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Terminal, and the Bloomberg Business app being to get right to this right now, Dan, I have joined us in web bush share all over the media course as we.
Go into the Mag eight. Frenzy Warren Buffet, he's part of the mag eight right now.
Sixty five buys on Nvidia eight old snowsls that you don't follow in Vida.
You got a thug at webbush that follows it, right.
Yeah, So our view and Nvidio. You know, we have one hundred and thirty eight hour probably start bult cases one seventy five.
Bergstein went to one fifty this morning, and.
I think this is just the star. I mean, look, I think this by the end of the day or even the next twenty four hours, this is a stock that should be in the green based on everything we saw from Godfather of Ai Jensen the video, Well.
Get one more in here and I will so good.
So Dan, give us a sense. What did you hear from nvidiot last night? They beat numbers? Maybe the guidance wasn't where the street was expecting. But what did you really take away from Nvidia last night?
So three things?
One demand, because the question is is they're double ordering? What is enterprise demand demands actually accelerating. And there's no better perch in terms of everything we're seeing from AI than what Jensen sees. To Blackwell, all the fears right, the words is that Gan delayed. They essentially put those fears to rest, and that was so important.
You know, I'm the only one that does Matthews. You not all this fancy Dan eyes talk.
You take the ten billion share bibic of Apple, They've been doing it for years, divided by free cash flow. You take a fifty billion statistic divided by Invidia's free cash flow. To me, it was a ginormous announcement. Everybody's saying it's not a big deal. Was a share buy back a big deal?
It's a monster deal. And also this also goes to a company you go back six months ago out year by twenty five two dollars and earnings. Now it's gonna be five to six hours.
I'm extended time here this morning with Dan.
I's we welcome you all around the world on YouTube, on Android, Android auto, Apple car play as well. Okay, I go to Apple, I go to the famed aggregation of Tom Secunda in the Bloomberg News, and I'm just going to read these Paul quickly mashable Apple music playlists now transferable to YouTube music. University of Wisconsin denied new trial as that go after somebody. Apple orders ten percent more iPhones than last year. Apple iPhone seventeen rumored to
arrive at the Sweeney House before September fifteenth. And on the last headline, Dan ives on Bloomberg Right now, I mean, here's the news out of Tokyo Shock.
There's more iPhone orders. How do you translate that?
I mean, this is the start of an AI driven super psych with iPhone sixteen. I think it's gonna be historical period. Look, we've talked about a lot on the show. Three hundred million of one point five billion iPhones, including Sweeney, haven't upgraded in four plus years AI. Twenty five percent of the world is going to access AI through an Apple device. The consumer revolution all starts top of.
A push against you.
Tom Keen and Paul Sweeney don't give a damn about AI. We just want an iPhone to know where our kids are. What's a big deal about AI if Paul Sweeney's not going to use it?
So that's today. If you look at the app, there's gonna be hundreds of apps built on Apple Intelligence that are gonna be AI driven as well as this open AI. It's good. It's essentially gonna be a personal assistant that really from a data perspective, understands Paul Simat understands, can understand your habits. This is gonna change. This is how most consumers are now going to interact with AI.
China. What's the latest on China? My concern always in the back of my mind is that the average Chinese consumer is saying, I'm just not buying an American. Is that an issue for Apple in terms of market share?
I mean, as someone that spends time in the region. The average Chinese consumer wants the best product in the world, which is an Apple DEVICEE. So I'm not saying that there aren't some geopolitical headwinds. We're actually seeing more taal wins out of China, especially with iPhones sixteen. You have one hundred million iPhones that are basically having upgrade in four years. So I think any headwinds there have started
now come downents. That's why I cook ninety percent CEO, ten percent politician.
Right, yeah, it's smart.
How about Indian We were just I was just talking about this with somebody at the club last night, Tom at the bar. We were talking iPhones in India. How that came about? I have no idea.
I want to Were you at the club last night?
There's no club that would take I want to be in that club I was.
Or were you at the watch party for an video?
Yes, Wisan Thalt was that whatever.
I thought Sweeney was going to be at that watch but I at.
Least stay trading off his couch at the cottage. I can only say my club last night, I was a club.
Do the dishes club.
India?
What's the opportunity there for Apple in India. Don't they have to have a lower price phone in that market.
But in India you've actually had a rising middle class, and I think if you that's always been a tough market for Apple. Three percent iPhones we think called it. By the next two years, it's going to be ten to twelve percent overall iPhones. India is actually going to be robust for Apple, especially on different price points.
How many iPhones are purchased one on a plan from a phone company and not where somebody spends eight hundred or one thousand dollars on.
The toy I mean it's a huge number. I mean it's a huge number. And if you look at the carrier discounts that's gonna come and this is the big thing.
Do you have information on them you'd like to break on Bloomberg.
So everything we're seeing, we think it was going to essentially be unprecedented types of promotion from especially US carriers, just because this is the time. In other words, when you think about five G when that came out and now essentially AI this is really going to be the opportunity in terms of carrier discounts and what really starts
to about maturity on a smartphone cycle. This is now that consumer AI revolution that actually will go through Cooper Tino, and we think that's how we have a four trillion dollar mark cap as we you know, go into early next year.
Do you have some of the parts on Apple you can update?
Yes, so we have one point seven trillion. Is what I view is the services value. And when you sort of some of the parts that that's something where you know, you got about one hundred billion a rev growing mid teens free cash margins will double the hardware business. You combine it, it's over four trillion. I think bull cases ultimately you know over over three.
Hundred Microsoft, which I know you've been very bullish on Microsoft.
What's the thought these days?
You look in a videos call last night, you also buy Microsoft because Nadella and Rednu are leading. Then on the software side, you look at open Ai, they're really dominating in that amount rushmore. That's where Nadella is along with Jensen.
Does Blackwell compete with Azure or do they cohabitate?
They're complementary. Thing about black I don't so essentially Blackwell is almost the architecture, the foundation of a house. Microsoft is the actual house, The actual rooms will be different software players service now you know called salesforce and others. What protects the house, cybersecurity names like pale Auto and others. Look, I continue to think in Vidia today, it's Lebron in high school. That's essentially where they are. Lebron in high school, in Vidia, that's where they are.
So I guess when we think about this AI spending here, the numbers are just almost numbing.
That is so big.
How much of the AI capital spending the is it incremental versus just taken away from other tech budgets like it or something.
So I'd say about eight hundred billion of the trillion is incremental. Wow, so there's two hundred billion that. Of course there's accounibalization impact and there will be losers on that, but it really is incremental and it just speaks to strong and get stronger in tech. And then you can say about about regulatory. Regulatory is in a minivan going forty miles an hour in the right lane, and the technologies in a Ferrari key in the Ferrari left lane going one hundred miles an hour.
What is the free cash flow growth of the mag seven When you aggregate them together. There's a secret Excel spreadsheet in the basement of the ives.
Free cash for growth of mag seven is i'd say upper teams into potentially.
Really, you're gonna give me a two zero one.
I think it could start to now get that high as we go into next two three. And that's why, look, I get it. The bears continue to you know, they sit there with their spreadsheets DCF being negative on tacking.
But I'm gonna stop there. This is too important. You're going to DCF. I asked this with Paul yesterday. How do you do with terminal value on these juggernuts? This does not see FA one on one, but.
You have to ultimately trajectory out what the cap BAX looks like, what's the incremental dollars and what that ultimately means to the wall.
How far out this dan IVES go.
You basically have to go out six, eight, ten years to actually do a trajector like when you look at Microsoft the way they you get four and a half five trillion, Okay, just for you have to be it's say, how much of percentage of cappacks they're gonna get? What demonization? What does the free cash will incrementally look like and that's where all these stories change. But then there's other names like a pall Andeer, the Messi of AI. It wasn't even on the radar.
Now there n their core AI play.
Hey Dan, one of the key actributes of your research is that you travel the globe.
You see people all over the place. What's your next trip?
So we'll be going to Asia on Monday, be there for two weeks and look to me, that's where we've got. That's where we get edged because I think a lot of investors how they've missed AI revolution. They try to find it on the Metro North Jersey transit on the tenth four of their office building in New York or San France. You gotta travel to see it, and I think that.
So what do you see when you go to We see.
The suppliers, we see the component players. I also think by seeing global investors you get a very good ends in terms of where things are, and I think it just gives you a little more perspective.
Final, can you convince John Tucker to upgrade this time around?
No?
I think I look, I think I think Tucker after going to the In Video Watch party last night, that he might now potentially upgrade to an iPhone.
Occursonally Blackwell ship Where have I heard that name? Remember mister Blackwell, the guy who did the best and worst stress less Oh yeah? Where would.
I think Kean would be at the top? Keen would be at the top, and I'd be and maybe like the like other.
Category and travels hugely valuable. Will curse feature mister Ryes mister Munster together today on Bloomberg Surveillance.
That's the way that we will blog.
Richie joins us right now for tier price or they are wonderful academics out of Beth and l see as well Ballerina.
We had HSBC in here.
I think it was yesterday, day before with a brilliant separation of the consumer in America, not you know, East West, right, left politics or anything, but the haves and the have nots. How polarized is the American consumer?
I think there are a couple of ways in which you can characterize this. One is the fact that the savings buffer and the bounce sheet of the consumer at the bottom twenty to forty percent is significantly weaker than the rest more well off consumers in the economy. They ran out of a pandemic savings sooner, they didn't build their cash buffers as much. And also, the other thing that has been hitting the lower end consumer more than
upper income quantiles is inflation. We know that this proportion of the enemy spends more on necessities like food and energy gas at the pump station, and this is where inflation has hit the hardest. I think what has compensated a bit for this hardship in terms of inflation and cash balances has been the fact that the labor market has been so strong and so hot that income growth and wage increases have been higher for those workers at the lower end of the skill or the lower end
of the income distribution. So we've seen average hourly earnings for retail hospitality increase more than other services parts of the economy.
So Blarina, what did you make given that backdrop of this economy is still pretty solid position? But the FED on Friday add in Jacksonville, FED Chairman jpald seemed to really really signal that they are open to cutting ridge as soon as September. Is that seen reason to you?
So? I think this has been he telegraphed pretty well that September is now a done deal, and I think for the market is the question is what will be the size of the cuts initially and the pace going forward. We still don't have much clarity about the terminal rate in this business cycle. And notable that Sir Powell again did not comment on our star and at Librium interest rates. So I think we have a bit more uncertainty about the pace of cuts and the terminal rate. But we're
starting the cutting cycle. To your question, is this the right thing? Why are we starting to have interest rates at this point? We go back to the labor market. When you look at the July payroll report, we're talking about the magnificent sevens in the stock market. We have a magnificent five in the labor market, with government, education, health services, retail, hospitality driving about one hundred k of
the job increase. In total, the economy produced one hundred and forty k net jobs, so you see how much of job creation is being driven by this subsector. And I think the FED is worried that tight interest rates are high interest rates are restricting growth in the other more interest rates sensitive parts of the economy, and that's why I think they don't want to be behind the curve. They want to start that easy cycle to make sure we don't have a more abrupt labor market correction.
Okay, I'll go there, but give me the horse in the cart, Loreina. This is what you do when you when you have a master some lscy nail the horse in the cart, Laurina, give me the horse in the cart. The bond market's clearly signaling price up, yield down.
Not like China.
It's a different story. Is the bond market ahead of the Fed? Or when the Fed cuts, do we get further price up yield down in bonds.
I think the market is ahead of the Fed. My view is that we do have such softening inactivity and some loosening in the labor market, but the economy is not weak, and so what we're seeing in this business cycle is that the market gets way ahead of the Fed. This happened back in December January as well. That loosens financial conditions, and in some way it provides a bit of a positive impulse, growth impulse to the economy. I think we're doing that again now. But the economy overall
is not weak. I don't think we are about to enter a recession, and so the market I think has gone ahead of itself, is probably pricing in more cuts than the FED needs to deliver. Now, let's be clear. I think the FED wants to start easing monetary policy, wants to bring interest rates in a place where they are more balanced, not as restrictive as they are right now. But I don't think that they'll go all the way to where the market is in the next twelve months.
Blarina, we had the you mentioned you were talking about the labor market here, we had the s rule presumably indicated that we're in a recession. Does that seem reasonable to you?
I mean, this is a very interesting question. It's chir Powell characterized it as a statistical normalcy, something that has tended to happen historically, and it's very unusual that this time round we're seeing this type of increase in the unemployment rate with the economy being as strong as it is. Historically, when the unemployment rate has increased so much, we've had negative consumer spending growth, We've had weakness in industrial production,
much more pronounced than where it is right now. So I think there is something here we need to take signal from the loosening in the labor market, but I don't think that the predictive power of the sum rule this time around is as powerful as it's been in the past.
Blurina, thank you for the brief this morning with t Rowe Price, Baltimore.
The Blurina arote you with.
US joining US now does better math then Sarah House, US economist.
It will's Fargo.
Sarah, excuse me, am, I off the mark to take three percent real GDP, add in a GDP price index a two point five, and I've got nominal GDP above five percent.
That's how you do it. You're the math twist on.
Well, what's its signal? I'm sorry, that's a solid ecadomy. That's morning in America right now.
It still signals that the US economy is in very good shape. I think that upward revision in consumer spending is pretty telling that even I think with some of the slow down in income growth, it doesn't seem like there's much to stop the US consumer as of now.
So still looking like pretty good momentum as we head into the third quarter, and I think as we look ahead, though still expecting a moderation just given that in some ways, well despite all the strength that there, it is difficult to sustain, I think, given that that income back in here.
But let me just finish the thought, let me close the loop. What is the Wells Fargo micro data of the quarter ending September thirty.
Yeah, so we're looking for a step down in consumer spending, even as you did get a very strong start to the quarter. So we saw that in the July retail sales. We're expecting another pretty strong print in tomorrow's personal personal
spending numbers. But I think as we move through the quarter, this down shift that we've seen in job growth, the downshift that we've seen in nominal wage growth, the fact that the excess savings from the pandemic have run dry for most households, and also credit growth is running below inflation for the consumer sector, it does mean that I think this almost three percent pace of consumer spending that we saw on the second quarter isn't going to be maintained.
All right, Sarah, given that backdrop for the consumer spending, giving the backshop of the GDP print we just saw today, how do you put in context what we heard from FED Chairman j Palas Friday and Jackson Hole that the time has come for policy to adjust I think that's right.
So when we look across the US economy, again, the consumer is still spending, but the fundamentals are weakening. And really, when it comes down the consumer, it's increasingly important what's
happening with the jobs market. And so I think given the moderation that we've seen in hiring, so forget even the backward looking benchmarks, but even just over the past four months, where you've seen hiring at just a little over a one hundred and fifty thousand pace, what we're seeing in terms of the increase in the unemployment rate, not just the temporary layoffs but the permanent job losers.
That the labor market has softened quite a bit. It's back to where it was before the pandemic, if not a little bit softer. So if we don't want to see the labor market break, it's time to dial back the degree of restrictiveness that we currently have said policy.
At DoD they dial it back by twenty five basis points or fifty basis points in September, and does that even matter.
So coming out of the jobs report that we got on August second, we thought that they would would perhaps go fifty basis points that's still our current call. But I think it's really going to come down to what we get out of the August jobs report on September sixth. Given that you have seen, I think some of the activity data hang in there, better claims have come back down, as we saw again this morning. But also I think you just haven't heard I think that that appetite from
the FOMC other members of the committee. So I think it's going to be really hard to get a fifty basis point cut at this point unless you see a sharp weakening again in the jobs numbers coming out of the next of the next viral report. But I think it does look pretty clear that they will be cutting to some degree. It just it's a bit of a taller order for fifty, I think based on some of the data and fed Skik recently.
Sir, one of the themes this week for US is this sharped economy and consumption seventy percent of.
The economy between the halves and the head havenots.
What do you guys do immense work on this with the Wells Fargo heritage. What is a polarization rather not that, what is the polarity or barbell of the American consumer today.
Yeah, it is pretty stark where you know, I mentioned some of that excess liquidity and estimate show it's run dry for your lower end, and I think you are seeing that stress when we look at things like delinquencies among credit cards and autos or at the highest going
back since we're coming out of the financial crisis. But again you're still seeing an aggregate putting up pretty strong income and spending numbers because the upper echelons are still doing pretty well, you know, So they're benefiting from still being employed, they're benefiting from wealth increases that we've seen coming out of the housing market and financial markets as well, and so that's been able I think to mask some of the ongoing stress that we've seen at the lower
end and keep consumer spending positive even if even as we have seen I think some of the jobs numbers we can and also just a slow down in average hourly earnings at the lower end of job earners.
Sure question, but thank you. This is a big, big question, big picture question kind of Sarah deficits the national debt. I mean, do I have to worry about this in my lifetime here?
So this is something I don't think there's a crisis moment. There's no you know, set debt to GDP that all of a sudden things go sideways. But I do think that the trajectory that we've seen it is it is concerning when we think about the rising cost of interest on the debt and what that means for other forms of spending. So particularly when you think about all these budget battles that we have each and every year, we
can't get a budget passed on time. We're fighting over a very small piece of the total spending pie that that discretionary spending, whether it's defense or non defense. And as that interest cost increases as well as you have the upward trajectory and the mandatory entitlement spending, I think it does make some of those those battles and even more contentious. And I think you have perhaps less less
productive investment from the US government. So there's no crisis moment, but I do think it has some erosion in terms of the US economy.
Sara, I'm putting it on Twitter and LinkedIn now. Something I did, I don't know.
On the trip back from Jackson Hole, Paul Bramo took the Gulf Stream took me like three days back, I was on a covered wagon outside you know, co Zed Nebraska. Sarah at the Brookings Institute, Peter Orzag of Lazard, Murdoch of Lazard, and Robin Brooks put together a three part essay which says, everybody calmed down. Most of what we're talking about was the duration, the length, the unknown of the effect of the pandemic.
Do you buy that?
I think so in terms of I think just how long it's taken us to normalize has been a lot longer than anyone expected. I think we saw that up from the transitory issue of knew that there were a lot of distortions caused from the pandemic. I just think it was underappreciated how how long those those would last.
I think we've seen this in terms of just the financial position of households coming out of the pandemic, given all the support we had, the tale of how low rates were early on that allowed a lot of people to refinance their homes and haven't felt the impact of
higher rates. And so I think we you know, in this more instant gratification society where everything's so fast, I think I think it's been difficult for us to wrap our heads around that it does take time for I think some of these some of these effects to unwind, and it's something we're still grappling with here in mid to late twenty twenty four.
That's the camp. I'm in Sarah House. Thank you. So I'm in the Sarahause campus. Oh yeah, yeah, wells Fargo, thank you for that.
Gene Monster joins us here on the technology of the moment.
Geene Monster, I want to go bigger.
Broader with you because we sort of beat the death you know, the Minutia News and all that on in video and more iPhones out of Nikai saying Apple's doing better. Scott Galloway is one of the wisest people I know, and in some interview Gene Monster, Scott Galloway said, basically the single most important thing in his life is he's never listened to people who said sell Microsoft, sell Apple,
and now sell Invidia. Time Magazine Norman Seth the famous photograph nineteen eighty four of Steve Jobs cross legged on a living room floor with that ugly mac. The rich kids owned it a million years ago. How does gene Monster react emotionally when it's out there these tech juggernauts sell Microsoft, sell Apple sell Nvidio.
Well, I think the how I think about it is just what's the long term. You got to think the long term play, and there's the near term, and that's what's the vortex that's going around in Vidia today. And I generally react to a view of where the world is going. In the case of within Vidia, it's a belief, a strong belief. I'm staking my career that AI is going to be a bigger event, bigger impact than the Internet.
And if that's the case, this trading around in Vidia today is largely noise, even though it is a three trillion dollar company. And the reason why I still am comfortable and think of this in that same class as Apple and Microsoft is that, ultimately is if you believe that AI is going to be is transformative, more transformative
than the Internet. And there's a second belief you have to have is that the way to get there is through scaling laws, which basically say you have to throw more compute in data at the problem to solve for intelligence. Then in video is going to be a winner, and I think that it is in a great place. I do want to add one an angle to an additional angle to the context of just buying hold forever. Is that deep water we own in video. I think the next two years are going to be far better than
what people are expecting today. But at some point, when you're a hardware only company, there is a point of deceleration that needs to be taken into consideration. And I think that two years, three years from now, this may be a position that will trim, but we think today is the time to own it.
Gen when somebody like you, Geene Montreal says are staking their career on this, that really really resonate for a lot of our listeners and viewers.
Can you just.
Remind us how you view AI in the context of the internet, electricity stuff like that, because that really hit home when you I first heard you say that.
So I mean, I guess that believe that this is going to be transformed a kind of struggle for the right analogy. Is it the internet is a mobile? Is it electricity? And at the core of humanity is intelligence and the concept of having intelligence in real time at scale is something that it's hard to put a value on it. I think it's much more valuable than connecting machines and connecting data. As powerful as that has been.
I think intelligence is a powerful a more powerful aspect to it, and so there is a piece of a huge missing piece around the substance of what does that actually mean, like how is that going to impact our lives? And the use cases and the examples have been few and far between about how a eyes like profoundly impacting our lives. I just want to give one quick example.
If we'd go back on a time machine in ninety five and be talking about the potential of the Internet, we could easily frame out what that Facebook was going to happen with social connecting over the internet. We could see what that Netflix was coming around the corner with video over the internet. But it would have been impossible for us to understand that the smartphone was going to come because that was obviously enabled by the Internet. Those
kind of second and third derivatives. And that's kind of similar to how I think about AI more broadly. And I'm not concerned that we don't have these killer use cases today because I think that those will present themselves as we reach closer to general and eventually super intelligence, which is where it really gets crazy.
Were you surprised by the iPhone build out reported by Nike today in Nikai rather in Tokyo.
Did that surprise your team.
Gene, I'm not surprised. I think what is most important is that when I think about this next iPhone cycle, you have to it comes back to this belief and do you think that these features are going to be exciting for people? And I just I don't worry about what kind of the near term builds are, whether they're positive or negative. What I think about is like, is
are these features people will want? And I just quickly go back for I look back over kind of last seventeen iPhone cycles and try to compare what these AI features are going to do for demand, and I think it's similar to the iPhone six plus that was the first large.
Right, Oh yeah you have the iPhone six plus.
Yeah, I think so, But I'm uprating soon, Jeane.
That's good.
You're right there.
You're only ten years ten years in and it's time, Paul. But the iPhone growth I went from twelve percent for the iPhone five cycle to fifty two percent. I mean it add a profound impact on how people got excited about these devices. One just more quick thought about how I think about the X cycle is that the If we look at the total number of iPhones that are out there, there's about one point five billion active iPhones. The act the life is just over five years average
life of an iPhone. And if you take the next tranch, so take not the one that typically upgrades this year, but the one that's going to typically upgrade in late twenty twenty six, and you assume ten percent of those, just ten percent of those see these AI features and
say yes, I'm going to buy it. A year early, the iPhone growth goes from seven to fifteen percent, and so the sensitivity around just getting a small piece of that massive pool to move forward is going to have a measurable impact on the business.
Gene, thank you, Gene monster with us, thank you, I say, really really appreciating. This is a Bloomberg Surveillance podcast bringing you the best in economics, finance, investment, and international relations.
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