Bloomberg Talks
00:00:02 · S0, Tom Keene, S3, Dan Ives
[00:00:02] S0: Bloomberg Audio Studios. Podcasts. Radio. [00:00:06] S2: News. We're going to do this for it, and Paul knows how upset I am right now. He's with Yorkville Ives. It sounds like it's a medieval church. You know, it sounds like a church in Wales or somewhere. [00:00:19] S3: Yorkville Ives here. [00:00:20] S2: Dan Ives joins us right now with all of his perspective. I'm going mental now about the simplistic view Apple. Folks, we're going to pause here. Paul's going to be patient. There's a simplistic narrative that is told. What's not mentioned is $ 28 billion of free cash flow in 90 days. Ternus says they return $ 28 billion to shareholders, dividend share buyback, and all that. I look at the wonderful Bloomberg intelligence work. Yes, gross margin, OMG, China. But the moment you come down one line, two lines, three lines, With cost control leveraging smoke and mirrors, they make it up at EBITDA. They make it up at net income. Is their profitability threatened? No. [00:01:11] S4: To some extent, their profitability, when you take away some of these near-term things on memory and things, it's actually increasing. The view is, when you look out over the next four, six, eight quarters, their free cash flow... potential and call bar is actually increasing. [00:01:30] S2: I looked this morning, Paul, jump in here because I don't want to monopolize. I need a break, Paul. I got to get to the Tito's and Tang. Their free cash flow modeled for 27 into 28 is almost triple what it was before COVID. It's simple as that, Paul. Exactly.
00:01:30 · Tom Keene, Paul Sweeney, Dan Ives
[00:01:30] S2: I looked this morning, Paul, jump in here because I don't want to monopolize. I need a break, Paul. I got to get to the Tito's and Tang. Their free cash flow modeled for 27 into 28 is almost triple what it was before COVID. It's simple as that, Paul. Exactly. [00:01:49] S1: And that's kind of what I think the street's excited about. Right now, Dan, given what you heard last night on the conference call, how would you characterize the AI strategy for Apple right now? [00:01:59] S4: I think it's genius because to some extent, as Tom was talking about, they've been able to navigate this, basically spend very little when it comes to AI. The install base has continued to increase. The upgrade cycle has played out. Now it's time. Now it's go time. When you think about Gemini and what the ultimate strategy is, it's ultimately, from a consumer perspective, 20% of the world will access AI through an Apple device. [00:02:27] S1: For Ternus, that's the opportunity and challenge. [00:02:30] S4: AI-enabled devices, make sure that they ultimately monetize this from a developer perspective. [00:02:36] S1: How do they do that, and what's their strategy, do you think? [00:02:38] S4: As developers, they're going to build AI functionality, apps, additional things that are going to happen through the Apple ecosystem It's Apple that's going. [00:02:49] S1: To monetize it. Are we going to see that in the services business for Apple?
00:02:49 · Paul Sweeney, Dan Ives
[00:02:49] S1: To monetize it. Are we going to see that in the services business for Apple? [00:02:53] S4: I think about 15% of services over the coming years will be AI, which is our view like $ 75 per share incremental to the story just from an AI perspective. [00:03:04] S1: So it's a safety stock. [00:03:07] S4: In this storm from a large cap perspective. But then you have AI upside as they monetize. And I think that's now, Cook has left this in such a great spot for Ternus, who's really hardware innovation and AI will define his future. [00:03:24] S1: So as you go out around the world, which is your job, you're always, who knows where you are, you're with Waldo out there. What is the AI call from investors out there? Do they want the high CapEx, negative free cash flow, just build it and it'll show up? The business will show up? Or are they asking different questions these days?
00:03:24 · Paul Sweeney, Dan Ives, Tom Keene
[00:03:24] S1: So as you go out around the world, which is your job, you're always, who knows where you are, you're with Waldo out there. What is the AI call from investors out there? Do they want the high CapEx, negative free cash flow, just build it and it'll show up? The business will show up? Or are they asking different questions these days? [00:03:42] S4: You get one shot to get this right. So if you take the foot off the pedal, you don't spend on CapEx, ultimately you're going to be left behind. And I think that's why you've seen all the comments from all the hyperscalers. You see all the capital raises from Oracle to Microsoft to Meta. Because everyone recognizes the backlog is trillions of dollars. Now, I'm not saying could some of that fall apart, could there be some neo-scalers that fall by the wayside, but from a hyper-scaler perspective, from a large-cap perspective, this is viewed as basically a storm that they will get through. And on the other side of it, to Tom's point, the free cash flow, as you go into second half, 27, 28, 29, will be parabolic. For a lot of these large cap names. [00:04:28] S2: Okay, we're going to, I can do this now because of AI. Ask B on Bloomberg and Google Gemini and all the rest of them. Some of the parts, Mr. Ives, the service sector. Oh, they were a little bit off today. Let's sell our shares. What's the margin? Alexis, what have you last bought on services? Your cherubs, what did they buy? You saw a little bill in your, you know, Your bank statement. Right. [00:04:55] S4: $ 2.
00:04:55 · Dan Ives, Tom Keene, S3, Paul Sweeney
[00:04:55] S4: $ 2. [00:04:55] S2: 99, $ 4. 99. It's like subscriptions on like an Apple device or something. They're making a purchase. What's the margin on that? And then what's the value of services? [00:05:05] S4: It's 85%, 90% in terms of a lot of those margins because it goes right to the bottom. The services margins are double. the margins of the hardware business. [00:05:15] S3: So give it scope and scale. [00:05:16] S2: What am I getting for free when you sum of the parts, services, and some of the other stuff? [00:05:21] S4: I mean, I view the sum of the parts, services, it's worth $ 150 to $ 175 per share. [00:05:25] S1: The services worth $ 150. So the services business.... [00:05:32] S4: Now, you can't necessarily separate it, but that's my view. And that's always been my view. My view of the whole rereading. On the Apple story is the services business because the margins, and even when Paul, when you asked about the AI, the AI piece... is going to show up in services. And you could argue over time, that's just going to get more and more profitable. That's why the stock trades where some will say, oh, it's 35 times earnings and things like that. I just, I know it's the wrong way of view. You have to view it on a sum of the parts basis. That's how most institutional investors view it. [00:06:06] S1: Palantir also reported last night. [00:06:08] S3: What did we get?
00:06:08 · S3, Dan Ives, Tom Keene, Paul Sweeney
[00:06:08] S3: What did we get? [00:06:09] S4: I mean, there is no better barometer than in terms of what enterprises are doing in their commercial business. I mean, the commercial business that we're seeing in Palantir, it's off the charts. Now, the stock's selling off today. Again, knee-jerk, we're in a jittery market, nothing tech stocks will do, we'll have the stocks go up. But it's my view that when you look at Palantir combined with the hyperscalers, combined with CapEx, it shows enterprises are lining up for these use cases. [00:06:40] S2: Are we at a point, Dan Ives, you know, I'm looking at this almost as an IB model, where 27, post-election and all, is where we begin to see mergers, transactions, convenient roll-ups is less than good or failed models? [00:06:58] S4: If you're a banker on Wall Street, I think the weekends, you're not going to be too much leisure over the next year. Because the reality is, from M & A to capital raises— We had. [00:07:10] S1: The biggest— Tech M & A trade yesterday with Marvell Technologies, you know, with their $ 100 gajillion. [00:07:15] S4: Yeah, and that's why you could talk about, like, AI and everything we're talking about with job law. Banks are going to continue to be hiring significantly because the capital raises and the opportunity, it will almost be generational in the next two years when it comes to, you know, for what's happening in tech. [00:07:32] S2: Okay, I got to go to this headline. Somebody just emailed in. This is the Center Daily Times. [00:07:38] S1: Where? [00:07:38] S3: State College, PA.