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The Wedbush analyst says Wall Street is underestimating what’s coming next for AI.
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00:00Joining me is Dan Ives, Managing Director and Senior Equity Research Analyst at Wedbush Securities.
00:05Dan, thanks so much for being here.
00:07No, great to be here. Looking forward to it.
00:09Dan, tech has had this really impressive recovery off the April lows.
00:13It's trading at or near all-time highs.
00:15What's your outlook for the rest of the year?
00:17I mean, I think we're going to continue to see new highs.
00:19And we've talked about, you know, you could be looking at S&P, you know, potentially 7,000.
00:25And NASDAQ, I think there could be another 15 percent higher because, look, it's our view.
00:31The AI revolution is just hitting its next stage of growth from software to consumer to really the rest of the sort of supply chain.
00:40And even though we have tariffs and obviously geopolitical, I think it's going to be a risk on pretty significant going into the summer as well as the rest of the year.
00:49So what is it that gets the S&P to 7,000 and the NASDAQ up another 15 percent?
00:55It's numbers.
00:56I mean, I just believe streets underestimating numbers potentially for a second half of the year, but especially into next year by upwards of 10 to 15 percent.
01:05I think numbers go a lot higher because of the spending and because we're going to see two trillion of incremental spend next three years.
01:12And even when you start to think about now sovereigns are starting to look at AI, you look at that spreading geopolitically despite some of the uncertainty there, you're going to start to see it pop up more within Asia, within Middle East.
01:27And that's bullish for Nvidia, bullish for Microsoft, bullish for Palantir, which speaks to my view.
01:33If you focus just on one year P.E. valuations, you missed every transformational tech stock the last 20 years.
01:39You talk about it going into next year.
01:41How do you think or how long do you think the overall tech bull market is going to last?
01:47I think it's another three year bull market for tech because, well, look, it's our view.
01:52This is a fourth industrial revolution that we're living in and we're just in the bottom first, top second inning of where AI is going.
02:03And now it's going to spread across the board to other, whether it's cyber security, whether it's other parts of software, where there's infrastructure on the energy side when it comes to nuclear and others.
02:15And that's why I believe, I mean, you know, I get why some get concerned about valuation, but I believe we're going to be talking about things like NASDAQ 25,000, you know, the next call at 12, 18 months.
02:30What's the threat of tariffs at this point?
02:32Because previously you had referred to it as an economic tariff Armageddon and those deadlines are approaching.
02:39So how big of a risk are they now?
02:41Yeah, but my view then, I mean, remember, there was some scary weeks.
02:45Administrations backed off significantly in terms of China.
02:48And I think you'll see those descale further in terms of ultimate tariffs.
02:52And I think Trump administrations recognize, and I've seen it being in D.C. a few times, maybe initially what they're looking for, they had a backtrack.
03:02And I think that's what the market is factoring in as well.
03:06You'll have a baseline 10 percent tariff.
03:08You'll have some incremental reciprocal tariffs, but that's not significantly moving the needle here.
03:14I also think the most important thing is a U.S.-China trade deal on the table.
03:20And that's something, especially for NVIDIA, when you claw back 50, 60 percent of the China business that they've essentially handed to Huawei.
03:29I'm curious, how is your AI playbook changing for the second half of the year, especially now that you really are focused on this golden age of software, as you call it?
03:40Yeah, and look, and that speaks to our Ives AI 30, the 30 names we've identified, the derivatives, when you think about second, third derivatives of AI.
03:49AI, it's really about software.
03:51I mean, I do view it as a golden age for software, from the hyperscalers to names like Oracle, IBM, of course, led by names like Palantir, which I believe Palantir is going to be a trillion dollar market cap next two to three years.
04:05But the use cases are playing out, and you only have 3 percent of U.S. enterprises that have gone down the AI path.
04:13And that's why the bears, they're sitting there in their caves in a hibernation mode.
04:18They can't see AI in spreadsheets.
04:20I want to focus on Tesla, because I know you took a few rides in the robo-taxi last weekend.
04:26You said it exceeded your expectations, but not enough for you to change your price target on Tesla shares.
04:32So I'm curious about, if it exceeded your expectations, why doesn't that impact your price target?
04:39Yeah, I mean, look, our team having the ability, and obviously it was pretty exclusive, not many people got rides on Sunday.
04:46Going into it, we thought it was going to be an 8 out of 10.
04:48It was a 10 out of 10, because what I believe was the maneuverability in terms of the safety, the user experience.
04:56Look, they're going to have speed bumps.
04:58They're going to have issues, and all those issues will continue to be scrutinized.
05:03But the reason we're not raising price target here or anything like that is because as they prove it out, as the Geofend scales in Austin, as they go to more cities,
05:14I think more investors are going to recognize autonomous is a trillion-dollar market opportunity for Tesla.
05:20But it speaks to our $2 trillion valuation for Tesla.
05:25And look, and I get haters will hate, but I think they're really going to be the driver of autonomous globally.
05:33But Dan, they did start small, to your point.
05:36They required safety monitors in the cars.
05:39There's already regulatory scrutiny over some of the issues with the cars.
05:42So it doesn't seem like a very fast ramp.
05:45So I think the big question is, can they ramp fast enough to compete with competitors like Waymo?
05:50Yeah.
05:51And look, I'd rather them do this in terms of safety first, go off slow, geofend slowly, build it out.
05:58Because they know, I mean, if they run over Squirrel, that'll be global news, right?
06:03So they've got to be careful.
06:05But my view on Waymo, I mean, like, Waymo's in four cities, now potentially five.
06:10They're $230,000 cars.
06:13Like, no one could scale the way Tesla can.
06:16And I think that's something that's just not being factored into the stock, in my view.
06:21In terms of the Doge fallout, how much brand and reputational damage do you think was done to Tesla?
06:27How long does it take to recover from that?
06:29And how big of a risk is Musk not necessarily playing nice with President Trump?
06:34Yeah, look, 5% to 10% probably permanent brand damage in terms of, you know, 5%, 10% of maybe consumers that will never buy a Tesla, right?
06:43I think that will ultimately fade some of that within the U.S., which is why it speaks to it was so important for Musk to distance himself from Trump and Doge.
06:55I think Europe, the brand issues are probably more damaging than maybe in the U.S.
07:01And I think we're seeing that in some of the numbers.
07:04But look, I mean, it happened, right?
07:08I mean, Doge took on a life of its own.
07:10And I think, you know, Musk recognized that.
07:12I do believe when it comes to Trump, there's a cordial relationship.
07:16I do think they become kind of friendly, you know, slowly again.
07:21I don't view that as a negative.
07:24I think Trump is going to continue to be a supporter of Autonomous, the Musk vision.
07:29But look, this is going to be some work ahead, right?
07:33Especially when it comes to brand and some of the issues that they're having in Europe, in U.S., as well as in China.
07:39We'll get Q2 deliveries for Tesla next week.
07:42What do investors need to prepare for?
07:44Because I think for overall Q1, you described it as a disaster.
07:48What do you think you'll use to describe Q2?
07:50I mean, yeah, I think Q2 was like, it's going to be, you know, nothing to write home about, but maybe slightly improving.
07:58I mean, whatever, call it 375K, give or take.
08:02But it speaks to my view that, like, 90% of the story is about AI, Autonomous, Robotics going forward.
08:14Look, you're going to have to have refreshes and you'll see them and that will help in terms of from a demand perspective.
08:20But I think right now the focus is less bad numbers and then really driving Autonomous and AI.
08:27Microsoft continues to hit new all-time highs, Dan, and you're getting more bullish.
08:32You just raised your price target on Microsoft to $600.
08:35Tell us why.
08:36I mean, I think Microsoft, when it comes to this, we're going to be talking about $4 trillion, eventually $5 trillion, because it's in their backyard in terms of AI.
08:44I think when I look at the stack, the AI stack, commercial cloud growth, I think is going to continue to massively accelerate.
08:52We're seeing more and more Microsoft customers go full in on the stack.
08:58And that's something where only 20% of Microsoft today is what I view as cloud, next-gen cloud, next-gen AI.
09:06As that becomes 50%, 60%, and that's really a whole revaluation that's going to happen in the name.
09:13$600, I ultimately think is probably conservative.
09:16Is Microsoft and Azure's strength at the expense of Amazon, AWS, and Alphabet, Google, Cloud, though?
09:24Because you're also bullish on those names.
09:26Yeah, look, I think Microsoft's clearly leading when it comes to hyperscale when it comes to cloud.
09:32I do think AWS, Google, they've had success, started to narrow the gap.
09:36But it's not a zero-sum game.
09:38I mean, you're going to have all beneficiaries here.
09:40But no doubt, Microsoft and Nadella are leading when it comes to the infrastructure, when it comes to hyperscale.
09:47And that's been a huge part of their success.
09:49And I don't see that slowing down.
09:51I think investors are just starting to recognize now the next leg of this Microsoft story as you go into that golden age of software.
09:59Dan, there's still quite a few Mag7 names in negative territory year-to-date and well off the highs.
10:05Apple, Alphabet, Tesla, Amazon.
10:08Do you think it's time to regroup them because they're not necessarily magnificent right now?
10:13Yeah, not magnificent, but each of them have different headwinds, right?
10:16Apple, really nowhere when it comes to AI.
10:19Google, the worries that AI is going to cannibalize search.
10:22I think that's probably overdone as well as maybe some of the regulatory.
10:26I think Amazon is probably the one that I believe has the clearest road ahead
10:32in terms of where I ultimately see them going when it comes to e-commerce as well as AWS when it comes to some of the success.
10:41So, to me, I don't think you regroup them.
10:44I just think those have prove-it situations, including Tesla, that they have to navigate.
10:50Okay, just quickly, because I know we're almost out of time.
10:52When you think about the biggest beneficiaries of AI from here, would you rather buy NVIDIA at all-time highs or Apple more than 20% off the highs?
11:01You'd rather own NVIDIA just because there's only one chip in the world, and that's led by the godfather of AI, Gents, and NVIDIA.
11:07And that's not stopping.
11:08That's why we're talking about $4 trillion and will ultimately be $5 trillion mark cap.
11:13And if you could only buy one tech stock overall right now, what would it be?
11:18You own Palantir.
11:19Palantir, to me, messy of AI, and really, I believe, leading the AI revolution when it comes to the software side.
11:27And I think that's a trillion-dollar mark cap in the next two or three years.
11:31Okay.
11:31Dan Ives, I always appreciate your insights.
11:33Thanks so much.
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