Deepwater Gene Munster Talks Apple And Amazon Earnings
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of free cash flow and profit belief among Mag7 this morning. Over at Loop Capital, you know them well, Gene, you invented it. Yuen Kim goes out to a 550 price target on Microsoft. Is it real now where there's a new persistency of belief in Mag7 free cash flow?

That's a good way to put it. And maybe another way to put it is that we knew that these businesses had great free cash flow, typically generated between 80 and 100 billion per year. But what we saw last night from Microsoft and Meta is that their businesses are resilient.

resilience in the face of these tariffs is that Meta raised their revenue by 3%. That was in the midst of, this is for the June quarter, a headwind that's coming from China e-commerce. They probably would have raised it by 3 or 5 or 4 or 5% if not for that headwind.

And so to that resiliency of cash flow, yes, that's part of the story. There was this period of doubt that started with DeepSeek at the end of January that I think there's this kind of realignment now we're seeing today with investors understanding that these companies are just this incredible cash machine and most likely that benefit is going to continue in the future.

Gene, you know, before, I guess the last three or four months when we've all just been focused on tariffs, we actually were talking about growth stories such as the cloud, such as AI. Given what you saw from Microsoft, given what you saw from Meta, tell us about where tech spend is today. Is that still a growth story that investors should be focused on?

Definitely there are two kind of forces in play last night. One was in terms of what the tech spend is and what we heard from Microsoft was that their numbers were actually down sequentially on that capex number. Some of that, this is for the March quarter, some of it was related to timing of some of these data centers.

But they did also say that they expect next year that Apex to grow kind of in line with revenue and then of course Meta cranked it up by 9% that was a big that was a big surprise, but there's a story here kind of below the fold that I think is really important especially when it comes to Meta and

Last week we had our AI summit. We had a representative from OpenAI as one of the fireside chats and asked the question about what is the substance behind AI from a return on investment perspective? And his answer was that they have seen it in the coding side and also customer service.

from my perspective, a pretty disappointing answer relative to all this anticipation. But when I saw the meta results last night, saw this increase in revenue and also what's happening with their daily active users, it grew 6% year over year. This is 3.4 billion people, 60 plus percent of the world's internet population on daily basis. Part of the reason why this is happening is AI is actually impacting their business. In other words,

I think Meta is the best example of how AI can have a real impact on investment at scale. Gene Munster with us, Leland Miller to come on China, but right now, Gene Munster with Deepwater, thrilled to have him on this morning. Migrate in the cloud, hey, you, you, stay in the cloud. Gene Munster, talk about Amazon today, and after seeing Microsoft, you're not counting cardboard boxes at Amazon, you're looking at their cloud business, right?

Definitely. I mean, we've seen good cloud numbers from Google and Azure last night, and it better be good at this point for Amazon. And it probably will be good. And part of the reason why it probably will be good is we're seeing this surge in demand from generative AI. It's increasing usage at a bigger rate. So I think that AWS number is going to be a great number tonight for Amazon. Gene Munster is spending time. I'm Mr. Bezos Yachet. Yesterday, Joe Matthews,

balance of power in conversation with the senator from the Commonwealth of Massachusetts. Here is Elizabeth Warren with Mr. Matthew. What Donald Trump is saying is if the American people can see clearly what his tariffs are costing them, that creates a real problem for Donald Trump and for the Republicans in Congress. So his solution is not

to do something more sensible on tariffs. His solution is to try to end access to the information and to persuade Jeff Bezos that he needs to erase that information. And, yes, I want to hear about that conversation. In fact, I want to hear about all of the conversations.

Senator Warren of the Commonwealth of Massachusetts, Gene Munster, I know you're going up in the rocket the next time, the Bezos tourist rocket. Let me just cut to the chase. Gene Munster, is Jeffrey Bezos, is he running Amazon still? A simple answer is yes. As chairman and as founder, I think he has an outsized influence much more than Jassy. And so I think the answer is that the buck does stop with him.

See that short answer there? He really doesn't want to talk about this. Let's continue. Hey, Gene, we're going to hear from our good friends in Cupertino and their results. What do you expect? What do you need to hear from Apple and Tim Cook as they, again, try to navigate what is suddenly a very, I guess, uncertain global economic outlook?

So the numbers, I've been watching this company for 20 plus years and these numbers are less important tonight as far as the actual reported numbers. It's more about the structure that they're going to lay for how they're going to navigate what's happening with tariffs, a shift in production, and how they're building out their AI. And so very unique setup where if the iPhone number is good, that would be a positive impact on the stock. If it's bad, a slight negative.

For the most part, investors are looking much further down the road. And this is a pivotal moment around the company. I would say this, related to what's going on on the globalization side, how that impacts Apple, and separately in terms of what's going on tariffs, those are forces that are hard for Apple to control. There is one piece that, and they will likely sort themselves out, my sense is this year,

But there's one piece that I think investors have been penalizing Apple for that will come up, this will be an A topic tonight, that I think there is generally a misunderstanding from investors. And that piece is, is Apple behind in AI? The answer is yes. And how much are they being damaged by that? And I think that the answer is currently almost not at all.

and part of the reason is that they really have three years to sort this out when it comes to apple intelligence when i say sort it out i mean provide the features that give it punch and so

Their customers aren't going anywhere. And so when I think, Paul, when I think about these results tonight, I'm more cued into how they're going to fix Apple intelligence over the next two, three years versus the next two or three quarters. Gene, what I want to do here is I got to segue into Leland Miller on the Beige Book and all the brilliance of China in that. So we're going to do this with Gene Munster right now. Gene Munster, I don't think this is in the zeitgeist.

Tim Cook, based on my amateur take, is the number one supply chain expert in American business. Out of Duke, all that, this is the guy who is more knowledgeable about Pacific Rim, get the stuff from there to here. Is there a lack of confidence in Tim Cook's ability to survive these supply chain disruptions?

There is 100% confidence in Tim Cook's ability to make the best out of an extremely difficult situation. But even his magical ability to increase gross margins by using better manufacturing over the last decade, even that power is small relative to the forces of what these tariffs could mean. And I'll just kind of put some briefly into context. Please. My sense is that these tariffs, when it comes to Apple, they're still

mixed messages coming out of the White House in terms of how Apple's gonna be impacted by that.

My sense is that they're probably going to shake out somewhere between a 10 and 20 percent tariff. And if that in fact ends up being the case, even with Cook's masterful use of the supply chain, they're probably going to see some diminishing of gross margins. And it probably goes from, call it 40ish percent, 41 percent, they're probably going to lose a couple percent on that, call it 39. And so that is, it's a step back. But I just want to put some context. When we hear about

all this, the forces that Tim Cook, the levers that he can pull, there are some limitations to it. And that's why I think that I just like applaud Dan Ives and him standing up and saying like, we got to get this thing figured out. And what figured it out means is just some clarity

And ultimately, I think that that clarity is going to be 20%. And it's going to be a little bit of an impact. Again, it doesn't change the long-term trajectory of the business, but it's something that investors are focused. Gene Munster, thank you so much. Managing Partner, Deepwater Asset Management. Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans. That's unlimited data.

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