Gene Munster on The Fateful Eight & Elon's Faithful Base
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Eligibility and available amounts may vary and are subject to change at any time. For full terms and conditions, visit Current.com or call 888-851-1172 for more information. Welcome to the Risk Reversal Podcast. I'm Dan Nathan, joined by Gene Munster, Managing Partner at Deepwater Asset Management. Gene, welcome back to the pod. Cool.

Love it. Great to be here. Hi, man. We got a lot to go over here. We had NVIDIA's GTC last week. We've had this huge move in Tesla over the last few days. A lot of news out there. We want to talk a little bit about Micron, their earnings that they reported Thursday after the close, and kind of some of the takeaways if you want to broaden that out a little bit. We're

Monday into the afternoon here. We have an S&P that is up one and a half percent, maybe a little bit more than that. We have a NASDAQ that's up nearly two percent. What's driving this? And I heard you this morning on CNBC. You're talking about that April 2nd tariff day. I think you called did you call it? There's going to be a vortex a little bit. Yeah, the day of vortex. Yes. I like that, man. So let's start with the news that's driving the markets. The

Wall Street Journal was reporting that the tariffs on April 2nd are going to be a bit more targeted, but it came out this morning that maybe they're not. And so, you know, this is one guy and I were talking about this earlier on another podcast. It just seems like they do this all the time, right? It's a lot of like, you know, threats and kind of really broad reaching sort of narratives around something. And then they kind of narrow it down. And, you know, for me, the market reaction here says one thing, Gene, and we've heard a lot about this is like

the Trump put in the stock market. You hear that all the time about the Fed. And, you know, the fact that Treasury Secretary Besant and Trump were saying for the last few weeks, we don't care about the stock market. Well, I think this news back and forth a little bit kind of shows on tariffs that they do care about the stock market. So broadly, I'm just curious how you're thinking of that. And then let's bring it kind of towards the faithful aid, I guess.

So I think that the market rally is related to this concept of targeted tariffs. And of course, this unknown around April 2nd begs the question, what's really going to happen? And this is outside of my tech focus. I can say that last week I had a conversation with somebody that I would say has a good awareness of what's going on with how the White House is thinking about these.

And my takeaway was that I think that Trump is going to be pretty tough. I think he's going to be tough on a lot of countries. I think that he means business when it comes to these tariffs and not only business in the context of a lot of these other partners, but in getting the relationship right with China in particular, in wanting to do it alone. And that means that not subsidizing other countries to kind of help out through lower tariffs to other countries.

He doesn't want to pay for that. And so I think that this April 2nd is going to be on the margin. I don't want to get into trading day to day, week to week, but I think it's probably sets up to be more negative than positive. Obviously tech gets hit more substantially just because gross stocks, if you start to think about the implications of a recession, end up having a little bit bigger of an impact. But I think that's kind of my

My mindset going into next week is kind of bracing for what I think is going to be some more significant tariffs. If I'm right, then you probably get a chance to buy these lower. And I do think that the balance of the year still sets up well, despite tougher tariffs on the broader AI trade. I'm still on board with AI.

Yeah, you took a little shit from Joe Kernan this morning on the squawk box because I agree with you what you're saying. What you're saying on the on the fateful eight, the mag seven is that, you know, there are headwinds near term. We have seen estimate reductions over the last, you know, quarter, quarter and a half or so in a lot of these big names valuations over.

are rich relative to the market and relative to these stocks historically. So if you do have some more, I guess, trepidation about the macro as it relates to tariffs, the way you just laid it out, these stocks are likely to actually have a disproportionate sort of sell-off.

That's exactly what we've seen over the last month or so. The S&P at its lows was down 10%, and the whole MAG7, even meta, were all down 20% from their recent highs at some point. So again, I think it's important to note, though, also, is that the S&P is down 2.5% in a year.

You know, the NASDAQ's down 6%. It's not an absolute train wreck right here. But I'm just thinking like as a whole, you know, today I'm looking at Apple, which I think that, you know, Tim Cook's done a nice job carving out in the past, you know, iPhones from Chinese tariffs. I'm looking at, so it's only up a half a percent. So it's really lagging here. And then Microsoft is also really lagging. It's about unchanged on the day. Which of these Mag 7 do you think have the most, and I know what you're going to say for the most part, it's going to be the semis, but

the most headwinds from aggressive Chinese tariffs or a trade war that goes longer than, let's say, with Mexico or Canada or the EU? I mean, it is in video. I mean, it's not necessarily trade winds per se, but just how the curbs about restrictions and some of these advanced GPUs impacts and does...

you know in the trade conversation there are side conversations that go on there are side conversations about you know how restrictions on nvidia gpus there are conversations about how for example uh countries can send their their kids to go to school in the us is that still something that's going to be allowed so it's uh there's multi-layers to this and so when i when i think about you know the company that's probably at most impacted it's probably nvidia

based on that kind of that derivative effect. As far as like the Apple piece is, you know, you have to just use history, I think, as a support that Coke's going to figure a way to make good. And Apple...

said the right things when they talked about this $500 billion. Only a small amount, I think probably $30 billion was incremental in the U.S. investment. But I think that that probably sets Apple up to be in a good place if anything comes, when things come down the road. And then I think in case of when it comes to Tesla, I think that they're probably in a great place. I can't imagine there being punitive tariffs on Teslas coming in.

And keep in mind that that would be coming in from China. Those Teslas made in China don't come to the U.S. They go to Europe and Southeast Asia. And so I think overall, it's that NVIDIA. Yeah, but Europe has pretty hefty tariffs on Chinese EVs. And if they're coming from Shanghai, you know, I mean, the numbers...

in China are not good, right? That Troy Tesla, he tracks the VIN data, you know, and I think they sold 33,000 in February or something like that, cars, you know, like, and it's kind of surprising. And I just also saw Bloomberg was reporting that BYD has overtaken, you know, Tesla in revenues there. So it seems like a really uphill battle as it relates to Tesla in China. Yeah, the Tesla tariff orbit is something to the effect of,

Does Europe tariff Tesla's coming in from China, something that's kind of an odd daisy chain there? I don't know. Maybe that does happen that, you know, if in fact April 2nd is more punitive than many people believe in terms of what the U.S. does, then you may see some strange things happen. And so, I mean, that's why the market has just had such a difficult time of making sense of this is that market, of course, likes certainty. Yeah.

No doubt. I think Europe has or EU has a 7.5% tariff on Chinese EVs right now. And I can't imagine that Tesla's getting an exclusion. It makes no sense. If you think about Tesla's, they're competing with a lot of the Germans and the EVs that are made there. So

Again, you know, this stock, though, Gene, up 5.5% yesterday, up 10% today. Give me a sense of why you think we're getting this kind of knee-jerk reaction. I mean, listen, at its lows, I think about a week ago, stock was down 55% from its highs. It basically took out the entire move from the election. And

The way I think about a move like this over the last couple of days is like, okay, we have deliveries next week and there's a lot of bad news in the stock. But give me a sense of kind of how you're thinking about it. I know this is a name that you like down here. I don't think you liked it a couple months ago in December after it doubled. And if you were long, you were perfectly happy with that. But round tripping the whole thing, you know, one would have to be less happy.

I mean, it's the A topic in tech right now is why is Tesla continuing to go up when the evidence seems clear that it's going to be a weak delivery number. You get that on April 2nd. Then at the end of April, you get the impact of how that delivery number impacts the full year for 25 and then any sort of investments they're going to make. And then you kind of put all that together. The street numbers, despite coming down about 15% over the past month, still probably need to come down another 15 to 17%.

And but yet that's well known and you see the stock continue to move up. And I think it's it just speaks to I think that the you know, I would I would position it as the kind of the belief in the long term Elon at their all hands on meeting.

He kicked off the meeting. I watched it two times. And the significance of the arc of that meeting hit me the second time through is that the first time it was, thank you, employees. Or the second time it was very clear, thank you, employees. And then it was, of course, about robotics and this shift in their mission statement to sustainable innovation.

abundance is the general theme. And so I think what's going on, maybe the constructive way I'd like to think about it is there are investors, myself included, that believe in the long term where this is going. I think a more skeptical eye would say it's a cult stock, it's a meme stock. And what you're seeing in the movement in shares, despite in front of bad news, people knowing, I would guess that most of them know that bad news is coming.

And a high multiple stock to be bidding it up in front of bad news, I think is just underscores the strength that Elon has at convincing his faithful base that there is upside to what they're going. Again, I believe that

that they're gonna deliver on these longer term, but I think that's what's going on. This is a clear sign of the significance that Elon has in the conversation. - It's funny, you know, I kind of take the other side of it, Gene, and obviously that's what makes a market. I think the higher it rallies into deliveries and then obviously into its quarter, I think the more risk there is when they actually report.

And again, you can trade this kind of both ways, but I guess my point is, is like the realization that the pricing's not getting better, that tariffs are going to be a thing, that, you know, the Trump administration getting rid of like huge components of the IRA. There's no way to carve out

Tesla from that. Right. And then you think of like, you know, some of the kind of what we're seeing, what we're seeing in Europe, like, you know, I just don't I mean, on the car portion, I get why some of you folks who are thinking long term, you like FSD, you like Robotaxi and you like Optimus. But right now, the car business is a disaster.

I agree. As Elon said, it's difficult to predict what a stock does over the next six to 12 months. Now, you don't want to confuse that he said we're going into a difficult period. He said it's difficult to predict what a stock is going to do, but I think they're also going to go into a difficult period here. And this is an extension of what they said three months ago when they essentially pushed out expectations. Remember, they removed the 20% to 30% growth rate for deliveries in 2025.

I didn't comment on that and then talked about this acceleration towards the end of the year and into next year. And since then, we've seen, I think, some impact on the brand. And so I think that things have worsened probably since that last call. All that said, a question I have for you, I mean, this is like since cavemen were trading stocks, probably one of the original things is, is it priced in the stock? And

from my perspective, like this is a stock that is hyper scrutinized. There's so much information out there on it. I'm just, uh, I agree that typically bad news is not priced in until the prints in. But in this case, I don't know. I mean, it just, it would, if, if,

tesla comes out with a bad number i wouldn't be surprised no i know but if the stock's at 300 and it's a bad number and the guidance is kind of squishy when they report in a few weeks then the stock's probably you can see it yeah yeah then the stock's probably going back to 220. you know you know what i mean so like yeah that's kind of my that's that's all i mean so all my point is is like i was in that camp last week i said it on our podcast i said it on fast money i don't think it's a good press on the short side there was just so much negative news

This one is really interesting to me. So this came out this morning, Monday. It was talking about Alibaba affiliate Ant Group. We haven't heard Ant Group in a very long time. Remember the Chinese kind of forced them to kind of, I guess, spin it out for all intents and purposes. And so they're talking about some, you know, some really good model data that they've been training with chips that are Chinese based. Some are even AMD. So like losing their reliance on chips

Nvidia and the sort of curves that they have there. And I just thought that was interesting, the timing of it, you know, a few days after GTC. And so I think about all the places in which Ant touches, obviously Alipay is a really important part of this, but, and this is obviously a month or two after Dixie. I just thought it was like, like,

interesting timing and interesting talking about second sources and interesting talking about Chinese GPUs. And then it brings me back to some of the trepidation in and around Nvidia with that deep seek sort of thing. A lot of folks thought it was really negative at first and then they thought it was positive. But the more that, you know, stories like this

It just kind of makes it as clear as mud. So talk to me a little bit about how you're thinking about Chinese companies, whether it's Alibaba, whether it's Ant, whether it's Baidu, you know, a whole host of others training their own models and how they're training them and the devices in which they're using. At the most basic level, I believe that the hyperscalers are competent when it comes to building tech.

And the hyperscalers have told us that they want to invest more since at least the broader world knowing about DeepSeek than they thought before. So to put some context as a quick reminder is that before DeepSeek, a few days before DeepSeek came out, the expectations were that the hyperscalers, their expectations were that they would increase

their CapEx this year by about 20%. And then after DeepSeek came out and they reported their December results, it was up just above 40%. So they meaningfully moved it up. And for you and I to know about DeepSeek, it's one thing. These companies likely knew about DeepSeek for the last six months.

And so I think it comes down to this, just do you believe that the mega caps are competent when, and it's been pretty clear, consistent message across the board about this need for increased compute and specifically that the scaling laws are holding. Scaling laws are that there's a linear relationship between how much hardware is put and

built in infrastructure and then along with how the models are getting smarter. And so I think that, you know, what sense do I make of these claims or whether they're true or not true out of China on the hardware side? I think that scaling laws are holding together. I think NVIDIA continues to have a good place. This year, the street's looking for mid or low 50% growth for NVIDIA for calendar 25.

I think it's probably closer to 60, not much upside. But I think next year, the street's looking for low 20% growth. I can think it can be above 30. And so I put it all together. I still think that NVIDIA is in a great place despite all these rumblings that are coming out of China.

Yeah, and I'd say, OK, so let's take the other side of that for a second. If the if the like the whisper right now is, you know, that much higher, 53% is consensus on revenue growth and earnings growth. And if you're saying that it's already 60% this year, you know, one quarter in and then, you know, mid 20s next year is likely 30%.

If that doesn't materialize, if we can't see that, you know what I mean? Then we got a problem. And you know, this was interesting. This is from Dan Niles. It was on Twitter and it was yesterday. It was last night actually on Sunday night. He said, "Customer CapEx growth slowing to mid single digits quarter over quarter is hard to reconcile with Nvidia revenue estimates that are modeled by Wall Street to grow 10 to 11% quarter over quarter for all of 2025." So I think about that. And so you're seeing that quarter over quarter growth.

accelerating we all knew that was going to happen you know 23 and 24 were kind of crazy years but if you do see some sort of slowdown in CapEx then all those numbers are high and if we have a whisper that's built in and again I get it man you know what I mean but no one knows how the tariff situation is going to turn out no one knows about all these models that are being trained

in china and you know their ability to kind of gain market share globally in the middle of a tariff war you know it could be like this digital belt road for all we know especially when these models are cheaper to train and distribute and for folks to use and so that that's the other side of it does that make some sense it makes sense maybe on the though just to

Talk about one piece of that, the whisper number and what that means for the conversation. And it's kind of related to what we're just talking about with Tesla, like what's priced in and what's not. And I believe that there's upside to the numbers. I also feel just my sense in talking to other investors is I feel like I'm in maybe more of a minority camp. I think there's still a lot of anxiety about what next year looks like for NVIDIA.

And so I would just mention, I agree with you wholeheartedly if there's a whisper number out there. And this has been a whisper number story. And usually what happens, I remember this in Apple for with the iPod and iPhone growth periods, the whisper number matters. And so I appreciate that. I think what can happen is you miss a whisper number, the stock gets hit pretty hard, even though it is at a low multiple. It's like at a 21 multiple right now on next year's earnings.

and then it can kind of recoup from there. But yeah, I don't think that I think expectations are for less than 30% growth next year. Yeah, no, that makes sense. I mean, the only thing I'd say about, you know, the multiple, if we do see just a slight deceleration from here, not that acceleration, you know what I mean? Relative to consensus, it just becomes a story that's less interesting.

in a way, you know what I'm saying? And if you look at where the stock is trading, you know, over the last, you know, call it year ago, I mean, the returns, you know, you would have to see a major reacceleration. I mean, the stock's trading where it was, you know, on numerous occasions in the back half of 2024. But again, you know, I,

Let's see what sort of innovations coming out. The other thing, just real quick takeaways. I know you spent a lot of time listening to the GTC. So this is the, you know, NVIDIA user conference last week and really mapping out, you know, what the kind of life cycle of Blackwell might be and what the kind of upgrade to Rubin is. And I remember reading an article last week in the information. It was really skeptical about

about that sort of evolution of these chips and basically saying that we're talking to some customers out there, they're saying, "I haven't even got my Blackwell chips and I'm starting to be sold Ruben." You know what I mean? And I get the performance increases and the like, and that's what the whole thing is. It just seems like we're almost at that point where capacity is not constrained anymore.

And they're about to lose some of this pricing power because folks are still using Hopper and they haven't gotten their Blackwell yet. And they're going to be getting pushed to buy Rubin soon. And it just seems like there's kind of a glut of the story. And I'm just curious what your takeaway was from GTC. I think just the reading between the lines is that his commentary about don't buy Blackwells. And I'm loosely quoting, there's no need to buy Hoppers.

Blackwell is what you need and Chief Revenue Destroyer or something to that effect. I thought that that was telling to, I think, the confidence that they have in their business. That's just not, that doesn't come across well at all to anybody who's buying a hopper. And I think

I see the view that he's trying to upsell people to Blackwell, but in general, you don't want to throw what's going to be about 30% of their revenue this quarter, the April quarter under the bus like that. And so I think if I was the CEO and I was concerned about business, I wouldn't make a comment like that. And so I think that probably one of my takeaways from GTC is that I think that the core business is in a good spot.

Separately, he spent about a third of the time. It was a two hour. It was a marathon. He spent about a third of the time

essentially going back to a comment that he had on the last earnings call about this hundred thousand. I don't think he talked about the million X need for increased hardware compute as models become more reasoning. And so that you didn't fill a ton in the blanks there, but I think that was kind of a big piece to it. And the last part, as far as this concept of, you know, this glut that we're having with, with Blackwell and that they're up to production speed, this happens every year. It's the same thing.

piece. We're going to probably see in a few months when we get to the end of this year that they're going to be having difficulties making Rubin. It's about a 4x increase, similar type of a step up from Hopper to Blackwell in terms of the general performance improvements. And so I think you're going to

You're going to see some difficulties there. I think this is just the reality of building a new chip cycle every year. And I think what's most important and what it all comes down to is the scaling laws. If they hold, then the demand for Blackwell and Rubin and then whatever's after Rubin is going to continue to be favorable.

And if they start to break, then it's all bets off. And so far they're holding. Yeah. I mean, you just said starts to break. I mean, the fever has broken in this name for all intents and purposes, which I actually think is a good thing for the NASDAQ. It's a good thing for the generative AI trade because the fundamentals haven't broken, but

I think the stock is broken. But the stock, when I say broken, it's not broken. The fever has broken about the stock, right? Because it's gone sideways over the last six to nine months. And to my point, that's a good thing because now you can kind of broaden out kind of some of your thesis about this and where are the picks and shovels. And it kind of leads me to Broadcom. It leads me to Marvel because...

Marvell had a really bad quarter after having a brilliant quarter. This was in December, and the stock has barely seen an uptick since they reported a few weeks ago. And Broadcom, for that matter, they put up another good quarter, a consecutive good quarter, and the stock had filled in that entire gap. And on a day like today, it can't rally. So what is your thought about these ASICs? You and I have talked about this a bit over the last couple months or so because that was also a knock against the NVIDIA story. A bunch of their

customers and there had obviously a big concentration among those customers were contracting with Marvell and Broadcom to make custom chips. So thoughts there because those two stocks don't trade well. I still think that you have a longer runway on the GPU side and eventually we're going to get to the custom silicon is a bigger growth. And when I say eventually, it probably is sometime in middle or late 2026. And that's not to say that custom silicon is not going to increase and it's not going to be an important topic.

But I think as far as like the potential for custom silicon to have a negative surprise or just some sort of dilution to NVIDIA's growth rate, I don't see it happening in the next year plus. And part of the reason why is that it's still cheaper to spend up on Blackwell than it is to build your own custom silicon.

And custom silicon does a great job when you get into like very vertical applications, vertical use cases, specific use cases of AI, but more general use cases, which is majority where the spending is going on, at least for the foreseeable future on these from the hyperscalers is going to need the GPUs. They just serve a different purpose too. And so I think that it's something that in the grand scheme of things, we're going to see that trade off. And I'm,

I mean, maybe just to kind of take a step back is I think Nvidia is going to be a great stock for the next couple of years. I do think it's going to have a day where it's going to get, they'll have some sort of a reckoning. And I think custom silicon is going to probably play into that conversation. Yeah.

Yeah, over the next kind of year or so, like your point is, as we get into 2026, I'll tell you one thing, though, we don't have to get into it too deeply. But this CoreWeave IPO, and they're starting to talk to obviously potential investors. And I just think it's going to be a disaster. When you think about this, they're trying to raise like $4 billion, a $32 billion valuation. They have a shit ton of debt. People are already taking down their growth rates for the company. They obviously have huge customer concentration with Microsoft at 62%. And

someone else at 15%. So two of their customers are 77%. It just seems like this one, man. And, you know, their founders have been selling, they sold, you know, $500 million worth of stock. There was a secondary for, you know, some large crossover funds, you know, like the ones that are

basically buyers on IPOs, Wellington and the like. So I just think this is going to be one that could really mark a near-term top for any enthusiasm that's left in the trade, at least for the near term. And that might be a great thing for some folks like you who are thinking about 2026 and 2027 for this story. Just thoughts on that. I'm not asking to kind of comment on Corey, but if I am right about this thing of this IPO trend,

doesn't go well, it might be the sort of thing that is actually a nail in a coffin, at least for the time being.

I think that all eyes are going to be on how it trades and what the reaction is going to be. And I think that reaction is going to be based in part of what happens with tariffs and their potential for recession and what the hyperscalers say at the end of April in terms of what their spend is going to be. And I think that so CoreWeave, the kind of the challenges that they have, the growth

the customer concentration piece is also just a backdrop of what I still think is a growing and sustainable and still early in the AI build out and the AI trade and the applications. And so I think they'll benefit from that. But I do agree that like, if this doesn't go well, for whatever reason, you pick, pick, pick the poison of why it doesn't go well, that that's going to really put some sting in the AI trade, at least in the near term.

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All right, something else that's not going well is Apple intelligence. Let's talk about this for a second because the headline, I don't know if you and I have talked since that announcement. I think it was like two weeks ago that they're indefinitely pushing out like the launch of this kind of enhanced Siri and some of the stuff. I know that you have Apple intelligence on your phone. I mean, listen, it's doing...

some things better, you know what I mean? Then that iPhone or iOS software was doing in the past, but it's just not that meaningful. If you have, you know, the chat GPT app on your phone or you have perplexity, you know, all that does the same stuff. So what does it mean to you? The push out of, you know, just, you know, you, you talk, you mentioned something about certainty before and uncertainty. I mean, the,

uncertainty around when they're going to have a product that actually is additive to the experience that lets them charge more for these phones that causes an upgrade cycle. I mean, that uncertainty has been pushed out at best to the next iPhone in September, October, you know what I mean? But maybe into 2026.

It could be. I was looking at the Apple numbers for iPhone growth. The street's looking for a percent in fiscal 25 and then steps up to 8%, 7, 8% for fiscal 26, then down to 6% for 27.

So maybe set a different way. Everything I've, I've been disappointed in kind of the punch with these features and I'm still optimistic that when they get them in place, people are going to want the features that it's going to improve the upgrade cycle. It's going to increase retention and they essentially have the next two or three quarters to, to kind of figure that out. And I think that the probability again, because we,

We've talked about this upgrade cycle from 2021, that 30% plus iPhone growth year, but that starts to have a benefit. I would be surprised if they fall below that 1%. I still think there's upside to the iPhone numbers. And so they really don't have to face the music in terms of the iPhone growth rate for another year. And I think that, I guess,

that's not, it'd be like the December quarter. You got a couple of quarters ahead of you. And so, you know, we'll see, they're not going to get the real punch probably in terms of some of these features out until early next year, it sounds like, but in general, they've got some time to where there's a pretty low bar. And I think that's one of the reasons why the stock kind of hangs in there is that,

that investors are saying we have time. It's probably more upside versus downside, at least for the next couple of quarters. Yeah, and I guess in a more of a sell-off, let's say a NASDAQ that's down 15%, maybe on its way to 20%, you might view this thing as somewhat defensive just because, gosh, so generation and the like. But I think there's generally a real malaise about product innovation over there. And they're talking about, Bloomberg has been talking about this,

you know, this air iPhone, maybe that's interesting. Maybe it's not, it seems a bit gimmicky, you know, kind of like the mini and some of the things that they've tried over the last couple of years. But, you know, again, I want, I want to talk about like, like something like, for instance,

they're talking about putting like a camera on the watch. You know what I mean? Like, and you know, the watch has been a great business and it is one of the things that, you know, like one of the very few innovations we can say over the last seven or eight years as it relates on the hardware front. When you start hearing stuff like that, how does it make you feel about Apple with basically flat, you know, year over year iPhones, which would be the second consecutive flat year, basically. I think they were down a little bit last year.

I mean, what I see the Bloomberg reporting, which Mark Gurman does a great job, and if he's reporting on it, there's a high probability that that's true, is that by 2027, they'll have some sort of a camera on Apple Watch. I think that would be helpful to Apple Watch sales.

Basically, they've been flattish for the past couple of years. And if it bumps up to 25% in fiscal 27, that's a percent of revenue growth. So that 6% goes to the 7% goes to eight, something like that. So it's a little number, but it's kind of moving in the right direction. But the bigger to bigger question about my general take with Apple, it's such a big company. It's $440 billion in revenue next year that there's always like stories orbiting Apple.

kind of the center of gravity and the center of the gravity still is the iPhone. It's still about what happens with Apple intelligence. And so I don't see like these, you know, adding these features and shifting their focus away from vision pro to some sort of a wearable that can bring in visual intelligence, more of AI in the real world to your Apple devices. I don't see that as like an indictment against the company. I think it's more just,

The reality is they're trying to get the iPhone to get growing and then separately take these other products and try to kind of energize them with some features that people haven't had before. And I think visual intelligence or Astra in Google's case or Ray-Bans for meta, I think that whole category is a real category. I don't know if the watch is the best

it seems like kind of an awkward form factor to use visual intelligence, but the concept of needing a device to capture the world around you and use AI on that, I think it's a real viable segment. Speaking of awkward form factors, we got to just throw in the Vision Pro. We don't have to talk about it, but awkward form factor seems pretty fitting there. All right, last one before we get out of here, let's talk about Google.

This is one where, you know, folks point to obviously Meta and Google as two of the cheapest names in the space. You know, when you look at, you know, earnings growth, 13% this year, 15% expected. And then on the revenue front, we're looking for 14% this year, 12% next year, trading about 18 times this year, 18 and a half times this year, 16 and a half next year.

The big issue that I have first on the numbers is the gross margin, 69% last year, expected to be 65.2 this year. Talk to me, like, where that comes from. Is that just basically this CapEx spend? That's a massive, massive hit, like, year over year. Oh.

don't have a good answer to it it's typically something related to like traffic acquisition costs that's a larger input into uh what they're spending and that can be impacted by the relationship with apple which has come under some scrutiny they may be even that despite that scrutiny maybe spending more so i don't have a good answer for you in general that's uh not a positive trend of course but is the tack higher maybe because they're competing more with chat gpt and uh perplexity and the like here so we

We haven't really seen it. I don't remember comments to them to, you know, expect that, but they are still under, they still need it. Like there's a major transition that has to be undertake with Google. And our view at deep water has changed about it over the last month. And despite its valuation, we think it's going to be just a tougher lift to really clean up the search results page. I mean, effectively it's,

The search results page is like three pages in one. You get the AI overviews and then below that you get sponsor links and then you get organic links.

in most people's eyes shoot between the AI overview and then jump down to the organic. But that's not the experience that most people are going to want when it comes to more like a perplexity as simplified as Jensen talks about one-shot prompts, kind of a very easy, clean answer. And I think that dynamic, if in fact consumers start demanding that as part of their

their search results, then Google needs to respond. And it's a pretty big overhaul. And there's just a lot of questions in terms of what that means for monetization. Well, it's a big overhaul because you and I can spend a lot of time talking about chat GPT or perplexity, but most of this world does not have that. They're not using those right now, at least not for search. They might be using them for other things like fix this essay or this email or something like that, which

obviously presents an opportunity for Google, if you think about it, across their suite of services, right? Integrating Gemini into that. And I think there's some cool things that they're already doing there. But that behavior is going to be really hard because to your point about the overlays and links and the sponsored things.

It's crowded, you know what I mean? And, you know, I wonder, you know, with this acquisition of Wiz, which I think is interesting, it's not sexy by any means, but this seems like a really interesting company where, you know, this is a cloud security business that enables or, you know,

offers a service if you're a company and you're using multiple clouds, right, to identify risks across each different cloud provider, you know, that sort of thing. It seems interesting, not sexy to, let's say, retail investors. Like if they were to spend that $30 billion on perplexity

and integrating that into their search experience, that would be amazing, except that I can't even imagine under this FTC that they would allow that sort of thing, but maybe it helps them. I mean, you can't take somebody with the market share. They would have to lose considerable market share for them to be allowed to do that. And even then it would never be allowed. So yeah, maybe just to be clear, I'm not, I'm not expecting some

big miss in terms of what's going to happen with their search business. But I think that the general...

I mean, this is stuff that we're playing on, just the concept of perplexity. How about if you went to 100 people and asked what perplexity was on the street? About 10% of them would know what you're talking about. And so this concept of it's going to take a long time. The strength of being a verb around Google is going to continue to bode well for the company over the next couple of years. I just think longer term, how this transition happens

how they shift from beyond 10 blue links is something that I don't have a good answer to. Yeah. Last thing, I haven't been on Twitter in a very long time. And I went there, I logged into our, you know, our company page and on the profile was a grok button and I hit the grok button and it gave this really interesting, you know, I

I don't even know what it was. Like I did not know what to expect, but it basically gave a summary of what our company is and what we do with the podcast. And it actually linked to a bunch of different tweets, our tweets and that sort of thing. I thought it was pretty cool. I mean, like I really did. And I've been hearing people, you've been saying it.

that it's pretty good. Now, I guess the question is if it's garbage in, garbage out, right? If you're one of these people who believe that, you know, Twitter, you know, as a service, as a platform is not particularly interesting anymore for a whole host of reasons the way it was, let's say, a few years ago, then, you know, relying on Grok and then, you know, citing a bunch of

tweets is not that like, I don't know, I wouldn't trust that. But what I saw, I thought was pretty cool. So curious really quickly because Elon raised at 32 billion, you throw the debt in there, that's the 44 billion that he paid for in 2022. And you think about maybe a 10% stake

And XAI, you know, is that something, as you look at the private markets, is that something that seems kind of reasonable? Because XAI, maybe they're raising it like $75 billion or something like that? I think that X, not to be confused with XAI, X is...

And just in a much better place, if you think about they've made those 70% headcount reductions, revenue is probably 30% below where it was before it was acquired, but profitability is probably 4X what it was. And I think it's just as a platform in terms of the engagement, it feels like it's, I mean, even set aside your feelings about Elon, it feels like it's in a great place. Yeah.

And I think that, you know, Threads, nothing's really has really come out of that. And ultimately, they still have this unique position. And so I think that X is going to be, you know, continue to gain some momentum. And I think that this integration with Grok within the platform, I think, is going to add some features there.

And specifically around using a lot of that data on X to feed the model and these rags, these retrieval models, just to create, I think, a more compelling experience. And just hats off to XAI. I mean, they've been at it about a year, but we test these models and play with them all day long. The cheap versions, the premier versions,

And we're always surprised at how the progress that Grok has made. And it's pretty much on par right now with GPT. Yeah, it is pretty pathetic what Meta has done or hasn't done with threads that haven't integrated Meta AI into that. And there's a lot of folks who want to use it and they want...

They're looking for an alternative, you know what I mean, to Twitter. But again, you know, they seem to be behind the eight ball, despite the stock being one of the major outperformers in the faithful eight, you know, and we can get into that one maybe at another time. But Gene Munster, I really appreciate you being here. I appreciate your insights. I know our listeners do. Thanks so much, man. So he is the managing partner at Deepwater. Thanks so much, Gene. Thank you.