Dan Ives Talks Apple, Palantir, Tech Earnings

Apple's AI upside runs through services margins

Ives calls Apple a safety stock with AI upside. It spent little on AI while its install base grew, and it will monetize AI through developers building inside its ecosystem, with services margins near 90% doing the earning. The AI buildout is a one-shot race, and anyone who eases off capital spending gets left behind. Capital raises at Oracle and Microsoft against a trillion-dollar backlog are the evidence.

Takeaways

• Apple's cash machine outweighs the China worry. Apple generated $28bn of free cash flow in 90 days and returned it through dividends and buybacks. Keene says cost control and leverage offset China and margin worries, and 2027-28 free cash flow is modeled near triple pre-COVID levels.
• Apple's cheap AI strategy monetizes through services. Ives calls it genius. Apple spent little on AI while its install base grew and the upgrade cycle played out. He predicts 20% of the world will reach AI through an Apple device, with AI at 15% of services worth $75 per share.
• Services margins carry Apple's valuation. Services margins run 85% to 90% because revenue drops straight to the bottom line, double the hardware business. Ives values services at $150 to $175 per share and says institutions use a sum-of-the-parts view, not the 35 times earnings multiple.
• AI capex is a one-shot arms race. Ives says investors get one shot to get AI right, and pulling back on capital spending leaves you behind. Oracle and Microsoft are raising capital against a trillion-dollar backlog. Some neo-scalers may fall away, but hyperscaler free cash flow goes parabolic into 2029.
• Palantir's sell-off is a knee-jerk reaction. Ives says Palantir's commercial business is off the charts after its earnings, and the drop in a jittery market ignores that. Read alongside hyperscaler spending, it shows enterprises lining up for AI use cases.
• M&A wave will keep banks hiring. Ives expects capital raises and dealmaking to be generational over the next two years, so banks keep hiring significantly. Keene asks whether 2027, after the election, brings roll-ups of failed models.
• Ternus's tenure will hinge on hardware and AI. Ives says Tim Cook left Apple in a great spot for John Ternus, whose tenure will be defined by hardware innovation and AI rather than the cost discipline Keene highlights.

Penn State and the NIL era

• Ives calls it a gut-check moment for Campbell and his staff, with games at Washington ahead.
• Campbell should get a true year in the NIL era, starting with the transfer portal.
• A bowl game is a low bar, and Big Ten and SEC teams could lose three games and still make the playoffs.