On this episode of Okay, Computer. CNBC’s Deirdre Bosa returns to Okay, Computer to discuss the big tech artificial intelligence arms race (2:00). The Twitter paid subscriber count is reportedly way below expectations, can Twitter stay afloat without harming Tesla stock (14:00)? Dan and FirstMark Capital’s Rick Heitzmann chat about “the end of the great consumer subsidization” (22:00) and what the tech space looks like in a non-zero interest rate environment (33:00). Gene Munster offers insight on Q4 earnings from Apple (42:00), Microsoft (49:00), Alphabet (52:00) and Amazon (55:00) Q4 earnings.
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Show Transcript:
Dan Nathan: [00:00:38] Welcome to Okay, Computer. I’m Dan Nathan. I have a jammed show for you today. First and foremost, out of the gate, Deirdre Bosa. She is the co-anchor of CNBC’s Techcheck returning to the pod. Deirdre, welcome. [00:00:51][12.7]
Deirdre Bosa: [00:00:52] Happy to be here again Dan, any time for you. [00:00:54][2.3]
Dan Nathan: [00:00:55] Yeah. You and I have a ton to talk about. I mean, you’ve been. You’ve been covering all of this, this Chat GPT, and it just seems like there’s no shortage of headlines around these kind of language models here that have caught the rate, not just here, but also in China. Like, as I’m looking at my FactSet screen, I see Baidu up more than 10% because they made an announcement on this front. We know that Google is making some investments as we are recording this right now. Microsoft is hosting their AI event, just talking about how they’re going to integrate Chat GPT into Bing. So that is going to be just a hot topic here and we’re going to hit all that. Just real quickly, a little housekeeping. I also have a great conversation with FirstMark Capital’s Rick Heitzmann on the end of the Great VC Consumer Subsidy, and then also Gene Munster from Deepwater Asset Management is going to join me to go over all of the Megacap tech earnings that happened over the last week and a half or so. Okay, DBO, let’s hit this one because I’ve seen you all over CNBC talking about this. It feels like for a couple months now you have a lot of reporting across all of these major companies, but it just kind of seemed like it hit the public market by storm. I think that, you know, in December, a lot of people were talking about, is this going to be a big threat to Google? How far behind are they an open AI, you know, Microsoft seemed to like with that billion dollar investment initially and then there’s $10 Billion investment seems to have like a bit of a pole position here. Thoughts on just what’s going on because it seems to be a little bit of a mania, not just out there in the valley, but but kind of just all over the globe here. [00:02:29][94.0]
Deirdre Bosa: [00:02:29] It’s gone bananas, hasn’t it? I mean, it’s all we’re talking about. I think the whole first part of our show was dedicated to this. Dan, you know that I live in San Francisco. The first time I heard about Chad GPT was at a dinner party last year. One of our guests said, check out this thing. Ask it anything you want. It was Chad GPT. And we were testing out how we could ask it questions, riddles, write a poem, all the things that people are doing now. But it just exploded, absolutely exploded into the mainstream over the last few months with Open AI. Once they put out their trial that you could sign up for and test out. And since then, it’s just gone faster than I think probably anyone can imagine. Even the guys at Chat GPT and Open AI. I mean there’s charts, you’ve probably seen them how it’s reached a million faster than Twitter and it’s created sort of a bit of panic as well, right at Google. You talked about earnings last week and I’ve covered Alphabet earnings for years and they’re always talking about being an AI first companies center. Pichai saying it’s at the core of everything we do. But Microsoft Open AI stole their moment. So now what you see is this massive tech company trying to play catch up today is the Microsoft kind of last minute press conference. Tomorrow, we’ll hear from Alphabet, all sorts of questions over what companies can use it. And just speaking of earnings season, it feels like this is the new blockchain. Everyone’s just using it wherever they can, whenever they can. [00:03:54][85.0]
Dan Nathan: [00:03:54] Yeah, it’s funny, you know, we were talking about it in Fast Money last night, you know? C3AI, you know, it’s run by a guy named Tom Siebel, who’s been around in the software space for an awful long time. And, you know, the stock is gone from, you know, $10. It closed down at the end of last year, down 95% from its post-IPO high when IPO’d in late 2021. And it was just left for dead. Here was a company that was expected to do maybe $260 million in revenue, expected to lose, you know, a bit more than that. It’s got the AI in the name there, which is pretty good. That stock rallied 200% to its highs just the other day. And it’s down a bit today. And it just shows you just kind of the scarcity of pure play, I guess, public names, how some of these other guys are scurrying around like Alphabet. You know, they’re making a $300 million investment in Anthropic. I mean, these are companies that are obviously way pre-revenue. And it’s funny that you use that example of blockchain. We remember the dot.com sort of frenzy, you know, 25 years ago. It just seems that like some of these big platforms, they have the money to throw around and they might as well spread their bets if they can’t buy these companies from a regulatory standpoint, because ten years ago, if this was just kind of the craze, you know, like remember when Facebook on the eve of their IPO, they just paid $1,000,000,000 for Instagram? I don’t think they can do that right now in this regulatory environment. [00:05:19][84.3]
Deirdre Bosa: [00:05:19] At the same time, the regulatory environment is so backwards looking, right? We talk about the DOJ looking at Google’s advertising business, and maybe that’s a reason as well. That’s why the stakes are so high here. AI, as you well know, and probably a lot of your audience has already been in use, been being used and different ways for enterprise for many, many years, this is the first time it’s really hit the consumer. And I guess the implications for search for Google’s business, for Bing’s business are so large. But going back to your comment about C3AI, it’s kind of like we’re at this moment where there’s a disregard for the fundamentals. Anything that has AI is buzzy. We interview Tom Siebel often after, you know, most quarters and he’s got a lot of government contracts and he’s trying to shift his model to a consumption based one from a subscription based one, which is a difficult place to be if you’re entering a macro downturn. So it does feel like everyone’s reaching your point about being pre-revenue is true. But where I sit, San Francisco kind of feels like a return to what investors here VCs look for. It’s that promise, that pie in the sky promise of something that can be so transformative. And certainly it’s been a long time since something like generative AI has had this big an impact. [00:06:33][73.8]
Dan Nathan: [00:06:33] We could just kind of connect this a little bit with the web3, you know, kind of blockchain craze of the last five years or so, because a lot of kind of really smart tech investors in the private markets were throwing a lot of money at these things. But what’s different to me is that we were in a zero interest rate environment and that’s a very different environment right now. And when you see some of the numbers that some of these startups in this kind of A.I. space and they’re all like, you know, chat GPT competitor raising 250 at $1,000,000,000 valuation or something. I mean those are really hard numbers to kind of grow out of. And the one thing I do think is interesting though is that like the open AI, you know, when Microsoft invested $1,000,000,000, you know, a couple of years ago, part of that was rebate tried to to use their public cloud and to use other resources. And I think that’s also what Alphabet is going to be doing. And maybe that makes a whole heck of a lot more sense, especially when you think about some of these public clouds and where they’re geared towards. Obviously, Amazon has historically been geared more toward the startup space. You know, Microsoft’s Azure and maybe Google Cloud a bit more in the enterprise. I have to think that that has something to do with this. [00:07:41][67.9]
Deirdre Bosa: [00:07:42] Yeah, at a time too when cloud is slowing at all of the hyperscalers that you just mentioned, generative AI takes a lot of computing power and it’s a good way to invest in the next technologies, maybe hedge their bets as well. We know that Google has been developing their own AI products internally for a very long time. Maybe raises the question why do they need to go out and invest in a Chat GPT rival? Shouldn’t they already have this in-house? Well, they do. It’s called Bard and they’re testing it now internally, these businesses, we talk about this cost cutting environment. Right. And they need to show efficiency to their investors, but they also need to continue to diversify. That is what they are so good at. And when you take a look at Google, it’s still getting about 80% of its revenue from the ad from digital advertising, which may be disrupted now. It’s do or die for Sundar Pichai and that’s why maybe it’s not so surprising to see the urgency, the code red within the organization, to make sure that they’re not just on top of this trend, but leading it. [00:08:40][58.1]
Dan Nathan: [00:08:40] Yeah, you know, it’s interesting also that one of the things that, you know, you and I and I know you’ve been covering tech for a long time. I mean, you know, you hear this expression thrown around all the time that technology is their largest disinflationary force and it’s accelerating. Right. And when you think about a technology like this and you think of all the use cases and you think about, you know, big platform companies figuring out how to integrate it into different processes, it’s hard to see it not as disinflationary. And so at a time where all of these major tech platforms grew like crazy during the pandemic, adding hundreds of thousands of employees and now they’re cutting tens of thousands of employees. Right. And so if if wage growth and employee headcount was, you know, the thing that was kind of potentially going to weigh down on margins in a decelerating environment, which we are, and that’s one thing that I think you and I could definitely agree on post the Q4 earnings and at least the sort of color that we got about the existing period is that growth is decelerating. Right? There’s no doubt about it. And a lot of these companies have to keep up with these cost cuts here. I just wonder, you know, how much of the integration of these technologies is going to be hype in the near term? You know what I mean? But I think the long term, it will most definitely be disinflationary. [00:09:54][73.8]
Deirdre Bosa: [00:09:57] Hype, absolutely. But you think about a product like Bing, which had trouble getting off the ground. Is everything okay at the end of this week, Dan? Are we going to be able are we going to be searching in a very different way? I mean, I’m testing out an app on my phone that has Chat GPT beat behind it. I find myself going to it instead of going to www.google.com. They just need a better interface, right? So far, we’ve been using open AI products on a browser. I have to keep signing into it. It’s not all that intuitive. There’s an app now. I don’t know if I can say which one it is. I’m testing it out. It has a database too, of what people are searching for and the idea of search is transforming in real time. So while there is a lot of hpye and perhaps this takes months and years to play out. I think there is the possibility that on the consumer side of things, the consumer facing this takes off faster than anyone expects. And chat GPT was really the model for that, reaching a million users faster than anyone could have predicted. But that said, there’s a lot of companies out there and a lot of companies trying to use this in a way that will take years to play out. [00:11:02][64.5]
Dan Nathan: [00:11:03] Yeah, it’s really interesting, I guess. You know, I’ve been talking to a lot of VCs, as you have on the topic, and just kind of trying to get a sense for how does this thing play out for, like, are we going to see just this huge boom in like all of these private companies, or are we likely to see these large platform companies just who have the ability to kind of do the sorts of deals we’ve seen already from Microsoft and Alphabet? I’m sure Amazon will be doing some deals here and just leveraging, you know, within their own platforms, right. And then offering them as services within their cloud offerings to like, will they take all of the benefit this in the near term? Or are we likely to see a bunch of multibillion companies kind of bubble up here? And listen, that’s the one thing, you know, when you talk about the kind of headwinds from a regulatory standpoint with some of our major platform companies, it’s like, will they continue to just stifle innovation and new technologies because they can just kind of continue to either buy, invest, do whatever the heck they want, acquire it. So to me, that’ll be a really interesting thing to see how it plays out. I just remember I remember a few years ago when all of these companies started using the term structured data and everything like that. And really what they’re talking about is using advanced technology tools and just, you know, just another buzzword, I guess, is what I’m saying here and who will benefit in the long term. [00:12:24][81.2]
Deirdre Bosa: [00:12:24] It’s a good question. And, you know, the mega caps, they have scale, right? It’s not just the consumer facing the search potential of generative AI, but when you think what Microsoft has and what they can offer open AI is their office product suite, right? They have millions and millions, hundreds of millions of users on teams and office, etc. that they can achieve that scale with. And I think that’s the promise of this technology is the licensing of it. Right? Where are we going to see it? You mentioned public cloud software. You can imagine that it’s going to be everywhere. There’s going to be apps built on top of this. So certainly it’s moving fast. And I would say that maybe that’s another concern. We’ve lived through the rise of social media and right now it’s all everyone’s talking about in the hype machine is going, but maybe the not so desirable impacts of this technology like IP theft and plagiarism and privacy that has yet to really show itself. But I have a feeling that that’s going to rear its head soon enough and the regulators are going to be looking at it. The question is, can you put the genie back in the bottle with social media? That was incredibly it was impossible. So do we have a chance do that? And that’s what Sundar Pichai at Google talks about. He says, We need to be bold, but we also have to be responsible. You can read that as an excuse maybe for them not getting a product out sooner. They want to do it carefully, but it does raise questions about the speed. We’re seeing things happen now. [00:13:52][87.9]
Dan Nathan: [00:13:53] All right. Let’s switch to bold and irresponsible. There was an article in The Information yesterday about Musk’s Twitter has just 180,000 U.S. subscribers, 290,000 globally, and that is for products like Twitter Blue and maybe some other subscription products, maybe getting your gold check and all that stuff if you’re a corporation here. But it’s interesting, you know, this is a company that has over 400 million monthly active users. And when you do the math, I mean, I can do that math. I mean, that is, you know, like, you know, less than 1% of their users. This is [00:14:25][32.2]
Deirdre Bosa: [00:14:25] 0.2, I believe, of monthly active users. [00:14:28][2.8]
Dan Nathan: [00:14:29] Which is which is crazy when you think about because the information was also reporting a few weeks ago that Q4 revenues, we know those are primarily advertising revenues were down maybe 35% or so. I mean, this has the makings of just being, you know, in an absolute disaster. He did make that first interest payment. We know that a lot of the rate, a lot of that debt that he has is floating. We know where interest rates are right now. I mean, this seems to be a really difficult situation because, you know, he at first was like, listen, we can make it up in subscription products, what we’re losing and ad revenue. And then I think at some point last year, he probably did some of that math and it’s coming out right now, whereas like, well, we may have to file for bankruptcy. And the other question I would just make is that, you know, or I have for you is that Tesla shares and that to obviously fund the purchase of this 30 billion in equity and 13 billion or so in debt have rallied from their lows in January, about 100%. He said he’s not selling anymore stock. But goddammit, I mean, like, yeah, I got to think he’s ready to sell a whole heck of a lot of stock here and really put to rest some of the issues as far as how this company Twitter stays afloat. [00:15:35][66.3]
Deirdre Bosa: [00:15:36] Right. The question is, will he have a choice? If Twitter continues to put up numbers like this and fail to get more people to pay for the subscription service, it feels inevitable, right, that he’s going to have to sell more eventually. In terms of Tesla. And also the rally this year has been momentum based, right? Not necessarily fundamentals like a lot of the other companies that we’ve been talking about in tech. Do we give Elon Musk the benefit of the doubt? I mean, in the lifetime of Elon Musk and what he’s been able to achieve, you could say that it’s still early days for Twitter and that he’s still figuring it out. He’s still sort of in a room holed up not far from here in San Francisco, tinkering with this. I don’t know. I tend to want to give him the benefit of the doubt because he’s solve problems that no one else has. He’s made Tesla into what it is today. He’s gone to space. He’s created so many compelling products. But as you said, he took on a lot of debt to do this deal. And he has kind of a clock ticking [00:16:32][56.8]
Dan Nathan: [00:16:33] No doubt about it. And, you know, he an interesting, you know, on that front as far as rates are concerned, valuations and the like here. There was an article in the Wall Street Journal and it just kind of caught my attention here. Speculative stocks soar as investors dust off the low rate playbook. And then here’s one from Bloomberg. Fed’s Bostic says Higher rate peak on the table after jobs blowout. Okay, so when you think about this, investors, you just said this. This is like kind of a momentum led rally that we’ve seen in the Nasdaq, which is up 13% or so on the year already here. And the anticipation of rates going lower despite the fact that we’re just going to continue, especially with that jobs report. I mean, like the stickiest part of inflation has clearly been jobs and wage growth. And one of the reasons why we just said a lot of these companies are aggressively trying to cut jobs here. But when you think about the stocks and how much some of these things have moved with deceleration in like a lot of their core metrics and who knows, you know, this whole idea that we are entering into a soft economic landing, that’s not what I heard from some of these major platform companies. And I’d love to get your take on that, because it seems to be what they were kind of talking about, the lack of visibility that they have right now. They are preparing for tougher times. The stock market is saying something different. [00:17:51][78.3]
Deirdre Bosa: [00:17:52] This disconnect is pretty fascinating. We were so prepared for a really ugly earnings season. It wasn’t a disaster, but it was still very disappointing. And to your point, let’s take a look at cloud. Right. A lot of investors look at the Hyperscalers, Microsoft Azure, Amazon AWS, Google Cloud to figure out how other companies are spending. These numbers came in lower than anyone expected. I mean, Amazon’s AWS is expected to dip into the growth rate that is is expected to dip into what mid-teens and the markets ignored this. We had build.com CEO on this week too who said that what he’s seeing from the smb side is a serious slowdown in spending. But the market isn’t paying attention to it because it’s reacting to the macro, as you say. So how long until these fundamentals start to come in and investors respond to that? I mean, we’ve got Fed Chair Powell speaking this afternoon. And the question we have is, is he going to be dovish or is he going to be hawkish? Does he have to make up for last week when he was perceived as a little dovish? I don’t know how this plays out, but I will tell you, Dan, that we have some people, not the majority of them coming on air. We had one today, a guest who lived through the dot com bubble and then bust. He says it kind of looks like that more than it does 08 09 So are we in for a reckoning? Could we retest those valuations? To your point, what’s the right valuation level to retest is that when we still had low rates and easy money or before then in a higher rate environment, the market is curious right now. You’ve got a stock like Carvana, right, that has been booming this year on not fundamentals. [00:19:24][92.2]
Dan Nathan: [00:19:25] Yeah, well, listen, as we’re speaking, you know, Fed Chair Powell is out and he’s saying the Fed will likely need to push rates higher and the stock market is rallying. I mean, so, again, you know, to the point where in, you know, the Nasdaq is maybe close to 20% off those October lows. And you see all the data. If you go back and you think about, you know, 2000, 20001/02, you know, there was a lot of bear market rallies that equaled about 20%. I remember I lived through it here. I don’t think we’re out of the woods yet. But listen, Debo, I appreciate you coming on. Hopefully you’ll come back very soon. We have a ton to talk about every week here, and so I’d love to get your insights as much as we can. So I appreciate you coming here and dropping all this knowledge on the okay computer listener. [00:20:07][42.0]
Deirdre Bosa: [00:20:08] Well, I love the pod, so anytime you ask Dan. [00:20:10][2.0]
Dan Nathan: [00:20:10] Stick around for my conversation with Rick Heitzmann of FirstMark Capital and also Gene Munster of Deepwater Asset Management. I’m back with Rick Heitzmann of FirstMark Capital. We thought this would be a good opportunity. Rick has a little theme that he and I I’ve been talking about. I know that is probably on the top of your mind some of the just the kind of consumer marketplace Internet models here. And again, he was the first institutional capital into Pinterest. We are recording this on Tuesday afternoon, the day after the company reported their Q4 earnings. Guided down and we’ll hit their quarter. Initially, that stock was down like ten, 13% or so. And then on the call, they talked about improving margins over the course of the year. And this is part of the theme I think you want to hit here. You know, we hear the great cancellation, the great resignation, this thing that whatever you’re calling this, what are you calling this right now? [00:21:47][96.6]
Rick Heitzmann: [00:21:47] The end of the great consumer subsidization. [00:21:49][1.9]
Dan Nathan: [00:21:50] Yeah. By by people in your industry [00:21:52][1.8]
Rick Heitzmann: [00:21:53] By venture capitalism, by the public markets. So, you know, as we think about what’s next and a lot of what, Dan, you and I talk about is what’s next? What should we think about in terms of thematics and what we should think about in terms of companies. But just, you know, as we’ve seen in earnings this week, what was last what was last is those companies are maturing. You see that companies are being rewarded for cutting costs. Companies are now being valued on EBITDA and whether it was Facebook or Pinterest or whoever it may be in the public markets, it’s less about revenue growth, it’s less about revenue multiples, it’s more about profitability multiples. And we’re thinking about this new transition and what’s next. And we’ve come through kind of two big cycles over the last 20 years. The first was broadband and you know, the first the Internet, second, you know, the rise of broadband and the rise of of high speed computing and everything that brought. The second was about 15 years ago, the iPhone. So now all of a sudden everybody has computers in their pockets and a whole new generation of apps were created for the phone, whether it be messaging apps like SNAP or ways to take the Internet in your pocket with Pinterest. And now people are looking to what’s next. And that’s kind of what I think about every day. [00:23:10][77.6]
Dan Nathan: [00:23:10] Some of these models that were born post-financial crisis, you know, that confluence of mobile social broadband, we know that just was kind of an explosion of a whole host of things that you throw in the public cloud that was just kind of an exciting cocktail for innovation. But here we are and so your point is, is that a lot of those platforms, the last ten years that were subsidized when they were private, okay, by VCs, okay, Now that’s kind of coming undone a little bit in a higher interest rate environment in the public markets. And so the question is, what’s next? Let’s do a little postmortem, though, on some of these names, because you just mentioned them Meta. And again, we’ve spent a lot of time on this podcast over the last year and a half talking about Meta. They were dominating the attention across their platforms when we were all locked down at home. And then they had this kind of shift as far as strategy focused on the metaverse. And then all of a sudden investors, as they started to say to themselves, okay, we’re going to be in a slower growth, higher rate environment, weren’t willing to kind of subsidize and the public markets, those sorts of investments here. Give me a sense of like what are the things that you’re most focused on as we were talking about this, We want to talk about ride Share, We want to talk about food delivery. We want to talk about, you know, some of these models and again, that they have not been profitable, like look at DoorDash. It’s a great company. It is a great service. But again, if they’re not attracting the customers and offering incentives to use it, they can’t grow. And that was being rewarded in the private markets. And then as these companies IPO, but not anymore and these companies are unprofitable. So what do you see for some of these things, like how do these companies get out of this mess? Because they also will be penalized if growth slows dramatically, right, even if they are more profitable. [00:24:50][99.6]
Rick Heitzmann: [00:24:51] So there’s a couple of different pieces there. First is what were the models that people bought into? And even the original Facebook logo model was user generated content. We’re going to be a media company, but instead of having to pay, you know, Robert Downey Jr to be Iron Man and spend millions of dollars on CGI, your friends birthday pictures is going to be the media and therefore it’s going to be free. And therefore I should be able to drive 50 plus percent margins. Well, that played out. But then when growth was rewarded more, more than earnings, that long term business model was kind of in a lot of these in a lot of these companies. And that stopped making sense. But, you know, you saw, I guess, to go to your second point, you know, there was a great subsidy around a bunch of different industries, you know, whether it was Meta in the public and private markets as they thought about new news activities. And then the metaverse in rideshare, we all remember, you know, ten years ago, it was much cheaper to take an Uber than a taxi. And now the reverse is true that, you know, as as Dara and the Uber team is pushing for margins, they realize, you know, they have to actually make money on each ride. Key one that we’ve talked about in the past is quick service delivery. Like I could get an avocado delivered to my house in 10 minutes for half the price if I walked to Whole Foods. And I think that’s all going away. So you’re seeing there was probably 100 rideshare companies. Now there’s two major public ones. I’m not sure how many of these quick service delivery things are going to work, but, you know, it might just be DoorDash and Uber Eats. And you think about the streaming wars you’re seeing as Iger’s come back to Disney. He’s saying, Hey, we can’t spend this level money. We can’t continue to produce content and distribute it at these prices. And people are starting to more focus on what is the business model need to be. It’s not just creating reach. Even if you’re a company as big as Disney, it’s more than reach. It’s also profitability and growing in a sustainable way. So for the consumer, actually at a time where we could be going into recession, there is more layoffs. There’s a fundamental dis savings from the pandemic. Not only does a consumer have less cash, but all these subsidies, which they everyone’s grown used to over the last ten years, are going away. And does that create some kind of opportunity? [00:27:03][132.3]
Dan Nathan: [00:27:04] Well, you know, it’s also very inflationary if you think about it. So you just use the example of Disney on the content spend there. They’re raising prices for Disney+. Netflix is raising prices and they’re doing away with password sharing over the course of this year. They’re also doing ads. So they’re going to have an ad supported model. And again, you know, a lot of this stuff at a time where a lot of the behavior was pulled forward years during the pandemic. Now, all of a sudden, to your point, these subsidies are going away. And then therefore, it’s going to be like consumers paying higher prices. They also are going to have to be a bit more discerning about the services and the frequency in which they use them. So I actually think of this and I’m looking at the stock market here. A lot of these companies bottomed late last year. Okay. When I think when investors got the sense that the Fed was nearing that kind of 5% terminal rate, and that was the thing that started off this kind of huge decline in valuations. And both first the public and then the private markets is when the Fed said they’re going to raise interest rates. So when you think about a lot of this behavior is being inflationary, it actually could have this really kind of violent, circular sort of action where because they look at some of this stuff and I know that the Fed chair, Powell said disinflation like 13 or 14 times. It sparked a huge rally last week at their presser. But it might also be the thing that keeps rate higher for longer and the valuation reset. I just can’t imagine it’s done. When you think about how a lot of these stocks rocketed off the bottom over the last three or four months or so because I really feel like this is going to be something that takes some time. And it’s not just the models that you mentioned. You and I were also talking about. Look at all of the content and the video game space that’s being canceled. Right. So again, those companies that create content are looking to cut costs. Look at the public cloud companies. We saw the deceleration on those places. And then think about this AWS is having greater deceleration than as Earth. They’re servicing far more startups than Microsoft is and their public cloud. So that’s one. And so I think that, like some of this stuff is just going to continue to play out over 2023. And the issue for me right now is really valuations where, you know, it was easy to make the case, why throw a dart at these things and short, them and I think we’re back at that place now. It was probably a much harder decision to do that three months ago. [00:29:17][133.2]
Rick Heitzmann: [00:29:17] And I think we’re at a point where two of our key themes, I think the first ever okay computer we did a year and a half ago was even when a frothy market and it was titled Business models matter. So your business model matters. What do you charge somebody? How much do they pay you and how much profitability is there? People had lost sight of that and now that’s coming back. And actually the companies are being rewarded by saying business model matters. I’m going to produce a game, I’m going to produce content, I’m going to deliver a sandwich and I’m going to make money on that sandwich because I really care about not only my pricing structure but my cost structure. And now that the market’s bottomed out and companies are now saying and whether that was Bill Pinterest yesterday, Evan at SNAP or Zuckerberg at Meta, that oh yeah, business models matter, we’re going to go back to making money, focus on the bottom line, understanding the costs and investing in those models. That’s going to shake out. Now, I think what we’re going to see going forward is it’s very easy to pay lip service to business models mattering and, you know, getting religion on cost structures. But who’s really going to do it and what are those business models really look at? Which ties to one of our other ongoing themes here at Okay, Computer of you know there are some babies getting thrown out with the bathwater and who’s really going to be able to execute against this cost structure and what are these business models really look like at scale? [00:30:37][79.9]
Dan Nathan: [00:30:37] Let’s talk about Pinterest real quick, because I know it’s top of mind. They reported last night. CEO came on our show last night and he did a great job. I mean, again, I mean, you know, this is a company that is seeing deceleration. They saw a massive pull forward. I think it’s also important to kind of recognize the fact that, you know, this is not a massive revenue company. Right. So they have the benefit of the tailwind of this huge secular shift right now as it relates to e-commerce and the situation where they are, they have a really unique spot as far as discovery. And they keep talking about commerce, commerce, commerce. And I’m sure when you were on the board years ago. That was part of your five year plan, but it wasn’t in place. And I look at a company like this, the stock was baby with the bathwater. This was last spring of 2022. It traded as low as 16. Well, here it is at $26 here. They just guided down. And I actually think that’s prudent man like, you know, they set the stage. So here they are. The only year they were ever profitable on a gap basis was 2021. There was the pull forward this year, let’s call it flat on a gap basis. Revenue is expected to grow, you know, 10% maybe increasing. So you have a stock trading at five and a half times sales. You have a multiple on earnings, whether it be adjusted, you know, which is still looks kind of high. But if they do what they said they’re going to do okay and they are really focused on their margins, then the profitability is going to come in. This is going to look like a cheap stock. Is am I looking at this correctly? [00:31:57][79.5]
Rick Heitzmann: [00:31:57] That’s exactly right. And I think you have the options. And Bill, who’s the new CEO there, came from Google, and Braintree was really focused on e-commerce and his vision around e-commerce. I think no one’s giving them credit for yet. So you’re saying. All right. On the pure Pinterest classic, for lack of a better term, we’re going to control costs. We’re really going to focus on RPU and being able to drive revenue per user even in a decelerating growth of the user base. And then we’re going to be able to layer on in the medium term commerce. So you have a pretty good floor because you’re not trading at a crazy multiple of sales or EBITA, but you also have some optionality and some upside as as the commerce picture becomes more clear. [00:32:36][38.9]
Dan Nathan: [00:32:37] Alright, let’s talk about this. Interest rates, whether you people who are here for the tech conversation, like it or not, the wonk is part of this because, you know, you know, free money, okay. You know, like ten years of zero interest rates, zero interest rate policy, the zur, as we like to call it, was one of the impetuses for the creation of a lot of these companies. Right. If there wasn’t money moving to alternatives like venture. Okay. Looking to kind of go out on the risk curve a little bit, a lot of these companies would have never been created. They never would have been funded. They never would have been able to subsidize the growth, that sort of thing. So here we are. You know, one of the things about the Fed, they can do a victory lap on gas coming down right on other inflationary inputs. One thing they cannot do, Rick, and again, is this unemployment rate at 3.4%. It’s the lowest level since 1969, and we added 517,000 jobs, way above expectations in January. Now, that’s juxtaposed to, you and I probably saw from the major tech companies probably 100,000 job cuts in January. Talk to me a little bit about that dynamic. Is it making some of the CEOs that you speak to a little hesitant? Do they think they are cutting too much at a time where the valuations have already come in dramatically for their stocks? They are solving to margins. A lot of the other inflationary inputs, you know, are down. It’s just wages are still high and they’re making cuts. And I’m just curious because that is a really interesting set up. And I think tech right now is bearing the brunt of the jobs cuts. And a lot of people are looking around and saying, wait a minute, jobs, the employment market’s gangbusters right now. [00:34:09][92.3]
Rick Heitzmann: [00:34:10] It is gangbusters. And I think there’s a lot of pent up demand. You couldn’t hire an engineer if you were in a traditional industry because Facebook and Google were just were soaking up all the talent. And now is they’re letting go of some talent that’s getting reabsorbed much more quickly than anyone would have guessed. So you’re seeing therefore salaries remaining high. And we haven’t seen salaries go back. So software engineer salaries have increased every year since they started tracking them. You know, 38 years, you’re everybody the salary only increase year over year. And we think it’s going to actually, amazingly, despite the layoffs, increase again this year. So what you’re seeing is that there’s still a battle for talent as that talent gets redistributed. But for our CEOs perspective, people are kind of are now building behind their success. You know, maybe two years ago, they were saying, I’m going to plan for success. I’m planning for the upside. I’m building my base of employees. I’m investing way ahead of the curve on the expectation of success. And, you know, some companies got from here to there and achieved their milestones and got the revenue base which justified the expense and some didn’t. And now I think everybody’s saying instead of building ahead of the curve, let’s build behind our success. And even despite a reset in the markets, despite what people believe might be, you know, lower interest rate environment, in the medium term, they’re saying, hey, we got a little bit ahead of our skis, let’s just reset and take a more sober position as they think about hiring and growing. [00:35:35][85.4]
Dan Nathan: [00:35:36] Last year, one of the other early themes we’re talking about, again, you’re on more than ten boards and you know, you’re an advisor to, you know, probably dozens of operators here. And you were saying, you know, cut, cut, fast, cut deep, get them done here. I’m just curious, like given what we just talked about, is this kind of dynamic where, you know, big tech has led the way on the job cuts, but we’re seeing this very robust job in my environment, if companies are still struggling, if they’re saying to you, listen, it’s going to be a tough slog for most of 2023, Right. For a whole host of reasons here. Are you still recommending to them to kind of. Continue to be vigilant on costs. And as far as the employment outlook here and again, like to your point, they’re always going to look for great people that they can add to their teams. But is that still a theme one year plus on from when you were advising on that? [00:36:22][45.7]
Rick Heitzmann: [00:36:22] Yeah, I think it’s still a theme. And I have a couple of board meetings this week and that’s clearly the board view now. And this is not only the board meetings I have this week, but next week and across the firm that, you know, how do you a how do you become financing risk? People forgot about when capital was free. You can send out a couple of emails and raise capital. Now, capital is a lot more expensive and whether it’s you have risk there, can you raise it and at what price? The best thing you could do and having been an entrepreneur 20 years ago during the last crisis like that, being financing risk independent is the most important thing if you’re an entrepreneur. So what we’re seeing in these companies, especially companies that have some size, have some scale, is be financing risk independent, get to cash flow break even when you can. Don’t cut off your nose to spite your face, but, you know, get to cash flow breakeven and then reinvest that in. How do you think about the allocation of those resources? And you know, the board level strategy is the prioritization and allocation of resources against goals. And that’s what we’re really going through. And you have a great company. We have a board meeting today with that. So in $100 million in revenue, they’re growing very quickly. They’re going to be cash flow break even in a couple of months. They have plenty of money in the bank and this is going to be okay. Therefore, now we now we’ve hit those milestones. Now what do we do? Now do we grow? I mean, we it was it’s a marketplace business called Hop Skip Drive. It’s growing very quickly. It’s helping children transport themselves around from schools and activities and even governments. And what they’ve done is they’ve said, hey, is we’re growing for new geographies, let’s wait till we’re cash flow positive and we could provide the most fulsome service and grow and grow behind our success. And that’s what even companies at scale of $100 million plus in revenue, that’s the prudent thing to do. [00:38:10][107.8]
Dan Nathan: [00:38:10] On the capital raising front. We know that there’s, you know, hundreds of companies that raised in 2020, 2021, they’re going to probably need to raise into, to your point with interest rates where they are and the likelihood of them going down meaningfully in the next year are not great. They would only go down meaningfully interest rates if the economy went into a recession. Okay. And that’s not going to be great for valuations either. So my question to you is that are you hearing a lot of these founders saying themselves, hey, listen, the Nasdaq is up 20% from its lows. People keep talking about soft landing. Look at this jobs market, baby. We’re back, baby. You know what I mean? That sort of thing. Do they get a little head fake by that or they do not focus on the market? [00:38:45][34.7]
Rick Heitzmann: [00:38:45] The greatest thing about founders is that they tend to be dramatic optimists. So they’re always looking for the silver lining. And some of them see that. And, you know, our job is is more to say, hey, we’re taking the longest view in the room. That’s one of the things that I would say in the world. Here’s a long history in the room. This might be a head fake in the market. What we’re seeing is the fundamentals, the long term fundamentals. As I talk to my limited partners, my LPs my investors, they’re still saying, hey, you know, that 4% risk free rate rates pretty attractive. Now where am I going to be on the risk curve to have this make sense? And you’re seeing people pull out of the venture asset class, at least until the market normalizes, especially when they can get a yield risk free. So I think it’s going to be hard for those folks or, you know, venture companies to raise money at least through the rest of 23. And then you have to prove yourself and earn in to those milestones to raise that next round of capital. [00:39:39][53.5]
Dan Nathan: [00:39:39] All right. Well, you heard it here at the end of the great VC subsidy, Rick Heitzmann of FirstMark Capital. Thanks for being here, man. [00:39:45][6.1]
Rick Heitzmann: [00:39:46] Thank you. [00:39:46][0.3]
Dan Nathan: [00:39:58] Welcome back. Okay, computer, I am here with Gene Munster. He is the managing partner at Deepwater Asset Management. Gene, welcome back to. Okay, Computer, How are you? [00:40:08][9.9]
Gene Munster: [00:40:09] Doing fantastic. Wonderful to be back. [00:40:10][0.8]
Dan Nathan: [00:40:11] Yeah. Heck of a last few weeks, you know, and I get to see you. I feel like every night on Fast Money, as these earnings reports have been coming out over the last two weeks or so, and you are just breaking them down real time. And, you know, it’s interesting. I always love the opportunity to kind of take a look back and get some reflections, maybe with a little time in between. And again, some of these are clustered very close together and sometimes a little time and distance. Right. Put some more perspective on it. But first, before we get into the Mega-cap tech earnings, talk to me about Deepwater. You started Loop years ago, and I remember how exciting that was. After you left the sell side, you were both still covering companies. You were investing in the private markets and also in the public markets. Tell us about what Deepwater asset management is. [00:40:58][47.1]
Gene Munster: [00:40:58] So Deepwater is really the next logical step for loop. And it’s the same core team and we’re investing in both private and public companies. And specifically over the past year, we’ve increased our exposure to the public companies. And so that’s what we’re lining up. Our brand that is goes beyond venture and gives us an opportunity, given our growth, to add more resources. And at the end of the day, this is not just because it’s the right thing to do, but the true thing to do is we think that by doing this we can improve. We’re providing for our investors. So that’s what Deepwater is. [00:41:35][36.6]
Dan Nathan: [00:41:36] Yeah, you know, it’s funny and today’s a great example of that. You know, Microsoft held this AI event, right? And they made this investment in open AI and a lot of public market investors probably a couple of years ago when they first did that weren’t really paying attention. You as somebody who’s followed Microsoft, Google, Amazon, Apple, and you’ve been talking about a AI in the integration of these technologies among these larger platforms. I know for years, because you and I have had those conversations, I’ve heard you talk about them on CNBC, But today’s a great example of here. You know, Microsoft not only made an investment in this company, but they’re integrating this technology, The company Open AI, which they could not buy for a whole host of reasons, is that now using Microsoft services, whether it be as your Azure and the like here. So like this is kind of exhibit A, I suspect, why Deepwater is constructed the way it is. [00:42:25][49.5]
Gene Munster: [00:42:25] Exactly. It just gives us an opportunity. We see things happening in the private space. We can get some insight to how that can impact the public companies and we can invest and profit from where the world is going. So that’s exactly how we’re lining it up. [00:42:39][13.4]
Dan Nathan: [00:42:39] Our listeners have the benefit of hearing you kind of we’re going to rip through a bunch of these names here. Let’s talk about the big Kahuna. Let’s talk about Apple. I know this is a company that I think your name has been closely associated with for maybe a couple of decades because you’ve been a perma bull. In this case, being a permeable on Apple has been a very good thing. Right? This was the first trillion dollar market cap company, the first $2 trillion market cap company. It’s probably going to be easily the first $3 trillion market cap company. You have a couple cautious comments, I think, into the print. You were a bit cautious. I think you thought that some of the things that you saw decelerating in the smartphone space, obviously, Macs, weren’t particularly good here. Talk to us a little bit about your reflections on the quarter and what this means, because I think you and I talked about this in the past, you know, 2019, it was that calendar Q4 that they reported, they preannounced that was the first negative preannouncement that we had seen out of them in probably over a decade. It was largely predicated on a slowdown in China. We know China was pretty slow. Talk to us about just kind of what this quarter meant to you because it was a 5% sales drop is the largest quarterly revenue drop that you had seen for this company since 2016. [00:43:51][71.5]
Gene Munster: [00:43:52] Well, I think you said it right. I mean, for starters, it’s just rare that we talk about Apple and talk about misses. And so that’s a starting point that makes the need to do more work in terms of what’s driving that shortfall. And it was a little bit of a unique dynamic in the sense that they preannounced in early November that the supply issues in China were going to have a negative impact on the quarter. So the adjustments analysts made those adjustments and they still came in below expectations, in part because the macro in part because of the operational side, the logistics piece. And so what my goal in this was we had a generally a good sense that this is going to be a mess. We can look at the TSMC numbers, we can look at some of the other IDC numbers on the Mac side. And so we had a sense that this was coming. The piece where I missed on this is a belief that I thought that even though everyone knew that things could be light, that it’s still until the numbers are printed, especially a company like Apple is so rare that they miss, I would have expected the stock to have been down on that if and usually it’s it’s really. Everything is fully priced in. And the case the reason why I think it’s held in there is that if you do peel back the layers and look at the take the view that some of these operational the supply chain stuff will work itself out and eventually the macro is going to work itself out. What’s most important is to have an engaged base. And of course, they announced they hit that 2 billion active device numbers. That’s up 8% year over year. So that’s a similar size as Meta has in terms of daily active users, 2 billion. They’re growing Meta’s growing their daily active users at about one 2% a year. Apple’s growing there, if you want to consider that kind of comparable metric of active device is up 8% a year. So same hard numbers to comp against. That’s pretty impressive. And I think that’s one of the reasons why the stock held in there. There also was some positive updates in terms of the number of subscriptions they’re adding despite the slowdown in services being up by 7% year over year. A good engagement. And so you kind of break the quarter into two pieces. One is, yeah, it was bad, but it was not a reflection, I think. And the underlying core engine of how Apple what they’ve done and just to finish the thought quickly Dan, what they do is come out with a product that people love and then they buy other products, they upgrade those products and then they fall in love with other products. And that flywheel seems to be intact. [00:46:12][140.2]
Dan Nathan: [00:46:12] And to your point about the services, when you think about it, it’s been reported that they’re going to come out with a mixed reality AR VR sort of headset. You can only see that just again, like that being a big driver of the sort of engagement that you’re talking about on a 2 billion iOS installed base. And again, we haven’t even talked about payments. I mean, the list goes on and on, and this is one of the things we’re investing as hard people as you know. And so, you know, there was when that stock got to $125, I mean, some of us got a little cute. We’re like, well, it’s probably going to 100, you know, sort of thing. And then you want to buy it for all the reasons that you just mentioned. But for some reason, it just didn’t get to that kind of discounted phase. And I guess my last question, Gene, on Apple is that, you know, expectations right now for earnings and sales, let’s call it at best, is low single digits growth this current fiscal year. Right? And so we have three quarters left. We have flat margins from from here to, you know, as far as the eye can see, about 43%, which for a hardware company, which they primarily still are, is remarkable when you think about the smartphone industry. Why do investors not seem particularly bothered at 25 times? Are we going to start thinking about this the same way we think about Coke or Pepsi as as a consumer staple? [00:47:22][70.1]
Gene Munster: [00:47:23] You nailed it. I think that that’s effectively what’s happened in the past year or two years is that, you know, it’s funny, we when the conversation on Tesla is that it’s not a car company, it’s a tech company. What does that mean for the multiple And in the case of were Apple’s at the conversation is it a tech company or is it a Staples company? And I think when you look at these engagement numbers and I think that it points more to Clorox and Coca-Cola than it does towards a typical tech company. And investors reward that. Investors rewarded with higher multiples because they can sleep well at night. And I think that’s one of the unique parts about investing in Apple, is you have a stable base that people are going to keep coming back to an upgrading. But also you have optionality value, whether it’s around those AR glasses that you talked about, potentially something in cars. They just have optionality which something like Clorox and Coke don’t have. [00:48:13][49.6]
Dan Nathan: [00:48:13] That’s right. Okay. Let’s talk about Microsoft really quickly here, because, again, you know, here’s one that, you know, on the 2024 consensus, looking for double digit earnings and sales growth in this stock trades at the same multiple as Apple, which is expected to grow far less like we just talked about your every year. So when you see things like this integration of chat GPT into Bing, which I don’t think that Bing was on your bingo card for a big driver of this year’s sort of growth. Does this kind of, you know, kind of say, okay, this helps justify that premium multiple here because here’s a company that not only is thinking out and thinking about how they’re competing with Alphabet, Google in particular, they made this investment in open AI. before it became a real buzzy sort of thing. And then they didn’t even double down. I mean, they went all in and they’re actually moving very quickly to introduce products that consumers can use. [00:49:07][54.7]
Gene Munster: [00:49:08] It’s definitely risen quickly on our list. And I would say that at the point at this point, we don’t own Microsoft, but it’s one that I’ve been doing more work on, not because of all the the buzz. I just want to try to step aside from all the buzz, but the substance of of what’s going on. And there is the big integration piece. So we think about Microsoft and think about AI integration, these large language models that people refer to. I think the world is going to be kind of split into two. There’s going to be the information side of that, and then there’s going to be the productivity tool side of that information side of that I think ultimately is going to be won by Google and they’re going to come out with their competitor here with Bard and they’re going to integrate Google search into that. They got 90% share. They’re going to have a better product. And that’s kind of what Bing showed as a microsoft showed with thing today. So even though it’s nice and the demo is really impressive with current information added to GPT, it’s not the reason that gets me more excited. What gets me excited is that 40% of global information workers use office and there are products a lot of people use Gmail, but a lot of people use Outlook and Word and PowerPoint and Excel. And that integration is something that I think can provide an easy opportunity for them to start to upsell. They’re not going to see the leverage in it probably for a few years because the amount of investment that this is going to take. So it’s not an immediate addition to margins, but if you start thinking out to 2025, for example, as they roll out these features built into office and start raising the price, then you start to see some leverage in this. So it’s starting to get more attractive. [00:50:39][90.9]
Dan Nathan: [00:50:39] Yeah, and I guess the shame is and we’re going to kind of at some point at the end of this conversation, kind of wrap it all up and think about what the kind of rate environment looks like and how that’s kind of reoriented. I think a lot of investors thoughts about valuations, but the shame is, is that any of these stocks right here after these huge rips over the last month and a half or so, we’ve seen massive outperformance of these mega-cap names. None of them are discounting what might not be is something less than a soft landing, despite all of the stuff that we heard from all of these CEOs over the last few weeks is cautious. I mean, like so is it cautiously optimistic? Of course. And that’s the thing that really sucks is that, you know, if you didn’t kind of just, you know, just basically hold your nose in mid-October and just buy and then even when that we had that retest and, you know, December or something like that, it’s just getting to a point where I think a lot of this stuff feels a bit frothy here. Let let’s move over to Alphabet here, because this is one, I think on valuation. I think you probably feel that way. It’s one of the ones that we hear routinely, you know, expectations for the next two years, this current year, 2023 and 2024, expected about 20% earnings growth for the next two years and about 12% sales growth trading, you know, on the outyear market multiple right now. And so I guess is one of the reasons why is that some of the things that we just talked about is just kind of all focus on Google and maybe that core search capability. And is that one reason why maybe consensus estimates are a bit more conservative, at least as it relates to from a valuation standpoint, a multiple you’re willing to pay for that expected earnings and sales? [00:52:12][92.7]
Gene Munster: [00:52:12] I think it’s a good risk reward. I would say if you had to compare the risk reward of Google right now to Microsoft, I think it favors Google. Do you oqn Google is in part because of what we see is this fabric and their comps are going to be getting easier, fabric of commerce, fabric of the Internet, fabric of our lives. We couldn’t live without Google. And that is the reason why I mention that as it becomes such a part of our our living, that it is undoubtedly impacted by the macro. And I think we’re just going to get to easier comps next year and that’s going to be particularly good for Google. From the perspective of kind of what’s exciting, where’s the leverage point? There’s a couple of them. One is related to what they’re going to be doing with Bard, and I suspect they’re going to have a better chat. But the reason is in 2017, they started to change their message to investors from Organize the World’s Information to be an AI first company. They’ve been pretty consistent about that. They’ve been apprehensive about coming out with products because there is some reputational risk. Now they’re willing to take some of those chances and I think ultimately that’s going to yield better search products. So even with the ten blue links, I think we’re going to get more accurate search with some of these is AI and then just some more exciting products, some tie ins with Gmail about helping write your Gmail. You see that prediction sometimes in your Gmail and it tries to finish your sentence when you write in an email, that’s just the start of it. I mean, I’ll do the whole email for you. So that’s an exciting part. And then separately, as they talked on their last earnings call about having a durable model, durable model is code for higher margins. Unfortunately, that probably is going to include further headcount reductions. Google has a culture that they’re trying to shift from being a very family culture to more of a family and profit focused culture, and that’s a hard thing to do. But for investors, as you think about over the next 1 to 2 years, I suspect we’ll see further reductions in headcount, mostly through attrition. But I think that is something that is worth getting excited about. And like you said, market multiple. To have an AI first company with improving margins seems like a good setup. [00:54:11][118.2]
Dan Nathan: [00:54:11] Let’s talk about Amazon here because I think, you know, the headline there was just the deceleration in the AWS and the magnitude of that. And again, maybe it’s their exposure to start ups and we’re seeing some of those falter and we’ve seen obviously pretty aggressive cuts on the expense side in the private space here. And maybe that’s one of the reasons why Microsoft’s Azure, you know, held up a little bit better thoughts here, because this is one where, again, this is a company that’s used AI for recommendation and a whole host of other things for a while. And we’ve all felt it probably not appreciated it as much as we should. And again, that’s not the story here, but it might be something as as they kind of roll out some AI tools across AWS. How are you thinking about Amazon here because of. All the names that we just talked about. This has acted the worst since it reported earnings. [00:55:00][49.6]
Gene Munster: [00:55:01] Because, you know, I tend to want to try to look at the other side of things. And this, as you said, it’s acted the worst. And so naturally, I want to see like, what are people missing on this? And I don’t think investors are missing much. I think that there is, you know, just still some still a great company long term, all the good stuff. We’re still bound to them for commerce purposes. But we do need to see some sort of get to a point where we’re starting to comp easier comparables on AWS and on some of their just the core commerce business. And we probably don’t get that for another 6 to 9 months. My suspicion is that if you want to own something for the next three months, this probably doesn’t make sense to want to vote for the long term. I think it’s still very much makes sense and is one they used to cover as an analyst covered from many years. And you know, they have a method about a different CEO obviously. But this method is that they typically will go and flex their their profit muscle at a certain point just to remind investors that there’s hope out there. And I suspect that they’re going to probably do that in probably sometime in 2024 us to start to show some expanding margin. And margins have been going down pretty dramatically over the past year. And so this is not one where you can sleep well at night owning it, but it is one that if you have the advantage or the luxury of owning something for a year plus, I still think it’s going to be in a great place. [00:56:20][79.4]
Dan Nathan: [00:56:21] Well, yeah, and I’ll just say this. I mean, given the rallies that all of these names have had, you know, from those October lows, that if you were the camp, that the sentiment might shift here. Right. Because I think everybody got sobered up in the year end. And I think the conventional wisdom is that we’re going to have something worse than a soft landing economically, the way that these companies were signaling that they had to cut costs, that maybe they just didn’t feel particularly great about the near term. And, you know, when we saw the turn of the calendar and it was just like, you know, lights out and we’ve had these kind of moves, but at the end of the day, at least what I took away from a lot of the just the commentary and the guidance is that the next few months or the next couple of quarters are going to continue to be kind of difficult. And especially it’s kind of the Fed narrative about what are they having a hard time with right now with unemployment at 53 year lows or something like that, And these companies have been aggressively cutting costs there. We know there’s a lot of wage inflation and that is the sort of thing that can weigh on margins. But on the flip side of that is if that Fed continues to keep rates high, they don’t even have to keep hiking from here on out. Right. They keep them high. That will weigh on valuations again. And you’re going to have the opportunity, the dollar cost average some of these names on their way back to their October lows. I just can’t imagine, though, Gene, when you think about, yes, we saw multiple compression in a lot of these names before estimates started coming down in 2022 in a meaningful manner. Okay. But at some point, there’s just no way that we have a bear market, in my opinion, them the Fast Money guy here where we basically bottomed out at like 17 times the S&P 500. Just thoughts on that because you’ve seen different cycles and you’ve lived through some of these big bear markets. [00:58:03][102.4]
Gene Munster: [00:58:04] I think it was a pretty straightforward conversation in 2022 was all about rates just watched and you knew what was going to happen with rates based on the CPI number. Look at the CPI number. You can infer what’s going to happen with rates and you didn’t have to overthink it. I think in 2023 it’s the second, you have to think about the second derivative? And of course the second derivative would be the pace of rate hikes. And and the conversation is, you know, is about what’s going to happen with the hikes and one of the hikes going to start to pare down. Could they come down at the end of the year? Could they be raising throughout the year of that? I think it becomes a secondary topic. And if I was going to put all this together, I think that, you know, we had a big spike up here. It’s it would be natural for us to have a pullback. But my my sense is that the market’s going to look further at the second derivative. And the second derivative is that the the pace of hikes is going to be declining. The percentage pace. And we’ve been through, especially tech investors have been through a lot. And I think they get kind of numb to it. And that’s a good thing for for stocks to start to improve. So one thing that we can count on is we’re probably not going to get what everyone expects, which is a soft landing, where they’re probably going to navigate through this better or it’s going to be worse. And I think in both cases, as you fast forward six months from now, it’s probably a good thing. If the overall macro gets worse, rates are going to go down and don’t fight the Fed, the tech stocks are going to go up. And if the opposite happens, if things aren’t as bad, I think people say, you know what, we navigated this successfully. And so things probably are going to look up. And just to be very clear, is that, you know, just the you know, our pace of deployment, you know, we’re not out chasing. And what keeps me up at night is just that there are a lot of people out there like me who are still kind of waiting for a little bit of a pullback here for what should be a better back half of the year. [00:59:48][104.0]
Dan Nathan: [00:59:48] You know, we’ve talked about Tesla a bit, and this is a name that I know you’ve liked a lot for just basically long term secular sort of reasons. And there. You got a bit cool on it last year. And you know, this stock went from above 400 in late 2021 to early this year to about $100, 101. And it’s just a remarkable sort of 75% drop. And it was over $1,000,000,000,000 market cap at its highs. And now here we are. It’s just basically gone from 100 to 200 in a straight line in like five or six weeks, 600 billion plus market cap. I mean, what would you like to see to happen here? I mean, I know that you’re probably looking for entry points. Right. And I’m just curious thoughts here because what’s the near-term look like? I know what you think of the long term. What’s the near-term look like here? [01:00:30][41.4]
Gene Munster: [01:00:31] I’m kicking myself, I wish that I was waiting for that, the earnings to come down and thought that I wasn’t priced in and it was priced in. I mean, it came in fractionally better than what I expected. I thought the the gross margins credits would have been kind of high teens and it came in. They said there’ll be 20% plus and that’s that caused this rip back the price decrease obviously a big deal. So to answer your question, in the near term, we’re going into an Analyst Day on March 1st and probably between now and March 1st, people get all excited. That’s what happens, especially in a stock that has a religious following to it. I think by the time we hit the Investor Day, it probably sells off after that because it’ll have been hyped up going into it. [01:01:09][38.8]
Dan Nathan: [01:01:10] And again, I’ll just say this is, you know, obviously, you know, that’s not a story that I’m particularly that interested in. And I think that the bloom is off the rose here a little bit. I mean, despite that, you know, massive rally from those recent lows, I mean, like I guess where I focus is just that kind of religious nature of it. And I’ve said this to you before, as long as I’ve been in the business in 25 years and I’ve seen some, you know, massive bubbles form and I’ve seen them pop, the religious ones, they just they just don’t it doesn’t end well, you know what I mean? And that’s when I’m not saying the Tesla story. I’m saying, you know, Elon Musk attached to it in the way he’s been doing things, you know, over the last six months has been very detrimental not only to the Tesla share price, but also the Twitter share price. And so, you know, to me, I think that there’s probably still a few chapters left in this kind of bear story. [01:01:58][48.2]
Gene Munster: [01:01:59] It’s going to be the gift that keeps giving is they’re going to be talking a lot about it. [01:02:01][2.7]
Dan Nathan: [01:02:02] Well, listen, Gene, I appreciate you coming in, talking about all of these names and kind of giving us your macro take. And I’m really excited for you and what you’re doing with Deepwater asset. So I’m sure I’ll see you on CNBC’s Fast Money in the not so distant future. I certainly hope you’ll come back to Okay Computer. [01:02:17][15.1]
Gene Munster: [01:02:17] For sure and can’t wait. Thank you. [01:02:17][0.0]
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