Dan Ives: How To Pick Generational Tech Winners

0:00I'd say you can't find AI in the spreadsheets. I think to some extent, you have to, valuation's important. But my whole view is like, if you focus just on valuation, you've missed every transformational growth stock the last 20 years. There is one chip in the world fueling the AI revolution. It's led by the godfather of AI. He's wearing a black leather jacket. His name's Jensen. He's badass. But it goes back to like, first of all, Jensen, 2021, 2022. to getting crushed. Why are you investing in AI? You're a gaming company. You bet on the innovators. You bet on the CEOs. And I think that's also very important, like in terms of how we pick stocks.

0:49Retail has a huge seat at the table. I think what that's done is that like in April, They held stocks. Institutional sold it. You look at names like Tesla, Robinhood. I think at times NVIDIA, Palantir. Retail has been head of institutional. The reality is like the biggest asset for Tesla is Musk. Tesla is Musk. Musk is Tesla. But this is the most important chapter I think ever in Tesla's growth story. The autonomous robotics feature. And I think you're seeing a wartime CEO again. And that's why I think in the future, you know, Tesla will be defined by what Musk does over the next 12 to 18 months.

1:38Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, the edge. The Master Investor Podcast is sponsored by Interactive Brokers. Please do remember the views expressed in this podcast are for general informational purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today, Dan Ives, is Managing Director and Senior Equity Research Analyst at Wedbush Securities.

2:17He's led the firm's tech coverage since 2018. Since then, he has been unrelentingly bullish correctly, in particular on the AI theme, even more correctly. And he's done it by being unapologetically himself, not just bold calls, but bold clothes, albeit offset by his very gracious way. And in doing so, I would argue, has elevated a relatively small firm in Wedbush in the process. He's also the founder of Ives ETF and the chairman of Orbs, both of which we will get to as well. Dan, my friend, welcome to the Master Investor Podcast. Great to be here. So excited to be with you. So excited. We've both been itching to start in the last 10 minutes as we've been framing up the cameras.

3:00You are dressed appropriately as ever. And I hadn't realized until prepping for this, you have your own clothing line now as well, which we're going to get to. And all of those details a little bit later. but it's great to see you. Great to see you in London and love the attire as always. As I mentioned there, you have been bullish on tech, your sector, pretty much throughout the period that, well, totally throughout the period since I've known you. Have there been any moments in the last decade or nine years or whatever it's been at Wedbush when you've paused? We talk about the sector as a whole and you've thought we need to really reevaluate our long-term bull thesis on this or has it been quite an easy call for you to stick to?

3:43I mean, look, covering tech stocks since like late nineties, right? I mean, so like you could say perma bullish and, but look, there have been dark moments, right? I mean, obviously going through dot-com bubble, financial crisis. But I think when I look back at the last few years, look, Liberation Day in terms of the tariff issue, that was a huge white knuckle moment. And that was something like for me, that was like a gut check moment because that was a fork in the road and it was going to go one way or another. And obviously, you know, it went. Well, let's just pause on that quickly because I remember listening to our friends, Dan Nathan at Risk Reversal podcast.

4:21You went on that like a day or two after the tariffs were announced and you were really broken at the thought, not just about your calls on stocks, about what it could do to America as a whole. You just thought the wrong call. That was more as a U.S. citizen than as an analyst. Because it's someone like myself that goes to Asia four times a year, covered tech my whole career. I understood those tariffs, what potentially that could do. That would have cut U.S. tech off at the knees. Went down to D.C. four or five times during that period, me with many politicians, trying to drill in like, look, I understand what you're trying to do here.

5:00This is not the right way to do it and I think obviously it ended much cooler heads prevail but that was a very like gut check moment and look for us it's like you can't call tech from the 25th floor of a New York City or London office building you got to be feet on the street and I think that's why look three and a half million air miles the last 25 years I've been able to do I think that's been our advantage and me and you knowing each other for a long time, I think there have been so many periods where it's very easy, I'll fire in a crowd theater. It's really our work that we do that's given us confidence.

5:39So in terms of the kind of more recent period of time since Wedbush 2018 when you joined there, I mean, have you had to ignore valuation? Maybe ignore is too strong a word, but I guess one of your successes perhaps has come from not weighting valuation as highly as many other equity analysts. Yeah, I'd say you can find AI in the spreadsheets. I think to some extent, you have to, valuation's important, but my whole view is like if you focus just on valuation, you've missed every transformational growth stock the last 20 years. You have to be able to look out three, four, five years to really build a thesis to where you think that's going.

6:25And I think that has probably been, you know, philosophical, like our view is that you got to focus on the tech and where ultimately sort of we'll call it a bull case scenario could go. But also it's doing the work yourself, CIOs in Asia, to make sure and validate where it's like, you know what? You can miss a quarter. Stock could go against you. But as opposed to so many sell-siders, you know, where it's kind of like they all head for the elevators downgrade stock. It's kind of like steady hands when you have a sort of thesis. So you said something really interesting. They said, you know, you can't spot these winners in a spreadsheet.

7:02Do you have to spot them in your gut? Do you have to think this is the winner of the next five years? Or is there something more tangible than just that? Or is that very important? No, I think part of it is like, I bet on leaders, right? Like, you know, it's like, it's knowing Musk, you know, back a decade ago it's it's no one jensen it's lisa sue it's nadella it's car i mean i think palantir is a good example like knowing carp understanding palantir stocks like 10 bucks or i'm and i'm like this is going to be a generation lame now people at that point i mean the hate mail was was pretty like pretty insane you got hate mail from that oh from from institutional investors how could you bet on Palantir?

7:46This is one of the worst calls I've ever seen. But my view is like Palantir is going to change the world from an enterprise perspective. It was betting on the leaders, but also it's understanding the culture, the technology, and it's doing the work yourself. And I think that's something where, I think that's probably been like, If I look back on our career from the Apple calls and Tesla and Nvidia and Microsoft and others, it's sometimes going against the grain. Look, Nadella takes over Microsoft 2014. The view is like disaster. How could you have an internal guy? But just knowing him and what he was going to do, I'm like, he's going to rip the carpet up.

8:33I want to talk about individual stocks. Maybe we'll come back to this, but I think he's underpriced. He's perhaps the best CEO there is. I mean, we're talking Hall of Famer. Like, he's really almost, to me, what he's done in Microsoft, it's for the history books. Especially understanding the red tape and what was at Microsoft before he took over. And he was an internal guy. He basically, like, he rapidly changed that company. And I'd argue we're not at AI. We're not in the AI revolution. Of course, Jensen being the godfather of AI, if it's not for Nadella, recognizing open AI back to early 2023 in terms of where it was heading.

9:18Lots to get to in those specifics, which we'll dive into, but big picture to kind of question the bullishness overall on the theme. Back in my CNBC days, I left three or four years ago. You always used to say, I don't think it's 1999. I think it's 1995. that we've still got quite a few years of the AI-related expansion before you might get into bubble territory. What I find really interesting watching and listening to all your commentary now, you've changed that slightly. You say 1996, but we've had four years. So just, I guess, answer my skepticism there. You could look at it another way and say, since you said it was 1995, we're three or four years.

10:03Isn't that closer to 99 now? Sure. And also I'd say like for someone like myself, like that went through the tech bubble as an analyst saw 98, 99, 2000. What's happening here is that like, if you think about almost like dog years, right. In terms of as it's playing out, only 3 % of us companies have gone down the AI path. So the reason I say it's a 96 moment, maybe I'm not calling like a 98 moment or 99. it's because only 3 % of companies in the U.S. have gone down. Europe, zero. Asia, ex-China, zero. Sovereigns are just starting to go in terms of Middle East. And for the first time in 30 years, U.S.

10:48is ahead of China when it comes to tech. And I think that's so important because it's NVIDIA. It's the hyperscalers. It's the use cases. And we've said, like, this AI party started 9 p.m. It's now 10.30 p.m. Party goes to 4 a.m. Now, again, in that party, DJ could stop playing music, glass in the dance floor, maybe cops come, try to break up the party. But the bears will watch that party from the outside through the windows. Bulls and bears meet up at 6 a.m. Bulls hell out there a night than the bears. I haven't stayed up past 10 p.m. for a long time. I'm afraid breakfast shows will do that to you.

11:26But I love the analogy. Let's talk about some of those hyperscalers maybe first. clearly when it came to search google winner takes all if we talk about and i know there's other levels to it but the large language models the way consumers are at the moment engaging with ai is that going to be when it takes all who's in the lead at the moment and and do you worry again it might be one of the short-term pullbacks about the value that has accreted across four or five of these companies with very little revenues to share between them yeah i think when you're From a hyperscaler perspective, so let's just even set it.

12:05Less than 50 % of workloads are in the cloud today. So it just shows you, we're not even talking about AI, less than 50 % in the cloud. When you think about AI, only call it, we talk about 3 % that have gone across the U.S. When you look at these hyperscalers, they're still super early days. Now Microsoft, it's their backyard. Like the enterprise, like this is their game to lose. Google, Amazon, you say as I look it in, but now significantly closing the gap, $3 trillion that's going to be spent. That's a lot to go around for everyone. But remember, the hyperscalers, think about like a stack foundation of a house.

12:48That's the foundation. But the true winners too, they're going to be on the use cases, names like Palantir, Snowflake, MongoDB, where's Oracle sit, cyber security infrastructure core weave nebius others the power plays look the reality is that for every dollar spent on an nvidia chip we estimate there's an eight to ten dollar multiplier across the rest of the tech so i do i don't think it's a winner take all i think this is one where like you're gonna have a lot of the second third fourth derivatives but that's why we believe at least two more years left in this tech bull market. When we see new models come out, Gemini 3, this or that, how closely do you watch that?

13:32Do you think, oh, wow, they're now in the lead. I'm going to change my thinking. Or is it like as long as all of them keep improving, then we're okay? I guess another way of putting that is if OpenAI was listed on its own, forget the Microsoft partnership, would you be suddenly a little bit bearish relative to the gains the likes of Gemini are making? Yeah, I mean, to me, like the whole reason we're we've been like pounding the table on Google is the view that Gemini was going to be special and I think it's one if you go back to earlier this year the London cab driver is bearish on Google but what they've shown is Gemini is real it's a game changer but I don't view it look some of the parts you could argue it adds 50 60 hours a share to Google stock but open AI I still believe open AI went public today it's trillion dollar market because of the view.

14:24Legitimately. And the reason is that it's not just about Chad GPT. It's about the view that they're essentially going to build a full stack when it comes to AI. But I don't view it where Gemini comes through a huge, super negative for all men open AI. I view it as for this revolution to take hold, you need many models. You need miles in China. Miles are going to get cheaper and cheaper. The data continues to be, I think, where a lot of that success is going to be. What about on the other side of this massive bull run, NVIDIA? Do they now, for the first time, have real genuine competition, whether it's Google Chips, Broadcom, AMD?

15:11Look, just getting back from Asia, there are three weeks for three weeks. Demand and supply is 12 to 1 for NVIDIA chips. I mean, look, it's their world, everyone else paying rent. Now, look, will there be a narrowing? Yeah, but look, they're four or five years ahead of any major competitor. Now, you look at like Google TPU, what's happened with Huawei, AMD, others are going to benefit. But that's also why NVIDIA needs access to the China market, given what I view as like you don't give them access to China. it just makes China stronger, makes Huawei stronger, it makes domestic competition stronger.

15:53But there is one chip in the world fueling the AI revolution. It's led by the godfather of AI. He's wearing a black leather jacket. His name's Jensen. He's badass. Look, but the thing is, but it goes back to like, first of all, Jensen, 2021, 2022, getting crushed. Why are you investing? in AI. You're a gaming company. And it goes back to like, those are the same, like if you go back historically, right, it's like 2008, iPhone's just gonna be a one-year AT &T smartphone. 2014, Nadella, why are you trying to turn Microsoft into a cloud player? 2013, 2014, Musk. Dude, there's no way electric vehicles are gonna work.

16:45Look, it goes back to like, You bet on the innovators. You bet on the CEOs. And I think that's also very important in terms of how we pick stocks.

17:17informed investors, choose IBKR. Learn more at ibkr.com forward slash master investor. I just want to pause on a couple of things with the stocks we mentioned so far, which is, pick out Google, Microsoft, NVIDIA, Ford P, what are they on in your numbers? Because again, some of the moments when we've used to chat, there was some pretty terrifying PEs. they're not that bad anymore. I mean, like NVIDIA certainly has grown into its multiples. It's not a cheap multiple by typical metrics, but it's not that expensive, right? And the street's underestimating true growth, probably by about 25, 30 % in terms of where numbers are really going to go.

18:06So what's your 12 months? The average tech company is trading at 27 times earnings. In the bubble, 30 times revenue. So when I look at NVIDIA, 230 or 250 as this i view is like base case in terms of its what's that put it on what multiple and i mean that would basically be like a high 20 multiple for basically a company that's the one ship fueling the ai revolution and that's why it comes down to like the view like there's like a tech bubble the best private companies haven't even gone public yet these stocks okay are they expensive relative to historical yeah but the growth is 4x you have more growth over the next three years than you had in the last 10 years combined so so my view is just like there's two types of people it would be like 1950 is going to vegas i tell you okay we're gonna build the strip vega this is the future then there could be someone else be like it's desert like either you're not gonna have an airport here you're not gonna be able to do so i'm just saying like i i think that's really essentially you have to believe because my view is autonomous humanoid robotics like that those are some of the things that we see in the future so i want to just um touch off on a couple more of the i'll ask you about a couple more of the bearish arguments that are that are out there and and one brings in meta as an example which is from a lot of the high-profile, successful short hedge fund managers have been questioning in their accounts how long they're amortizing all of this AI investment over and whether, in fact, it's artificially boosting their earnings because not so much that they're not building the right products, but they have to buy the next best NVIDIA chips much sooner than they're amortizing over.

20:06Is there truth to that, i.e., NVIDIA's innovation is so great that everyone's going to have to spend the same amount again every two years, not every four years? Again, we got to see, I guess it all plays out. But also like the mathematical gymnastics that a lot of the shorts have done because maybe other, you know, theses have not sort of panned out. I get it. But the reality is like for let's say like a meta, Zuck's wartime CEO now. They have to aggressively spend no choice given how they're going to monetize their 3 billion users. When you start thinking about earnings and how that's going to, is it overstated and how it's ultimately play out?

20:50I mean, well, in my view, like when you look out in the next three, four years, when we're looking at NASDAQ 26 ,000, 28 ,000, like, you know, I believe like two more years left in this tech bull market at least. I just think a lot of that is short-sighted relative to the massive growth opportunities and again it goes back to like some of the shorts that you talk about it's it's easy to be a short from the 25th floor of a New York City office building when that I want to see those shorts if they're at fabs in Taiwan like we are and they see demand 12x oversupply that to me continues needs to be the thesis.

21:34One other bear case I've heard from someone who is plugged into this sort of stuff. I mean, it's funny how you mentioned the percentage of compute that's in the cloud, and there's still a long way to go there. What do you say to people who suggest that trend could turn? That as we start to use AI more, and we share much more of our private data, that those people with deep pockets, businesses or wealthy individuals will want to keep that data on site. And so the compute power instead will be at your home or in your office. And I guess linked to that is, have we overbuilt some of this data center capacity, which clearly is buying into the theme that everything is going to move to the cloud?

22:18Look, there's more data centers under construction today than active data centers. I feel like the ship's left the station. Like, in other words, like that, it's all heading down that path. I'm not saying you can't have private clouds and others that are on premise for like, you know, specific use cases. But I just think the reality is like, you're like, I think we're not going to have enough data centers. And it was like, I'm not of the belief that you're going to overbuild data centers. It's a late 1990s, just like fiber and the overbuild with Aether and everything like that. I don't view it like that.

23:01I actually view it as when you think about the future, 20 % of cars being autonomous, humanoid robotics, consumer from a health perspective, pharmaceutical, you look at biotech, you look at government, how they're going to. I mean, it's just starting. It's not just about like chat GPT. That's tip of the iceberg in terms of where it's all heading. Brings me on to my next big stock that we haven't touched on yet, which is Apple. You've been, rightly, again, a long-term bull and even including this year, pushed people to buy it when it had a dip. And it's bounced again. And obviously, part of that's on the hope of iPhone sales.

23:40My question to you on that is, in this world of AI-empowered everything, is it fair to say that the actual smartphone handset is much less important compared to the AI software that will power all of our devices? And with that, does that worry you about Apple or not? Yeah, and it's funny because me and you so many times over the years, Apple earnings is coming out and stock could be down. And it's very easy in those moments to be like, is this, is it? But it's like, it all comes down to like 2.4 billion iOS devices, 1.5 billion iPhones. It's the biggest install base and work from a consumer perspective.

24:24Services itself over a hundred billion a year. I think when you think about AI, that's going to be a huge monetization for Apple, but it all comes down to like what they've built that ecosystem what 99.3 percent always once you're in apple you stay within the apple ecosystem so i view it as still so very important but for apple they've been on the outside looking in that's also why they're changing up a lot of their ai leadership they're ultimately i believe with google gemini are going to go head down that path in terms of exclusive partnership they'll charge for models like you look out next year or two you're gonna they're gonna charge for models that that will essentially be like an apple exclusive model you're gonna have an ai app store i mean that's the future where it's heading for apple but it does still come down to even though less important it's about the install base did tim cook take his eye off the ball with ai i think there's parts of apple that have been run like a motor vehicle like a municipality red tape guess what google was there too i mean the beginning ai that that was google's problem they've significantly changed that but for apple innovation, not doing acquisitions.

25:48It has to go through a certain process. You could argue they had the wrong people in the wrong spots, which is why culture, they've had to rip the band. They don't have to make a lot of changes. And I think Cook, and I still believe he'll be CEO through at least 2027, he's not going to hand the keys to whoever takes over Apple with an AI strategy blowing in the wind. Like this will be a defined one between Google as the partner and leaders from the outside that could take this to the next level. And I think that's why they're doing everything right now ahead of what's going to be the big release next year.

26:25I think we've touched on six of the Mag 7. So let's hit the last one, Tesla and Elon in particular. Where do you rank him in terms of the great innovators alive today? And is his focus back on all of the little business interests that are captured by that one publicly listed stock, as opposed to whether it's politics or also, you know, non-listed parts of his business empire? Yeah. I'd probably put him as number one. I mean, to me, the reason I put him ahead of Jensen is what Musk has done. See, I could argue like, we're not here if it's not for Musk. I mean, Jensen and I think if you ask Jensen who he thinks the biggest innovator is like I mean Musk is either one or up there top because what we've seen in terms of the change in mobility what we've seen in terms of changes not just electric vehicles but you know really what's going to be the future in terms of autonomous and robotics I think for Musk it was a dark period during you know when he was part of the Trump administration, dude, not just brand issues, take an eye off the ball.

27:41We talked about, you know, sort of edicts that he needed to get back, the board needed to get him back. Because the reality is like the biggest asset for Tesla is Musk. Tesla is Musk, Musk is Tesla. But this is the most important chapter I think ever in Tesla's growth story, the autonomous robotics future. And I think you're seeing a wartime CEO again. And that's why I think in the future, you know, Tesla will be defined by what Musk does over the next 12 to 18 months. A lot of pressure riding on some of those individuals, I guess. Just finally, in terms of what Jensen would say about great innovators, where do you think he would rank or where do you rank the founder of TSMC and how impressed are you?

28:22I mean, tell people a little bit about how important TSMC is, Taiwan Semiconductor, to all of these companies. I mean, they're the fab, you know, it's funny when you think about like Google with the TPU, like over the last few weeks, who makes that TSMC? Like TSMC is basically the hearts and lungs of the whole supply chain. It also speaks to, I think, a part where I think investors under appreciate how important they are. I mean, we have our ETF, the IBS out there. I mean, TSMC is obviously one of the key players because they're basically a winner. And you've visited their fabs. Exactly. They're unbelievably impressive.

29:05Like, when you see what they've built, and obviously they'll be building some stuff in the U.S. as well, in Arizona, and they're playing a different game than anyone else. And I think they, I won't call them monopolistic, but look, they've created something that is so rare. And I think for many years did not get the due respect that they should have. Obviously there's a bit of a political risk to that stock, but it's obviously a lot cheaper than a lot of US players. Look, and to that point, like when I like speak at conferences and there's always like, okay, like questions from the audience. It's like, well, what happens if China invades Taiwan?

29:50on well it comes down to like you could live your whole life in these sort of i'm not going to go in the ocean because there could be a wave i'm not going to get in a car the reality is like is it a risk yeah but i just believe that like the world even itself's out and i think china truly understands that they play 100 year sort of views and they're not going to do anything in the near term around Taiwan. I think that's something where it's a risk, but I think it's a risk that like, it's a black swan risk that you have to take into, I think your broader investment thesis.

30:36I want to quickly touch on retail versus institutional. I know you're a big fan of retail investors. And I guess if we rerun the clock 10, 15 years, all of the very educated sell-side research only reached institutional investors. That's been opened up for all sorts of reasons over the last decade. And now we've got AI too. And I guess my question on this is, firstly, how well-informed do you think retail investors are now? Is it, in fact, better informed than institutional. But is the opportunity to do this research and come up with better analysis going to very quickly be arbitraged out if AI is involved on this as well?