This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business App. Cardinal rule number one is when you're in an equity business, listen to the bond guys. The bond guys never listen to the equity guys. But you know, if you're like a gene monster, you really pay attention to what the debt side looks like as you look at your area. Gene Monsters area for decades Biper Jeffrey and now on his own gen Monster really looking at technology gene Robert Schiffman
of Bloomberg Intelligence said, look, Microsoft's a tripaa. Apple's just below that. Microsoft could do twenty billion debt offering right now and not you know, affect anything at all. Do we have any understanding of their free cash flow? And Gene one idea, you're on their free cash flow. Apple's retired thirty nine percent of their shares in the last decade. Do we understand their profit?
I don't think so, Tom.
When you think of the free cash hold with Apple, we're talking fifty to sixty billion dollars per year.
That's free cash flow.
When they talk about their current cash position, call it roughly seventy five billion. I mean they've continued to try to whittle that down return that to investors. Welcome meta to that conversation regarding returning capital. But Apple, is you in that it is? I mean, it's it's mind boggling.
If you look at the past year, revenue has basically been down two and a half percent, but they've generated called it sixty billion in free cash flow, and I think it just speaks to the strength of their margins.
Paul I put this out last night in preparation for Gene Monster that I'm just had it with the sophomoric growthiness study of the media, and it's about the profit and as Gene mentions, Paul Zuckerberg gets the twenty twenty three trophy. The way he shifted Facebook to a profit juggernaf is.
Jaw dropping, it really is, and the stock got rewarded for it too, more than doubling here, Hey Gene, So last night busy night for you and busy night for tech investors. Apple, Amazon, Meta.
I want to start with.
Apple here because for me and I think for a lot of investors, it's very much about China here, and I'm not sure I heard anything from Coopertino last night that makes me feel more comfortable about what's happening in China. My concern is maybe the consumer's moving away from Western products in general and maybe Apple in particular.
How do you think about China?
China hit the wall. It was down thirteen percent year of year, is done two and a half percent year year in this September quarter, so we saw that deceleration. The macro has definitely impacted that. If you look at broader Apple business, it was up ten percent in Europe, fifteen percent in Japan two percent. So if you think about what's going on at Apple, it really can be zeroed into the weakness in China. China's twenty percent of
their business. And then the question comes to what does China look like going forward, and I think the answer is to continue to expect it to be down kind of this ten to fifteen percent for the next few quarters. There is the question is this just a macro issue related to China or tier point, is there just a structural shift away from Western products and Apple in particular.
And what we saw was some conflicting data. We saw the China business being down like we talked about, but we also saw that Apple in terms of its market share. IDC reputable source said that Apple that the iPhone is now the best selling smartphone in China for the first time in the December quarter. And so I think the answer is this is more about the macro. I do want to put one other other one just slightly finer
point on this. There is a dynamic of what's going on with the government and their commentary about buying Apple products.
Now, if you look at the number of government.
Employees, this basically can create about a three percent headwind to China's business. It's not a formal policy to avoid Apple products. It's been this informal kind of wink and nod, But I think that that probably plays in all this too.
When you roll it all together.
I still think China's a big opportunity for Apple. India is becoming a bigger opportunity too, and I think that I think this storm will pass.
Yeah, and that's kind of I think the message we heard from Tim Cook, I think he's probably taken a little.
Bit more of a longer view.
All right, let's switch to Meta. You mentioned that, and just what a story here, I mean, and you know, Zuckerberg gets a lot of criticism, and he obviously was on the hill again recently, but boy did they turn this company around in the last eighteen months. It was, you know, since its inception was a top line growth story. And then he wisely wisely focused on costs and profitability, and boy, that's paid off for the company.
What's your view there'll met.
Him The cost is' that's nice.
Absolutely has paid off.
I think there's a bigger dynamic plane out here which is just related to their demand. And they had their revenue was up twenty five percent year over year in the December quarter. They guided you got to go to the high end of their guidance range because they're probably going to exceed. That would imply an acceleration to thirty percent. Their price per AD was up two percent year over year. A year ago, their price per AD was two percent. So that's outside of the whole expense control. The AD
market is better. But there's something The bigger thing going on is this is that their products people want. I mean, that's the maybe optimistic way to say it. The more skeptical way to say it is their addictive deep Water does own meta. This is something that I struggle with, but we saw it in the numbers in the engagement. It's playing through to the revenue. One just other quick thought on the engagement number here, they're da used.
This is a metric.
They're no longer going to give daily active users. But that was two point one billion for Facebook. That was up six percent year over year. It's an acceleration over the past few quarters. Remarkable testimony to how people say they don't want social but they spend all their time.
Yeah.
Well, the daily average use of Instagram and the Keen household is in calcule. You can't do that number. We have this gene monster for this entire half hour commercial freees with deep Water Asset Management gene. Here's the real world. It's owned by portfolios x up one percent right now, and then we're gonna pick on our good friend Will dan Off up in Boston. He's been doing this for a few years at a shop called Fidelity. It's as
large as holding. It's grown out where Meta Facebook is twelve point x percent of Will Danof's contra fund, but he's probably under owned it as well. Just the share price today moves Contrafund two percent off the leap in Meta. Are these stocks under owned by institutional Wall Street?
I think Meta is.
I think there's still some controversy around just what is ultimately you know, what does their advertising business look like. I think there's concern about regulation related to it. If you look at the multiple relative to the other big tech companies, it's still trades at a discount, so it's going to be I bet the earnings go up. I'm more than twenty percent today, the stock up eighteen percent pre market.
I bet earnings go up.
So I think the multiple probably is actually surprising, and to stay in that low twenty range where you look at the rest of big tech kind of loosely in the low thirty range, and so based on that, I don't think this is over owned, and I think that there's again there's a room to go. I think this should trade in line with the rest of larger tech.
Okay, so they're three trillion a guy an uber bowl like Dana, iives is what Paul Ford four trillion added up? Geene monster in someday these four stocks, the Magnificent four whatever, Nvidia, I'm not there yet. I know Gene is. I'm not there yet, but Geane they're going to have an all in value of say fifteen trillion dollars? Are they like the Rockefellers standard oil eyed to tarble of one hundred and twenty years ago, where there's going to be a
primal cry there too big? Are we getting there quickly?
I think we were there three years ago. And I think that you know, this is lessons learned from the past here just about can things keep going about bubbles? There was everything bubble a couple years ago. See what happened two thousand. So I'm skeptical. I want to be just cautious, like can this keep going? But just the case that I think these will continue to get going. It is as simple as artificial intelligence. I think that this is something that now Apple has stepped into the game.
That is is much of the rancor that goes on Capitol Hill related to large cap tech. I think lawmakers understand that these companies having strong domestic companies that are building AI. I think they understand the importance of that from a national security standpoint, and so I think that they'll be always talk of regulation, but I think these companies will continue to get bigger.
Are you watching unc Duke this weekend with Vision Pro?
Now I'm gonna go old school.
You're gonna go old school? Yeah?
I can't, but watch?
What would you want? I at least help here? What would you when I use vision Pro for I?
I don't know. Well, that's kind of where I want to go with the gior Gene. Where are we?
Where is Mark Zuckerberg these days when you speak to him, when you hear his commentary with the metaverse that was at best at distraction for this company and at worst maybe a real suckhole in terms of a capital investment.
Where are we with that?
I hope we're wrapping it up, but I think the reality is that they're doubling down. And again mentioned we're investors of the meta We wish they would essentially pair back what they're doing there.
The simple reason is.
They had a billion in revenue first quarter of a billion in revenue, and Reality Labs they lost four billion. They said that the amount of losses annually are going to increase. This is going to be fifteen billion dollar plus. This is real numbers, even for these big companies. They're spending a lot. What Apple is showing today with Vision pro from a technology from a price standpoint, it's seven times higher. From a technology point, it's probably thirty x better.
And I think ultimately is that what Meta wants to be spatial computing, the metaverse for the masses is that I do believe that that will roll out eventually, so but I wish that they just wouldn't spend as much. Spend five billion a year, not fifteen billion a year. But to answer your question, Paul, where are they? They're doubling, tripling down on this, And I kind of see this as BlackBerry versus the iPhone to you.
To Global Wall Street, we start strolling on the seven o'clock or a gene monster with his deep water asset management here on this huge societal juggernaut. We're all writing the technology company. Speaking of technology, Apple car play, We are humble. I got goosebumps over like you know the January numbers, Apple car play on Apple on Android, Bloomberg Business app downloaded free and it works, it's safer, it's better,
as Apple says. And on YouTube, Ian Bremer, technologist Yep, picks up Godfreed Jeff Gottfried's work at Pure Research in New Jersey over what do we actually consume? And Facebook's right up there, in Instagram's right up there. But paul Ian Bremer points out eight and ten Americans are engaged with YouTube. We're on YouTube, Bloomberg podcasts, look for it.
Absolutely, we're there. Hey.
The third company reporting last night, Amazon Boy another really good.
I thought they would have liked they were terrible.
Stocks up about six and a half percent pre market, trading up about forty percent over the trailing twelve months.
Here.
What did you hear from Amazon last night, Geen, Well.
This one, just in terms of the stock reaction, is a surprise to me. I would if you'd have given me the press release beforehand.
Out has said it's down a few percent.
So what we heard last night was that AWS, which is typically the pressure point that people focus on, was up thirteen percent that was compares to twelve and a half percent growth in the September quarter and twelve point two percent in the June quarter, So we saw I would say, a fifty basis points acceleration. Compare that to what Google Cloud did. They showed a three hundred and twenty basis point acceleration of twenty six percent, an Azure
one hundred bases point acceleration to thirty percent. Put all this together, AWS should and continue to be the focus for Amazon investors. And in fact, yes it showed acceleration, but it still is losing share notably. And I think when you fast forward this six twelve, twenty four months from now and think about how these platforms are going to be adding more AI capabilities for the people that use them, I think that advantage Microsoft and Google. So
I think it's going to be increasingly competitive. The reason why the stock is up is because they beat earnings by operating income by fifty percent.
They crushed it. And this is like the roller coaster game of Amazon and earnings.
You get a boom bust cycle for two or three quarters, and then a boom cycle and then a bus cycle.
And so Paul to put it all together. I think Amazon quarter was good, it wasn't great.
They got people excited about this rufus, this assistant shopper.
I think it's pretty cool.
I think it's gonna help engagement, help people find products better on Amazon. Good use of AI, but to me doesn't justify what's happening with the stock this morning.
All right, let's step back a little bit, Geene, we kind of ran through the big three tech names are reported last night. I love to get your view here now that we've had a little bit of perspective here four five, six quarters where we've had a lot of these companies talking about generative AI. I love to get your view as kind of how you think it kind of really sits as a theme in technology.
Is it real?
Is it?
And how material is it? And how do you play it?
So?
Is it real? Yes? How material is it?
The example My framework is that if you do the scale of zero to one hundred, we've talked about this zero to one hundred, one hundred being electricity, I would put the smartphone at in terms of importance. Electricity is one hundred, smartphones twenty five, The Internet's fifty.
And I think jenering of AI and AI.
More broadly, ninety, I think it is just a step function, and I think we're entering it's going to be a three to five year bowl market that's going to culminate in a bubble. By definition, almost has to happen. If this is in fact, ninety out of one hundred, we will see a bubble. So I'm I'm on board that these can be transformative. I mean, we saw Tim Cook finally utter those two letters yesterday in the prepared remarks, and I think they're it's setting Apple up to enter
as with a foundation model this year. So big picture, it's I think it's hard to under under states how meaningful of a change this is going to be.
Gene, I wanted to shift here too long ago and far away when we hung on every word you said at Piper Jeffrey about should we be in these stocks. There's a lot of people listening and watching on YouTube and car play who are saying I'm in this or I think I'm in it, I four oh one K or I'm not in it, and damn I got to get into it. But I'm scared, stiff. I want you to talk the five year vision of these companies that have come so far in the last decade. Do you
extrapolate out the present trends? Is there a lesser slope or dare I say, can they even get convexity and accelerate free cash flow revenue growth their position within American society.
I think when you look at the kind of scope of where wealth will be created around AI, I generally think of it as in three buckets. I think that there's the we'll call it the safe bet, and I think that is this megacap tech. And I think it's not just own the magnificent seven.
I think they are.
I think they're I think the best one surprisingly is Google. I think the best opportunity that's underappreciated relative to what's happened.
With the other ones, I think Google.
So this is not investment advice, but from our perspective, we onwn Google a meta and so continue to do that. Continue to think that's a great place to be, even with the upside that they've had. But we also believe that AI is going to have a profound impact on companies that are less well known.
We have an ETF the ticker's loup.
It's a frontier tech, which means that it effectively identifies what are the transformative themes over the next three to five years. AI is a big part of that, but I think some of these smaller companies that haven't had this tremendous run, I think that's a meaningful opportunity as well. And then the last piece is what we call the ordained late stage private companies. These are companies like Hugging Face and Data Bricks and open AI and Thropic. These
are companies that are peer play AI companies. And so I want to go back and just answer your question specifically, Tom, is that yes, I think you should continue to own a select companies within the magnificent seven because I think
they'll continue to benefit. But as far as trying to get outperformance relative to the market, I think you need to try to search for some of those less well known sub hundred billion dollars we call that small now sub one hundred billion dollars small tech companies.
I'm long weighing lambs the weight labs exactly, all right, So gene in your fund here, what are some of the names that you guys own that maybe maybe people don't think about.
I mean, everybody's you know, kind of feels like they have their own call on in the apples of the world, of the Amazon's of the world, other parts of the tech space that you think are underappreciated out there.
Yeah, we actually go and look for companies off that beaten path. I mean, there's one company, New Bank, Tipker and you as in November uniform and New Bank is the fastest growing bank in Latin America. They've basically gone from nothing to about eight percent share. Like one in two people in Brazil use a form of New Bank. But they're using artificial intelligence to help better identify get the underbank population to be banked. And it's been a great use case of that and it works. It works
for risk management. So New Bank is a company that we own Coupong maybe you may not, maybe a new one. Think of this as the Amazon of South Korea. Uh, and they basically have a pole position there. South Korea is doing relatively well. And then the last one Marcato Libre yep, and I hope both of you are sitting down for this one. Just recently we added we spent a lot of time seven years working in China covering these being bringing a lot of these companies public. The
tech companies in China. We've just in the last few weeks actually made some investments in some Chinese equities tech equities.
WHOA, I think we'll leave it there. I gotta go call my broker, Gene Munster. Generous of you tow b with us through this half hour, We're going to do a roundtable here. Mona Mahagen Joints from Edward Jones, senior investment strategist in Sarah House from Wells Fargo. We're going to try to keep him for two hours. I believe Sarah's got to go at some point. Jay Brison at a tantrum and says she can only do so much time with us, and Mona's with us. We're thrilled of both.
You really with two different remits, Sarah, I got to go to you first because I got with revision a four hundred and seventy nine thousand statistic. Do we blame this in seasonality? Is this because Amazon and Bloomingdale's hired more people? What's the asterisk Wells Fargo sees in this buoyant report?
Sure so, I mean, I think overall, the message is this job market that is still incredibly strong despite making all the efforts for the bed told the economy. But I think you're right in that there probably is some flattery from the seasonals of January is the month where we tend to get the biggest move and non seasonally adjusted number, So if you see any sort of deviation from that, that can flatter the January numbers. We saw
that last January as well. But I think the message here is that we're just not seeing the same degree of layoffs that we took typically would in January, and that's why we're getting such a robust headline number again here in January.
I mean the jobs numbers, I mean people. I understand there's a standard here and everybody gets it wrong. I get that, but it's months after months after months, we're getting nowhere near one fifty or one twenty. David Kelly over at JP Morgan Sarah House is looking for some form of migration to zero or even a negative statistic. Why are we eating so many jobs? Is it lower decile staff jobs. Is it a complete underestimation of the
technology overlay? What's the why for two hundred whatever thousand per month?
Yes, I think one aspect is we're still getting I think pretty strong growth in labor supply. We can't compare the month and month changes here with the January numbers because you you did get some population control adjustments. But you know, overall, you you saw the labor force participation rate hanging there and it was up about four tenths of the percentage point last year. And so that's helping helping businesses bill positions meet with still very strong consumer
and even and even business business demand. So I think that that's a big that's a big part of it as well. And I think just in some industries like leisure, in hospitality, government for example, there's still catchup hiring going on from the pandemic as well, which I think, Hey.
Mona, I'm mona, I'm looking at the tier treasure were now up sixteen basis points four point three six percent. So from your perspective moment, does that kind of take any ambiguity around a March rate cut?
Does that take that off the table? Now?
Yeah?
I think it does. And you know, look, I think most market participants we were fifty to fifty ahead of the FED meeting in terms of a March rate cut. Anyway, I think now people are looking towards May and June for the FED to start its rate cutting cycle. We do still think that they will pivot from this pause to rate cuts later this year, but Jerome Powell told us on Wednesday he's willing to take his time. He
doesn't want to see inflation pick up again. And in fact, this job to report this morning may give him a bit of pause when he sees that four and a half percent wage gain figure, average hourly earnings figure. I'd be curious to see what the mix of you know, new jobs at it is if we are seeing higher paid workers take up more of that mix versus the
lower skilled, lower paid parts of the market. But certainly what we're watching is the strength in this US economy and inflation that you know, immaculately has been continuing to move lower despite the strength the US economy. We want to see that continue in the next few months before we start seeing that rate cutting cycle.
Yeah, just the you know, the highest estimate in the Bloomberg survey of seventy seven economists was three hundred thousand, so it just kind of blew away all expectations. So Mona, given that, how do you position it like you're gonna be talking to clients all day today. How are you going to position kind of how this data point impacts the fed Mona's going to be made by meta by meta' So attis is impact your market outlook here? Yeah?
You know, look, I think it kind of reaffirmed some of the things messages we've been giving to our clients as well, which is one we do think if twenty twenty three was the year of narrow leadership, you know, folks piled into megacap tech, the AI trade. They also piled into cash and CDs, cash like instruments, we didn't think twenty twenty four is a year of broadening in participation.
So yes, we still like the AI tech trade. We think it's in early innings of a long term secular bull market, but we want to make sure that we have exposure to other parts of the market that may play some catch up, especially in an environment where we're not seeing any cracks in the economy thus far, we could see cyclical parts of the market, even parts of
value and across the market cast space as well. We would say also with yields remaining relatively higher not returning anywhere near the zero bound, we think longer term that means better balance in your portfolios between growth and value and bonds. They continue to play a critical element here as well.
If you're just joining us. Mona Mahadj and Edward Jones, senior investment strategists with us for this entire half hour. Sarah House with Wells Fargo, their senior economist, as well, as we look at a stunning American jobs report. There's no other way to put it. I don't know the calculator, I don't the HP twelve seas off right now, but all you got to know is look at four hundred thousand in the last sixty days, over six hundred thousand
jobs created in America. Robert up in Connecticut, you know he's got the bloody Mary going on a Friday. Artraguore and Robert, thank you for sending in the nice information there in seasonality on retail, on healthcare as well. Sarah, I'm gonna ask you a question you don't want to answer, but it's rude Friday. You got to be kidding me that Jay Powell wasn't brief on this for that FED press conference. Now, he may have not have known the numbers because you know, we play by rules in America,
but you don't think someone like Sarah House. The Sarah House at the eCos building tapped him on the shoulder and said, excuse me, sir, it's going to be a ginormous number on Friday. Sarah House. Did he know that?
They don't think so.
I can't say for certain, but I think in a recent interview with David Rubinstein he indicated that he probably doesn't get those numbers until Thursday. And you know, the BLS does cut it close in terms of how many days they have to prepare this, and so this was a Hay report as well. So my implination is I don't believe he had these actual numbers.
Sarah House. Seasonality. I got a lot of emails coming in from a season pros retired pros in that come on, it's January. Was this retail, healthcare and oddities? When you dive into this a say afternoon with Team Bryson, are you going to look at it being seasonality? Sarah House.
Well, again, it comes down to the fact that we just did not see as many layoffs as we usually would this time of year. Now, there were some soft spots in the report, so you had a pretty meager gain in leisure and hospitality, But you all saw other sectors which actually can see even noticeable declines in January, like professional business services that posted a nice increase as well.
Retail was very strong. So I think that suggests that you saw retail companies they didn't hire as much holiday workers, but that also means that they don't have to let go as many holiday weekers. So that's probably flattering that the rough of forty five thousand and eight we saw on detail on a seasonally just basis, Hey, mol.
One, when I see it GDP print for the first quarter of three point three percent significantly better than expected, I see the labor market significantly stronger than expected. It kind of makes me feel like I want to run out and buy cyclical stocks if the economy is doing better than expected. How do you feel about those types of names coming out of the Great Midwest.
Yeah, you know, Actually it's a great point and something that we have been considering. And if you know, I'll give you an interesting stat when we look historically in an environment where the FED starts cutting rates and we are not in a recession, probably perhaps the environment we're in now versus the FED starts cutting rates and we
are in a downturn, a recession. The market outcomes are much better, of course in the non recessionary scenario, and in fact, the S and P in the twelve months after the first rate cut is up about eight to ten percent versus flat to slightly down in the recessionary scenario.
So we do think there is still historical precedent. The history may not repeat itself, but there is some precedent for better market outcomes, and we think the parts of the market that will show those better outcomes are exactly the ones that you highlighted. We like the cyclical parts of the market, you know, areas like industrials for example, especially if global growth starts to place and ketchup in the
back half of the year, could do well. And we're you know, taking any opportunity we can really on with volatility to position ourselves for those those rebounds.
Sarah House, We're gonna let you go now to duties at Wells Fargo. Lost to write up on this stunning jobs report. Thank you so much to you and team Brison for perspective this morning. Mona ma Hodgen continues with us Edward Jones here commercial free in this half hour of a bang up jobs report, just no other way to put it. We welcome all of you on Apple, car Play and YouTube again your search Google? Right, you use bing?
Paul's pretty much a Google person.
Matt Miller is a Bing. Matt Miller's a chat. Yes he has made I have to.
Look at Miller's the text study. Yes, I guess I gotta look at Bing. I'm not using Bang, I'm looking Safari or whatever. But you go YouTube.
It's got Bloomberg to help me.
Are you bings?
I'm Google?
Mona, Are you Bing or Google or what?
Oh?
Oh Google for sure?
Okay, Mona, Mahadgen weighing in there. That's the Edward Jones perspective here personally. So let me say, good morning YouTube, Bloomberg Podcasts, Good morning Matt Miller. Look it up on bing if you can, Mona, I need to reset here. The tech cash flows are stunning.
Yeah.
Now they make up twenty five thirty percent of the S and P five hundred. Let's say they go to thirty five percent or forty percent where the math doesn't work in retirement planning, how do you at Edward Jones deal with that?
Yeah, it's a great call out. Look when you look at any US index, but particularly the S and P five hundred, which is pretty much a global benchmark. Forty five percent of that index does come from growth tech type of stocks and sectors, and so even if you are just an index investor, you are forty five percent invested in technology. And of course, when we think about a global stock market, it doesn't look the same in
Europe or even in Asia. In Europe in particular, much more heavily weighted in value parts of the market industrials, manufacturing, financials. So when we think about, you know, putting together a diversified portfolio, US is still the largest part of that.
And within that we still see value in and we talked about this briefly earlier in the technology space, because not only have we seen cash flows increase, we've seen earnings increase quite a bit as well, and we do think the AI boom and trade continues over the next five to ten years. Some of that has been priced in. You know, the mag seven was up seventy percent plus on average last year, so we are starting to see we are starting to see a bit of that priced in.
We think we do get better opportunities in the weeks and months ahead but we don't want to give up on that trade. Early on. We do think that not only will we see those index players benefit, but over time we'll see other parts of the more could benefit from the products that come out of it. So the manufacturing even financial sector will ultimately benefit from AI as well. But you have to think about where all those docks are housed.
Paul, can we have a surveillance moment of silence for Neil Dutta at Renmac These job numbers are like Neil Dutta numbers where he's saying, look, we're creating jobs, and the heart of his thesis is we're creating inflation adjusted constructive wages, which goes into consumption. Most of us spend our paychecks we do, which goes into GDP nominal revenue, and that goes over to Mona Madgen's world.
It does, and you know, all the Sweeny offspring are employed. So that's good.
That's kind of my personal gauge of employment out there.
In the world. Mona.
Let's talk about valuation here a right smack in the middle of earnings. We had some really good tech numbers last night from some of the big tech names. Broadly speaking, you know, if the barecase out there that we speak to some people that I'm cautious, they're going to call invaluation. They're going to say the stocks have kind of gotten ahead of earnings out there. Do you have concern or what level of concern do you have about valuation in this market?
Yeah, you know, it's a good call out. And we had seen some valuation expansion. If you look at the S and P five hundred last year, it went from about seventeen times about twenty times by the end of the year. Of course, if you look one layer underneath the surface, if you look at the S and P equal weight valuation, that's still actually pretty reasonable about sixteen times. And of course what drove the valuation expansion for the
most part was that magnificent seven technology trades. So that's why we think, you know, when we think about the year ahead, yes we'll get earnings growth, but the other part of the story is where can we get valuation expansion, And we do think more scope for valuation expansion is in that equal weight the four ninety three stocks that may have some catch up to play.
So you're talking about PEP expansion, you're talking about you're modeling out within Somebody's blended four oh one K and equity pe multiple expand this year.
Yeah, we think certain parts of the market we talked about value cyclicals, all of those still are pretty reasonably valued. Some of them are even priced to you know, this recessionary environment that hasn't showed up yet. And once we are confirmed that we continue to get at least decent
growth over the next three quarters, we could see evaluation expansion. Also, keep in mind, when the FED is cutting rates and interest rates are overtime moving lower, that's better for the valuation story as well.
Mona, thank you, Mona Mahajen, Edward James, you guys just really brilliant here on this allocation between bonds in equities. I have anticipated this. And Paul Sweeney, how did we get these two guys? Guys? This is like it's spring training where pitchers catch your show up and everybody's there and then the two studs wander out about eight days later. Just take ten seconds here, how did you find Ani rog Rana?
We got very fortunate because when you're building a research department, arguably you know you have to lead with technology, just like the market leads with technology. You have to have this technology. Yeah, you have to have a world class technology research team. And we're able to do that in the way we did that as we hired man Deep Singh and onnarag Rana. They both are senior technology channels and they built out a global technology research.
Team for Bloomberg Intelligence. So we appreciate all their hard work.
And now these two folks are front and center here on a day when you've got some big, big tech earnings and I'm gonna start, I'm gonna start with Apple, So that means I go to anurag Rana, Honoraga. Did we learn anything from Apple? And it's positioned in China? Because China is twenty percent of their revenue. It looks like it's more competitive, It looks like the economy is not as strong as they would like to see it.
What do we learn, if anything, about Apple and their growth opportunities in China?
You know, what we learned is yes, long term, it is a big story, but at least for the next tweld through eighteen months, you know, you could say that things are going to not be as smooth over there as they you know, try to figure out how to be more competitive give more rebates, try to work with more carriers. So Apple has their work cut out for them in China, and we are not expecting a rebound anytime soon, all right.
So that's we'll get back to that because there's a lot to peel there on a rug on Apple Man Deep. We also had Amazon last night, and we also had Google last night. Let's start with Google because it kind of goes to that. Oh I'm sorry, I met at Yeah, thank you very much.
I met at Facebook.
Yeah.
Whatever.
So what do we learned from Meta last night? Just about the digital advertising environment out there?
Yeah, I mean it was a beat and race quarter and that too, you know, with expectations being high. Clearly they delivered, and I think the tailwind was coming from multiple fronts. So one, the digital ad pricing environment is getting better, so that means, you know, online advertisers are spending more on ads and that's helping the pricing. And the other thing is the relevance of AI for all
these ad companies. I mean, Meta is definitely the scale player and they have invested heavily in AI and that has actually helped their ad infrastructure far more than anyone else out there. So that showed up in the numbers, and you know that that was the reason for the beat.
I want to dovetail here, guys and folks. This goes to just the sheer margin profitability of all these companies that mandate and in and run. All you got to know is Apple because they're actually making something. Maybe it's a little lower ebit don margin, it's like thirty forty percent whatever the number is. And the rest of them are minting money with a fifty cents every dollar they bring in, they're basically bringing fifty cents down to be
distributed for cash flow. Michael Momison over at Morgan Stanley Guys writes up a twenty five essay here on increasing returns about what technology is doing is it gets bigger and bigger. Mandy, let me start with you. Do you just extrapolate out these growth lines? I mean, is Peter or Zaga Lazard would say the glide pass here? Are they just smooth extrapolations out three years and five years? Man?
Deep?
No?
I mean look at Meta right last year we're talking about, you know, whether this company can grow and you know, engagement was a concern and they had negative sales growth, you know for three quarters, So clearly it's not smooth. And every time we have you know a period of thirty to forty percent growth, it follows with you know, low growth or no growth, especially on the ad side. But what they have shown time and again is you know,
at the online ad business is secular. There is that shit right and I would say we're closer to saturation than we were probably three years back. So at the scale these companies are, it will be hard for them to maintain that twenty percent plus grow interog.
I think I saw Tim Cook, I think over at Fox doing the reality the virtual Vision pro reality in front of the Apple store in New York. I stood in front of that store a lifetime ago with my favorite Lawrence Haverty, who come in tech before you got you guys were you know, these guys man deep in the anagets slide rules going in undergraduate school when Larry Haverty was working it up. And guess what Apple was going out of business. Then it's going out of business
now Anti rak Rna. Do you see the innovation trend at Apple that will sustain these glide pass sustain this cash flow?
Yeah, I know, I'm not that concerned about Apple in the long run, I think they'll be fine. The problem is what happens in the next two to three years, and that's where some of the problem is just because China is not growing. China is the big growth driver in the near term. The vision pro is not going to do anything to you know, accelerate their growth rates. It's really you know, all the phones that they're selling
in emerging market and China is the big market. So for US I, we're not concerned about Apple in the long run, but in the short run, I think it's going to be very hard for them to grow, you know, anything north of five percent unless they throw that Jenai stuff that they you know, talked about on the call. If anything cool comes out of that in the next six to eight months, then I'm going to be wrong.
Paul iPhone GPT. It just means you can order take out faster and Rod Royn i' man Deep Singh. There's Bloomberg Intelligence. We continue with us here commercial free this half hour.
All right, Ana, rag my good friend Laura Martin overt need Aman Company. She's hat the piece of research which I think is really interesting. Google Meta Amazon. On their conference calls, they mentioned either AI or generative AI like fifty sixty times each Apple like none at all?
Here is Apple?
What are they doing or not doing with AI? Are they not kind of getting that buzz?
I think they were caught, you could say, off the guard a couple of years ago when chat GPT came out. We've been very stronger. I think they are. They sat on the call that they're going to have an event
sometime later this year. And if they are able to release some tools or you know, some cool features in the phone that allows them to actually capitalize on some of this buzz, then what's going to happen is if and if, if the iPhone sixteen has those features embedded in them, then you can actually create a new refresh cycle that we have been waiting for. Remember we've been talking about the extension of the restress cycle for the
last three to five years. And if if that happens, and it's a very very big if, then iPhone sixteen can truly you know, put a dentse to my thesis of slow growth and we see, you know, a big number next year.
Interesting.
All right, So Mandy, just going on the AI theme here. I know you and the research team at Bloomberg Intelligence have done a lot of research on this. You guys have a big definitive report out on AI. I guess my question is do we have a sensor how much of this AI I'm using air quotes for those on the radio. Tech spending is incremental or is it just putting another name on usual tech spending on hardware and software.
I mean, based on what we are seeing right now, you know, with the semi company, especially the likes of Nvidia and amb it sounds like, you know, this spending is incremental. And yes, companies are slowing down, they're spending on traditional servers, so there is some market share shift going on as well. But clearly, you know, I would talk about above trend growth for the next two three years and that's where our you know, one point three
trillion number for twenty thirty two comes from. Half of that is spending on data centers, hardware, real changing the infrastructure, and you know the software part will follow as we are seeing with the hyperscalers, Microsoft, Amazon and Google also benefiting, so their growth rates should go up as well. But clearly, you know there is incremental spending around are.
When you talk to the people, is it within the culture and I'm reading I haven't read the whole book yet, I'm actually reading every word of it. Sacha Ndella's one volume biography is spectacular about the courage he had coming out of southern India, and there's too much cricket talk in it. That's the only problem I have. When you guys talk to the cultural the Double's operational research people, do they believe in the financial profitability of what they're
living every day? Mandy, the guys like you and anaerog Mandeep saying, do they believe in the link over to profitability that we're observing right now?
Yeah, I mean, I think especially with a company like Microsoft, you can see that you know, they have priced their services in a way where a co pilot they are charging an additional twenty dollars subscription. So look, they are making a big investment and it is you know, to acquire customers to drive that stickiness. But I think it will be profitable.
Okay, at first principles here, let's get right back to basics. Lisa Matail is going to be with her daughter this weekend, and Lisa wants her daughter to be brilliant. So Lisa's going to say to her daughter, Dear, let's sign up for co pilot, Mandy. When I sign up for co pilot GPT, what a God's name do I get?
Well?
So it brings productivity, right, and at the end of the day, if we are more productive in our jobs, if we can get rid of the mundane things that we do in our day to day jobs that the redundant. Think, I mean, I think that's what drives productivity and efficiency. And we know, I mean, look at how far we have come with PCs and Word and Excel. What kind of productivity it gives you. So this is like taking one step further in terms of what are the redundant things that you do in Word or Excel.
So, Paul, you're going to ramp up You're going to ramp up copilot, sure, and it's going to make you more efficient in ordering the marginal park role.
That's right.
The Jersey Shore this.
Summery on the Grill and Jersey Shore, an Rod talk to us about just kind of your sense of just overall tech spending here. I know it's a good question. You guys have talked about that question. The rate of growth slowing, do you expect a reacceleration here.
Oh yes, Actually, I've talked about this quite a bit, so you know, we did a survey back in November December and we really got some really good results out of it. We think this year is going to be the first year of rebound after two years of hunted spending. You know, we've talked about cloud, for example, quite a bit. Amazon's cloud commitments were just released this morning. They're up forty one percent, so that's a mass of acceleration from
last quarter over the next twelve months. We do see, We do expect, you know, sales growth rates for almost all major categories in cloud to pick up, perhaps more at a pasta rates more in the second half than the perst half. And I think that puts it into us into a very good twenty twenty five because if you have strong bookings sometime this year, they can translate into much faster revenue growth next year.
I mean, man, if you don't give me any couch time, what I do, Folks when I decompress her as I go up to our acclaimed food court and I sit on the couch. You know, the food court in London is better than here. That's saying, you know, and the Washington is the best Washington's the best food court. We haven't, but I'm up with the food court. I'm putting down the cheese. It's and you know, you know, I'm having fun. An rog gives me couch time. I never get any
couch time now. So Mandy, my question to you that i'd ask you sitting on a couch is this stuff's a large part of our diversified portfolios, index funds or active managers that we have. Do we own too much meta the moon shot? That is today from where you sit in our conservative money, do we own too much tech?
I mean, look, these companies, the six tech companies in the Magnificent seven. They are wonderful businesses. There is no doubt about you know, how good they are at scale and how they keep growing, you know, year after year, and they are very profitable. So clearly you know they have an outsized influence in our lives and there is a good reason, you know, to be proud of them, as you know American companies that have a global presence, and that's why you know they will keep delivering. The
question remains what is the right valuation? And that's where you know you look at a company trading at thirty thirty five times earnings, and you have to ask yourself how much good news is priced in? And yes, it's a phenomenal business. It's growing at a great pace. But then there is a price that you pay as a shareholder. And I think after a while, a lot of the growth is pricing and it becomes very crowded. And that's what you have to ask.
I mean, Paul, I know your shopping this weekend. The price you pay, You're gonna be over at the Apple Store like Tim Cook today And the answer is you got to go for the Vision Pro ye. This is just a question about.
It, absolutely, Apple CEO Tim Cook, he opened the flagship Fifth Avenue Apple Store today's greeting customers.
Why it's Vision Pro release day? How about that?
I'm not sure Vision Pro is ana rog Are you going to rush out to the Apple Store in the Greater Chicago area and buy your Vision Pro today.
I'm going to go test it out, but I'm not going to buy it. It is too much, too expensive for me. But I'm going to go play it ound with it. I'm going to ask people what they think about it.
But all right, so what does it cost? Do we know the price of the thing.
Three five hundred.
Oh, I mean who's.
Buying this thing? Is it? Is it just the gamers?
Or Okay, what did you learn about the six hundred apps? Seriously? Ani Rog? I mean, Mandy, you know is gonna buy it? You're not, Ana Rog? But of the six hundred apps, like, what's the app that will make people spend that money? Make businesses spend that money?
See?
For consumer it's really gaming. I mean that's really where it boils out to Disney. You know, you can watch a Disney movie. They have really talked about it. But I personally think the commercial use is probably far better because if you have an architect, if you look at engineering, you know, those kinds of things. I think, you know, makes a lot of tense, but but but it's not.
This is not a game changer. You know, you sell one million units, you make three million dollars, that's three point three point five that's nothing, right, appen, Let's wrap.
It up, Mandy. If you've got the Vision Pro thing on, are you going to synergize here? And are you gonna have Microsoft Activision am I I'm going to be playing Diablo for on my Apple Vision Pro.
Well, so I think again, it's it's a cool device. My problem with a VR headsets and with Vision Pro most likely is going to be how much time can I wear it for it? Because these are still bulky like. You can use them for entertainment, but I just can't imagine, you know, putting the headset for two three hours. So it gives you that immersive experience, but I still think, you know, it's too heavy for me to use.
You're on a Bloomberg terminal. Go to Bloomberg Intelligence required read and Rana man Deep Singh after this tech juggernaut a weakened with our newspapers, Lisa Mattello, Lisa, what do you start with?
All right?
I remember Royal Cribbing came out with figures yesterday, but now they're big news. Is this new ship Icon of Disease monstrous? It's a monstrous I know you're not into cruising, Paul, I will be soon, okay, sir. So maybe here we go three hundred and forty five per person per day, okay, But here's the thing. It's this multi level ultimate family townhouse. It's going to run you an average of one hundred thousand dollars a week.
Well, I think that you.
Had of your league two bedrooms more than twenty five thousand square feet. That's like bigger than the average apartment in most places. It has a lot of balconies, multi slides, lounges, hot tubs, game rooms. But here's the point, it's reserved for most of twenty twenty four.
Weird are spending.
Yep, we're down in Aruba, just a couple weeks to go in every day. The cruise ships are just flying in there. So the cruising biz is back baby.
Oh yeah, that's one.
Of the most important things. Ellen Zenner said today. She said, look, it is a bifurcated America.
Yep. And that's not good. I mean that's it's not good. That's not good. We are we read them the middle class.
Next, Lisa Potato, Yes.
This one's for you. It's a little dog theme here we have going. Okay, so this is from the Times. There's a study of about six hundred thousand British dogs, okay, from more than one hundred and fifty breeds. It turns out small dogs with prominent noses they live longer, oh yeah, than the bigger flat faced dog.
Going.
So like the French bulldog for example, it has the flat.
Which is the most popular breath these days.
Yes, it is, it is, it is. But you know the short snouts, they have respiratory problems. They can get heat stroke things like that. So that's the problem with those dogs.
Do you know my little one, the vet that I go to in New York, she's absolutely lovely. And what's great about her it's the horse Man Vetinary school. You make the check right out to her kids prep schools. Yes, you know. You go in and it's like you think you're going to spend two hundred and eighty two dollars and it's like nine hundred and fourteen dollars. You just write it out to horse Man. I mean, she's just the time safe. It just write it out Director horse Man.
My vetwent apoplectic on this at one point, and she said, yeah, there is a bread issue here. And I'm very pleased to say that. Bill and kennel fere Cotons, which are in their own way a little twisted, but they have like the normal nose and that's better. It's like it's like, actually a big.
Deal in dog I did not see today who knew? Who knew? And female dogs live longer than male dogs.
If really know that as well?
Yeah, make sense.
I think that's true of other humans. Well, missus Keane asked me with one foot in the casket.
Do you call Ken? Prutt wants to ask why do men die before their wives? His answer, because they want to? That was just Ken.
What do you go?
John Tucker helping his ye it providing congestion in the studio.
The last from the journal. This is about twenty something year olds. They're no longer hanging out like how Matteo used to do back in the day.
You go to the.
Clubs delayed at night. No, that's not they're in bed by nine pm.
Huge.
Yeah, it's the the link between sleep and better health. They say they believe they're not going out.
Well, I saw this week the first time Jim Carrey was ever on TV. It was a Johnny Carson. Everyone should see it on YouTube. Jim Carrey as a child and it's all there. Everything he became is there, absolutely mesmerizing twenty minutes of YouTube video. Paul in the media business, we stayed up to eleven thirty to watch Johnny Carson shore every Now. Why did this stop?
Well, no, that late night viewing. Late night viewing is still pretty good. Late night TV is still important. They still invest a lot, They still make a lot of money in that late late night block there, so it's still important for television. But I guess it's not. According to the Wall Street Journal, the days of hanging out late for people in their twenties is over.
I'm trying to think about my kids, But.
Do you think about businesses are changing? Like businesses are doing these matinee parties that started like five pm. That's what they're starting to say.
For me, that's my day's happy think do you guys think?
Seriously? John Tucker jump in here as well. Do you guys think because his kids are ill mannered? I mean, it's a it's a better picture of what's going on. Do you think it's the pandemic? My basic take is the ramifications of COVID are with us far more now than we're living, you know, day to day with our kids, the dogs, everyone.
What do you think, Lisa, that's a good point. I didn't even think of it about it that way.
We went to bed at nine pm with COVID because there's nothing to do. John, what do you think now?
I was looking at my easy pass receipts because they had to pay it this morning. And I'm like, what's this one three am on the Garden State Parkway. I'm like, that's my daughter and I'm like freaking out, and then I realized, oh no, it's me. Now they're no, they're not in better early. No, this does not apply to my children, not years.
But they're like going to bet at nine p not my son.
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