Apple Will Do Deal With Google's Gemini, Ives Says

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What is it that was so good given the fact that this really is a hardware story? Not necessarily a technology story, which is...

Host

Dan Ives

What's going on with the rest of the tech world? Sure, I mean look, if you look services, that continues to be rock of Gibraltar for them and that mid-teen growth, that I mean that time from a multiple perspective, that investors are really focused on. But look, the reality is we've talked about it so many times in the show over the years. Other cycles of disappointing from my iPhone of the U.S. 15, 16, iPhone 17, you know, it was supposed to be like a surprise upgrade cycle. Especially in China, China was the headwind now looking like a tailwind. And then also comes back to Cook, I mean, 10% politician, 90% CEO, playing nice in the sandbox in DC. That's gonna have an impact as well. And this is all the drum roll.

To AI. I mean, that is what you're playing for here when it comes to Apple in the next year. Is it? Is this still the promise of AI? Or is this really a question of, we all have phones that are broken and cracked, and we've been waiting for a long time, and we're going to now upgrade to the iPhone 17. They are capacity constrained at this point, which was the biggest hamper for them. And it's a completely different story than the AI's spend that we're seeing in the other companies. And a very different kind of trajectory than maybe what we're seeing in the other space. It's a frustration, right? Because if you look at Apple, this AI party where it was 9 pm, it was 10.30 pm, that party goes to 4 am. Apple, they've been on the outside, looking through the windows.

Host

Dan Ives

Right. So now the focus is consumer AI revolution. It's gonna go through Cupertino. What has happened comes down to that Google DOJ win. That's huge and now, I believe it's a matter of time, they're gonna announce a massive AI partnership on Gemini. That's what you're playing for, because 25% of what you're playing for is the stock's cheap relative to what I think could happen on an iPhone 17 services, but what you're really playing for here is they get to the AI party, announce that deal over the next year. This is a $350 to $400 stock as AI finally comes to Cupertino.

Doesn't that legitimize, but basically challenge this idea that you have to spend in the AI race to keep ahead? If you have a company like Apple that basically figures, we can partner with people, we don't need to spend and we can still benefit. Does that just show you you don't need to participate in the arms race for every other company that is?

Host

Dan Ives

Yeah, I think for them it's unique because there's 2.4 billion iOS devices, 1.5 billion iPhones. So they've built the field of dreams, and they've built it, they will come. So now it comes down to like, from a consumer perspective, you have to monetize that. I think AI revolution comes to Apple on the consumer side. When you look at the enterprise, look at the fourth industrial revolution. The reality is from this tech earnings, going into October, and how bullish you are relative to everything we've seen from hyperscalers: Amazon, Microsoft, even Meta. Meta stock down but spending more and more. This is only the second inning of the nine-inning game.

It really changes though how you analyze these tech companies if they are taking on AI servers and other relatively short-lived assets. It means depreciation charges start racking up. How does that change how you think about these companies and the otherwise cost discipline that they need to exercise?

Host

Dan Ives

It's an AI arms race. You're essentially building out the new economy on the consumer and enterprise fronts. That's why you have to be able to look out two, three years to what this is going to look like. Microsoft is a good example of building a Microsoft within Microsoft. Google as well. The DOJ search was greatly exaggerated and actually positive relative to AI. Amazon's CEO Jassy said 'Don't forget about us' which was a huge boost for them.

We saw a huge bulk of the Magnificent Seven report earnings this week, looking at CapEx expenses compared to revenue. Revenues are expected to increase around 5% at Amazon, but CapEx expected to rise 51%; Google revenue expected rise 6%, CapEx 43%; Similar story for Microsoft. At what point does that become a concern that they have to fund more with debt and depend on investors?

Host

Dan Ives

That’s outside the Magnificent Seven, companies have to raise to compete on CapEx. Big tech with trillions in balance sheets generate 300-400 billion a year. The reality is they are fueling this AI revolution. CapEx went from about 220-230 billion a year ago to 380 billion today. Investors continue to underestimate the scale and scope that fuel this engine. Jensen Huang, the Godfather of AI, continues to be the chip that fuels the AI revolution. AMD, TSMC, Broadcom signs all speak to our view. We also see derivatives in authentication, cybersecurity—CrowdStrike powering out of this.

This is where it's all going: second, third, fourth derivatives. We get Palantir on Monday and then the rest so we can see exactly how that's playing out. Just taking stock, you’ve been right on so much of this. What do you see that seems excessive, or makes you a little nervous?

Host

Dan Ives

I just got back from a month around the world, especially Asia, trying to understand demand spikes. The real ones have real demand spikes. But just saying AI 30 times in a call doesn't make you an AI play. You need to own the winners, not just any AI play because they have great presentations. For example, Caterpillar is not an AI play. It’s important to be careful about who’s real AI, who’s derivative. Investors should focus on spending and the winners, second, third, fourth derivatives. Obviously, MSI and iPound are among them.

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