Apple’s Upbeat Forecast Clouded by Cost Fears

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Big, big week for tech earnings here. The Apple numbers came out last night. I thought they were like really good. So what does the stock market do? Down 1 % in the stock here today. I've been doing this stock market thing for 40 years. No idea how it works. Dan Ives does, though, Global Head of Technology Research for Webber Securities.

1:40Joins us live here in our Bloomberg Interactive Broker Studio. Dan, what did you make of the quarter last night? I mean, that was a staggering quarter in terms of what you saw on iPhones, specifically in terms of China. I mean, China, massive tailwind, services strong. I don't want to say best case scenario that you could have seen. The stock performance today, I'd say it's a massive head scratcher. I mean, this is one where I think this stock should be up 5 % to 8 % relative to what they perform and the guidance. But I think it also just comes down to, and we've talked about so much in the show, right, is that what's the AI strategy?

2:15What's the monetization? Show us the playbook. That's not Cupertino. That's not their DNA. And I think that's why the stock's kind of, it's a little Larry David eh in terms of the reaction. So how has it been their AI push? Because they have faced concerns and they've really lagged behind their mega cap tech peers. Look, I mean, they've watched AI from the stands. And I think that's been disappointing to many, including us, because you have the biggest install base in the world. You have 1.5 billion iPhones. But now it comes down to the Google Gemini partnership is the first big step. They're bringing in outside talent, which is, I think, unique to what we've seen there.

2:53And then this is what I believe is going to build into a subscription service. I mean, that is not being factored into the stock. And just I just go back to like a year ago. Look at Google. New York City cab drivers parish on it. Now today they're doing ticker tape parades for it. You go back to Meta a quarter ago. Now look at it. So we're just going to go through this just very sensitive time for tech investors. Looking at the Mark Gurman Bloomberg News, his reporting today. Maybe some concerns he's calling out about gross margins in the current period due to rising memory prices. Also, some supply chain constraints with the iPhone's three nanometer processor.

3:32Are all those things kind of suggesting to investors maybe we're going to have great sales, but maybe not the margins we're looking for? Is that an issue? I think that's I mean, I think that's in Telegraph. But I do believe you have price increases when it comes to iPhone 18. We'll call it one hundred hundred fifty dollars. But, Paul, I think like what ultimately is going to move the stock. When investors are focused on how do you get to 325, 350, how do you have a stock with a three in front of it? It's not going to be sales, margins. It comes down to lay out the AI strategy, show us the playbook.

4:07And that's why Cook's going to stay CEO, in my opinion, until that baton's handed, because this is so important, I think, to his legacy. And what about how it's coping with tariffs? The company said that it created a$1.4 billion headwind. Have we reached the worst? Yeah, I think worst is probably in the rear view mirror. And look, that's why I also play nice in the sandbox in D.C., which Trump has been a huge positive. But it goes back to Cook, 10 % politician, 90 % CEO. So he's been able to navigate that extremely well. Now investors are, okay, it's good time. What show the growth catalyst? It was a huge step in the right direction last night.

4:45But you see like investors, and this is going to be a narrow in this tech earnings season, any blemish, anything investors don't like, they're going to take these stocks down. And we saw that with Microsoft and others. Talks about China here, because that's been a big or an overhang for this company for the last couple of years, if not more. What do you think the status is right there about China and Apple? Well, I think it's a lot more positive today. I mean, go back. They were kind of in the middle of a sort of old Western fight between U.S. and China. now as those tensions have come down that's that's been a huge positive for apple that's why apple and tesla are the two tech companies are always caught in there i think you've seen those tailwinds look it's so important 20 iphone sales you need that to be a market that's showing growth and that's why you're seeing it they're delivering everything you want to see but the one thing that's missing it's the ai strategy and that ultimately that's that's really the hearts and lungs of what's going to be.

5:44Why haven't they articulated a strategy? And maybe that strategy is we're just going to wait and we're going to partner with whoever we need to partner with. And that is our strategy. Have they set that or is that not enough? Look, they've been it's essentially the last few WWDCs. It's been a back to the future Michael J. Fox moment. Right. The point is like they've really been on a treadmill at 2.5 speed. I think part of it was like they were hoping it was going to be internally developed. That wasn't going to happen they've probably been i think slow and culturally it's actually hurt them that's why you start to see changes and ultimately they needed google win the doj suit for this to happen google doesn't win doj suit this can this partnership can happen should they have bought perplexity should they have done others of course but that's why this is go time for apple and that's what the stock's reflecting investors like show give me something and do you think that they have a chance in overtaking their peers?

6:42Look, I think when you have the biggest install base in the world and you have a Hall of Fame Mount Rushmore CEO like Cook, you could be late to the game. But 2026, they can't fumble the football. This has to sort of be their moment. I think it's off to a strong start, but as we're seeing in tech, this is going to be much more highly scrutinized. You're not going to be given the sort of maybe latitude, just given this market. 30 seconds left before we let you go. Can you give us your call on Tesla right here? I mean, I think it's going to be a historical year for Tesla. It's the autonomous robotics era that's now taking place.

7:20Plus, think about SpaceX and XAI, what that's doing in the Musk ecosystem. Musk is wartime CEO, and it comes down. That's why 600 base case, 800 bull case. And this now starts the AI revolution at Tesla. SpaceX, that I feel happens. That's going to lift just the whole feeling about Elon in general, I would think. Look, it goes back to like he's playing, you know, he's playing like chess, others playing checkers when it comes to what he's navigating here. And that's what haters will hate. But when SpaceX comes out, I mean, you know, you're talking about what basically makes him almost a trillion.

7:55Biggest listing ever. I mean, one and a half trillion dollar valuation. That would be just extraordinary to see. Stay with us. More from Bloomberg Intelligence coming up after this.

8:06you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube we've spoken to i don't know many many voices on this pick of mr warsh for the fed chair we've had people like neil dutta very negative uh we've had people like Terry Haynes of Pangaea, quite positive. Yes. So there seems to be a wide range of views out there, A, about Mr. Warsh as a nominee, number one, and number two, just to kind of about, you know, policies in general.

8:45So we'll have to see how that plays out. One voice we absolutely wanted to get to hear from is Danielle DiMartino Booth. She's the CEO and chief strategist at QI Research, and she spent a good stretch at the Dallas Fed. So she knows how all this stuff works. Danielle, I'd love to get your opinion on the nomination of Mr. Kevin Warsh. Well, I'm cautiously hopeful. President Richard Fisher served when Warsh was on the board, and they were two large deterrents of quantitative easing. Warsh famously called QE reverse Robin Hood. He and I sat on a panel when he was at Stanford a few years ago, And we share the same views that going as far out on the easing spectrum as QE was not good for the financial markets, was not good for the overall U.S.

9:39public. And I'm hoping that he doesn't go in that direction, that he's not tempted to go to zero interest rate policy again, and that we steer clear of QE and continue to shrink the size of the Fed's balance sheet. These are all things that Warsh has indicated that he would advocate for doing. And I hope that he follows through with that. So after the nomination, there will be the confirmation. And we've had some of the sources telling us that it may not be as smooth. What is your projection for that? Well, you know, I listened live when Senator Tom Tillis was interviewed earlier this morning on Bloomberg.

10:15And he has a very good point. And it's not that he's philosophically misaligned with Kevin Warsh. In fact, I think he thinks he's a great candidate, but he was he used the word frivolous as it pertained to the lawsuit that he was waiting until the Department of Justice's frivolous lawsuit was. Frivolous charges were dropped against Chair Powell before proceeding with any nominee. I think Senator Thune, Senator Majority Leader Thune has backed that this will not be possible. You will not be able to progress Warsh through the nomination process until the Department of Justice releases Jerome Powell from these criminal charges.

10:56Danielle, how do you think that Mr. Warsh will move as it relates to interest rate policy? There are a lot of folks have pointed out that he's become maybe even more dovish, less hawkish with time in most recent times. And that may or may not have some political ramifications. How do you think he'll try to proceed with this Fed? So, you know, of course, that is going to be the perception. I've seen a lot of the comments that he's made. But I would just say this. I think that coming in, that Warsh will be more aligned with Christopher Waller and that he will recognize that the Fed is failing on its employment mandate and use research and data and alternative data sets to justify continuing to bring the Fed funds rate down.

11:45And I think that that's entirely appropriate. But again, I'm hoping that that he aligns back with his original thinking that zero interest rate policy is not the way to go and that he finds a more reasonable Fed funds floor somewhere around, say, two percent. So if Warsh does become the Fed chair, what changes first for markets, policy direction, communication or maybe reaction function? I think reaction function becomes critical. We have to remember that Warsh was he was a critical player during the global financial crisis. He has deep understandings of financial markets. We've seen some movement in leverage loans this week.

12:25We've seen a lot of activity in private credit. The good news is we need somebody who has a deep understanding of the banking system, the financial system, their linkages. And I think he'll be able to be a good steward at the Fed, given the extended valuations we've seen and some of the kind of risks and threats of financial instability that are percolating out there. Danielle, he has a remit or he's talked about a remit to narrow the focus of the Fed here. Do you think that's widely shared at the Fed? Well, I wish it was more widely shared. I've long said that we need to go back to having just the inflation mandate and that the inflation and labor mandates are inherently in conflict with one another.

13:16He's also advocated to continue shrinking the Fed's balance sheet, even if he brings interest rates down. And I hope he goes forward with that as well. But you're right. He would have an uphill battle with a lot of the more dovish members of the board. But he would certainly be more aligned with individuals who are Federal Reserve District presidents who do not advocate for a larger balance sheet. What do you think Fed Chairman Jay Powell will do when he steps down from his leadership position? Do you think he'll stay on the board or will he just sail off into the sunset? I think it was very I think it was very telling to markets and it was very telling to the current administration that he refused to answer the question at the press conference.

13:56And I would encourage Jerome Powell to stay on through January of twenty twenty eight. Philosophically, at least we know that the two are aligned. The two do not like or at least I should say Jerome Powell, back when he was first appointed to the Fed, came very close to dissenting against QE3. So I would hope that the two would be able to work together and that Jay Powell would stick around until his term ends. And if Warsh really is committed to lowering rates very quickly, how much influence does the chair really have in persuading other governors? Because it's not just his one vote, as everyone has repeatedly said.

14:33That is absolutely the case. He could be looking at a number of dissents on day one. However, I think with the messages coming out with just the clear data that we're seeing, whether it's Conference Board or University of Michigan, or the fact that so many Americans are not filing for unemployment insurance, and yet Google Trends shows you that we've got an almost record level of Americans searching for file unemployment. I think that data will speak for itself and that many will be on board with lowering rates if we have to wait to do so until June. I certainly hope that is not the case. Stay with us.

15:12More from Bloomberg Intelligence coming up after this.

15:18You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Here's another group of stocks I totally missed. Year to date, these big energy oil companies are just ripping here. Exxon up 16 % year to date, Chevron up 14%. Nice moves there. The company's reported earnings and some pretty good numbers, I thought. But what do I know? Vince Piazza, he's the expert. Senior equity research analyst. He covers all the oil and gas stuff for Bloomberg Intelligence.

15:51joining us live here in our Bloomberg Interactive Broker Studio. This may be the one, two, maybe three days he spends in the Big Apple. We got him, folks, in studio. Finch, talk to us about what you learned from ExxonMobil, from Chevron, from the most recent earnings. Yeah, well, I think for the most part, what you've seen the last couple of days is really the after effects of the storm, right? Especially helping natural gas and really the underlying benchmarks for oil. But for the 4Q, Shermar and Exxon, you know, down sequentially on earnings. Pretty much as expected, though, right, because of the realizations quarter over quarter on the lower oil prices.

16:36You know, going forward, it's steady as she goes. Really, it's really about disciplined investing in the business, allowing the Permian and also Guyana to provide that upside. And really, it's about the upstream side of the business because the downstream is in a secular decline, a structural decline with the headwinds. But it's really about the upstream. It's really about the Permian. And you know about the Permian. Why? Because you watch Landman. That's right. So but what we're going to see in 2026, really, not only from the big integrators, but also from the other companies I get reporting is what do you think about natural gas here at these levels?

17:16And are they going to turn up the spigot on production, which we really don't view it as such. We think the capital discipline will be maintained. We don't think there'll be a great deal of production growth coming in 2026. And what you're going to get is a return of excess cash. So both Chevron and Exxon beat earnings expectations this quarter, but Exxon managed to grow profit and Chevron's profit declined despite the beat. What did Exxon do correctly from an operational and strategic standpoint that maybe Chevron didn't? Yeah. So, you know, Exxon has Pioneer and that's Permian. So the Permian and the Guiana has worked out quite well.

17:59The upstream is really the driver for Exxon. What's interesting, though, when you think about the free cash flow that both Exxon and Chevron generate, Exxon is somewhere around$5.5 billion, yet they paid out almost$10 billion in distributions via share buybacks and dividends. And, you know, that can be done because of Exxon's financial flexibility, big cash hoard. So they can support those distributions and their shareholder engagement, similar for Chevron. But Chevron is a little bit lagging because of, you know, they just acquired Hess. They're integrating Hess. So they're a little bit further behind the process.

18:40But also for them, they also have Guyana via Hess, and they also have the Permian as well. So somewhat smaller, a little bit behind where Exxon is, but they're catching up as well. Chevrons in Venezuela have has been in Venezuela for a long time. But they're really the only ones. Everybody else said the heck with this. What do you think is going to happen going forward with the change in regime change in Venezuela? Very slow. It'll be a very slow uptick in output. They're roughly around 250 ,000 barrels per day right now. You could see that doubling in about two years. But this is about sourcing in country.

19:18Don't see we don't see the backdrop for incremental higher investment in country to grow that output. We just see them reallocating within the country to get that output going. And 250 ,000 barrels over the next, call it 24 months, isn't really that big of a production boost when you think about the global franchise and roughly 4 million barrels a day of output. It does seem like international opportunities are the way to go, at least for them. But in your view, which company's portfolio and growth investments maybe are better positioned to deliver growth in the longer term for the price of oil?

19:57Oh, in my view, and we've said this in a lot of what we've published in the last year or so, Exxon definitely because of the franchise in the Permian, because of Guyana. Chevron will get there. They're lagging somewhat only because of the length, the delayed arbitration over Hess. But now they have that. Now they have the Guyana piece as well, the participation with Exxon in Guyana. They also have the Permian as well. So both of these enterprises have those key pillars for growth for 2026, even out to 2030. Both have provided very reasonable growth expectations. A lot of those expectations, a lot of that, the theme is really on the upstream side of the business.

20:46That's what's really going to drive the business. For Exxon, the downstream investments in the energy products, that will also be a positive for them. But at this point, Exxon does seem to have the upper hand in terms of the scale in the Permian and also Guyana as well. I will say that I wouldn't be surprised if more is done on the upstream side because this is a maturing industry. Right. And so consolidation is the key. What we have said and what we've published over the last several years is this industry needs to consolidate. We will have fewer but much larger players in the upstream business here in the lower 48.

21:31How about NatGas? I'm just looking over the last couple of months. We went from$4 down to almost$2.50. Now we're above$4 for NatGas. It's been all over the place. How are investors playing NatGas these days? So in our 2026 outlook, we focused on NatGas over WTI oil. There are structural advantages that NatGas has. Number one, not only on the LNG side, but also in the build out for the tech data centers. These are structural growth opportunities for natural gas that crude oil does not enjoy. And natural gas remains in the process of consolidation as well, whether it's in Appalachia or in the Haynesville.

22:16So once again, you will have fewer operators, but larger operators, stronger operators, molecules in the hands of much larger operators with better balance sheets, able to manage these businesses going forward. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.