seen
an acceleration. And why in Vidia, of course is so
important when it comes to kind of gauging what inning
we're in is this is the brain that think of
the hardware piece, what in Vidia powers is the size
of the brain. And when you think about this accelerating
(04:55):
spend around the size of the brain, it makes me
more optimistic that the output, this is the critical piece,
the utility that brain will kick out eventually will be
more powerful, which makes me have higher confidence that were
earlier than what I thought at the beginning of the year.
Speaker 1 (05:12):
I want to ask you Dan, where you think we
are in the AI race, and to talk a little
bit more about in Nvidia, because just in the last
few months, we've seen I think it's safe to say
quite a bit more at least chipping away or at
least attempts to at Nvidia's dominance. When you think about
Google's TPUs and this investment by open ai or by
(05:36):
Amazon into open Ai, with its potential competitor to the
Nvidia chip, does in Nvidia continue to keep this motor
around itself that it's had over the last couple of
years now in the AI chip space.
Speaker 2 (05:50):
Look, I love what how Gene puts it with the
brain and the utility, because I think that's so true
in terms of where in Vidia. Please look, coming back
from me three weeks there demand the supplies twelve to
one for in video chips. The reality is Nathan like,
customers can't get enough that they have to go, whether
(06:11):
it's AMD, whether it's Google on TPU, whether it's others.
But that's not a bad thing. It speaks to our
view that like the lms are going to get cheaper.
You got more competition when it comes to AI chips,
but at the end of the day, in video continues
to be three to four years maybe, you know, like
in terms of a head of competition, and that's why
(06:32):
I think it's still a very cheap stock. Two fifty
two seventy five, you know, twenty twenty six is where
I see this stock playing out.
Speaker 1 (06:40):
We're speaking with Dan Ives, global head of Tech Research
at web Bush Securities and deep Water Asset Management Managing
Director Gene Munster. Gene, that's a very interesting point that
Dan just made there. The idea of Nvidia being a
cheap stock because there has been all this discussion over
the last few months about the value of the Magnificent seven,
(07:02):
How do you view Nvidia's valuation right now along with
the rest of the mag seven? Are these still stocks
that can keep getting into these sky high valuations?
Speaker 3 (07:14):
I mean Dan's doing the right thing. I mean he's
looking beyond the appreciation that we've had and asking the
question like what is on the come And ultimately that's
the question, the central question we all have to answer.
And I think when we get to the question about
like valuation and where this market potentially go, it can
(07:35):
boil down to something as simple as your just your
view on how the utility of AI will play out.
So if you take the perspective that we've had a
good run and that AI is going to be impactful,
but it's not going to be a total game changer,
it's not going to exceed the high expectations that are
out there in terms of how it's going to impact
the world. If you take that approach, there's little that
(07:58):
I think anybody could say that is to get you
optimistic about where this is ultimately going to go. If
you're in the camp where you believe that these companies
you know, Dan mentioned Comes like Palenteer. You think about
some of the MAG seven, some of the small caps
as well. If you believe that ultimately that that we're
still early, therefore their their valuations are are going to
(08:23):
be lower in the future because they're going to have
faster earnings growth. And so that's I mean, is I mean,
that's effectively what we're faced with is this question about
the degree the pace of this and how it impacts.
If you look at NATA, just the numbers, like let's
let's forget about that and forget about where we're going
and just look at where the stocks are. They are
trading higher than a normal if you look at, for example,
(08:46):
the MAG seven kind of over the next twelve months
trading around a twenty seven times multiple excluding Tesla, that's
as a.
Speaker 2 (08:54):
One hundred plus multiple.
Speaker 3 (08:56):
But so they are higher, but it's not like easy high.
As a reminder, back in two thousand, the Nasdaq was
trained at one hundred times next twelve months. Now, the
dynamic of the market's different today because these megacaps were
not going to ever unlikely we'll ever see that hundred x.
But I think it's reasonable that a twenty seven x
(09:20):
on what potentially could be multiple years of fifteen twenty
percent growth is positive.
Speaker 1 (09:26):
Dan, how do you answer some of the critics who
point out a lot of these companies, you know, spending
hundreds of billions of dollars into this technology that is
then getting you know, more circularly invested into the companies themselves.
The idea that you know, open Ai and others are
(09:49):
getting all this investment from companies that are going to
be benefiting from their business, like the hyperscalers.
Speaker 2 (09:57):
Yeah, but I would say, and G and I have
talked about a bunge. I don't view this like a
vendor financing circular financing late nineties that we both saw.
I mean, my view is open Ai for every dour
that they invest, every dour and video vest, they're getting ten, twelve,
fifteen dollars back over the course of the next five
(10:18):
ten years. And that's a bet that they'll meet because look,
they're building out a new economy for consumers and new
economy for enterprises. So I don't view it as sinister
red flag the circular financing concept to some extent, I
view it as you want to be associated with open Ai,
not away from them. And even though right now those
(10:40):
stocks are you know, really have a huge sort of
black cloud over them. It's like is it bad. No,
it's actually good because they are at the epicenter of
this AI build out.
Speaker 1 (10:52):
Is it important, though, Gene, for open Ai to turn
a profit in twenty twenty six to justify all this spend.
Speaker 3 (11:01):
No, it has I mean, this is the beauty of
everything that's going on is that you have very rational
people that say profit is important, and there's other rational
people that say it's just about building the framework. And
so the key question about this cash burn with opening
and we can talk about the rumor around this eight
hundred and thirty billion dollars round that's rumored to be
(11:23):
going on, but the key question ultimately is eventually call
it twenty thirty, can they be profitable? And part of
that is to dance point like can they continue to
raise money to fund this impressive expansion and impressive expansion
I just want to put some numbers around it. It's
one hundred percent growth expected next year, in the year
(11:45):
after and the year after for the next three years.
And so I think that when you think about the
profitability question when it comes to Opening Eye, like that
that really doesn't matter. What matters is do they ultimately
can they get enough financing? Can they raise enough equity
to the tune of about one hundred to one hundred
and fifty billion of the next three years to continue
(12:06):
to build out to get to that profitability piece in
twenty thirty And I think the answer is overwhelmingly yes.
It's just too big of a prize. And you know,
Dan and I are well ware what's going on in
the private markets. There's just a ton of investor demand
to participate in this, and so they're going to be
able to have the money to power through this cash
(12:27):
burn that they're going to have for the next few years.
Speaker 1 (12:29):
We're going to continue this conversation take an even closer
look at the Magnificent seven stocks as this special New
Year's Day Tech Hour continues with Gene Munster, Managing Partner,
Deepwater Asset Management and Webbush Securities Global Head of Tech Research,
Dan Ives on the special edition of Bloomberg Daybreak for
(12:49):
the New Year. I'm Nathan Hager, and this is Bloomberg.
Welcome back to the special New Year's edition of Bloomberg Daybreak.
I'm Nathan Hager, and even though markets are closed. On
(13:10):
this first day of twenty twenty six, we got a
high tech power Hour going. We're speaking with Dan Ives,
global head of Tech Research at wet Bush Securities and
Gene Monster, managing partner at Deepwater Asset Management. Dan, let's
pick up where we left off in the last segment
talking about some of the valuations, some of the financing
that's going into these startups that are possibly getting into
(13:32):
really really big valuations like open Ai. Do you see
that continuing when you know there is still so much
competition along among some of these large language models that
are competing with open Ai.
Speaker 2 (13:44):
Look, I'm not saying that you won't have a bubble
or maybe frof in ensuring the areas of the market
over the next twelve eighty months. But to look at
the core winners and to say that they're expensive and
just kind of painted with a brush, I think's the
wrong way to view it. Because my view is like, look,
(14:05):
I have three to four trillion being spent next few
years in terms of the build out to ripple effect.
Every dollar spent on videoship, there's an eight ten dollars
multiply across the rest of the tech. So investors like
they're looking non next one two years, they're looking beyond
that to understand who the core winners are and will
they grow into valuations. I mean it goes back to like,
(14:26):
you know, if you go back to some of the
Amazon days, some of Meta somewhere in video was twenty
twenty one two down twenty two, you know. I think
that sort of the view in terms of this transformation
that we continue to believe, like you only have three
percent of companies in the US that have fully gone
down the AI path, and for the first time globally
(14:49):
in thirty years, the US is headed China when it
comes to tech.
Speaker 1 (14:52):
I think I heard Dan talk about the idea of
winners and losers here in the large language models. Gane,
how are you thinking about winners and losers right now
in that space?
Speaker 3 (15:04):
Well, I think that there's basically four or five depending
how you count Meta as the large language models, and
I think that when there's this let me just take
a step back, is there is a view that ultimately
it's a race to the bottom, that these companies are
(15:24):
creating intelligence and therefore they will that the pricing is
going to go down to a level where we're going
to have five losers. Essentially, they're going to spend all
this money. And our belief is that actually what you'll
see is even though the pricing will come down, the
value will increase to a point where the pricing. This
(15:46):
gets back to this Gevins paradox that's been talked about
for the past year or so, that yes, pricing comes down,
but the value increases. Therefore, the usage increases that more
than offsets that decline in pricing. And so I think
that all these two different degrees are going to be winners.
One piece that is kind of like below the surface
(16:07):
that doesn't get talked about as much as the personalities
of the models, and the way we think about it
is the world isn't doesn't run on one personality, and
that's what these models are. They have personalities. You ask
one model, you ask five different models, five different questions,
and you get slightly different answers. And so I think
that there is something to be said about This isn't
(16:28):
a political statement, but some models lean right, some models
lean left. Organizations are going to want to build on
top of models that align more with their personality, and
so I think that that is going to create an opportunity.
It's probably you're probably going to see a couple on
the right and a couple on the left, and so
(16:49):
it's hard really at this point to say, you know
which one is the losers. I think I look at
it more of the conversation about them all being losers,
about this race to the bottom misses the fun a
mental point, which is, as value comes from the intelligence,
people will pay out for it. I realized that that
that is a bold statement, but I think that's the
(17:09):
piece that is missing in terms of how these companies
continue to how Opening Eye, for example, can be a
choin and a half dollar company.
Speaker 1 (17:18):
Well that's a really interesting idea, And I wonder Dan
if that's something that you've thought about as well, whether
there could be a scenario where companies are using multiple
large language models as opposed to settling on just one look.
Speaker 2 (17:30):
I think what Ginge just said there is gold, because that,
to me, that summarizes the whole the crux of everything
we're seeing in terms of this AI build out, Winners, losers.
You could pick your open A, I pick your Gemini.
Pick you know whether even in China some of the
(17:51):
models there. To me, it's all going to be about
hyperscalers and the data that it's built on. That continues
to be such a core piece of this AI, which
when you do about the hyperscoalurs and the infrastructure, it's
about the data the infrastructure to build out.
Speaker 1 (18:06):
I want to talk about the theme that has really
driven this market for the last few years, of course,
that is the Magnificent seven, and take a look at
where those stocks in particular could go in the next year. Gene,
do you see the mag seven continuing to drive the
rally all boats lifted together in that space?
Speaker 3 (18:25):
I do think simple answer is no. I think that
we're going to see some pockets. Some of them are
going to outperform really well, and some of them won't
perform as much. I mean, my sense is that the
small cap piece is going to continue to be an
important part. I want to be clear that I think
you should own many of the mag seven. I think
(18:47):
that they're going to continue to generate a better return
than just being in the queues, for example. But I
think that there is a little bit of a dynamic
when it comes to the mag seven, the two that
I'm focus most on. This wasn't your question, but I
do want to Highlight.
Speaker 2 (19:03):
This is sure.
Speaker 3 (19:04):
I'm kind of split in airs here in terms of
how to think about the winners in the MAGS seven
four for calendar twenty six. I think Apple I'm putting
that as the top performer for the front half of
the year just because I think there's going to be
multiple expansion going into the new series, which is code
named for the new Apple Intelligence, and they land that
after being i think more or less viscerated over what's
(19:28):
happened so far with AI, they land that the multiple
on Apple is likely going up. So I think that
Apple's going to have be the best performing MAG seven
through the first half of the year, and then if
you look at the full year, I think Google is
in a unique place just given you know, they're really
doing a great job of taking this the search traffic
(19:49):
and starting to find ways to get people to interact
with their products more, which obviously more shots on that.
It's good for the revenue growth within search, and of
course they've got their cloud, and so those are the
two that I would focus on most. Again, I'm not
it doesn't mean that the other ones won't do well,
but I think those are the ones that will do
the best.
Speaker 1 (20:09):
Dan what are you looking at in the mag seven?
Do you see winners and losers in there?
Speaker 2 (20:14):
I mean Gene preaching to the quiet, like what did
he say about Apple? And Look, and it's been a
battle because they've essentially been invisible with the AI strategy.
But now with Google when the DOJ, that queers a
path for a bigger geminideal that comes out in the spring.
And I think there's no multiple for Apple given because
(20:37):
of AI with the biggest install based in the world,
I could already add seventy five hundred hours to share.
So I think I agree one hundred percent. And me
and Gene it's a very small Apple fan club. You
stick together there, okay, all right? And then and then
i'd also I agree with Google, but I think Microsoft, Look,
I think Microsoft here is so over sold. Just feel
(21:00):
like best is in the rear view mirror. It's now
about Google, Amazon, They're in the enterprise, the enterprise market
it's in that's Redmond's do me and I'm telling you,
like to me, that's the one that I focused on.
It just a table pounder here.
Speaker 1 (21:13):
Interesting because it does seem like there is a pretty
more heated competition in the cloud space as well, Gene,
how are you looking at that? When it comes to
the competition between Microsoft, Azure, Google Cloud, and Amazon Web Services,
I think the bar.
Speaker 3 (21:29):
Is lowest with AWS just because the growth has been lowest,
and you know, they just haven't seen that breath taking
into the thirty almost forty percent growth that Azure and
Google have experienced more recently off of a bigger number
because their market shares more so, it's it's harder to
grow at those rates. But I think that I mean,
this is, uh, you know, not the cleanest answer, but
(21:53):
I think all of them are going to do well.
I think if you go back to kind of where
Dan and I are at in terms of just the
broader build out that's going on, if if that in
fact does happen, all of them are going to benefit
the one. There's a contrarion piece in me that wants
I like what Dan saying about Microsoft. I agree that
that's definitely it's a contrarian on the top pick. Therefore
(22:14):
it probably happens. But the contri piece around AWS is
that that they end up being kind of the surprise
to go back to, uh, they had their AWS event.
The CEO of AWS said that they may even have
the exact his exact quota. I was just looking up
this morning on December fourth. This is Matt Garman. He said,
(22:36):
demand keeps skyrocketing or only speeding up that infrastructure build out,
so uh, you know, halfway through the quarter, three quarters,
two thirds of the way through the quarter. He says
that it's probably a good sign for ws D.
Speaker 2 (22:49):
And your reaction to that, I mean, look, I agree,
and I'd almost further and say, I think one of
the biggest surprise as we go into twenty six, I
think it's going to start off with Jensen's keener at CEES,
you know, which will be at is just about the overall
(23:11):
demand that's accelerating across the whole universe. And I think
that's something where investors, I think are underestimating the scale
and scope of what this is going to look like
and also going to have a huge impact not just
on earnings, but I think even on increased capbacks and
on accelerate monization of the AI theme going in twenty
(23:34):
twenty six, Gene.
Speaker 1 (23:35):
Are these hyperscalers going to have to continue to find
ways to cut costs to keep up the hundreds of
billions of dollars they're spending on AI.
Speaker 3 (23:46):
Well, I think if I think they will try to
continue to cut costs, a lot of it is because
they're they're they're using, they're eating their own products, they're
implementing more. Think about how much they're using, whether it's
micro Soft to Meta and Google. In terms of code
creation today something like more than half is now generated
by machines. So but you know, do they have to
(24:09):
to grow this if you just some really high level
math here, but think about the average mag seven excluding
teslas generating about one hundred billion per year in free
cash flow, and so they're spending call it you know,
that's by the way, that one hundred billion includes them
(24:30):
spending fifty seventy five billion a year on infrastructure, and
so they can increase by twenty thirty percent and still
be bringing home fifty seventy five billion dollars. And so
they're a long way away. And that's I think one
of the big differences that we're experiencing today versus twenty
five years ago is the cash flow generation. They can
(24:53):
just keep feeding this machine and so inevitably investors do
care in the near term about earnings. Look what happened
with Meta. Meta just said after their September quarter that
next year the expenses were going to grow faster than revenue.
They have very upbeat commentary about revenue and the stock
I forget what it was down fifteen to twenty percent
(25:14):
over a short period, and so they do care in
the near term. But the reason why I stress that
near term, I think the long term investors will have
a sense like this money is going to good use.
And even if they're and they've got plenty of money,
to continue to invest in the business. And most importantly
(25:35):
that's the right thing for them to do, because if
they don't make those investments, obviously it poses them at
some bigger existential risk longer term.
Speaker 1 (25:44):
We're going to keep this conversation going on the Mag
seven and more of the big tech sector as we
continue this special New Year's Day edition of Bloomberg Daybreak
with a look at another big piece of the Mag
seven that would be the Tesla coming up. I'm Nathan Hager,
and this is Bloomer. Thanks again for being with us
(26:14):
for this special edition of Bloomberg Daybreak. Markets are closed
for the New Year's Day holiday. I'm Nathan Hager. Wrapping
up our special high tech roundtable. We have been spending
the full hour with Dan Ives, global head of tech
research at Webbush Securities and Deepwater Asset Management's managing partner,
Gene Monster. We could keep this conversation going for the
entire day, but we got to wrap this up. Starting off,
(26:37):
guys with a stock that I know both of you
follow very closely. That would be Tesla. Both of you
have made some pretty bold calls on the electric vehicle maker,
but does it continue to be driven by the evs
headed into twenty twenty six, Dan.
Speaker 2 (26:55):
I first off just want to say, I mean I
could listen to Gene I've had some sour pats, kids
and media tabernet, I costendim talk tech the whole day. Yes.
Now then now with that said, look Tesla, they're entering
the most important year ever autonomous and robotics, weave thirty cities,
(27:15):
web robotaxis, you know, in twenty twenty six, and this
is the year AI revolution comes to Tesla. And I
think when it comes to physical AI, the two best
physical AI please in the world on Nvidia and Tessa,
And I think now musk Wartime CEO and really is
(27:36):
going into the next such an important chapter in the
Tesla story.
Speaker 1 (27:41):
A great way to describe him as a wartime CEO,
I think gene because Elon Musk has been through a
lot just throughout twenty twenty five, between the political moves
and coming back to Tesla with the renewed focus. Where
do you see tech going in twenty twenty six?
Speaker 3 (28:01):
I think you know, Dan summed it up. It's about
the robo taxi, It's about autonomy. I mean, that's those
are the headlines that are going to be of most focus.
There is the question like I think that's what matters most.
There is a question like what happens with deliveries. I
don't think i'd be curious Dan your take on this.
I don't know if investors really care if they beat
the numbers a little bit. But just for some context,
(28:25):
this is as of a week ago, the shoot was
looking for sixteen percent delivery growth for calendar twenty six.
I think it's probably going to be more like flat
to up five percent. A little bit of a miss there,
and again when you start talking about some of these
negative things misses the point. I agree with Dan's highest level,
which is one of the best positioned physical AI companies
(28:47):
full stop. But I do wonder. I'll stand, like, do
people care let's say deliveries. Let's say they missed deliveries
for twenty twenty six. Does it matter?
Speaker 2 (28:57):
I mean, this should be like going to carb going
to Miami for the water. The point is you're you're
focused on autonomous and robotics. That is the focus of deliveries. Look, Gene,
there's a stabilization, and nasal investors want to see your bobs.
It continues to still be very depressed. But I think
(29:19):
as long as you see a steabilization and you're seeing that,
that's fine enough. But you own the stock beers about
Thomas and robotics.
Speaker 3 (29:28):
Indeed, I do own it. Yeah, and that's well said.
I think the stabilization piece is really important. One other
thing just to kind of play for it. So who
knows my senses, they're probably going to be a little
bit too high for the you know, for the for
calendar twenty six, But I don't think it really changes
the big picture. Like when I see what Ford did
(29:48):
at the end of twenty twenty five, basically, what was
it a two and a half billion charge five and
a half billion charge, these these bees and the becoming
all noise at some point. But the reality that they're
taking this big step back. I ask a question like,
if they want to participate in autonomy is and they're
(30:11):
not investing in the EV piece. Are they envisioning I
don't know the answer to this, but are they envisioning
a world where it's like hybrids are going to be autonomous?
I think that is not the world. I think it's
going to be all electric. But I think when you
look at what's going to happen with the delivery numbers
this year, beat them or miss some, the stabilization is
really important. I love that perspective, Dan. And then the
(30:34):
second piece is like just look at the big picture,
is that these other carmakers they're not only nowhere to
be found when it comes to autonomy, but they're they're
running towards profitability at giving back for the cost of
the future.
Speaker 1 (30:48):
Yeah, I look, I agree.
Speaker 2 (30:50):
I The one thing I'd say is like, you look
what's happening. I mean, like, GM's handler a lot better
than Ford, but if you look what Ford's done, they're
basically thrown in the white towel. In the extent to
Jean's point you're gonna have to eventually see when it
comes to autonomous they're gonna ultimately I could see Tesla
(31:10):
at a point partnering with some of the big US
auto makers as they ultimately go down this past.
Speaker 1 (31:16):
That would be an interesting idea. But I'm curious, Gene
just to go back to a called Dan made earlier
about robotaxi in thirty cities. I mean, we've seen Elon
Musk set deadlines and let deadlines go quite a few
times over the years. Does Tesla need to expand robotaxi
(31:37):
to that extent to keep investors satisfied?
Speaker 2 (31:41):
I just love that Bowld call.
Speaker 3 (31:43):
They don't need to get there, and I guess is
Dan's sense is the same. They don't need to get
to that level to satisfy expectations in the movie the
stock higher. So at a point of reference there in
two cities today. They recently in Austin went to no
safety driver, but there's also no customers in there either,
and it usually takes three to six months. I've recently
(32:05):
done some deeper work in terms of how the approval
process works in terms of local municipalities up to the
state level, and it is the state's playoff of each other.
And so to Dan's point is that they, let's say
three six months from now, they start to get some
good feedback in terms of how they're doing without a
safety driver in the car. Other cities will use that
(32:28):
to quickly turn it on. And the beautiful thing about
Tessa's model of courtse is they can turn it on
in a heartbeat. I mean they can build these cars
at thirty thousand a piece. That's for like a Model
Y autonomous and eventually the cybercab and Waymo just can't
do that. I mean they're at one hundred thousand plus.
Speaker 1 (32:47):
In the time we have left with Dan Ives, global
head of Tech Research at web Bush Securities and Deep
Water Asset Management spnaging partner gene Monster. I want to
look outside the mag seven to some of the other
big techs that you guys follow, what we should be
looking at in twenty twenty six as we think about
this sector. Dan, I'll start with you, which companies are
(33:10):
you really focused on in the new year to outperform BOK.
Speaker 2 (33:14):
It continues to be you know, MESSI AI pallunteer in
terms of front and center on the use cases. But
I think you're going to see Snowflake, Mango, dB, those
are going to be some significant performers. I like when
I look at the infrastructure and NEBIS that continues to
be a name that Richud bullsh on, Iron Iri e
n That's one where it's also a power play along
(33:37):
with ge Veranova, It's one of our favorites. I think
you have to focus on the second third fourth derivatives cybersecurity,
crowdstrikes another one front and center along with Powell out there.
Speaker 1 (33:48):
Interesting because a lot of those running into the same
kind of potential criticisms in terms of valuations. I'm thinking
of Pallenteer in particular. Ge what do you think of
some of what Dan's talking about there and what companies
are you keeping an eye on that could outperform?
Speaker 3 (34:07):
It all makes sense, and you know his he'll forget
a day or he just knows infinitely more on some
of those companies than I know. And when I think
about kind of the expectations around some of these, and
I mentioned Apple and Google on the mega cap and
then it'll be kind of fun we maybe we can
play this sound.
Speaker 2 (34:27):
By when we joined in the middle of the year,
how this is going.
Speaker 3 (34:30):
But I think that the small cap index, which we'll
just use the PSCT as that it is going to
outperform the cues. And so that's kind of the sub
five hundred billion dollars. Still believe you should own the
mega caps, but I think you're going to see better
performance from some of these small caps in twenty twenty six.
Speaker 1 (34:50):
You keeping an eye on some small caps, Dan, okay.
Speaker 2 (34:54):
I mean there's a handful of small caps, you know,
specifical on like cybersecurity. I think there's number names like
Tenable Qualis. I think there's a number of names that
on the power side that could be super interesting. Names
on the software side like PEGAS Systems. Look, I think
you look at like as Gene said, second, third, fourth
(35:18):
derivatives across AI. That's where I think some of these,
you know, gold maybe at the end of the rainbow
could be interesting.
Speaker 1 (35:26):
So does that point to the idea that we could
see something of a rotation, like there's been a debate
on in the broader market within big tech, maybe a
rotation or a broad dig away from the magnificent seven
names into more of the tech space, Dan, Or is
that something you're thinking about.
Speaker 2 (35:46):
I think it's a broadening out. But it's still going
to be led by big tech and led by the
core AI revolution names, but it's it spread to second, third,
fourth derivative, and you're gonna see that spreading out. And
I could argue even you're gonna have an AI ripple
effect to financials or healthcare, a broadening of the market.
(36:08):
But do remember text no lef Lean one hundred miles
an hour in a Ferrari. I'd rather have that, Yeah,
you'll get some speeding tickets rather than being in value.
You in the right lane forty five miles an hour
with a bumper sticker saying Mike kez nanotuonent in third grade.
Speaker 1 (36:23):
So still with a very polish call on the tech sector, Gene,
where are you when it comes to that kind of
thinking about big tech in twenty twenty six.
Speaker 3 (36:34):
I'm still just thinking about that bumper sticker, big deck
in twenty twenty six. I think that it's I think
you should own some big tech, And I mean, this
is what kind of makes some fun. I mean, Dan
and I on the exact same page at the bigger
picture here, there's a little nuance that I have related
to some of the small cap and we'll see how
(36:56):
ps CT does relative to the cues and companies, you know,
smaller ones, smaller and cool one hundred and fifty billion
dollars a risk of networks or very on the power
cooling side. I mean, these companies have had just breathtaking moves.
But if we're right on the bigger picture here of
how much infrastructure is going to be put into place,
(37:18):
those companies like that should do well. And I think
that's going to be a positive for the small cat trade.
Speaker 2 (37:22):
And Nathan, I would also just say, I, you know,
and I just keep trying to figure out, besides the
AI revolution, how do we get Gene to wear a
pink sports shock. That's something that we have to we
have to just we have to figure that out. We
only should.
Speaker 3 (37:39):
Let's we need to come up with some like market number.
Then people will say, well, that's going to be the
peak of the market, but I'll purchase a pink sport
code at We'll figure out that number, Dan and be
back to Nathan.
Speaker 1 (37:53):
If Dan ives and Gene Munster switch wardrobes, we will
know that we have gotten somewhere in the.
Speaker 3 (38:00):
Text, right, I think you'd recognize either of us.
Speaker 1 (38:03):
But seriously, not to end this on a downer, but
just quickly before we let you guys go, what should
investors avoid like the plague in the tech space in
twenty twenty six, gene Monster Just quickly.
Speaker 3 (38:16):
Well, I guess I'm just so optimistic about how early
we are. I'm reluctant to pick kind of a avoid
like avoid like the plague. I think we'll see how
this plays out when the companies go vertical and in
short amounts of time, then we could maybe have evaluation.
Speaker 2 (38:36):
But I'm not.
Speaker 3 (38:37):
I just don't have anything on my list.
Speaker 1 (38:39):
All right, Well, we'll end it there now, but again,
always a pleasure getting you guys together this time of
the year. That's Gene Monster managing partner Deepwater Asset Management
and dan Ives Global Ahead of Tech Research at web
Bush Securities. Thanks to both of you for spending the
entire hour with us, and thanks to you as well
for bringing in part of your new year with us.
(39:01):
I'm Nathan Hager, wishing you many happy returns tech or
otherwise in twenty twenty six. Stay with us Top stories
global business headlines coming up right now.
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