Tesla Troubles and Big Tech Earnings Loom

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I know?

I think he's so large now that we can't even get them on the show. Dan, let's talk Tesla first. I know you're gonna give me the positive spin. Liam Denning writes a beautiful column must tells Tesla dream, but don't ask for the details. What's the timeline across April May June to where Musk has to seep out the successful initiation of the so called plan.

Look, I think last night was a big start because the sub thirty K vehicle. I'll call it a Model two point five. It's going to be accelerated. I mean, this would I come first half twenty twenty five, and more details clearly have to come out, but this is no new factory line. I think this is a huge start for what the bulls needed to hear on the Tesla story, especially given the dark days and what was really a train wreck one Q.

I mean at Paul to jump in here, because you know, Dan and I don't agree on this. I mean, you know he's a good friend, but you know, I'm just I'm with Liam Denning. I'm like, are you kidding me? That was a conference? Was that a conference called dan ives.

Relative to the last few calls, which we talked about, right, I mean it was a disaster. Last night you actually had a vision. The growth strategy was laid out, talked about the lower cause vehicle, and the fears were they were going to go straight to rover, taxis and autonomous. That was a big overhang in the stock. And then you look at the margin the cause cuts. I finally feel like they're a blue crib.

Paul.

After a few quarters, Paul helped me.

Here I'm on sixth Avenue. I'm trying to get up to Central Park South Shore. Who was to go left or right? It's a roulette. What's the robotext you do? When you all the cars are turning right on fifty eighth street. Explain what a robotext he does. It's sixth Avenue in fifty eight He's.

Gonna employ artificial intelligence. AI is what's gonna happen?

Yeah?

For you?

Hey, Dan, So I guess I got off that call yesterday. I was walking on the borderwalk down the shore. I actually dialed into the call to listen, and I got off the call saying I either believe and I buy the stock, or I don't and I sell the stock. Is that where we are now with the stock? Do you think?

Definitely? Look, I think it's the knives have been sharpened. So bulls and bears you meet the bed here?

Yeah, night.

Look I heard from many bears obviously over the last you know, called sixty eight hours. They'll have their stor But I think for the bulls, they finally have something to hang their hat on. And again betting on betting against Musk for the last four or five years. It's like betting against truths in this series.

He has done this before. Some question, Okay, I'm tesseling out Dan ives on Microsoft. That's going to be a different call, a different earnings report, isn't it? All?

Right?

Look, this is the tactician. I mean, you have the hall of fame in Thedella. The AI revolution, it's here, and I think demonization that we're starting to see at Microsoft, we see it, you know, across I think the software layer. This is the call the whole street's going to be watching because it chows where the monization of AI is as the baton gets handed from Nvidia to Microsoft.

So, Dan, that's kind of where I think a lot of investors would like to see this Microsoft story go. It's up eight percent year to date, it is not getting fully priced in as an AI story. It seems like relative to some other names like Nvidia. What do you think Microsoft needs to say on their call tomorrow to maybe gotta get that story across a little bit more.

Look, I think it's really numbers. It's showing co pile it in terms of what deployments looking at the moonization. Of course, Azure the cloud number is the big focus as that actually continues to be something that's probably the best barometer in terms of what the Microsoft story is doing. Look, they have massive talents, and I think the broader story we're going to see across tech earning season is the

And Dan on Microsoft, I go back. I just take everything from pre pandemic. Basically, Microsoft modeled out twenty twenty four has done a double in revenue since twenty nineteen. Is that an extrapolated function? Can you take a double in revenue over five six years and take that out into the DAN ives twenty and.

Thirty, Well, and Tom, I'd take it one even step better. It's really about the AI and the cloud component because fifty five percent revenue is cloud from Microsoft today, next three to four years, it's going to be seventy seventy per That multiple is going to continue to expand because that higher margin business. That's why I believe it there's a four trillion dollar mark happening year.

Dan. A rep on you is you're an uber bowl, What is your what is your least favorite tech company? One of which one has the I Z and radar up.

Look.

I'd say it's some of the legacy names. If I look at like a Cisco as a shared doinger, I think some of those are the ones that are really gonna struggle if they don't get aggressed. But even look at Cisco, they buy spunk, right. I mean, the point is this is gonna be really an arms trace that's going to have good time. We've talked about. I think tech this is just second third inning of this tech ball market. And dam is I guess one.

Of the questions Dan, I guess one of the questions for a lot of folks who follow tech is just kind of this AI trying to size out AI and how much of the AI capex? How much of the AI investment over the next five plus years is incremental or is it just taking from other parts of the tech stack. How do you model that up?

I think about sixty seventy percent of it is incremental because the difference is that it's revenue generally. I mean, if you look at the use cases, they're revenue generating. This is not just spending on infrastructure, and I think that's what's happening really across verticals and we're starting to see you now. I mean you look at Pollneer. It's a good example where the use cases are exploding and the cap act is just massive, not just some big tech.

I mean, you know, dance like's got the sweats your thing going. For those of you are not on YouTube, I mean it's a stunning pick. Do you do five or ten miles this morning? Are you gonna go out for you know, pre pre morning.

Jogged in I I'll do a little peloton and you know, to to get the heart rate up.

It's good. I take Tank zero for the heart right, Dan, I thank you so much. With web Bush right now, she's more than a nothing burger. She is exquisite. In the analysis of the American economy, Lindsay Pigs joins us Now with Steve Lindsay, how do you use cap goods x air ex Boeing non defense? How do you use one of these obscure statistics?

Well, I wouldn't argue that it's overly obscure. When we look at capital goods orders and we exclude aircraft and defense. What we're really doing is removing that volatile transportation component, and we can see them the underlying trend for business investment. And in fact, the reason that we need to do that is because when we look at something like last

Elon Musking to call us night, he says, I want to see cap goods orders, non defense X, aer X, TESLA X test. Let's coming next.

So, lindsay, just stepping back here, what's kind of the Stefel GDP call for the remainder of this year and maybe for next year. I mean, I think a lot of folks feel like the economy may not be working for them despite some of the headline numbers.

Well, I think the economy right now is still solid. We're still seeing consumer spending, we're still seeing businesses investing, but as I mentioned, we're losing momentum. We're seeing those heightened signs of fatigue. So what does that translate into for GDP. We're looking for about a two to two and a half ish percent average pace for twenty twenty four. Now, of course, volatility quarter to quarter aside Q one may come in a little stronger, but two to two and

I AS's this question the other day, Lindsey. But the fact is a central bank can't get out front, whether it's easy BE or FED or the Bank of Thailand. I mean they have to wait and go ex.

Post right, I would argue the FED is right now, the FED is backing itself into the corner. The Fed should have risen rates. They should have raised rates higher. Now that they see inflation reversing course for three consecutive months since the start of the year, they need to re engage, raise rates to a sufficiently restrictive level to get price pressures under control and we can start to

Cancel the pigs a lunch of the Eckles building. That's all I can said. Folks, what you just heard there from this is classic Lindsay piigs. What you just said is a huge deal.

So Lindsay, just to be clear here, you think that inflation is such that the Fed's next move should be a rate increase versus a cut.

When we look at inflation, the target is two percent, The target is not three, the target is not three and a half. So the Fed has not met their mandate of stable prices, and with momentum now turning to the upside, I think the Fed has more work to do.

Now.

That's my preference for what the Fed should do. That's not what I necessarily expect the FED to do. This is a FED that desperately wants to provide relief. So I do still think that the next move is likely a rate cut, but I think that would be a material mistake on the part of the central bank.

Wow, so inflation.

Is your sense that this inflation that we've seen in the past three months, that's something that's that's not a blip, that's something more.

I do think it's something more. If you think about the motivation for the FED to raise the rates, it's to increase borrowing costs, make that more onerous, slow consumption, and by extension, slow the economy and result in more benign inflation. But when we look at this consumer, there is still a good amount of spending and borrowing power out there in the economy. So clearly the FED has not done enough to slow, let alone break, the consumer to ensure a return to price stability.

What's the response of your clients, and particularly your institutional clients, lindsay, when you say this, I mean, you know, I'm not going to say you're an outlier call here. I think Jim Biako's really led with the idea disinflation vectors out of tune. But these are really aggressive comments you're making. What is the response of your institutional clients to this.

Well, again, this is what I would hope the FED would do. But when we look at our forecast, when we look at the messaging from the FED, the FED does appear willing to tolerate above target inflation. So again, our expectation is that the FED will offer at least one, if not two rate cuts by the end of the year, given their desire to continue to perpetuate these solid conditions in the economy. But when we look at I think the longer run stability of the economy, the longer run

Well, when Kashkari's out the door and you're the president of the Federal Reserve Bank of Minnesota, Lindsay Piegs, just simply if we get a PIEGSA rate rise, does that push send a recession.

I don't necessarily think a recession is necessary to get price stability, but I do think that a much slower growth rate would likely be the outcome, which is not necessarily again, is something that we need to avoid at all costs. That the normal fluctuations of the business cycle are very healthy, but the biggest issue is getting us back to a point where inflation is under control and that allows everyone to enjoy and participate in the economy.

I just sent one of our interns of note, lindsay, I want to get you on next week after PCE. I mean, I think these folks, these are wild comments. These are you know, and again this is a prescriptive idea. Paul should of it could and you're saying, what will they do? They're just going to hold rates here, lindsay, until they see more data.

I do think the FED is on an extended pause for now. But again, if inflation stabilizes at these levels, with the FED willing to tolerate above target inflation, I think the FED would be willing to give us twenty five or fifty basis points of cuts by year end, But if we don't see further improvement in the inflation data, they would likely return to the sideline for a second round.

Extended ouse, Lindsey, thank you, thank you, thank you, just superb We'll feature that on Single Best Idea Today out on ample podcasts. Those are stunning statistics from Doctor Pigs at Aero Rana in Chicago's Encyclopedic going to Cloud a Man Deep saying picks up the pieces on Meta as well. Thrilled to have them with us right now into this tech earnings season, I guess I gotta go to Meta first. Facebook is what I call does change the symbol, Man

Yeah, and he was quite aggressive, and he was right in terms of pivoting to AI and the three hundred.

And fifty eight percent from the Man Deep sing bottom after sings and shut up and buy it. Yeah.

Look, I think everyone had their doubts whether this company can ever grow double digit again the top line, and they have shown, you know, they have executed around their cost cuts and also from a product perspective, they have made a lot of changes in terms of the ad stack.

Pivot to AI. I think kind of.

Moving away from metaverse last year was a great bet and it's paid off in terms of you know what they are doing with ad impressions and pricing versus what the other players are doing.

Hey, an rag out in Chicago, the tech hub of Chicago. I got the stock Microsoft. I'm surprised it's only up eight percent yearnit date.

I thought it would have been more.

It seems like these guys are just hitting on all cylinders. It's a great AI play. What is the story on Microsoft these days? What do you expect to hear from them, see from them from their earnings.

It's still trading at over thirty times earnings compared to you know, Apple at twenty three times. So always remember that that, you know, the market gap is so high at this point, so some of those expectations already baked in for what they're going to realize, whether it's on the AI side or whether it's on the you know, the GitHub or Office three sixty five. So there's a lot of that. I would say it is currently baked into the price.

Oh good, No, I.

Was saying me, Man deep Facebook Google again, Tom and I we go old school verbiag here Facebook Google. It's a play on digital advertising in very large part. What's the state of the digital advertising market out there? Because you look the linear television and all they have is healthcare ads for various diseases. They don't have any real advertisers anymore.

Are they all on digital?

And so that secular move is still playing out. I would say that, you know, the sentiment around small businesses is still pretty weak, and when you look at a company like Meta, they are exposed more to small business ad spending. So I'm surprised they're able to grow top line twenty five percent even with the SMB spending being weak. And some of it is easier comps, so that'll get tougher in the second half, but still it is pretty remarkable.

And now for all of you worldwide, we go CFA with Enterragriana and Man Deep Sing. Okay, I want to look at discount of cash flow, and there's this idea of terminal value. Now the triple leverage all cash fund is on a perpetuity terminal value. I mean, we're just going out forever, Man Deep Sing in tech in general, in these magnificent four, five, six, eight, whatever it is, How do you study terminal value or is that impossible?

No?

I think with companies of these sizes in terms of where their top line is clearly, you know, for them to keep growing double digit, it's extremely tough, and so you've got to model and growth decelerating. But what they have shown us in the past eighteen months is there's so much leverage to be gained from cost cuts. They were not crunning efficiently. And that's what I think is a key driver.

Icly framed your interet around how do you do a terminal value, for example, on Microsoft? Because I got double digit revenue growth, I got to model that in maybe it's a harmonic deceleration whatever whatever you're doing. And then and Mandy correctly says, there's a new religion in cost cuts. So where's your terminal on Microsoft? You go on a decade?

Yeah, and you know with Microsoft there's a slight difference because they are spending a lot on data centers. So I have a concept that is, you know, you want to look at operating cash flow more than you want to look at free cash flow right now, because their

And Tom's just going to fa function for Microsoft. Cappecs Capex in their fiscal twenty twenty year was fifteen billion this year for the June twenty four year forty three billions of forecast.

The operating margin on Microsoft folks is forty four percent. When did these get too big? Bandeep? I mean the first business book I read was I to Turble Standard Will I'm fifteen years old, I'm reading I to Tarble. I didn't have an okay, but just thank you Lisa. When did they just get too big? For Washington? I mean, if you extrap a light out and Rod Rana is operating cash flow, there's a point where they're too big, right, Yeah?

I mean, and I would use Meta as a proxy. Before they started investing in reality labs, their operating margin was nor till fifty percent. So it got to a point where they had to do something with all the cash that they were generating, and they started investing in reality labs and look the regulators they are looking at all of these companies, including partnerships. That's a new way

Free cash flow, pre pandemic. Facebook twenty one gazillion, it's a double forty three gazillion, up to forty eight gazillion, man deep saying excuse me, entered run And when do they get too big?

See, I would say for a software company, something between forty five and fifty percent is you know, achievable. You know, I remember covering Visa and MasterCard about you know, fifteen years, twenty years ago. Right now their margins are fifty five

Good morning, Meredith Whitney. Did you see Visa's earnings? Now? Yeah, I mean, I mean it's just like it's like there's a pretty people.

Are spending like paper are spending, like say an Rak, as we head into this tech earning season here, how much are we going to hear about AI? Is it gonna be every other word, every third word? Where are we in kind of the development the evolution of AI? I know you and man Deep and your teams have done a lot of research on this, I.

Would say, very early innings, and you know we I think this is not going to change at least for the next few years when we see more and more product development from all these companies, you know right now buying Microsoft. None of the big software companies have been

I just my head is spinning over where we are versus like nifty to fifty. What's like you mentioned ken Olsen and Decker earlier. I mean, this is Mandy. This is totally different than nineteen ninety eight, nineteen ninety nine. I mean there was a lot of nonprofit going on. All these people are is it basically on a ninety day basis, they're minting money and we have the distraction of what Tim and Carroll do at four pm.

And they have the deep pockets to invest. So the one big difference here is all these companies that are investing in Capex, they can afford to do that and without a big hit to their margin. So clearly, I think the fact that they have the data and the Capex wherewithal that's what drives these Okay.

I got ten seconds. I'm so sorry. Are we going to hear share buyback announcements? Yeah, you gotta be kidding.

Meta announce a dividend that was symbolic even though less than one percent dividend yield. But clearly Google is on the words of doing something similar. The street is expecting, so waiting to hear.

Let's just want to do this again and around in Chicago they keep seeing with their studios on Apple, card play, on YouTube. It is the front pages. My people said, Lisa was wound up today, Lisa, how do you start tired up?

Okay, so walking around New York City streets, what do you see everywhere? Scaffolding? It's everywhere. See this is it's a hot button issue. Okay, did you know there are more than eighty five hundred scaffoldings around your city streets? If you were to stretch them out, it would go from Manhattan to Montreal. That's how much we have. That's what they're saying. Okay, this is the New York Times.

Now.

They're supposed to be temporary, right, But here's the problem. There's nearly one thousand that have been in place for more than three years, so they're sticking around. There's a lot of regulations around, and city officials want to do something about it.

You want to change it the whole place. There's parts of midtown Folks, it's like plus Vendome in Paris without the charm. I mean, it's like miles of scaffold.

And it's I think you just got to go around and just take it.

I mean, Lisa, what are they going to do? What you're reporting? What are they going to do?

So they're going through they want to put all these these reforms down. So they want to reduce how many there can be, how long they can be up. They want to increase the fines, That's what they think they're going to do so they can strengthen the enforcement of it. So they think that if they increase these fines, hit hard on enforcement, it's gonna take some of the down.

I don't easy one.

If I were a politician, this would be an easy win.

Ye to go out and you have to have them up for safety. I get everybody, I've got a friend and you know I get it. But if it's been up for three years and nothing's, nothing's going on, take it down today exactly? That's the problem. All right?

What else we have?

All right?

Airlines, this is a good one for travelers. They now have to pay automatic refunds for things like canceled flights. This is new from the US Department of Transportation. Came out today, so they have to provide these automatic refunds. This is too from within the US. If their flights are canceled or even if they're altered, significantly altered, there

So I don't have to stand in line with like five thousand other people that could customer service in Newark for United.

It's okay, it's gonna be Yeah, you should.

You should.

I just eat it. I'm like, all right, my flight's canceled. I'm going on.

Okayo's you can get your money back.

We do an audible here, Yes, did I hear yesterday? Terminal A Newark.

Yeah, Michael Barber has had that news story. We won some award or they won some award for like greatest terminal now it is.

It's awesome.

It is great.

And the best thing about the new Terminal A is when you get off your flight and you need to get your uber, it's a very organized, easy way to access, unlike Terminal.

C, which is a RAM.

Sometimes it was a little so anyway, they did a good job.

Terminal B is now undergoing the Simmer type of construction renovation.

So getting there. We're getting there. We're just you know the negativity about this. We're getting there. If they just fix the potholes on fifty eighth Street next.

That's going to take an eternity American Airlines. Do either of you have the advantage the loyalty points for American.

Air American guy, I'm not a DFW person.

Well, they're they're changing how flyers can earn rewards again because they've done it before, a lot of airlines are changing it. Here's the difference. Okay, So starting in July, travelers will only receive loyalty points advantage miles for airfare if they booked directly with American or one of its partners or a preferred travel agency. That's the only we can do it. The co branded credit cards that's not going to be affected. That can get you your miles.

Don't you think from a securities analysis standpoint, it's just a tough business. It really is.

I mean, I think and I'm so surprised that you see these folks and they make money in one business and they say I'm going to go start an airline.

You know, like, why would you want to get in? American Airlines ten year track record, Microsoft twenty eight percent per year, Disney tanking five percent per year, American Airlines negative seven percent per year. Again off the pandemic.

Yes, I mean it's it's a tough margin. I mean it's got it's a low margin business and you've got fuel costs you have to deal.

You got people like Lisa arguing with you.

Exactly got their point the.

Last the last time we did a lot of off flight. I just stand in the lounge going out and I just stand in the lounge coming back. That's how messed up.

The lounge is packed.

Literally there were no seats.

I don't get in the lounge. Where am I missing out?

Well, you can use your points to get into the into you know what. The lounges are very big in Europe. That's like the thing. Everybody's in the lounge and Europe. I never go to the lounges here in the US. I mean, I don't know.

I can report United opened the Lovely Lounge. Finally the gull Okay, they opened a lovely lounge.

Did you have a seat there?

I had a seat there?

You go?

It was next you get when you get tripled, you know, first class, you get a seat.

You get a seat. Tom, I saw this one. I thought of your right away. Will there be a Showgun season two? This is the question Business insider. Okay, so you know it streamed on Hulu. Is that how you watch it on Hulu?

I think so.

So here's the thing the creators are telling the Hollywood Reporter. The show was made so long ago because a lengthy production. It took a long time. It was like a five year journey just to make that first season. So if they were to be shooting a second season, they would already have to be shooting already. But they're saying, since it took so long, there already got that pre production work out of the bag. So now it'll be a little bit faster if they were to do a season two.

Look at their.

Viewers want it. They're asking for it. The Showgun it was a self contained novel, but there were a series of novels too, so it could kind.

Of bring Mister Clove gave them their sequel. He wrote four or five books and Taipan is after Shogun in it's nineteenth century, eighteen forty eighteen fifty Hong Kong, and you could even have some of the same characters doing, you know, and it could show up again any time. But Clovel gave them the sequel to the Pacific Rim, in this case Hong Kong from Japan. But it'll be interesting to see which I haven't seen the last episode.

You haven't seen the last No, I haven't seen the list.

I'm waiting for missus Kane to arrive. I'll see it. Actually, I've read the book twice, so.

I think, oh, no, you know, if.

You haven't read the book, I highly recommend for those that have seen Shogun. It is a rewarding twelve hundred pages. It is what Clavel did. And I should point out also King Rat of the Singapore where the Singapore Airport is. They bulldoze the prisoner of war camp from World War Two and King Rat is his shortest in his best book it is. I can't say enough about the intensity. I read it when I was like fifteen, and you know I was your room for Lisa Matteo. Thank you