The Apple Paradox, Trump’s Impact on Markets, NVIDIA Demand — With Dan Ives and Stephanie Link

0:00Two all-star stock watchers join us to talk about Apple's fascinating state of affairs, plus plenty more on Nvidia, Amazon, and others. That's coming up right after this.

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0:41Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. We are going to go deep into the state of big tech, especially Apple, but also NVIDIA, Amazon, Meta, and others. And we have such a great group here with us today because we're joined by Stephanie Link, the Chief Investment Strategist and Portfolio Manager at Hightower Advisors. Stephanie, welcome. Thanks for having me, Alex. And Dan Ives is also here. He's the Managing Director of Equity Research at Wedbush Securities. Dan, great to see you. Thanks for coming back on the show. Great to be here.

1:16Awesome. And great to see you both. Both repeat guests. And we're going to take the show on the road in Savannah at the Hightower Conference. Stephanie, looking forward to that. That's going to be on Thursday, right? Yeah, Wednesday and Thursday. And we have over 250 advisor teams and we're going to be doing lots of videos with both Dan and you, hopefully, to talk to and show how smart you are to everyone in the technology world. Looking forward to it. And now I want to talk about Apple because Apple is a paradox to me. Apple is up 42 % since April, 42%. And it's like a three and a half trillion dollar company.

1:51and so I'm like okay well what is going to make Apple so special and I'm looking at the bets Apple intelligence to me I don't want to say it's a dud but it really is not that impressive objectively looking at like the advance in technology the Vision Pro is nearing dud territory I don't know maybe it has a long-term path but I don't see it as that impressive and then of course the company has had slowdowns in China so why are the headlines and the action in the stock so different? Dan, what do you think? I'm looking at me and you've talked about this one for years, right? And I know we've differed in our views.

2:29I mean, look, my fundamental thesis, it's really threefold. One, there's 300 million iPhones that haven't upgraded in four years. So regardless of what you want to say about Apple intelligence, if it's going to be rolled out in in October, November, January, February, in the next, for this fiscal year, this will, unless some black swan event happens, be the strongest iPhone unit year ever, historically. So I think over 240 million in terms of units. The second is that it's our view, regardless of timing, next 12, 18 months, 20 % of the world ultimately is going to access AI, especially as more developers build apps through an Apple device.

3:16So just as NVIDIA and Jensen control enterprise AI along with Microsoft, my view is from a consumer AI perspective, the monetization here, we think it would be ultimately an incremental 10, 15 billion per year of services. And the third is, look, I think from, and Stephanie will talk about it from evaluation, And I just continue to view this as more and more, it's essentially a services company, a software services multiple. And that services piece that at one point was valued 500 billion, I think is going to be closer to 2 trillion in terms of the valuation as that reaches 125, 150 billion per year.

4:00At the core is our thesis. Okay. One quick follow up to you, then we're going to go to Stephanie. But, you know, there have been all these people with old iPhones that are like poised to upgrade. And it seems like that pool has not upgraded as fast as everybody's expected. And that's why the services become so important. But didn't Apple have like five of six or four or five quarters of revenue deceleration? And the company is just like this. It is an iPhone company. It's reliant on the iPhone. people are hanging on to them longer, which is, okay, great. Companies making a good product will celebrate that.

4:40But the services revenue hasn't exactly made up for the fact that people are hanging on to these phones for so long. Yeah, it's a great point. What I'd say is that first off, they've gained about 300 bips of market share in China in the last two years. So despite all the sort of doomsday scenario, they've gained about 300 bips of market share from essential Android users or Huawei to Apple clearly over the last year, that's been a decline. But Alex, if you look at comps, the next year, China's going to be up 15, 20%. And that's why the bears, when they come out of hibernation mood with iPhone mathematical gymnastics trying to scare people, the reason the stock's not doing anything, because institutional investors are reading through it and seeing ultimately numbers probably have to come up 10, 15 % for the year.

5:30Right. Are you calling me one of the bears doing the gymnastics or? Oh, I don't think you're a bear. I think there's many that have been bearish on this for the last two trillion. And every iPhone cycle, they come out with pre - I mean, we've been to Asia, what, two times in the last eight weeks? So the point is, I feel pretty good with our supply chain checks. And that's why I always say, like, it's hard for the bears to find AI in their spreadsheets. Right. I'm going to talk about China in a bit, but let's go to Stephanie. I mean, Stephanie, is it not puzzling at all to you that we have, again, these kind of bad headlines, but unbelievable growth?

6:10Well, Alex, I think it's all about positioning. First and foremost, in the S &P 500, this is about a 6.4 % weighting. It's a big weighting, right? If you're going to own the weighting, you have to have 6 % of your portfolio in this thing. And I would say the majority of people, especially in the spring, were way underweight. By the way, myself included. Totally myself included. I've had like a 1 % weighting in the beginning of the year. And then all of a sudden, like April and May came, and it was gloom and doom and downgrades and numbers were getting cut, and there was no line of sight of any growth of any kind for Apple in the springtime.

6:50And that's actually when I thought, okay, I got to start adding to this position because people are so negative and so offside. And maybe they had a reason to be somewhat cautious because the prior four quarters were really nothing to be so excited about. It was a transition four quarters. So I added to it because it kind of felt like I wanted to be the other side. I wanted to be the contrarian. And everybody was on the other side of the boat. So that was number one. And I totally believed at the time that AI would be certainly a positive. Would it be the super cycle? Is 16 going to be the super cycle?

7:28I'm still not convinced of it, but it would be the beginning of a change of tone. So that was number one. Number two, as Dan mentioned, you've got 300 million people around this world that haven't upgraded an iPhone in four years. So I mean, my goodness, even if you took half of that number, that is still more than what people at the time in the spring were forecasting because they really did cut numbers. And at the same time, I totally believe what Dan said in terms of China, oh my goodness, the sentiment was terrible. China was never going to grow an iPhone again, and they were losing all kinds of market share.

8:02And so I thought the setup was pretty good. In the meantime, during all of the kind of malaise of the prior four quarters, gross margins and operating margins rose in every single region except China. This company has done a masterful job. We know the free cash flow and the buyback that they had in place back in the spring. And so I liked the setup. Fast forward to today, we're up 37 % since May, since when I was adding to it. And that's a heck of a move. That's a heck of a move. And everybody now has gone the other way of like iPhone 16 is going to be the revolutionary phone. I'm not quite sure.

8:39I think that maybe 17 and 18, I feel really good about those phones. I'm not so sure that 16 is going to be the blow away, but the expectations are still kind of muted. But I'm going the other way and I've been taking some profits in it only because when I have Apple now trading at 35 times forward estimates with a 37 % rally, I think that there are other names out there to be more excited about. And in fact, I know we're going to get there, but Amazon is actually cheaper than Apple at this point in time and has majorly lagged. So So I'm kind of looking for where is a little bit of the offset.

9:14Now, long term services, I do think is going to be a home run. I think AI is going to be an absolute home run for the apps business. So I think you just have to be patient. But we've talked about this, like in this conversation. And let's just kind of put a point on it. Is it Apple intelligence? Or is it just the fact that like Apple's poised for an upgrade cycle? Because maybe the headline is that it's Apple intelligence, but the upgrade cycle might be the thing driving it. I think that's always been our contention, right? In other words, a lot of people, we hear so much negativity, like, oh, you're wrong.

9:48I'm like, look, this upgrade cycle in itself, without AI, the stock's going to work. The AI piece is ultimately the start of how most consumers in the world are going to eventually interact with AI. And I think, look, WWDC, me and you were there together, right? Stocks 190. Investors are like, oh, this is so disappointing. Think about it. That's in June. And I remember we would talk, right? Our whole view is like Apple basically said, we now will be the castle for AI. And if you want access to it, you got to come through Apple intelligence. Clearly open AI. I eventually think MetaGoogle are going to have to make the same move.

10:39I think, Alex, in my opinion, I think that's more the call. I hear what you're saying. I'm not fully buying it, but I think that we could debate it forever. And we won't really know until this stuff starts to get your, like, you're right, get into the hands of developers. And you have great views. And you have great, every time, like, we talk, you'll say things where I'm like, that's, you know, no, because that's, I think it's very important. a name like this, you always want to like, you want to hear different points of views. I think a lot of times that's sometimes big people, biggest downfall, right?

11:11You want to understand like both sides of it. Right. I could be wrong. So let's see, but let's talk about, I'm just going to, you know, keep on this line of questioning because we've talked about China a couple of times in this conversation and Apple's had like quite a decline in China in terms of revenue there. And China makes up what 20 % of Apple's revenue. So the numbers came in and they looked quite good for the first three weeks of the iPhone 16. The iPhone 16, according to CounterPoint research, is selling 20 % more than the last cycle of the last iPhone, iPhone 15. And that's great. It looks like Apple is going to be reversing this trend.

11:54But then you look at the total sales of Apple and CounterPoint says that Apple has still dropped 2 % in China because the older models are not selling as well because Huawei phones are starting to take that share. So Dan, I've heard you say that the state-of-the-art Huawei phones are as good as an iPhone 14 and that sort of computes, right? Because if you're deciding between a Huawei and an older iPhone, it seems like people in China are going with the Huawei, which is hurting Apple's total sales. What do we think about that? Yeah. I mean, look, we've seen that share shift over the last year, but it goes back to the last few years.

12:37They've gained 300 bips of market share. They could give back 100 bips. But if you look, the biggest opportunities, you have 100 million iPhones in China that are in a window of an upgrade opportunity. And then I think the big x variable does baidu and apple strike a deal where baidu becomes ultimately the ai partner if that like if you said to me the biggest catalyst that could happen on the name it's that see i actually think a big a big opportunity for apple is india i mean we can worry all you want about china i get it i understand it's a big part of their business yeah but you know tim cook makes one iPhone for every seven in India.

13:26And his goal is to get from one iPhone to every four in India. And they have 1.46 billion people. And 40 % of those people are 25 years old and younger. Who's your iPhone buyer? 25 years or younger, maybe. But the point of it is the consumer is going to double between now and 2030. And we can talk about other things. I know we want to talk about technology in general, but I got to say, like, Prime Minister Modi is pro-growth in every way. And he is pro-consumer in every way. And so to me, you have on the margin companies that are leaving China and going elsewhere. That's part of this whole on-shoring, re-shoring thing that everyone's talking about now.

14:08They weren't talking about it a year ago, but that's what you're, whenever you talk to these companies, they'll tell you that they don't want to be in China as much. They don't want to be as dependent on China. They want to be more diversified. And so I think when Tim Cook goes over to India, oh, by the way, once a month, like that's pretty cool. And I think that that's where your opportunity is. It's not going to be next year. It's not. So we have to think more like three to five years down the road. But to think of that many people in a country, they're going to be the third largest country in the world by 2030.

14:38So I think they want to have a piece of that pie for sure. Yeah, that's an excellent point. And this idea of companies hedging away from China. I mean, one of the questions I had written down before we hopped on is, is Apple intelligence ever going to be available in China? Because China reviews very closely what AI products roll out. And maybe not. By the way, maybe it will never be available in Europe because of European regulation. I mean, the way Europe's going, I mean, you're going to have every country in the world is going to be ahead of Europe when it comes to AI. Scare their own shadow.

15:14But it is also one of those things that computing phones are going to become more important. We're not in the AI world right now. Phones are going to be important. And as more of the world becomes, you know, comes online and, you know, decides that it wants the state of the art phones, it's good news for the state of the art phone maker to have massive, effectively yet to be saturated markets like India that they can grow in. And it's funny, Alex, I think when I think of AI and how powerful it is, it makes me actually even more bullish on cybersecurity. I mean, I think that those are your two themes.

15:51You guys talk to CTOs more than I do, but I talk to my own company CTO, and they only have a budget, a finite budget. And they actually are spending in two places. It's AI because they have no idea what it means for their business. And it's cyber because they can't wake up one day and lose their business. And so you're going to see double digit growth in both AI and in cyber. I hope somebody gets it right in cyber because so far you have way too many vendors and no one's talking to each other and you've got cybersecurity companies getting cyber attacks in and of itself. So I actually think that people talk about AI as, you know, this whole huge total addressable market.

16:26It is. But cybersecurity is just as big and if not bigger because of AI. And so I think that's another area, another theme that should be owned within the next decade or so. Yeah. Now, just on that point, and I know Stephanie's a huge fan of CrowdStrike, you know, and like we've talked, I think like Palo Alto, Zscal. I think the other thing that's starting to happen, we've seen it happen over the last few months based on all of our checks and cyber. you're now starting to see as more and more workloads move to the cloud, more and more of these LLMs, even on the experimental side, you got to protect it.

17:04AI is going to be a direct beneficiary for cyber. Call it second, third derivative. That's just going to add CyberArk, Palo, Zscaler, CrowdStrike, Okta, others. Yeah, I will say that I'm working with a company right now that's taken some of my podcast episodes and has effectively cloned my voice so it can read, like narrate some of my newsletter articles. And that's a good use. I mean, we have a deal. There's a, you know, it's consensual, right? But like, there's a negative side of that, which is that what if a company I don't even want to give, speak this into the universe, but what if I should speak to my family about this right now?

17:48A company takes my episodes, clones my voice and like calls, you know, one of my relatives panicked on the side, you know, saying I'm on the side of the road and I need you to send me money right now. It could happen. So there's a negative. And that's why I think cybersecurity becomes important. But I really shouldn't give. Yeah, but Alex. this idea if if all of a sudden i heard your voice and it wasn't a 516 area code i'd hang that's right i know they'd have to spoof long island so thank you for sharing i know i mean it's about 516 right so that's true if it's not 516 not alex so let's just be clear let's do it so scammers stay away from the long island area code because i will i'll find you and there'll be it's a price to pay last thing about apple because how could we have this conversation and not mention it.

18:37What happens to Apple if Donald Trump is elected? Because he is going to start a trade war with China. And, you know, maybe over time, this India thing is going to be fine, but they still need that 20 percent of revenue coming in from China. What do you think, Stephanie? Wow. I think it's not going to just be Apple, unfortunately. I think it's going to be. I think the initial knee-jerk reaction will be sell Apple, sell semiconductors and in spades, because they've all done so well over the last several years, even with the President Biden's tariffs, because we know that he kept a lot of tariffs on.

19:11But, you know, you listen to what Trump is saying, and he's talking about doubling and tripling the tariffs over there. So it's not going to just be technology. I mean, I think one of the reasons why today and you know, you guys focus a lot on tech, I focus on a lot of the market in general. I don't know if you saw that like consumer discretion got hit so hard today because of that all of a sudden, if Trump gets in, how are these companies going to get goods and it's going to be more expensive. It's going to be across the board, probably for a lot of consumer companies. And that is really Apple.

19:40At its true core, it is a consumer company. So it will get hit. Maybe that's your opportunity. That's why I say, you know, when everybody goes from one side of the boat to the other and the stock rallies, it's not bad to take some off the table. Again, from an active portfolio management basis. But if you're a long-term holder, you're going to survive it. Maybe the Trump tariffs are more of just kind of like a threat and a bargaining chip. I don't know. He seems to be pretty serious about it, but the level we just won't know. But I think that is that certainly was starting to creep into the marketplace because it will not be good news.

20:14Right. Dan, I want you to weigh in on that. And then also there's this notion that the stock market tends to accelerate and do quite well after the presidential election, no matter who wins, because this area, you know, these these months of uncertainty that you finally have certainty, the market likes certainty. There's a new president. That's going to be the president. Stocks go up. I'm curious, like, again, like, think, tell us a little bit about what you think the impact of a Trump election will be. But then also more broadly, is this going to be like one of those elections that bucks that trend where no matter if it's Trump or if it's Kamala, because we all know a lot of part, big portion of the business community is in favor of Trump and probably betting that he's going to win with their investments.

20:56If it's Kamala, do they end up pulling out of the market. So could we end up seeing a very different result than we've seen in previous elections? Yeah. And I'd say like, especially just getting back from a few weeks in Asia, like on the investor stuff, I mean, that's always like a top two or three question. But we view it pretty simplistically where Trump gets in, if he gets in, it is very negative for the AI trade initially semis tariffs retaliatory for apple tesla jd vance light likely keeps con in right from an antitrust so i think the view is harris gets elected despite all the you know sort of antics i think cons out so which we bullish for attack from an ftc perspective so no doubt like i don't when you say the biggest risk to the mark from a tech trade It's not like inflation, earnings, demit.

21:53To me, it's really Trump gets in. Steve, Stephanie talked about that jolts the trade because of the fear what's ahead. I would say this. So just be careful because and that's why you want to look for opportunity, because if Trump gets in and you got to mix Congress, he's not going to be able to get as much as he wants to get done. if you have a red or a blue sweep, that's problematic for the overall market. It's just general. So that's why it's more Congress in my mind. And then I would just simply say without getting, I do not want to get into politics, but I would say this, whoever gets in, they are both spenders.

22:33They just spend it differently. So if you think that we are going to address the deficit, which is another big question, when I talk to clients as, are we ever going to fix this thing? I think you're going to fix it for quite some time. I think my 17-year-old and our 17-year-olds are going to probably have to deal with it later down the road because we kick the can. But for sure, tariffs are a headline risk, but watch the mix to see exactly if that's an opportunity or not. I think if it's a mix, it is an opportunity down the road, long term. And the split, nothing gets done in the beltway, which is bullish.

23:06That's right. That's exactly right. Let's just pause there and talk about that because it's so interesting to me that the market just doesn't want the government to operate? I mean, you would think it would be the opposite, right? Why is that good for markets? And is it short-sighted? Because the market doesn't like surprise. The market doesn't like to, we do climb a wall of worry on a lot of things, but we always climb a wall of worry. In fact, I worry when we don't worry because that means we're complacent. But if you have a split Congress and not a lot gets done, it's gridlock. There's only a few things that the president can really address.

23:36Now, tariffs are one of them for sure, but you do need approval and you do need a process has to be put in place. He'll also be able to deal with immigration a little bit more and that sort of thing. So there are things that can get done, but for the most part, overarching sweeping changes will be very, very difficult to get done. And that's what the market likes, because if it is a sweep, then we have no idea what's going on. We have no idea what's going to get passed. Yeah. Okay. Last thing about this. Let's say we do end up in some sort of trade war. We've seen China be quite aggressive in the seas, especially around Taiwan.

24:12And there's some fears maybe that there could be a blockade there. I mean, obviously that could be go even further to a takeover. But what do we think about that in terms of what would happen actually to the U.S. economy if that situation played out? I just I mean, just being I just come back from Taiwan and the area, I think there's a view that that's just very low likelihood that that's going to happen. Look, in Hong Kong, you definitely sense some seat changes in terms of what we see, but look, we're always going to have these sort of, as Stephanie talks about a lot, like Black Swan, tail event.

24:54I just continue to view it as just a very low possibility. But look, I get it's a risk, And if that happens, it definitely becomes a little more pronounced. What happens is also business capex and investments freezes and consumers go into hiding because we just don't know. If something were to happen, it depends on how severe it is. It depends on the circumstances, the situation, how long that it doesn't last. What does it lead to? So there's a lot of questions. But that's why businesses will all of a sudden say, I'm going to cut back my spending. And consumers are going to say, I don't really know what's going to happen.