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Let's get more into what is driving this positive sentiment in tech shares. The earnings from Apple. The iphonemaker posted weaker sales of its flagship cell phone and saw big revenue plunge in China during the holiday quarter. But it's the forecast for what's to come this quarter that seems to be giving the stock a boost this morning and
reassurance to investors for more. We are joined by someone who follows this company very closely, Genemunster, the managing partner at Deepwater Asset Management.
Gene, Good morning. We heard from CEO Tim Cook.
They're looking for load of mid single digit increases in revenues in the current quarter.
Is that enough and can Apple pull through on that? Well?
That might seem modest that load of mid single digit and growth when we think about some of the growth what's going on around AI. But in the world of Apple, that is a win, and it's an even bigger win when it's put in the context of what they just report in the December As you mentioned, they missed the iPhone. The miss was the streets looking for a percent and
a half growth. They came in at down one percent, and so that to see them essentially maintain the guidance for March after them missing the iPhone guidance and the overall guidance after missing December, I think was just a big boost of confidence for investors that this narrative that they will accelerate iPhone growth based on the backs of Apple intelligence is intact. And so that's kind of the substance I would say this is also as the call went on, it became more clear that their benefit from
this channel inventory adjustment. Essentially they've got they had a negative headwind from an adjustment in China and their channel inventory, but that was temporary and they'll reverse that in the March quarter. And I just want to shine a little bit more light on that China piece, is that their China iPhone business was probably down around fourteen percent, their overall China business down eleven but Cooke mentioned on the call that half of that decline was that adjustment and
channel inventory. They will again reverse that in the March quarter. And so putting this all together is that December we'll call it a good quarter. But the outlook is that this trajectory for them accelerating growth on the backs of Apple intelligence is intact.
Well, we've seen Apple try to diversify and it to some extent putting more of its production in India. Is Apple going to have to do more to diversify from China given the threat that we've heard once again from President Trump that tariffs on China could be coming quickly.
Absolutely right now, about sixty percent of excuse me, forty five percent of Apple's revenue is built in China, and they've been diversifying that down That was sixty percent about four years ago, and so they've been doing more outside of China and that's going to continue. India is a smaller part of that, but the bigger theme is that
they want to diversify from China. It's probably the single biggest risk to the Apple story is just the whole China logistics piece, and so it's less about the you know, so that is just a trend in general. The tariff's question came up was the second to last question on
the call. I'm surprised it took that long for analysts to ask the question, but Cook had a really quick and short answer, which was a non answer, that they are monitoring the situation and so I think, you know, the big picture related to production in China, it's less about tariffs, it's more just about wanting to have diversification away from China.
How do you see Apple competing on artificial intelligence given the drop in sales that we saw for the newest iPhone that becomes equipped with Apple Intelligence.
So the message was pretty clear that they reiterated this three times on the call, that in the regions that Apple Intelligence is available and most of that is the US, they've got other English speaking regions, is that the iPhone performed better than in the regions where it was not available.
And then more broadly, they said that the upgrade take of iPhone sixteen has been better than iPhone fifteen, and obviously sixteen is this is the first year we've had Apple Intelligence in those regions, and so they're building the case that Apple Intelligence is having an impact, and I think that that's accurate, but I think that the true breakout impact of this just really hasn't been unlocked. And specifically,
this is Apple's game plan. They typically are a little bit slow to get into a market and then eventually they have a great product, and I think their Apple Intelligence product, even in the US and the countries that it's available. It still hasn't quite hit the mark where consumers are using it and going out to their friends and telling them they have to have this, and I think that that day is coming. I think we're probably
a year away from that. But ultimately it is having a positive impact, and the product still in my view, is not complete, and then of course they need to roll it out to Europe and to China to get further uptakes. So the outlook is still the opportunity and potential around Apple Intelligence is still there. I think that it's going to be core features. It's just taking a little bit longer for those features to really hit stride.
We're going to get more mag seven earnings next week. What is your outlook for Amazon and Google parent Alphabet.
It's still obviously all about the cappex question, and my sense is that it's going to go in the same direction that we heard from Meta and Microsoft and what just an incredible reversal in the last few days that around this whole deep seek and that's the a topic of course around earnings is just what's going on with this AI trade, And just to give everyone kind of the bottom line is that that Deep Seek was an improvement, but it's I think improvements have been embellished in at
least what the big tech companies that are saying and what the venture community is seen around this upcoming raise for open AI that could double its valuation over the past six months. It's pretty clear that they're not seeing this is a negative what happened with deep Seek, rather a positive. And so that's what is going to be the primary focus for next week, obviously, is those capex numbers related to the AI spend.
Yeah, thinking about the capex.
We just got a note this morning from a Bank of America strategist Michael Hartnett, who coined the phrase Magnificent seven. He's saying that these stocks could become the Lagnificent seven.
Your thoughts on that in our last minute.
I think you're going to start to see that shift. I believe you should still own some the mag seven. We're starting to do more focus on frontier tech. We have the Deep Water Frontier Tech Index. It basically invests in companies that are below it's an ETF that's below
five hundred billion. It's been around for five years, but I think these are tech companies that are power and AI, and I think that that opportunity on kind of these smaller companies sub five hundred billion is probably where some of the outperformance shifts over the next few years.
And just quickly, why is Microsoft lagging compared to some of these other stocks right now?
They're guidance This is really splitting here is but was about a half a percent below where the street was for the March quarter. And when you guide in line in this environment, it's a slight negative. When you guide down, it's a little bit more of a negative. And that's why Microsoft got clipped yesterday.
I really appreciate this Gene monster talking tech with us from deep Water Asset Management.
Gene Thank you.