Transcription
[Music] Welcome to Market Overtime. I'm Oliver Renck. Today's guest has been covering tech for over two decades, but since the COVID era, he's become a bastion of unwavering bull market confidence. Of the 40 stocks he covers, not a single one has a sell rating. You might call him a perma-bull, but if you've faded his analysis, you'd be perma-broke. His staunch support for controversial tech trades like Tesla and Palantir, despite an entourage of haters, has delivered an average 16% excess return over his peers, according to Bloomberg data. He's been so right that not only does he get away with the most flamboyant wardrobe on TV, he's been lauded for it as Wall Street's best-dressed man. None other than Dan Ives is here with us from Market Overtime, the global head of Technology Research at Wedbush Securities. Dan, great to have some of your time, sir.
Oh, great to be here, and thanks for the introduction. I appreciate it.
Absolutely! I wore my most extravagant pocket square for you.
I'm touched! Seriously, that is like that. But look, I can't even pull off a pocket square, so...
But you can!
Well, we appreciate the time. We've got a lot of good stuff to talk about. You got a new role too, so Global—I mean, you're moving around the world too right now. So how does it change the way you view things, or any additional scope for how we should think about your coverage?
Yeah, I think it's more scope. I mean, in terms of coverage, it expands a little, but I think the big thing is just having more coverage, especially when it comes to Asia, China, and some of the other parts of the world. We, along with our team here at Wedbush, do those markets stand any chance next to us big tech?
Dan, how much real kind of potential variance arises between the U.S. leadership versus the rest of the world in the new administration?
Yeah, let's go look. I mean, I think the U.S. is strong and gets stronger. So I actually think that's something that's even just more of an accelerator. But I do think those markets—it's enabled us to maybe get an edge when it comes to supply chain and just brought some of the demand that's going on within tech. You know, when you think about what's happening across Asia, across Vietnam, Malaysia, and others. But look, I think under Trump, I mean, this is a Cinderella story for big tech. Regulation essentially gets defanged. More deal-making, Musk with a big seat at the table—it's very, very bullish for big tech.
How much of it is a new narrative, and how much of it is just kind of a cherry on top? If we stretch the timeline back, basically, it seems like for a proper big tech conversation, we got to go back to basically COVID. It seems like kind of the fertile soil that began a lot of this latest thematic movement. Take me through that, Dan, because it feels like if we rewind the clock a little bit, we get some answers as to when this started, which is when we were dumping money and cutting rates, basically, right?
Well, no, I mean, look, you and I talked throughout many of the years, and I think it was the start of a new foundation. You know, when you think about what happened in tech, you could say some of them, like Zoom and some of the sort of COVID names, obviously started to come down once lockdowns and everything came out. But from a shift to the cloud, hyperscale foundational, I mean, that's really the start of what I view as almost a 10-year cycle, and I think we're only kind of three, four years into it. And then I think what changed everything was the combination of what we've seen from the godfather of AI, Jensen Huang, NVIDIA GPUs going back to 2022, what we saw from OpenAI, and of course Microsoft. That combined is essentially creating a fourth Industrial Revolution.
When you think about AI, how much do you think about COVID as a catalyst in the way it forced businesses to adopt technology at the time? In my newsletter, I wrote it as a time machine that COVID basically sort of opened a portal, if you will, to this future demand that was going to get there eventually but kind of fast-forwarded it. To your point about some of the one-off things that fizzled, but then it also did really usher us into this new age.
It seems like, oh, no doubt. I mean, I think that nails it in terms of what it ultimately did because it accelerated the shift to the cloud. I mean, like when you start COVID, let's call it March 2020, you had about 30% of workloads in the cloud. Today, we're about almost 50% and going to 75%. So it just shows what ultimately happened there, Oliver, is that we're talking about the beginning of what was ultimately now trillions of capex dollars toward tech. That's why big tech continues to get bigger—MAG 7 and everything else—and that's not stopping, especially with regulatory essentially defanged. You know, Trump administration, Khan will be out at the FTC and others, so this is going to be a really golden age for big tech.
I do want to talk about how things are changing on the margin, and at the risk of zooming out too far, but kind of the one other point there, Dan, on the origins of this is how much do you think kind of the whole system was proven out—the way we lowered rates, we put money into capital markets? For anyone who kind of doubts that prosperity stems from innovation, can we attribute some of this to the money that was injected into the economy to get these ideas flowing? Right? Isn't that like how tech revolutions happen?
Of course! That's how revolutions happen. I mean, it goes back—no different than you could go back to when I covered tech during the financial crisis and TARP and everything else that created the next level of innovation from 2010 to probably 2016, 2017. That's how the system works, how it should work. And I think when you look at essentially, you know, Fed engineering, Pillsbury Doughboy soft landing, and that's why a lot of times the bears, you know, they sound smart with their spreadsheets and valuations, but they've missed every transformational tech name in the last 15 years.
Okay, so then where we're at right now, do we need any additional economic stimuli, or are the wheels and the gears kind of turning themselves now that we've had the AI and the breakthrough from NVIDIA, particularly on powering all this stuff? How much is kind of self-moving now?
Dan, I think 50% self-moving, 50% you still need. And that's why, like, lowering of taxes, deregulation—essentially when it comes to KH, FTC, Gan, and others. I think when it comes to where money is being spent, the Inflation Reduction Act—that's going to be massively shifted. I think Musk is going to play a huge role there. It's not necessarily kind of like the red tape poster child like in Intel; it's going to be much more focused on the AI. I think hyperscale is going to benefit the likes of Amazon, Microsoft, Google, Palantir, and others. Look, I think the reality is that we are on the cusp of really an unprecedented revolution. But that's what—when you combine that with Trump getting in, a red sweep, it's a Cinderella story for big tech, and I think that's why we've even seen that significant rally since Trump got in.
Dan, how would you score the current AI product offerings? We obviously know there's all this trillion-dollar CX happening in terms of consumer product, and I guess business product too would be a fine answer. But when I think about the existing consumer stuff—Google Gemini on Google phones, Apple Intelligence coming, Microsoft Copilot, obviously the ChatGPT functions and such that some are now generating revenue—how would you score the quality of our AI output so far in terms of product?
I think it's jaw-dropping! I mean, I see more from the likes of Palantir, we see from Oracle, Microsoft. I think enterprise—enterprise now—enterprise is where consumer gets the popcorn out. I mean, the point is like this has just started. The consumer revolution will ultimately go through Apple, iPhone 16, iPhone 17, everything that we're seeing with Apple Intelligence. But that's why it's not just about MAG 7; this is the second, third, fourth derivatives about to play out across software, across cybersecurity, across infrastructure, across consumer tech. And I think that's where now it's setting up for, you know, over the coming years.
The hardware versus software trade-off has been so stark, but it seems like now that has shifted a little bit. To your point, in the last couple of months, Salesforce breaking out to highs, the cloud complex coming back—a group that had been lagging significantly compared to all the big hardware build-out. Is that going to be as broad of an AI lift, or will we see again winners and disruptors in the space? How specific do you think that gets, like business to business?
I think 2025 software is going to be the trade because the second, third derivatives of everything playing out—Salesforce, ServiceNow, Oracle, Workday, and other Adobe. Now the use case starts to play out. That's why Palantir is clearly the master of AI, which has been an early sort of leader there. So I think now, as it goes from kind of the capex build-out, now we start to see use cases, and that's going to benefit software. The other thing is deal-making is going to accelerate with Khan done, so that's going to be also bullish for software, SaaS, and a lot of these names that maybe have underperformed.
MH, that one's a big one. I mean, if there was one real economic or policy hallmark of this administration, it's probably the FTC and the antitrust stuff. So, I mean, that's got to be a huge one removed already for at least a premium applied to some of these stocks if, you know, to your point, KH is removed.
Oh, I mean, I think there's a better chance of me playing in the NFL than her not being removed at the FTC. And I think ultimately, look, that's what big tech needs to see. You can't have this spiderweb of regulatory as we're going through a fourth Industrial Revolution. Trump comes in, red sweep—now you see all those agencies essentially defanged from crypto, you know, to obviously FTC and others. And that—look, if you're a tech bull that's drinking rosé, you know, lobster...
One of the areas, as you mentioned it, as a brief aside before I come back to some of the big overarching stuff, is in your coverage, there's not a lot of blockchain or crypto-related stuff, and generally, you haven't spoken too much on that compared to the equities. I know part of that is just your background in equities, but what is your feeling on that? As I mentioned, obviously, you know, a stalwart of bullish themes in general.
Sure! Yeah, and obviously, like, you know, Tom Lee and others have talked about from a Bitcoin perspective. I think now, regulatory that gets thrown out, you have to be bullish on Bitcoin and overall crypto because I think the other—that's going to happen over the next three, six, nine months. I think a big thing that you're going to see more and more companies that maybe were not going to invest in Bitcoin or crypto now will. You're going to see more and more of their cash going toward that, given the regulatory framework has dramatically changed. So I think that's something that just speaks to just a broader view of where we're heading. That's good for crypto; it's good for big tech, and I think we're, you know, we're in our opinion going into what's probably going to be a bull market that lasts through the end of 2026.
Dan, what do you see as having greater technical prowess or productivity prowess—the blockchain or the AI stuff? How do you compare those two?
Look, I think blockchain is still more of a derivative of cloud, and as we see in software, and then that's all going to play—and that's probably going to be a maybe like a slower build-out but still very strong in terms of a blockchain perspective. AI is going to be—it’s parabolic! Like if you looked at AI versus blockchain, I mean, AI is a meteor! Yeah, because of the capex—because remember, you had $500 billion of capex just related to tech—that's not even related to sovereigns, other companies, and everyone else starting to play. And you could say together that could be $1.5 trillion to $2 trillion of capex just for AI.
Yeah, again, I don't want to get too far outside your coverage because you don't cover like the fintech stuff, at least some, you know, the crypto-heavy ones. But it just kind of seems like when we've gone through this investment cycle in the last—you know, we had sort of this blockchain investment cycle. When you think about allocators like these big tech companies, I imagine it's going to skew super hard to AI, or is there a feedback mechanism of crypto price that just brings interest, or are all these big tech companies just full-on AI?
I think full-on AI, but crypto—I mean, I'm not necessarily as dramatic as that, but you will start to see crypto start to become, you know, more in the vocabulary, especially as the regulatory environment has so dramatically changed. And these companies say, "Look, you have over a trillion dollars of cash from big tech," you know, in terms of where that all sits.
Thinking about the big hyperscalers that have led us, Dan, what do they need to show here over the next couple of months? How their investments are paying off? Can they get a free pass? Because I think about Microsoft last quarter—it looked like it stopped kind of getting a free pass a little bit by the market on the C-back stuff. But then obviously you've got others that are closer to highs, but then you've got like a kind of spread opening up a little bit where Alphabet and Microsoft seem like the market now maybe needs some fresh justification.
Well, I think the difference is that it's not just about Microsoft. Look at—we've talked about Google, some of the parts. I mean, the Google Cloud, I think, is now accelerating. That's a huge part of the Alphabet story. AWS as well, but it's not a zero-sum game. If you look at Microsoft Azure growth, I believe it drops out and then actually accelerates by mid-30%. So as this all plays out, this is just the start of the hyperscalers showing the growth that I think actually most of that is ahead of us, not behind us. I think on Microsoft, investors maybe the stock got a little tired—we'll call it like that—a little hyper-focus, a lot of downgrades. But Microsoft, we're only halfway through this cycle in Redmond.
What type of valuations do you think are possible here, Dan? I mean, Microsoft and Apple both trading above 30 times forward for very profitable businesses—that is an expensive valuation. Granted, the quality of these stocks has always been there. Valuation-wise, we're up there like at the highest of highs.
Sure, and I think I continue to say the bears, when they're in their caves and hibernation mode, they can't find in their spreadsheets AI. And I think the difference is that you have to sum of the parts of these names in terms of ultimately what will Microsoft look like as AI scales over the next two, three, four years? What does Oracle look like? What is the Google piece from some of the parts? I'd argue the same for Apple in terms of what that AI piece is. That's been my argument with Tesla as well. You have to factor in the AI and look out the next three to five years what the valuation is there. And I like—look, my whole thing is just covering tech for 25 years. So many investors that I've talked to have missed every transformational trend, every transformational big tech name because they're laser-focused in the 10th-floor New York City office building in their spreadsheets. Part of, for me, three million air miles, 20 years later, by seeing the world, you have a different perspective where a lot of investors, they don't see that. They can find AI in those spreadsheets.
Some, I guess it's like trying to find a god. Tell me, Dan, what you're like—you know that meme where it says if something would have changed, this is what society could be like, and it's like a vision of like this future, you know, metropolis, this incredible society? What's the Dan Ives vision? What does it look like?
So I think, call it five to seven years—so let's just call it toward the end of the decade. I think 10 to 15% of ride shares are autonomous. I think you're going to have flying taxis. So in other words, I think you'll—I mean, we'll start to see some of that demo, Joby and others, 2028 LA Olympics. But I think transportation's going to massively change. I think you're going to have—think about Vision Pro today, but almost as sunglasses, similar as Meta. So I think you're going to see people will be walking around doing with sunglasses where their phones—they'll be able to actually see as they're actually walking. I'm just trying to give you like some—I also think robotics—I think many households are going to have robots that are AI-driven robots in their house. Now, if you think about Optimus and others, that's just the sneak peek to where I see it.
Where you're at work right now, and your robot is home walking the dog, doing the wash.
I like it! So it's like it's pretty much the Jetsons, right? Like we're gonna—that's our baseline. We need to go through there and just invest.
No, no, no! But I don't think we're way off. Like if you talk about Jetsons from a Jetsons type, at least the early parts of it starting to form over the next five to seven. I also think like you're going to have things like space travel—obviously so expensive today. I think as you look out the next five to ten years, like that's going to be something that will actually start to be affordable where you could go to space for a day or two, and it's not going to be just for like the uber-wealthy.
Dan, is there a way to—when you talk about the global side of—before we bring it back home, I think the two most important stocks you cover from the global side, is there an underappreciated way to play this, or how much does that depend on the policy stuff we started talking about at the beginning?
I think it's policy, Stu. I mean, to me, I'm still more a believer. I stick with my winners—the names that we do all the work on—those continue to be the ways to play it. I do think that from a policy perspective, the China tariff would clearly be a sort of noisy issue. But I think when it's all said and done, Musk is going to have a huge seat at that table, and there's probably likely going to be carve-outs for Tesla, Apple, and probably a lot of the supply chain players like Canada.
Okay, so Tesla—look, no question, foot in the door at the White House. I mean, more than a foot, obviously, is a big deal—an office at the White House. Exactly right, yeah. Actual role is worth a premium in a stock, it seems without question, especially for a stock whose premium was eroded based on persona and character. So first, take the victory lap, I guess, real quick on defending Musk's multitasking skills.
Yeah, look, this was the bet for the ages for Musk. I mean, Musk betting on Trump is going to change the whole landscape for Tesla—autonomous, AI, regulatory. I think while that gets accelerated, EV tax credits get pulled probably in January—that's negative for the industry, negative for Detroit. Remember, Musk, when it came to the Biden administration, even Obama, was on the outside looking in. Right now, Trump administration—huge seat at the table—going to be very important when it comes to China tariffs, a lot of those discussions—almost an AI ambassador. Look, I believe AI alone, the autonomous piece, is worth a trillion dollars alone—Tesla stock.
To my mind, it's something that feels like an inevitability—the self-driving cars. So like, and I don't dispute that at all, or your market cap assessment—that's you. One thing I'm thinking about now, Dan, though, is there any worry in your mind that it gets sketchy at all if Elon starts self-dealing in a way from the White House? Like, I mean, I guess he's got the mandate right now, which is fine, but does any of that backfire open him up at all, you know, if he starts giving himself or removing credits, etc.? Or is the market just thinking that anybody's going to check him on that stuff?
Look, I think it's a new world, right? And I think, you know, the rules that may—I mean, Musk goes to a different set of rules. And I think as it all plays out, as we're seeing, this is going to—it could have some bumps in the road, but I don't see how this is all going to change there. I think autonomous is going to get significantly fast-tracked; the AI piece is going to get fast-tracked, and that's bullish. Look, the poster child who's going to benefit here is going to be Musk and Tesla.
What about the angle from Tesla with the credits? One thing I've heard is that if they remove credits, then the lesser peers struggle more. I mean, that one seems like there's a few leaps of logic there.
Well, removing the credits is negative for the EV industry, negative for Detroit. It could be bullish for Tesla because they have the scale and scope that's unmatched. They make profits on a $35,000 car, $110,000. You look at the tax credits—it was essentially given an even playing field to give affordable cars to some of these new entrants. That's bullish for Tesla.
Okay, so you're saying basically like Rivian—I don't know the name names—or I mean, like some of the companies, they're losing a ton on their vehicles, basically will have to cease operations. But also, Rivian's a high-end consumer; they're not focused on tax credits. Like, we're talking about vehicles in the $35,000 to $40,000 range. Look at GM. GM has 10 to 12 vehicles coming out. You take the credit out, it's a game changer. And guess what? Musk was almost like—wasn't invited to the party for eight years, that being the White House party. It's all about Detroit, bar GM, totally Biden, UAW. Now all of a sudden, they come to his house, and he's sitting there in Mar-a-Lago. That's not a good situation for GM.
But GM and Ford, they can still afford me. I don't know about Ford. GM seems like in a good position to generally still be able to produce the cars; they'll just do them at a lesser margin. So it's not like the cars come off the market. By the way, one of your best calls has been bullish on GM, and we're bullish on GM. And look, I could argue you investors almost want to see that. They want to see GM be like, "Hey, why you tone down with all the EV transformation? Go toward hybrid." So the irony is that this almost gives GM an excuse to maybe tone it down, which is bullish for the stock.
All right, fair enough. Hey, Dan, let's talk Palantir here. I think this one's arguably the most interesting of all of them—kind of a stock that was early on shrouded in mystery apart from those sort of in the know. And it feels like Wall Street is distinctly still out of the know because the rating coverage on this is—I've never really seen anything like it—not only just the bearishness and the neutrality, which generally is not the way Wall Street analysts work. They're generally more positive than neutral or negative. But the fact that the stock has been making highs, breaking out, trending higher for months—it's like some of these people don't have charts. What's going on?
And by the way, I think this is your biggest outperformance, even more so than Tesla, according to how long you've been bullish in your price targets.
Look, the analysts—if you don't spoon-feed them and they don't put—you know, Karp is not someone in the Palantir story. They're focused on their vision, the AI. The analysts, I think institutions have gotten this so wrong. Like, I would actually say in 25 years, I've seen many names that were kind of mischaracterized, right? Maybe the street got it wrong. I think this is probably—I've never seen a name more misunderstood by the street and probably, you know, one of the biggest misses than the mess of AI, Palantir. Because look, I just think many viewed it as a government three-letter agency's car. The reality is that it's some of the most innovative technology in the world in terms of what Palantir has done. It was just a matter of them starting to take that from government-focused toward enterprise. And now, look what they've done—they've essentially become the artery for enterprise AI. And I think this is another one where retail, just like Tesla, was way ahead of institutional when it came to Palantir, and that's how the stock went from a junior high school individual to a senior citizen as a stock. But it's—we're not putting it out to pasture; this has just begun. Yeah, we are—we are in—it’s 10 PM in the AI party that goes to 4 AM, and right in the middle of that dance floor, it's Karp and Palantir.
All right, it's like that meme again of, you know, everybody dancing and the Palantir analysts in the corner—nobody knows my cash flow analysis! You know, like—but actually, again, no, because like they're sitting there, and they're like, "Where's the AI? Can't find it on my spreadsheet." It's the problem. The stock has been doing it on huge revenue growth; valuations obviously sky-high. Do they need to deliver any more to the bottom line than they already are? Because the free cash flow is picking up.
Free cash flow is the key because now you're going to look at a billion in free cash flow. When does that become three, four billion? You have to look out the next four or five years. I mean, Oliver, this is essentially—this is a new story being built when it comes to AI and it comes to the Palantir enterprise piece that's not being factored into the stock. Now it's started to get factored in, but I could argue like when you look at half a billion, you know, like, you know, in terms of where we've kind of gone, you ultimately look at like the trajectory here. I mean, we could start to be looking at $4 billion, $400 billion, $500 billion. Could this be a trillion-dollar valuation if they continue to execute? That's not out of the realm.
Right, good stuff. Love the vision of the future, Dan. Thanks for your time. Fun stuff! Glad we got through a lot, and I'd like to back it up to figure out the sources of this big theme. And congrats on being W and ahead of the vast majority too.
No, thanks for being here, and you do such a great job. It's so awesome to be here with you.
Thank you, Dan. Appreciate that very much. Thanks, Dan Ives, managing director, global head of Technology Research at Wedbush Securities, on the future of the Jetsons economy. Thanks for joining Market Overtime. Don't forget to subscribe to us on YouTube, watch other episodes of Overtime, and 24/7, of course, at SchwabNetwork.com. [Music]