Gene Munster Has Faith In The Fateful 8 | Okay, Computer.
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All right, welcome to OK Computer. I'm Dan Nathan, joined by Gene Munster. He's the managing partner at Deepwater Asset Management. Gene, welcome back to the pod. Great to be back. All right, this is going to be a fun one. I got to think that you and I have done this once a month over the course of 2024. Our listeners love hearing from you. They love you beating me up a little bit on some of my being maybe a little bit too contrarian here and there, but I have to assume that you've been doing this for a long time.

that this has been a great year for deep water asset management. Why do I say that? You and I have talked once a month for about, I don't know, an hour or so. We've gone back and forth on a lot of these issues. I probably see you two or three times a month on the Fast Money, and you've been very consistent. One of the things that I love about you is that you're transparent and

as hell. When you are right, you don't take a victory lap. When you're wrong, you're the first one to admit it. And I think this year in 2024, you've been a lot more right than you have been wrong. So with all that said, Gene, before we talk about Tesla's run and before we talk about Apple breaking out to new highs on a runaway breakout here and Google playing a little catch up and Microsoft really stuck in the mudder. So I'd love to get your sense of 2024, what you think are kind of the most impactful

trends heading into 2025. And we all know what the main trend is, but we've seen some shifting around of the deck chairs a little bit over the last few months or so. So what are you most excited about headed into 2025, let's say, in your universe? And what do you think changes from some of the stuff that worked a lot in 2024? We're going to get more into the leaves of the tree or the trees versus the forest here because we know what the forest is. I think on that front, some of the specifics, I think we're going to hear more about custom silicon.

And I think that there are impacts on companies, obviously like Broadcom, what we saw with their earnings and their guidance wasn't good. It was, I would say, phenomenal. And they basically guided conservatively to 60% growth for the next three years. To put that into perspective, investors are expecting Vidi to grow at 21%. So we're talking about orders of magnitude difference there.

Obviously, NVIDIA is coming off of a much bigger number, but this concept of customized silicon, I think is going to be an important part of the conversation next year. And that has positive impacts on certain companies that could be viewed as slightly negative to NVIDIA. I think that that's going to be one of the trends. And just a quick fill in the blank, what custom silicon is, is essentially the hyperscalers building their own chips to power a lot of what they're doing with AI.

That's the, I think, going to be one of the big trends. I think we're also going to start to hear more along the lines of software. I think that we should start to see some impact to revenue from software. I think it's going to be modest. We're not going to have anything

even remotely close to what's happened with hardware. But I think back half of this year, we should start to see some of that. There could be some disappointment along the lines. And I do want to mention one other piece to the details, but at the very highest level, I would say we're just due for some pullbacks. I think we're due for, typically we have one or two 10% pullbacks in these bull markets.

It doesn't change my enthusiasm that we're going to end the year 2025 up on the NASDAQ versus 2024. I think it can be up nicely, but we're going to have some scary moments. I think it's just the anatomy of a bull market that's going to end in a bursting of a bubble. I think we've only had one or two of them and the internet run, we had about 12 of them. So we're due for some of those. I just want to get in front of that, that I wouldn't be surprised. I would expect that we're going to have some pullbacks as well.

Yeah. On the pullback front, it's interesting that we had that move from mid-July into the lows in early August, about 15% for the NASDAQ 100, about 10% for the S&P 500. The sell-off into the early September low was probably about half that. It was probably 7.5% for the NASDAQ 100 and about 5% or so from the S&P 500. And then really, we just didn't have much of declines. It was like lower left, bottom right to where we are right now, clearly in the NDX, because that was

closed at an all-time high just yesterday. So I think it's great that you made that point about the late 90s. And we know that there was a bunch of macro stuff in there too, as far as in 97 and 98 and the long-term capital and the Asian debt crisis. And in many ways had nothing to do with the very bubble that was inflating. And it

In some ways, it probably sent more people over towards the secular stories that were going to work one way or another, at least that they thought so. That's interesting to me because think about where we are right now in the world. We have a new administration coming in. It's the same as the old boss for all intents and purposes. We've seen a little bit about how this might go. There's potential for a trade war, not with just our adversaries, but with our neighbors and our allies. You see what's going on in Germany and France and on South Korea. It just seems like there's a whole

host of just kind of trouble spots. I didn't even mention Syria and obviously Israel and Gaza, and who knows what's going to go on with Russia and Ukraine. I just can't remember a world that seems this uncertain. And I guess to bring it back is like, where does all this tech fit?

We've had lots of issues as it relates to chips, primarily with China. We have this worry about Taiwan Semi, right, which is the fab to basically the world and what might happen with China and Taiwan. The list goes on and on here, which brings you back to this kind of Mag7, or as I'm calling it now, that Broadcom has joined the trillion dollar club, the fateful eight here, Gene. Is this just a safety trade right now?

I think it's more than a safety trade. I think it is still based on a belief. I think the investors who are bidding up these stocks are viewing what we're going to have happen in the next, we'll say, two to three years. We talked last year, I talked about three to five years. So we're maybe two to three years out that we're still going to have a strong market and that these big companies are going to play an outsized role in that.

One of the unique perspectives that I have is we also have a venture business. I spend a lot of time meeting with startups and understand, maybe just have a little bit of a different lens into how hard it is on the software side for companies that are trying to build AI-first businesses to compete with the Mag7, the Fabulous 8, etc.

Faithful eight. Thank you. The fate of the market is in these eight stocks. That's what's going on. The play on words is next level. I think safety is part of it, but I also think that there is a

part of offense here in owning these two, because again, if you just look at let's take the app world, use that as an example of what happened and value that was created. There were the lifts and the Airbnbs, but for the most part, the value creation came from Google and Amazon.

Meta. And that playbook is being run. From my perspective, I think there are some of those companies that are going to continue to do very well. But I also think that we should see some of these smaller companies, the less frequent ones, I think that they're also going to start to get a bid here in the next year. Yeah. So let's go back to this custom silicon because I guess this is probably at the

core of the next leg of this bull market, if you will, in and around generative AI. At least that's what I'm hearing from you. We were sitting on the desk at Fast Money and that quarter came out and it was just, eh, you know what I mean? It wasn't like a great quarter one way or another. The Q1 guide wasn't particularly off the charts. It was really that long-term guidance, that TAM. When they talked about 60 to $90 billion by the end of 2027, I'm saying to myself, this is a bunch of bullshit, Gene. Like seriously, a bunch of bullshit because

Who knows? We've been hearing about all those NVIDIA customers, these big hyperscalers, like looking to do custom silicon. It's Amazon, it's Microsoft, it's Facebook, it's Alphabet. So why is it- Apple jumping into. Yeah. So why is it that Broadcom gives this three-year guidance about a TAM? Not saying that they're going to capture all of that, but- They implied it based on their market share comment, but it's true. They did stop short of saying that they're going to

I just thought it was really interesting. The other thing I'll just take away is that there was this big rebalancing that went on and Broadcom was part of that on Friday afternoon. And from what I hear, it was just an epic short squeeze given what indexers had to do and what the rebalancing process was. And so when I think about that, I'm not sure, like when I see a 30% gain or a 40% gain in two days,

That is the opposite of bullish to me, especially in a name like this that it went from $800 billion market cap to $1.1 trillion. So speak to me a little bit about that. If somebody is skeptical of long-term guidance like the way I am about this and especially matched with the sort of move that we had in such a short-term basis, $300 billion in market cap.

I think any tech company that gives a three-year guidance, I think is being optimistic. That's probably saying it nice. I think off the rocker would be an aggressive way to say it. And just the point is that who knows what's going to happen in three years? I believe what they were trying to communicate.

was that they are seeing a step function change in their business. And they probably are taking some trends that they're seeing over the next six to 12 months and applying that over the next three years. The move, the 30, 40% move, I think part of it was because of what you're saying with the short covering. But I think there's also this underlying nagging question that investors have about when is this going to end?

And I think when the hardware side is that this is like juggling with fire here. When you talk about hardware, remember, NVIDIA's business was down 21% in the quarter before the generative AI boom started. And these hardware businesses by definition are a boom and bust. And I think investors are just nervous that we're going to see some data point that's going to make this party end. And I think that is what effectively Broadcom was trying to communicate was that this is going to go on longer than you think.

And so I take their numbers with a grain of salt, as you do, and as we should all do. But I think that the underlying message is that we're still early in this. And I do believe that. I think that everything that we're talking about, part of this conversation comes back to Benioff's comments with Salesforce and

what SoftBank is going to be doing about investing in AI infrastructure in the US and what OpenAI is talking about with their own custom silicon. All of this kind of comes back to a place that says that probably the hardware trade, and this is an uncomfortable truth in my view, is probably going to last longer than a lot of investors think. To be fair, you've been saying that about NVIDIA for six or seven quarters. And it is something that a lot of folks have been trying to take the other side. I mean, me specifically trying to

pick the story apart a little bit. And I think that to your point, the custom silicon bit, and again, we've been reading stories in the information or in Bloomberg or in cnbc.com, Wall Street Journal for like the last, I want to say year with this concentration that NVIDIA had, all those names that I just mentioned are probably 50%.

of their revenue. And then you put some curbs on what they can sell into China and you say to yourself, this is not going to be good for Nvidia. Maybe this is why the stock has been down 15% since they had guided higher and the stock had gapped up, closed on the lows of the day of their earnings. I think it was November 22nd and it's been down like 15%. Now that's not a particularly dramatic move for a stock that was up 185%

on the year heading into the print. But it seems like some folks are leaning into this narrative, and it was Broadcom's guidance that just lit a fire under it. But again, if you look about the near-term performance, and then you think about $300 billion in market cap added, and let's just say the midpoint of that range is $75 billion. Let's say they capture $25 billion of that,

over the next few years or so, you just valued those sales. You can do the math on that at like seven, eight times. You know what I mean? Is that fair? And so like, to me, I see a lot of that going on in the market right now. I see a lot of folks giving the benefit of the doubt on something that's far from like reasonably proven anytime soon. You just,

define the market. It is giving the benefit of the doubt. And then we see some comment that talks about the scaling laws might not be holding up when it comes to model training. And then we see a broader sell-off of AI because there's some commentary from an ex-OpenAI employee, for example. And so I think that there is, and then we go into this period of

And then you go euphoria. We just, this pendulum just keeps going. But again, I keep coming back to, I still believe we're early. And I think that the reason why I believe that we're early is that we, outside of hardware, we haven't seen the impact of what,

intelligence at scale at almost no cost is. And it's not totally intelligent yet. I use these tools a lot and they are still just riddled with hallucinations. And so we're still a ways away. I just want to caution everyone

And I think this ways away piece is why I think that the market can keep going up because as investors start to see glimpses of how this can impact different segments, I think that that euphoria will return. Yeah. One thing I just think it's worth noting, the SMH ETF that tracks the semiconductor space, we know Nvidia is about 21%, Taiwan Semi nearly 14%, Broadcom 11%. That is what's been going on here for the better part of this year. But

Aside from, let's call it that 45% or so, the SMH is down 13% from its highs made months ago. So there's a whole host of names in that ETF that don't act particularly well. And this is probably part of the theme into year end, or at least over the last few weeks, we are seeing a dramatic narrowing of this rally. If you were hoping that the rally was going to broaden out after the election, that's not been the case. We had some big moves in

financials and industrials and energy after the election, they've all come back in or at least given back half of their sorts of gains. The equal weight S&P is up 14.5% versus an S&P that's up nearly 27, 8% and a NASDAQ that's up a lot more. So we're seeing some dispersion here. And I think the concentration, those eight stocks make up $20 trillion in market cap and 40% of the S&P 500.

We have never had a market that concentrated. I think speaking my own book here now is that we have an ETF, L-O-U-P. It's been around for five years, but basically invests in emerging tech that is a sub 500 billion market cap. I mean, when we started five years ago, that was like a big company was 500 billion. But I'm more optimistic about that ETF today than I was two years ago, because I do think that, yes, there's going to be some outperformance.

The numbers are just hard. You talk about 40% of these indexes are based in these eight companies. It's just hard for it to keep working. So big picture from my end is I don't want to get...

too involved in that. I just try to figure out how impactful is AI going to be? Where are the levers going to happen? And we probably should do, just check a couple more boxes before we go on and talk about some specific names. We talked about these themes for 2025 silicon. And for those who have not maybe been paying as close of attention to, agentic AI is going to be another theme. And then also this timescale inferencing concept where these models are starting to stew and think more about responses. And there's an impact to how

different hardware needs to be built to accommodate that new form of inference. And so those are some other big topics I just wanted to. Yeah, let's hit the agentic AI because that's something you just mentioned Benioff before and a lot of his commentary after that quarter that they put up, I was sitting on the desk at Fast Money and I saw him speaking to Jim Cramer. They cut into their conversation and man, he came in hot.

about agents versus copilots. And he made this point, and I didn't listen to the conference call. I suspect that he made it there too. He's like, ask anybody at Microsoft who works at Microsoft if they're using copilots. Nobody's using them. And so talk to me a little bit about that commentary and this whole notion of agents versus copilots, because some of our listeners might not know the difference. And by the way, some of these companies may not know the difference either.

Well, just maybe a disclaimer on Benioff is he runs Salesforce and he's probably one of the world's best salespeople too. So you just always have to have a guard. And in his prepared remarks on that last earnings call, that was called 20, 25 minutes. There are 21 times that I identified bold statements that in a normal conference call, I

a CEO might make one of them, you made 20 of them. And then went back and looked at the previous quarter and it was just a little bit less than that, but he's all in. But to answer your question about the difference between co-pilot and agentic AI, co-pilot is effectively infusing generative AI into existing Microsoft products. And

just make it easier, Excel to write formulas, Outlook to write emails, things like that. Agentic AI is, think of this as a human that happens to be a digital bot that actually has the ability to go out and do a task. You could, in the case of what Benioff talked about is an agent would be, maybe you have an agent that calls on a customer and the call on the customer could be through digital communications, emailing, text messaging, things like that.

And then when it's time for a human to take over to close the sale or to advance whatever the conversation is, then the agent turns over to you. And so that's that is Salesforce example of agentic AI. But the reason why Zuckerberg talks so much about it, too, and the thing that gets me excited about it is you can have an agent think of it also maybe as like an app that is smart and can actually do something. You can have it do anything. And so I think about all the pain in the back. I just recently switched out my cable modem and it was

It felt like four hours on the phone with Xfinity. It was probably 45 minutes, but in the future you should just have an agent do that for you. And so I think that there are, that's why, that's what's exciting about Agentic AI. Yeah. And we're probably what the first pitch in the first inning of that. And again, something like that. Yeah. But it makes sense when you think about the underperformance of a Salesforce until they put two quarters together and then had this ability for Benioff to sell this whole thing.

But that was all sales. There's no substance in their business. When they talked about agent force, they said twice on the call that it had either fractional or almost not even measurable revenue. Their growth has gone from 18% last year to 8% in the most recent quarter. Bookings were like 10%, so it was a little bit better. But I think that this comes down to, this is like a religion. Do you believe that this is going to happen? Benioff did a good job of preaching that message and investors accepted it.

Yeah, I guess the problem I have, Gene, is the next day they did more than accept it. They bid the stock up 11% the next day. It's come back five, I think, since then. Yeah, it's come back a bit. But that sort of euphoria to new all-time highs, we're seeing this again and again. We saw it in Marvell. So I guess my question is, and again, I missed a bunch of this stuff.

I'm going to be very clear on this. What I try to do is pick apart a little bit of the universal bull story. I think if you don't attempt to do that, I just don't think that's particularly useful because that's how bubbles get way out of hand, right? If no one's basically saying, this is how this could go wrong. So again, I know the people want it. So have a ball, go get it. That's the thing to me. You just confirmed something that I suspected that they've seen a step down in growth, revenue growth. They've seen a step down.

in bookings, yet they're telling a story that got investors to bid the stock up 11%. And then on the flip side, Adobe, which is perceived to be on the wrong end of all of this, hasn't seen an uptick in nine months. You know what I mean? It is down on the year. You could say the same thing for AMD and Intel, right? On the wrong side of this, down on the year, haven't seen an uptick

In a while. I'm really curious, by the time folks are listening to this, Micron's earnings might have come out. This is Wednesday after the close. Where does memory fit in all this? You know what I mean? Because we saw Micron and Dell on the server side and Supermicro, obviously, early in the year. It was like a full-on party in the late spring. And some of those names are just coming back to earth in a big way. And so, to me, I just think that there's legs of this story that are starting to weaken a little bit.

It's hard to grow off of these numbers and we've seen decelerating growth rates. I think that there's been a reset on expectations. And this is not a blanket statement about the infrastructure trade, but I think that some of the darlings are going to exceed expectations. Will it be enough to keep the stocks going? I don't know, but I don't think, I still believe we are

We're early in what this build out is going to look like and just how these agents and applications are going to change our lives. And so it's an easy fallback position because I think it, I believe in it and I believe it's going to be that transformative. What's happened to Microsoft? I know the stock has had a rally over the last few weeks, maybe 10 or so percent. It's still below those all-time highs made.

in July, the stock ran into their print and then it got killed after or it went from like 470 down to I want to say just below 400 into those lows into August. It was really stuck in the mud in around 420 until just the last couple of weeks. So it's had this little run, but it's really the

only of the fateful eight that is not trading at an all-time high right now or just off of it. And so what's the story there? Is some of the sentiment around Copilot and their ability to sell this thing or upsell it to folks? Because it sounds like there's not a lot of uptake on this right now.

They were talking about this early and they just haven't delivered the upside that even fractional revenue acceleration. We do see a little bit in the estimates. They're expected to grow at like 14% this calendar year, 14% next year. And the streets got them bumping up to 15%.

But when you put that together and you look at what some of these, I think more exciting and again, the software companies are growing much slower, but it's just not enough. And I think that there are some of these bigger companies that are going to do really well. Microsoft's a company that I have not been particularly constructive on just because I just don't think that they've got the levers to pull. And I think that they're still trying to figure out exactly how they're going to navigate their partnerships within AIs.

There are more open ended questions with Microsoft in my view. Yeah. And so just can you explain one thing? And I think the listener might appreciate this. So let's just say they're having less success with open AI integrating that technology across their suite of services. Right. Is the idea that if they never get going in any real scale, that there's going to be less demand for that compute on Azure from those existing clients?

As they put the models on their cloud service, they integrate them into their product services. Is that one of the thought processes here or no? Yeah, that's like the next level thought process. I think this market is operating more at a superficial level, at a surface level, I should say. And I think it's more that they've got two essential businesses. Azure continues to do really well, growing called 30%.

And you've got the software side of the business just isn't getting the bid, not investor bid, but a customer bid on CoPilot. I think Microsoft is still worried about what's going to happen with Azure. I think that they're going to benefit. They're in a share gain position right now. They've been gaining share. They're the number two player. And so I think that business is still in a great spot.

It's just the software side, which hasn't delivered what I think a lot of people had hoped for at this point. Yeah. Here's one that wasn't delivering, I want to say in 2023, they started to get their act together in 2024. And over the last few weeks, it just seems like everything's coming up roses for Alphabet here. So

There's been a lot of chatter about Waymo. You and I have talked about Waymo. This is not going to be moving the needle anytime soon. But if you can model out what RoboTaxi might mean for Tesla, and we'll get to Tesla in a second, you can also see the first mover, that advantage that Waymo might have. And then there's a lot of ways that they can leverage this network and the like here. So a little buzz there. There's a little bit on the quantum side. This is not something that we expected to think about, or at least I didn't know much about it. And still, I started reading about it. That stock gapped up.

5% after that data. That's a massive move for a company like this based on a headline that no one was expecting and very few people understood. And then they've gotten their act together with some of their generative AI models. And when you think about right now, Gemini is working pretty good across a lot of their products and services. So talk to me about Google here, because I know this is one you've been constructive on. You'd like the valuation. You thought that people have to be a bit

patient here that these guys will probably get it right if you're just patient enough? Still in that camp. We do own it at Deepwater. And not to say we haven't been frustrated. I think we can talk about the frustrations that we've had. But the essence of it is that we think that their search business is going to be surprisingly resilient to everything that's going on.

But as far as you framed in the near term news, the quantum stuff, I think largely just forget about it. Let's talk about it in two years and then we'll be only eight years away from maybe when a product comes out. But I think for now that just shows that their lab is advancing some of these other bets effectively. The Waymo piece is getting more excited. I agree with you and near term it doesn't have an impact, but I think

Google investors should care about Waymo. I think Lyft and Uber are, I don't want to say they're done, but I think one of the two is going to be on a trajectory to be a trivia question here in the next decade because with the potential, they really don't have a plan autonomy. It has to go through a partnership and even Uber's relationship with Waymo, I think is going to get stressed based on some of the comments or the press release that Waymo had out about launching in Miami. I think that's

Still not a piece that investors really care that much about. I think it just still comes down to search. And I would just highlight, again, what we saw in the September quarter is that the first full quarter of AI overviews, which I think AI overviews are pretty weak. I don't use them.

And, but yet a first full quarter of AI overviews in the U.S., they saw an acceleration of the U.S. search business. And so now it's getting rolled out to 44 more countries in the December quarter. We'll see how that plays out. But that is the A topic. And then the subtopic around that is what's happened with like

perplexity and how is that potentially impacting how people are going to use search in the future. But overall, they've done a great job. And just one last piece, you did an awesome job of just framing everything that's going on at Google, but this new Gemini 2 multimodal. So now we're getting more

They'll take audio in and videos and images. And that's an important step forward that they've been talking about. Remember, they had that mocked up demo. It was almost like an Elon move they did nine months ago. Finally, they actually have the real product out and it turns out it's pretty good. Yeah. Let me just take a step back to AI overlays or overviews, as you say. So you go to a search box in Google and it's giving you this contextual answer.

Right. And so it looks very similar to if you were to use a perplexity or a chat GPT or Claude, right? Like it's the same thing, but people are conditioned to use Google. So I would think for the time being, that would be some of the behavior. You may like it. You may not, you may trust it. You may not. There's a whole host of things you used to put a search in and then you click on a blue link. They could have been sponsored. It could have been at the top of the thing. So when I think about doing that through Google, it makes perfect sense for me, but unless you

view one of those other mousetraps is better. I'm doing half my searches on perplexity because I have the app on my phone, I have it on my PC or my Mac and it's working pretty well. And I've already created that behavior, but it wouldn't take much for me to go back to Google if I felt a level of confidence, especially if I'm a Gmail user, I use YouTube or I use Sheets or the list goes on and on. So to me, I think that they're probably not far behind of getting folks

back to a comfort level about what they're able to deliver as it relates to search. Does that make sense to you or no? - Totally makes sense. And overviews was a reaction, a fire drill essentially that they put out there to try to get something out there and show

to Google users that they understand generative AI, but the use case of how you interact with perplexity or GPT or GemEye, if you go directly, when you want to have that generative experience, you go into it with a mode of wanting to have a conversation maybe. And so I think that still the fit and finish of how this is coming together is going to look different two years now, potentially dramatically different. But to your point is you've got

3 billion daily users of people who use Google search.

It's just such a habitual product that they don't have to be on par to maintain where they're at. They just got to be 80% of what the next best is. And that's where they're at today. Yeah. And you've been saying that on Fast Money and on the pod here for the last, I want to say, a couple quarters or so that folks are dumping their Google or shorting Google because you're worried about losing meaningful search share. It might be a little premature to do that. And then if you think about, you just mentioned these multimodal operations that they've been rolling out or

whatever you want to call it, bots, I guess you will, this VO2, the video one, it's gotten great reviews. And people are putting it up there right against what OpenAI has been able to put out there. So again, it seems like if anything, OpenAI, at least their innovation is flattening out a little bit. And some of the other folks are playing a little catch up. Does that make some sense here? I think it does. Sam Altman saying they're close to hitting that. He's saying the skin laws are holding together. So I think OpenAI still has

A long way to go. I think that these anointed private AI companies and open as one of them are going to be much bigger public companies someday. Yeah. Again, they've also seen a big brain drain too, right? So you've seen a lot of folks go to some of the other big competitors, but you've also seen dozens of startups by folks who are at open AI.

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podcast today. So we just mentioned about Uber and Lyft. We know which one is going to go the way of the dodo very quickly, right? In this new autonomous kind of world. And maybe there's someone who wants to buy that network or buy that platform. I don't know. It'd be a rounding error. Wouldn't matter. But Uber is the one that is really curious to me because it gapped up and kept on running to new all-time highs the day after Tesla's robo taxi event. Remember that? And then it's basically gave all of that back to

despite the fact that I don't think anybody walked away from that event. You were there, if I recall, right, at the Robotex event. I don't think anyone came back and said, hey, this is going to be something that's going to be on the roads like in the next year or two, three or anything like that. And so the stock, though, has since just gotten destroyed. That's Uber. It's down like 30 percent from the highs that day. So a lot of

folks feel exactly the way you do. My question to you is at some point in the not so distant future, is this story de-risked about the longer term risk of Waymo and Tesla robo taxi? Because I have a friend of mine who I think is a brilliant public markets investor, tech investor, and he's been doing it for 25 years. He's seen all the different cycles and he's, you don't want to bet

against the next technology, right? You know what I mean? That is going to actually put to bed the last technology. I don't think anyone thought that Uber was some massive technological advancement. There was humans. It's got a great brand. Yeah, great brand. Great network. Great network, great app. They were able to push into some other sort of categories and the like, but it's not from a technology standpoint, it's going to be nothing like what

Waymo and what RoboTaxi is able to do. So Mike, my question to you is, is Uber really done? Is it over? Is the story like it's been four years since it went public and that's it? I think it's the beginning of the end of Uber. And I never like being just so negative because you get run over and I just don't want to be negative on some of this stuff. But I think the reality is that it reminds me of Redbox that became Outerwall.

that when they talked about having a streaming play and I was at the time when we first started to see what was going on the video streaming side said this is over and I think the stock went up like 400% from before it was over and so I don't you're going to get I don't mean and I think my view is

probably more leaning towards consensus now on where Uber is going to go. And I think consensus trades can be difficult. But to answer your question is that I don't understand how they're going to move forward is we just saw a cruise take a huge step back from autonomy, focusing on their hyper cruise or GM cruise for supercruise. And so you really have it's down to two companies that are trying to solve this.

And they're obviously partnered with one of them. But when I look at that model, that Waymo model, and think about what they're giving up to Uber, which my guess is it's 10 or 15%. For what? At the end of the day, Waymo One, Uber app, you just want a ride that's cheap that gets there fast.

And so I just don't understand why Waymo would want to continue this relationship long term. And therefore, what is the path? Who do you go to? And maybe what they do is go and buy a bunch of cyber cabs, but those cyber cabs are only going to work on Tesla's network. And so to me, it feels like a box that they're into.

over the next decade. To be a bit positive to your negativity, which is a weird thing here, Gene, as we think about this, when I think about Uber and I think about this competition with Waymo, and I've been in, Waymo was amazing. You and I have talked about that. I did five when I was in San Francisco for a few days in September. I loved it. But then I'm sitting in this really tricked out Jaguar SUV. I'm looking at all the tech

on top of this thing. I'm thinking about the depot that it comes from and goes back to, gets cleaned, it gets powered up, it gets sent back out there. And I'm like, does this scale? Like supposedly these things cost like $150,000 to kit out and everything like that. I love it. It was fun.

You see them all over San Francisco. I haven't seen them too much in L.A. I hear that Phoenix has got them and they're going into Miami. And that was really one of the things that kind of hit Uber because that was the first market that they were not going to be co-listed on the Uber app. But I say to myself, I want to take the over. And when these things are basically in mass deployment. I think it will take longer.

Yeah. So if I'm looking at Uber and I'm looking at consensus, EPS estimate next year, 28%, 2026, 29%. It changed it 25 times this year, 18 times 2026. Revenue growth in the mid-teens. And I say, okay, what's going to happen for that EPS growth to be materially chipped away at? It would be... Yeah. Near term, nothing. Near term, nothing. Think about those numbers. I would rather pay 22 times and own Google than 18 times and own...

own Uber. I think that I want to also go back when we had this when the electric side was that all that excitement around electrification kind of 2019 2020 Tesla numbers were going up and the auto parts suppliers were getting crushed. I think Volvo put an announcement out saying they'd be all electric by like 2022. And the auto parts companies were down. And I thought that should happen a lot of parts companies just use less parts with electric, of course, the resists are going to be impacted. But it turns out there's just this infrastructure around it. And

I'm not trying to give a mixed message here. I think Uber and Lyft are on a tough spot longer term. I think near term, there's 4 billion rides a year in the US, 4 billion rides a year. They have 70% share of that. So we're talking almost 3 billion rides that they have. There's muscle memory there. And I think what you will see is that this, all this negativity, they'll put out a good quarter. They'll say their business isn't hurting. The stock will be up big.

And then then people will see something around autonomy and then start to get concerned again. It's pretty fascinating. It's down in the year right now. And the one thing I just say is like the street, at least like the street that covers them, Wall Street, not investors. They're all in on this thing. There are 59 analysts who cover the stock. Fifty three of them have a buy and six have it a hold. And there are no cells on this thing. Again, why am I quoting that? You were in that game for a long time. It does speak to sentiment. Like, for instance, if they put up a

bad quarter and guide lower when they report, I think in early February, there'll be 10 downgrades. You know what I mean? People will be puking it out at 50 down from 95 months. You know how the game is played. Everything we're talking about here, the earliest that it could impact our business is probably 2027. Yeah. All right. We got to talk about the big kahuna here and that's Tesla. This has done something that I've never, ever seen before in the stock market is gain probably

$600 billion in market cap in about a month. I guess the closest thing we could get to was NVIDIA, and that was probably at some point from a period in 23 on. Since the election, it's up 90%. From what I can tell, there's nothing particularly fundamental other than Elon's proximity to Trump, Elon's ability to maybe speculate.

speed up any regulation that's hindering them as it relates to full self-driving. And then you pull forward the road towards autonomous vehicles, right? And so is that- There's a negative too, that it's more likely that tax credits go away. So do you buy the fact that's not as impactful? Because I hear plenty of bulls saying that's not a big deal for them. It's going to hurt the Detroit automakers and Rivian and the like here. Because as far as I'm concerned-

The data does not suggest that they're going to get over 500,000 deliveries in the quarter. So they're still going to have negative unit growth year over year, which will, what, be the first decline, I think, ever. Is that correct? It's declined in, I think, two to three previous quarters. Okay. No, but I mean on an annual basis. Annual basis, yes. Yeah. So when I think about this and I think about, okay, there's still a price war.

And you think about the Chinese consumer, how weak it is. You think about the pricing that BYD and some of the other locals have. You think about a trade war. Half their cars are made in Shanghai. The ones that don't get sold in China, they go to Europe. Europe has already put in place some big tariffs for Chinese EVs. So you take the subsidies out of the way. You take a price war. You take a company that's already moved away from a lower price point. I know we go back and forth on this, but they have not suggested anything.

anywhere that they're working on a $25,000 EV. And if anything, haven't they come out and just said they've abandoned that for the robo taxi? Correct me if I'm wrong, because I keep hearing a lot of the same back and forth, but I haven't heard them confirm that. They there was their Deutsche Bank had an autonomy conference in a week ago, and I

I think there was some commentary from people close to the company or maybe even somebody at the company. I'm speaking in cryptic language here because what was reported, I would be surprised if that person actually said what was reported, but effectively that they are working on some lower priced vehicle. And so they had some code name for it, which I'm forgetting the code name. But even if you give them that

There's a low price vehicle coming and they're going to make more progress on autonomy. And you put all this together, it still begs the question, have we gone too far too fast with this $600, $700 billion rise in the valuation over the last couple months? Let's talk about what's embedded in that because I'm looking at my fact set screen here. I see a lot of red on the board.

forward. Okay. And I see Tesla's up 4%. They can't get enough of this stock. It's trading at $482 the day of the election, it was down on the year or flat and it was trading at $250. So by the end of this week, it's going to be up a hundred percent. And so I guess my question is, is like, what is that pulling forward? Because

Again, full self-driving doesn't really solve any issues for them anytime soon because if you're talking about a weak environment for EVs, if you're talking about a company that has expensive EVs relative to many of their competitors, tacking on a $10,000 full self-driving is not something that you're going to see on the Model 3 and the Y.

I agree. I'm going to speak to myself for a minute here and say that I run these same exercises, do these same like, let's look at autonomy. Let's assume they get 60% market share. Let's assume they get great margins. Let's put a 40 multiple on that earnings. What does it add? Three, four, 400, 500 billion. Let's assume they just crush it over the next three years in the US. And I think that's a trap.

I think I do the same thing. I think it's a trap. I think that what we're seeing in the market here, again, this is, I think the markets are like a surface level market. I think it's the same thing that's going on with crypto, with Bitcoin. I think it's the same thing that's, that is happening with Tesla. And I would say that,

It's the conversation, I think. I forget who some analysts came out today and talked about that there's what the opportunity is around the fleet, the FSD, and also the optimists and really far out kind of stuff. And I think that at the most basic level, what's going on right now, because this has gone too far. I love Tesla. This has gone too far, too fast when you look at the fundamentals.

And I think what's going on right now is investors see three, $4 trillion market cap companies. They look at Tesla, let's call it a trillion and a half, not quite. And they say they're doing a lot more cool stuff than those other ones are. Therefore, Tesla should be $3 trillion. I think as weak as that explanation sounds, I think that's what's going on. One last thing I'll just say about the autonomous fleet, this whole idea of where do the

cars come? Do they own the fleet? You know what I mean? They've talked about having existing owners of Teslas, put them into the fleet. I just don't think this is going to be, and I'm not you. I don't live and breathe this stuff on a daily basis. But again, you tell me what the number is and I'll take the over when this is like mass deployment. So again, this seems a bit crazy to me, but I might have said that to you if it rallied 30%.

The stock is moving on emotion and it's very difficult to predict when eventually it's going to take a breather.

But it could take a breather or two chilling. We don't know. Yeah, no, that's fair enough. Last thing we got to hit here is Apple. You and I've talked about this name a lot over the course of this last year, I guess forever, as long as I've known you for 10 plus years. You've always been the ax in this name. And when I think about the underperformance that we saw for the first half of this year, we found out after the fact that Buffett had been selling half his stake. So that was probably keeping

a lid on it, but they're also in the penalty box because they didn't really have a generative AI strategy. June 10th comes along, Worldwide Developers Conference. They announce Apple Intelligence. You and I are on Fast Money together. You're super excited about it. I'm like, there's no there there. Well, you were out there, weren't you, in Cupertino? - I was. And you've been, by the way, you were right. I was wrong. I thought that we'd start to see an uptake

And I thought by now, by now being as of this week with the new kind of more full update to Apple intelligence, I thought that I would be at a point where I'd be hearing people telling people around me, you got to get this. I don't think we're there yet. And so I just, I appreciate you highlighting our highlight reel for the past year, but the reality is you got this right on the fundamentals.

We're both right. Think about it. And what's the most important part? Getting the price right. The stock was trading at 192. You came on Fast Money that day and I got to do my rant and then you came on and then you said, this is how I think this plays out. Now, okay, the stock's trading right now at $253 up from 192 the day of WWDC.

And I will tell you as an Apple user, I've had every iPhone, right? All what 18 or whatever the hell they've had since 2007 when it's launched. And they're very iterative. The hardware is not growing. It's going to be flat this year, year over year, like devices, right? So the iPhone. And so they launched this thing that doesn't exist. It wasn't even on the phone when they launched it. And part of the sell side narrative is that we are going to have an upgrade super cycle.

And what have I said for the last 10 fucking years? You can throw the upgrade super cycle narrative out. Okay. Yes, we had it in 2021. That was a very unique year, right? When you think about it. So unless this Apple intelligence was going to be some whiz bang thing that chat GPT wasn't or that any of these other things, it was going to built into the fabric of the device, the fabric of the hardware. So listen, you will be right. There will be a big upgrade. So I'm not saying that you were saying that it's going to be this massive upgrade.

- Well, I thought it would be, I thought we'd see, I thought we'd be 10 to 15% iPhone growth for fiscal 25. The street's at three and now I think it's eight. So I backed off materially from where I was before. - My point then was like, it will be the next iPhone. It's gonna be the fall 2025 iPhone, right? That kind of gets this, if they get it right on the device. And I've seen nothing

that suggests that having the open AI technology, I've seen nothing to suggest that, okay, perplexity and the Gemini across my Google apps on the phone or this and that, whatever, won't do the job. - At the most basic level, the way I think about this is, of course, it's the iPhone. And just to quickly recap where the iPhone estimates are at. So going into when I was out saying that this is gonna have a big impact on fiscal 25, the street was looking for just over 5% iPhone growth

for fiscal 25. Now it had been declining and in the most recent September quarter, I think it was up 5%.

an improvement overall from fiscal 24, up 5%. And then as some of these features started to come out at the end of when the first one started to come out, the street estimates started to come down. And so now we're seeing about 3% for fiscal 25. And I think what's happened, by the way, the move in the stock, part of it is related to Buffett. I think part of it is related to the... I think investors are saying that number's probably too low, which...

Let's take the word super, like what defines super. There's not going to be a 37% iPhone growth number anytime soon, like we saw in 2021. I think that there is going to still be room for upside in part because of what that pool looked like in 21. This is not an exciting part of Apple's business is the fact that the pandemic happened and they sold a boatload of iPhones in fiscal 21 and those phones are starting to get tired.

And I think that alone, now, I just said there, I think they can do 8% growth. Is that enough? I don't know. But I just want to highlight is that the opportunity, I think, for this year in Europe still, who knows when they're going to make

get the green light to do Apple intelligence in Europe. This year is still fiscal 25. I think is the year where it's just a boring three years ago, we had a big upgrade cycle that should help us out this year. And then to your point is I think then we have to sit and see are these features enough? And we're kind of sitting now

summer of next year? You know, what do these features look like? And my sense is that even though they're not going to be like blow out the lights, I think they're going to be enough for people to get incrementally more positive. And I think it sets up for upside of the streets iPhone estimates for fiscal 26. They're looking for

3% and 25% to 8%. But that's the story. And where I think all this can go is we own it at the firm. I own it personally. The number in my head, this is not investment advice, is 315. I think they can earn nine bucks in fiscal 26, 35 multiple, and we can debate the multiple. But that's in a nutshell where I'm at. Yeah. No, a couple of things. And again, you've been super right. And I might've been right on the fundamentals, but they're not really the fundamentals. You were right. No, but at the end of the day, I'll take your wrong versus mine.

Right. Any day of the week. I understand what you're saying. Any day of the week, man. But I just want to say this about Apple intelligence. OK, so I kept on hearing there's two, three hundred, four hundred million iPhones in China that need to be upgraded. We're not going to upgrade them because Apple intelligence, because it's not going to be there.

A. B, for the next year or so, if we keep hearing stories about foldable iPhones or really thin iPhones or the biggest redesign that we've seen in five years since the X came out, people are not upgrading their iPhones in next year. You know what I mean? That's not happening. Right. So that's a problem. Now, here's the good news. I don't think it's as big of a problem as long as that carrot's out there. Okay. But here's the good news.

2019, this is a company that had 38% gross margins, right? And the mix shift has changed pretty decently, right, towards services. Next year, expected to be 47% gross margins. Think about that. So we got locked down for years thinking that this is a hardware company. Yeah, the service business that was growing, it was growing off of Lowe's Base. Lose track of that because it took a decade, but it's been moving higher. Yeah, so doesn't that support, I guess, your 35 multiple? If we keep

moving higher towards a 50% growth. You've been covering this stock for 20 years. You never thought it would get to a 50% gross margin. Agree. I think as long as they're beating numbers and just to fill in, iPhone growth, fiscal 24, it's going to be flat. It was up 0.3%. Fiscal 25, streets looking for three, I think it's eight. Fiscal 26, the streets at eight.

If they beat numbers, they got to beat the top line, even if margins are going up, but they got to beat the top line. If we start to see just some upside. And if you look at that as an investor and you start, you put some weight into that, you can sleep a little bit better knowing that the growth rates are improving. Now you want to own it in anticipation. You don't want to be, you want to start to probably underweight at some point in 2026 before things roll off. Cause that by the way is another piece of,

These super cycles, even a mini super cycle, it cuts both ways. So when you have a good cycle, there is a hangover after it. It's crazy. You had one shot to buy. I really thought that day it closed at 192 or whatever. It was probably going to work its way back to 180. And I said it on the show that day. I think it's a screaming buy because I think you have to look out a year from that point, but it never got there. It just took off. It was off to the races. You had about a minute to do it on August 5th that

but that Monday when things melted down. Okay, Gene, I really appreciate you being here. I appreciate your commentary all year long. You've been a great friend of OK Computer. I'll write back. I really love your show. I love your perspective and let's keep it going. Let's do it, man. I hope we can do it more often. You've been so generous with your time. So I really appreciate it. I hope you and your family have a great holiday, a great new year, and I'm sure I'll see you in January. Love it. It's going to be a good year. All right, my man. Thank you. Thank you.

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