The Six Five Pod | EP 269: From D.C. to Silicon Valley: Navigating the AI Revolution

On this episode of The Six Five Pod, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:

1. AI and US Competitiveness: Discussion of the recent AI summit in Washington D.C. Analysis of the US government's plan to win the AI race.

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2. Trade and Tariffs: Examination of recent trade deals and tariff negotiations with EU, China, and other countries. Impact on the US economy and budget surplus.

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3. Tech Company Earnings. Analysis of recent earnings reports from major tech companies: Tesla's performance and market perception. IBM's AI initiatives and hybrid cloud growth. Alphabet's vertically integrated AI stack and cloud success. T-Mobile's strong performance in the wireless market. ServiceNow's continued growth and AI potential. Intel's challenges and strategic shifts.

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4. Apple's Future Prospects: Debate on Apple's innovation trajectory and potential risks. Discussion of Apple's reliance on the smartphone market and AI development.

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5. Challenges in US Manufacturing: Analysis of "Build it here" initiatives and the complexities of domestic chip production. Discussion of Intel's role in US semiconductor manufacturing.

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For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Pod so you never miss an episode.

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Or listen to the audio here:

Disclaimer: The Six Five Pod is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.

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Patrick Moorhead: If you don't have the confidence to go out there and say that you're going to do this, how's that going to look on your clientele? 

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Daniel Newman: I'm glad you're not huffing and puffing, carrying two dogs down 39 flights of stairs, evacuating your building, running straight from a building evacuation to surgery, camping out in your. In your daughter's apartment. You know, you really are living the dream these days, Morehead.

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Patrick Moorhead: No, I really am, Daniel. So, yeah, we. I live in a condo, and somebody had a huge flood, took out the power grid. We had to evacuate. But small, little inconvenience. All of our stuff is in the condo. We need to go up there and get it out. So Paul and I and. And Pico, you know, went up to the 39th floor. I guess we started on the 6th for the parking garage and, you know, went up there packed, right. Huge backpack on the back waters with us. And of course, right. I logged it on my watch to get the full, you know, full experience, see how many carbs I burned from it, and then pick up the dogs and, you know, walked downstairs. And man, it's the weirdest thing. I think I hurt my right shoulder. Just kind of crazy.

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Daniel Newman: The bad shoulder or the good shoulder?

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Patrick Moorhead: It's the good shoulder.

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Daniel Newman: Ah, compensation.

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Patrick Moorhead: I could do that, right. So I needed, you know, I'm getting my physical self back in order, right? I'd say I'm 95% on the left shoulder, and. And then Friday I got surgery on an inguinal hernia that I've had forever. I mean, grandfather, father, both brothers, uncle, we all have hernia issues. Pico had surgery as well, and I had surgery when I was 22 on the right side, but this was fixing the left. And boy, has technology improved. You know, I mean, when I was 22, he's literally going there, making an incision, opening that bad boy up and just starting, you know, putting staples in there.

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Daniel Newman:  Like, laparoscopic. Just like a little incision, tiny hole.

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Patrick Moorhead: No, no. 20. No, no, no. When I was 22, it was. No, now it's robotic. It's a robot called the da Vinci robot. And it is a human in the loop process. What they do I have three incisions right here. They fill it full of carbon dioxide, which bloats it, making it huge. Put the cameras in, put all the. The equipment is in, and then my doctor is, you know, looking through a stereoscopic. It's pretty high tech. It's not completely robotic where you press the button and, and, and you're done. But no, I mean, I'm day three and you know, I gotta tell you, it was, it was a lot more painful than I thought before. Took a full 48 hours to get all the gas out of my system because I was out completely. And you know, they gave me some painkillers. I stopped taking those on Saturday and I'm just on acetaminophen right now, but here we are. You know, I did three miles at the, out in the lake yesterday and that helps to get the carbon dioxide out of your system. This is going to be the strangest thing, but the carbon dioxide, it aggravates a nerve that goes all the way up to both of your shoulders. And know my shoulder issue, not that one, but, but into my traps, but that I'm, I'm almost there. My HRV, I'm at like 21% of normal. So my body's still fighting, my body's still struggling, but I'm here, dude. I'm showing up.

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Daniel Newman: Well, that's great because I'm sure there were tens of people that have just been absolutely waiting to hear what you might have to say about tech things. I'm kidding.

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Patrick Moorhead: But I mean, I do want to, I do want to call you out. I'm very thankful for you checking in on me, seeing how I was doing. I mean, my immediate family, my dad and my step brothers like never checked in. I mean, but that is the family that I came from. Right? I mean, we were such hard asses. Dan. It's just that is, that is me.

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Daniel Newman: I mean, it was just a lot, you know, you had been through a lot. I mean, the evacuation was just absolutely just, you know, rain pouring down on your head right before you had to go do this. And then of course I, I did want to make sure there was no leaks in the garage because I, you know, for personal reasons, making sure that nothing's going on the 6th. Hadn't heard for sure, but I'm guessing we're okay.

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Patrick Moorhead: Yeah, we're okay. Yeah. Dan and I share a car and.

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Daniel Newman: I may, I may have a car in that garage that I would care about if something had happened to it. Just another headache I don't need right now. But listen, I'm, I'm glad you're back. I think that, you know, going out on a Friday, coming back on Monday, being ready to pop. But you also had a big week. I mean, you were in D.C. you were in the room with. It had to be the biggest power vacuum I've ever seen in terms of the world's most powerful people in the US all in one room, talking about making AI work. Now, Pat, like, we're going to dive into this, but what a cool experience, right? I mean, yeah.

Patrick Moorhead: I mean, it was crazy. You know, I. I can't tell you who invited me, but this person is very powerful and is in the administration. And you know what I'm going to do? Say, well, maybe, or, I don't know, let me get back to you. But it was pretty cool. You know, it's the fifth row.

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Daniel Newman: I know you, buddy. Like, you know, when you don't want to travel, you don't travel. So, you know, the fact is, you really stepped up to figure out how to make this work and show up for President Trump. Because sometimes, like, you know, when you have a week at home, you just. You're not. You're not up for moving. I'm kidding. But listen, what a great opportunity. I will wait. Someday, everybody out there, you and I will all find out together who the powerful person is behind the curtain that's pulling the wand that's bringing the Moorhead to D.C. and who knows, maybe the next administration. Pat, you will be the AI-zar. Never know. Never know. All right, we got a great show. We got a lot to cover. We're going to do an extra long decode, diving into winning the AI race because there was so much to cover there and so much interest in this topic. And we'll tap, We'll. We'll tap on the EU and China tariff news from the weekend. We've got a flip in store that we think is going to be a whole lot of fun. Speaking of that, Apple watch not registering your flights upstairs, some of us think Apple may be doomed, some of us don't. And some of us may think something. And we're going to argue what we don't think, because that's the fun part of doing the flip. And then we're going to get to a lot of bulls and bears. We had a big week of earnings last week. A lot to cover on what happened. And then, of course, we've got a big week this week, so a lot to cover on what's going to happen. So we're going to get it all done. We're going to get it. Tune in, strap in, but let's get after it. Pat, with the decode. All right, buddy. This one Is I've got a lot to say about this but I want this to be all you because if first I'm going to give you like hey, here's the floor. Rock and roll. You were in the room hearing this stuff as it broke. Pat, what, what was the big gist themes that you heard when you were in the room there with President Trump in DC?

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Patrick Moorhead: Yeah. So this was the in person version of this 20 page 90 action plan that came out that was all about winning, right? Trump is all about winning. We're going to win here, we're going to win there. And this was about the US winning the AI race. And there were three pillars, right? Accelerating AI innovation, building American AI infrastructure and then what I like to call what they call lead and international AI diplomacy and security was really about to me about exporting. Okay, how do we export American AI out there? And then you know you had some overall principles that they started off with. By the way, you could tell that government people did not write this but business people did. There were three executive orders that were actually signed at the event. One was essentially accelerating data center permitting, promoting the export of American AI technology. And then what they called,  preventing woke AI in the federal government which I think is super polarizing but to me models that are objective and neutral and not introducing any bias, any right wing bias or left wing bias. So they brought up a lot of speakers. I mean my gosh, pretty much a who's who. You had VCs, you had vice President Vance, you had Donald Trump as well. So you had Vance up front, Trump on the end. You had Lisa sue, you had Jensen Huang, you had the leaders of some really interesting manufacturing, robotic manufacturing companies, MP Materials, CEO that went through the whole rare earth mineral trade offs and, and the challenge, they just got a huge investment from Apple, but also from the federal, federal government. The all in guys were moderating the uh, the, the entire thing and some really hard questions were, were asked and that's one thing that I, I love. You had Besant and Lutnick show up and I think for this audience one of the most interesting things that  I think I walked away with was export controls. What Nick talked about, the who and the performance, what I'm hoping is that actually cluster, cluster size and I hope that that means performance but you know I'm feeling more and more bullish that we might see some higher end GPUs be exported to China and probably through a cloud model, not in China. And then second of all, some of the rules about, you know, sending stuff to Portugal. Right. I think we're going to have reduced friction. Final comment here. This wasn't an action plan, like, you know, Daniel, I know, you know, I. I consider action plans, which are dates that things are going to get done. What's the metric? Trump can't get all of this done through executive orders, so he has to get other people and the entire White House and might even need congressional approval on some of the things that this action plan is recommending.

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Daniel Newman: So, first of all, this was really important, and you've heard me for a while sort of going on. I think I've probably used the same phrase on every network and every podcast about the next. Multiple decades of global economic and technology leadership are dependent on winning AI. So there's a lot of debate on how that's done. We've had a lot of FUD in the market for some time. The whole China, Huawei DeepSeek really created a lot of consternation about what's going to happen next. We know China is a formidable competitor in anything that it does, but we also know that we've been sort of told things like, China's going to catch us in the next five minutes because Huawei is as good as Nvidia. And, like, you hear this stuff, and then you hear DeepSeek is, you know, gonna displace open AI. And the bottom line is, what I did hear here was the US does understand that going fast is more important than protectionism. But I still get the sense from everything I read, and I was not in the room, not invited, whoever invited Pat, but that we are going to prioritize innovation, but we are still going to be careful. We are still going to be careful with how we democratize our technologies, the leading technologies, the best AI technologies in the world, and make them available to every part of the world, as we like to call it, AI diffusion. I also think that, you know, there were a couple of key tenets. It was one, remove red tape. So this red tape, removing red tape is everything from deregulation and energy, which we haven't talked a lot about. But we do know if there's one reason China really can catch us, because it has exponentially more energy available to it, and it does not care about hurting anyone's feelings or trying to use windmills to power the data centers of its future. There was a term in this whole thing called build it here. Build it here is interesting, but it's also one of those things that we're still in this difficult juxtaposition because it's like yes, TSMC will make its chips here and Samsung will make its chips here, but where's Intel? I still think it's really interesting that Intel was almost also run if mentioned at all and you and I will talk later. You know, we saw Intel's earnings last week and we both had the chance to have a chat with Lip-Bu Tan and this is going to be a really interesting debate but we're not really building it here with American technology and American IP unless it's Intel or another US based found. So that's a big thing.

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Daniel Newman: The one thing we didn't really talk about or Pat, you didn't really talk too much about in your sort of opening salvo here is the train the workforce, use and empower with AI, develop skills for the future. This one is the one that to me is increasingly becoming more muddy. I mean last week I think Microsoft got rid of its entire legal team, less than seven years of experience, its junior workforce, we're seeing that more and more across different enterprises. We're seeing where efficiencies are being gained and headcounts are being reduced and eliminated. What we're not seeing yet clearly is where the jobs are being created. We know that the most senior and competent capable developers will always have work. But what about the ones that, you know, used to have years to come in and do small code, you know, support QA things that now AI tools are increasingly taking on more and more for companies. So I think that's one that we're going to need to be listening a lot more for. Because you know, while I do think we can deregulate, I think that's very much part of the Trump administration. I do think that we can certainly get trade deals done and convince outside countries leaders in foundry fabrication equipment to do more manufacturing here. We still have a challenge to get our own country and our own companies' leaders to manufacture here. But I do think there's a massive gap in terms of workforce development and how we're going to actually get people ready to be successful, successful in this. So I'll hold it there. But this overall is super bullish for tech, but a lot to be done.

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Patrick Moorhead: So a complete miss. First of all, intel not showing up. But secondly, this thought that just building something on American soil is good and we can call it a day. You had mentioned it previously just to, just to elucidate on that. Foundries do two things. They create intellectual IP for different nodes and they build stuff based on that node. All the intellectual property is done in Taiwan and you have manufacturing that is cut across multiple areas. But we are only focused on this. We are completely screwed if China invades Taiwan and those 10,000 IP creators go away. Well, essentially we're gonna, we're gonna just stop in time. And you might be asking, well Pat, what's the answer to that? Well, we have debated this on the Pod before but to me, first and foremost Intel has to deliver the goods. But the designers have to be incented to take the risk to have a parallel design path creating mask sets for both Intel and TSMC. On the other side of my mouth I will say that there is a lot of similar equipment between TSMC and Intel. And hypothetically you could run Intel IP inside of TSMC foundries. But if you haven't done the design for it, let's say if you're an Nvidia, you're not going to get chips for a very long time and you are still frozen in time. So when the administration has asked me about what I think they should do, it's a very clear incentive for designers to do this, give them the money to create the mask, set the additional design to go off and do that. And it is in the hundreds and millions of dollars.

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Daniel Newman: Is that being addressed at all you think by ramp C?

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Patrick Moorhead: I believe that ramp C is, is a hundred percent about the DoD, another three letter acronym. Yeah, chip chip manufacturers.

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Daniel Newman: But test chips on 18A for those, for the dodgy. One way that they're able to test chips on 8 on for instance on 18A. But we also kind of know now 18A is not going to be an outside node. So we can.

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Patrick Moorhead: But Dan, see the check needs to be sent to Nvidia or Qualcomm or Apple or Broadcom or, or somebody like that as opposed to the check going to Intel. And hey, on the Jobs front, you know Vance, he was, he threw Microsoft under the bus. Right? You know, his comment was essentially I haven't talked to Microsoft yet about them laying off 9,000 people but continuing to ramp up H1B visas. But he said, I will be, oh, we'll be chatting with them. And that got a lot of conversation. And Satya Nadella actually put out an internal email trying to address all of these things. But just another example of the friction that AI is going to be causing. And I think we're, you know, this is about 5% of the volume control that I think we're going to see in the future when we start seeing mass, mass layoffs based on, based on AI.

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Daniel Newman: Yeah, I do think we are going to have this interesting inflection where we see more efficiencies than gains. But I do think, like we've always said, that the favorite CEO-ism right now is that every revolution has created more jobs. That's the. They all like to say it right now. But then you also see really bullish CEOs talking about sort of hiring plateaus or freezes. Even like ones that have basically said we'll never lay people off are now saying things like we may not hire as aggressively, we may slow down. And then of course, other companies are clearly driving efficiency. So it's going to be an interesting period of time. It's also because of how fast we're moving. But the one thing I will say, and Pat, this is my ask of you before we talk a little bit about tariffs here, but did he do enough? Is this enough? Can't. Like you said, he can't get it all done with executive order. You think now that you've spent the time is, is what's in this enough? Can we get it done?

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Patrick Moorhead: Yeah, I think we can. And everything has to have a start. And there's a start, there's a beginning, middle chapters in the end. And this is what's required to get it going. One of the reasons that I think this was such a positive move is that China came out last night with its own AI plan. And once you have your biggest rival responding to you, then I think it means that, that you're there, that you're making a move. Make some of the more controversial ones. Actually everything will be controversial. But you know, it's so funny. Lutnick was, or Bessant was talking about, my gosh, you know, I needed to put a pipe somewhere different in a foundry or an energy company and it sets it back 40 days. That stuff's gotta stop. So everything will be debated. He's gotta get this done before the mid turns. We need to start to see the flywheel moving. And then I think most people, most Americans, will be on board.

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Daniel Newman: Yeah, absolutely. So, speaking of America, you know, trade will fail. The US will go into extraordinary, you know, inflation, hyperinflation. There will be no good. Store shelves will be empty, unemployment will rise rapidly. We will be in a decent deep, deep recession in a matter of days, weeks, months. Well, that was over almost four months ago on Liberation Day. Yes, some people will point to the taco trade or Trump always caves or whatever or, you know, chickens out or whatever they say. But Pat, here we are, we've now got deals, it looks like, with many parts of Asia. We just announced that the EU, China's got a front framework, it's being extended. India has moved along. Japan has a strong, almost nearly completed framework. The UK deal is done. And by the way, we had inflows that exceeded outflows. We had a budget surplus for the first time, largely attributable to fundraising from tariffs. I mean, before we talk about the new deals, I mean, what's going on? Why are we not seeing, why are we not seeing bread lines and $70 gasoline yet? And why are T shirts not $250 unless you want a Louis Vuitton T shirt. Why isn't it failing so badly?

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Patrick Moorhead: Yeah, a couple things going on. First and foremost, Trump pulled back on some of the big, the most impactful ones, right? We don't have tariffs on chips and that keeps the market, that keeps the tech market screaming. And then, the second thing is on areas that I think people would go absolutely bananas on, like we get most of our antibiotics from China and we get a lot of our medicine from the EU. Those were zero percent. So I think, you know, Trump intelligently did some nips and tucks to keep us from going in spiral. The other thing is we just got more efficient in our supply chains. People figure this stuff out, right? And whether it's Apple, you know, moving more stuff into Vietnam, whether it's somebody, you know, maybe finding a new supplier would be willing to eat it a lot more. And we just didn't pass a lot of these prices on to the end consumer, even if there was a cost increase. And, you know, I think it'll be interesting to see the industrials. The thing that still amazes me is the wholesale price index, right? You have the consumer price index and you have the wholesale producers really didn't bump that much. And, and that, Daniel, I still don't fully understand. The only thing that can explain that is the person, the people who are selling the grain to the Bread maker did not increase their prices.

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Daniel Newman: Well, bottom line though is I agree with you about, you know, there is still the 232 investigation. There are still possibilities things like pharmaceuticals and chips could have some type of impact. There were the agreements that were already in place with Mexico and Canada that kind of had some caveats for things like server building, and you know, different manufacturing complete products that were also taken out of the deal or left intact to not hit pricing on those things. Pat. But like I'm just talking about the ships full of stuff, just stuff. The 37 dolls that our kids had to own and Trump said it's okay to have three or whatever. Remember that? But like, I mean I go to the store and stuff is expensive. Inflation's been high for a long time, but it hasn't gone up more. It just hasn't. Things aren't more than they were. And I'm sure there are a few odds and ends and I'm sure there are some small businesses and I don't want to sound crass about small companies that have big hits on tariffs that have been hammered by this deal. But our economy is in good shape. The S & P's are at all time high. Day after day jobs have remained largely stable. Price indexes have stayed largely within, within the range. Interest rates have stayed largely intact. Just, you know, and we're driving in a budget surplus. And by the way, I tweeted something about this yesterday. I basically said we have no chance of solving our problems with raising, with, with raising taxes and, and revenues. Like there aren't enough billionaires and wealthy people to raise taxes on anymore to cover the type of spending we're doing. I'm not saying you couldn't do it with some fiscal management, meaning if we cut and actually manage the whole budget and then wanted to raise taxes and. But you're also seeing lots of problems like in London where they raised taxes again on wealthy people. And what has happened? Wealthy people have a fleet. I mean so there is this kind of really as long as there's going to be places for those people to go. You can only raise taxes so much or eventually you will lose the people that are, I think the wealthiest few percent fund like 90% of the tax base. So it's a crazy issue. But the EU, Pat, I mean look, it was a lot of, a lot of hot takes a lot of end of the world stuff. They landed on what, 15 on most exports and I think zero on imports. You know, they're going to make, they committed almost a trillion dollars, $750 billion in energy and billions in investments in arms. So we brought in $ 1.3 trillion in commitments to spend for Europe to spend in the US while taking in 50% tariffs. And they did leave a few things up. Aircraft, chemicals, APIs for pharmaceuticals, semiconductors and some of the agricultural stuff in place. Tariff stuff remains high Pat. But you know, I'm just saying in the end, like what, what point do the economist, the University of Michigan, the Atlanta Fed, these ones that just claim these ridiculous, do they ever raise their hands and be like, whoops, yeah, we got this wrong or do we just, is it always, are we going to always be so partisan about all this stuff that it's just going to be like we will go to debt fighting for this even if it ends up being good for us?

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Patrick Moorhead: I think they got so skewered based on the Bidens and you know, initially Trump spending. They got that wrong. Because they don't have what's the right word data that they can count on, which I totally understand. This thing seems to change every day or week. They go the conservative route or they go the worst case route. So I don't agree with it, but I understand how we got here. 

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Daniel Newman: Totally. So we've got a lot to cover. Not a lot of time before I've got to break off and do some corporate BS. China extended 90 more days, so they're still working. And that of course was one of the biggest risks as well. But remember, there are tariffs between the US and China. It's not zero, it's just not 191% or whatever. But  it was kind of like the make it big, make it shocking, make it stunning and then bring it back to something that was still pretty big and everybody's like, yay.

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Patrick Moorhead: Kind of like it was a negotiation.

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Daniel Newman: Oh my God, Art of the deal or whatever they. All right, my man. Look, you know me, actually you and I are both kind of perma bears about Apple in many ways. But you know,, at the end of the exercise, there's a really, this question that's going around. Is Apple doomed? Is Apple going to be doomed? So in this week's flip, I think you and I need to debate, is it over for Apple?

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Patrick Moorhead: Let's do it.

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Daniel Newman: So you're gonna, you're saying it's not over and I'm gonna have to take it on. So, I will go first. All right. How about that?

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Patrick Moorhead: Yeah, sounds good.

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Daniel Newman: Okay. The risks are palpable for Apple. I mean, in the beginning of the year they've got an entire. I mean, we'll just start with the stuff that could actually hurt them. That's still unknown. Their entire supply chain is dependent on China. And we know we have an administration that doesn't care for that. They tried to move to India, but that ended up not going to work out so well. Bringing their stuff to the Americas is going to be incredibly expensive. But this isn't really the problem for Apple. This is a company that has a massive balance sheet. It's spent $600 billion buying its own stock back over years while basically delivering almost zero innovation. Unless you call a giant headset that people use to watch porn as innovation. Or perhaps you want to get another phone with an AI feature that actually doesn't work, so you have to lend your capabilities over to open AI. So innovation is completely lacking. But hey, they do have a credit card now, so that's pretty cool. But the other real problem with Apple is a real question that needs to be asked in a company that's completely failed to innovate. Failing on the car, failing on the headset, failing to bring AI to the handset in a way that's actually disruptive. And now you have a question. Is the handset even going to be the way people work? My bet is in the next five years, the handset begins a steady decline to no longer being the number one way that we interact with our information and the world as we see new form factors, those that people like myself aren't even intelligent enough to know what they might be. But it could be a pin, it could be a wearable, it could be a contact lens, it could be some other device. And Apple is already showing signs of not being able to get this done. Its top AI researchers are fleeing, leaving for the greener pastures and hundreds of millions of dollars offered by Meta, while its top executives, including its COO, are stepping away because, well, it has no answers for the company's lack of innovation. And meanwhile, at the helm, Tim Cook, a great manager of the business, clearly someone that knows supply chain and operations well, but hasn't really brought a single innovative technological product or service to market in his tenure as CEO. And yet the board is fully confident in him. Why? Because he continues to print a cash machine. But I'll tell you this, Pat. In the years of companies like Blockbuster and BlackBerry, there was no point in which they were like, oh, that Netflix is going to definitely put us out of business. Or BlackBerry said, oh, no one's ever going to use a touch panel to send an email. We've got this market locked. Well, I hear a lot of that right now about Apple. They have 2.2 billion plus users in their install base. They will never leave. That's what Blockbuster said, that's what BlackBerry said. And surely that's what Kodak said when they thought that they would be fine staying with print film just a little bit longer. But Apple completely missed the bus on AI. They are continuing to struggle. They're no longer a growth company. They're a value company with a dividend and their entire focus is on keeping the float low on their shares. So maybe they'll be around a while longer. And heck, Kodak's still around and so is Xerox. But these aren't the companies that they once were. And it's almost all but certain at this point, Pat, that Apple will be one of those companies as the next generation of tech disruptors in the AI era. Take it over.

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Patrick Moorhead: Yeah, that was a pretty good job. I mean, it's completely off base, but I do believe that Apple's going to figure out AI and boy, do they have a long time to ultimately figure it out. Let's look at today, like, what are the AI applications that are capturing our imagination, right? They're all based on apps like a ChatGPT app or a Perplexity app that you and I and millions of others both use on our phones. And then when it comes to the desktop, it's primarily a web interface. Every Apple iPhone can do AI through those two modalities. And the only thing Apple could do to give these AI programs to people who are better at it today would be to give it access to API access in a way that it normally doesn't do for a very long time. For instance, they could probably, in a pico, probably write this code to be able to use ChatGPT to pretty much do everything on the iPhone that you needed it to do. That's the worst case if you had to get it fast. Then I look at these alternatives that potentially disrupt the smartphone. I mean, what is it going to be like a pendant? As much as we like to fantasize that having a headless, meaning not having a display pendant is going to be a great idea. How many people are using voice mode anyways on there compared to what they're doing on the display? Well, not a ton. And then if you have a pendant with a small display. Isn't it kind of like a smartphone without the radio in? Probably is. But it would have to have the radio to be able to communicate if you're not gonna buy a smartphone. So a lot of people talk about the future of these devices, but I just think it cuts across what people really want. And people, consumers in particular don't like very quick change. Let's talk about loyalty. Right? Let's just say somebody on the smartphone side comes around and does it just dramatically better. I mean, to be brutally honest, I mean Samsung is doing it a heck of a lot better. Their image editing and generative AI fill capabilities. You are today looking at Apple which is like in kindergarten and Samsung is in high school or college right now. It's absolutely incredible. Samsung so far has not increased market share based on Apple stumbling. And I think what that says is that so few consumers are demanding it to happen. So let's just say that Apple, my thesis is Apple has three to five years to figure it out. They've hired cloud infrastructure pros from companies like Google, a few that I know personally from Google. They are making their own chips. Rumor is that it's a Broadcom based chip for their data center. Today they're doing some clunky putting a Mac in the cloud operation which doesn't seem to be very efficient. So whether it's today, whether it's midterm or the future, I think Apple has AI covered as much as they need to do. And you know, let's say they lose, you know, 5% share in places that don't mind the green bubble. You're still not looking at a catastrophic ending. And then once they do get their AI act together, the thesis that they could grow even more means that this company is off to the races and their stock is probably going to go absolutely crazy.

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Daniel Newman: All right, so when are you going to start debating? I didn't hear anything there. That was a debate. Just kidding. That was fun. Funny when you debate that though, Pat, because it's like you can be bearish on something but also acknowledge that the company has a very real moat. And that's been the case. But single digit growth is not exciting. It is definitely in this particular era with so much tailwind, a trillion dollar gap now is built between Nvidia and Apple in terms of valuation. There's a trillion dollar gap. That was fun. All right, man. We had a ton going on last week in the market. You know, we had a ton of earnings. We're gonna have a ton more earnings. Pat, why don't you and I do kind of a ton of time. Let's do a bit of a rapid rundown of every of, of some of the biggest earnings of last week. And of course you and I were broadly covering this in the media and the press and across social media. So you'll get it from us here. And if you don't get enough of it here, check out our X pages. We're both, you know, shilling our, our victory laps across the Internet and then, you know, you can catch us on, on TV as well. But let's, let's hit some bulls and bears. All right, so rapid fire, I'll go first. Tesla. Nobody expected it to be great, wasn't great, but yet the stock's still hanging in there because why? Because nobody treats this company like a car company. Everybody treats it like an AI company. Physical AI, robotics, autonomy, energy. And yet as its margins erode, its unit volume goes down, the innovation of its products continues to stagnate. From a car standpoint, this is probably a lesson in what Apple needs to do to change its narrative and become cool again. It trades at over a trillion dollars as the highest forward PE ratio in the market, but yet as of right now, really isn't doing much to earn its keep. Except for the fact that people say five and 10 years out, it probably, besides, Nvidia has the biggest play in physical AI. I don't know if anything you want to add there, Pat, or want to just hit the next one?

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Patrick Moorhead: No, I do want to add to Tesla. What are the engineers working on? So, you know, model, model 4 AI came out, or generation 4 electronics came out with virtually no changes to the body style. The body style is old, the body style is aged, and I am still very doubtful that they can get it nearly as safe as what Google is doing there. And I think that that's weighing on and I think Wall street is just being absolutely charitable to the company right now. Let's shift to something a bit more positive. Results were pretty good, but the market didn't entirely love it. Let's talk a little about IBM.

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Patrick Moorhead: Yeah, I mean, IBM came in and one thing I really like about what they're doing is this, they actually put an AI number out there. Right. Unlike ServiceNow, they put an AI backlog number out. We are going to talk about ServiceNow a little bit later. Who talks about a percent growth but they put it out there. The challenge here was that they didn't hit overall on software which I just thought was interesting. There's a little bit of chatter about potential budget challenges inside of the federal government but I think they work that through. It's a very small percentage of what they do. But yeah, they beat on revenue, eps, cash flow. But the software segment Mick missed. I was still very impressed with the hybrid cloud and red hat at 16% growth. I think that is absolutely phenomenal. I think the good news, good news, bad news is that IBM is looked at as an AI stock, potential AI stock now and anything contrary to the dialogue it, it gets hit and they, they, they got hit between 4 and 8% based on that.

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Daniel Newman: I thought IBM did a good job. You know they had a big number from their infrastructure because of the Z cycle.

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Patrick Moorhead: I know, can you believe that? I mean it took 70% and they all, they only ship for three weeks.

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Daniel Newman: Yeah, crazy. It's going to be big. And, and that just goes to show how critical that technology is to running the world's transactions. But it also shows how IBM's hitting its, you know hit around that 5/% model and again 5/% growth program is really, that's the thing like you got to understand the company. But it's been all time high after all time high. It's been done with great management. You know kudos to Jim Kavna the CFO and Arvin Krishna we regularly interact with and you know, just on executing in the business. Let's, let's, let's, let's talk a little bit about Alphabet Pat. You kind of, you rubbed me, you ribbed me a little bit about me being such a, such a Google bull and you know, what is it? Why? So let me just give you the thesis here. The best vertically integrated stack in AI outside of Nvidia has put the work in over a decade now to acquire, build the research organization and the infrastructure and the solutions and has the stickiness a lot of people in the market want to call the end of search. But the end of search to me seems a lot less risky than the end of handsets because Google has all the technology to basically pivot its users and it's doing so that kind of bump in the road where people are like oh search is going down, everyone's moving to Open AI. Well there was one number for like one month where it went down like.01% and everyone claimed the world and then it's on its way back up. So people haven't completely abandoned search and adding search into, adding generative in or AI into search and now adding it into YouTube and adding it into workspace and adding it into your cloud is a really, really sticky business model. You're seeing their large deals go up, they're getting more significant sized projects in and their growth rate in the cloud continues to be really, really strong. I mean there are some challenges with ads, but I just think the company is really sticky. I think the regulation risk is overstated and I think the continued ability to print cash while being innovative, while investing in Waymo, while investing in chip development, while investing in AI research, he's just much better than the market gives it credit for. So I thought the company had a really, really good result and I think it earned the run up that it had in earnings.

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Patrick Moorhead: Yeah, getting that $50 billion annual run rate for Google Cloud is so impressive. I mean, what was it three years ago? People were questioning their existence. Would they deprecate it, be on the bone pile of Google discontinued products now? Look at them there. And they built it in a couple ways. First of all, they led where they were, they were really good at it. And first place was data and analytics, right? They have the largest data estate literally on the planet. Right. And they have more data centers on the planet than anybody else. And they found a way to make that appealing to businesses. And then you add on AI where I would, you know. Anybody remember Google Image search, right? That was created by Google leveraging object recognition technology from the University of Toronto. They wrote the seminal white paper on Transformers, which is essentially bringing in generative, generative AI and you know, they walk this tightrope. It's funny, Google was a startup losing a ton of money when Yahoo and all of the portals were making a ton of ad money. And they have the same play being run against them by companies like Perplexity and OpenAI. And they have to bring innovative technologies to the table at a decent cost and they're doing that with TPU. So yeah, I, I was always bullish on Google. It was just, you know, the amount of, your tweets out there for Google was the only thing I was ribbing you on.

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Daniel Newman: I know,I was just kidding. I just meant like I've been, It's like sometimes you find something that your audience appreciates and you're kind of just turning and scratching at it. And scratching at it and scratching at it because I just think the company is surprisingly misunderstood for how successful and performant it has been. Pat. You know, talk about connecting AI. How about the network T Mobile, us? What'd you see there?

Patrick Moorhead: Yeah, so they don't get talked about a lot compared to the AI plays just because of AI. But they're absolutely running over AT&T and Verizon. I mean they were up 9% after their earnings which just has a string of improvements and essentially it gets down to these wireless KPIs which are all about how many prepaid and postpaids that they bring on. And also they continue to have a moat which is a superior network that was brought in with the combination of T Mobile and Sprint years ago. They were first with 5G, first with having applications that actually use some of the key technological features in 5G. So yeah, they're crushing it.

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Daniel Newman: Yeah. And they, and they continue to have a strong, solid company, strong performance and by the way my carrier. So I always say put your money where your mouth is. What do you, what are you carrying? So ServiceNow continued its very, very, very strong performances. To your point earlier, yes, there could be more said on how AI is directly impacting the business but it maintains probably somewhere around two to two and a half times faster subscription growth rate than the rest of the SaaS businesses, the sizable SaaS businesses out there. It was, you know, like I said, it was one of those kind of solid batting performances. They didn't have any of those crazy partnership announcements but they had a steady, you know, continuing their partnerships with Nvidia which by the way is using their platform now for HR. So Nvidia and ServiceNow are getting tighter. Never a bad, I think they closed 89 deals over a million net ACV and now have 528 customers with over 5 million so big customers they're growing their biggest deals now. I think it was something like 30% growth in over 20 million and they're keeping the renewal rates at 98%. So this is a company that we see as seminal to the AI transition, lacking the technical debt of some of the other SAS companies that have very difficult and sticky models that are not going to be able to move to consumption. But that's really what I'm looking for Pat, from this company is can they move to a consumption based subscription pricing that's more token and outcome driven versus user driven. Someone's going to have to do this. First, I think ServiceNow has a good opportunity, but again, none of these companies want to cannibalize their business. But solid overall performance. Of course, in my conversation with CEO Bill McDermott, always optimistic, he's always incredibly bullish about where things are heading. But after so many quarters in a row of execution, I guess how can you blame him?

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Patrick Moorhead: Yeah, this was almost flawless earnings. I mean literally, I can't even spot low lights. I do want to pick the scab of AI though. I mean we have companies like IBM that are putting out billion dollar backlog numbers for AI and talking about what they did in the quarter. Why isn't ServiceNow doing this if they're crushing it so much in AI? I have a thesis and maybe it's going to be controversial that their revenue growth is not actually being driven by AI. There is big AI growth, but it's really driven by some of the new places that they're in. What they're doing with CSM, what they're doing in HR. Two metrics that do indicate AI growth is workflow, data fabric and Raptor DB. Right. These are the precursors to do AI. And we saw the same thing with companies like ServiceNow and also SAP. And by the way, this isn't to take anything away from the company at all. My gosh, they crushed it. But I am not convinced that they're amazing finances are being driven by AI.

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Daniel Newman: So your readout on it is that it's TAM expansion and TAM driving more subscription revenue.

Patrick Moorhead: And new products too, right? What they're doing in CSM.

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Daniel Newman: How they're expanding CSM, HR. So basically the pivot to workflow is driving customers to move some of their current way of doing things to ServiceNow, which is bringing expanded ACV with each customer. But the question is how much of that's directly attributed because of what they're doing with AI.

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Patrick Moorhead: That's right. That's exactly right. And I do understand the channel like what is AI and what's not? Hey, does old machine learning that we were doing seven years ago count as AI or does it have to be generative AI? IBM in writing says what they're doing in generative AI. So one thing, ServiceNow, strategically they might not have to because nobody else is doing this in software. SAP is not doing it, Salesforce is not doing it. Adobe surely isn't doing it. But wouldn't it be wild though, Daniel, to think of that? Okay, SAP, Salesforce, SAP are not putting specific numbers out there and neither is ServiceNow but somehow ServiceNow is driving it through AI. Anyways, I'll leave that there. Great job.

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Daniel Newman: Sometimes it's just the stories that we tell. All right, we got just a minute or two because I've got to go do corporate meetings. My favorite things. But Pat, I want to, I want to wrap this up with a tough one. Intel.

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Patrick Moorhead: Yeah, listen, they beat on revenue, they met on EPS. But quite frankly, put all of that stuff aside. They dropped the bombshell on the call that essentially said if they don't have customers lined up for 14A they're not going to do it. And, after, you know, I heard it on CNBC today, right. Kramer lambasting, saying the government gave money to Intel and they shouldn't have done it. But, but Macro, pragmatically I understand it. Okay. Which says I'm not going to put all this capex in unless I'm sure that people are going to come in. But if you don't have the confidence to go out there and say that you're going to do this, how's that going to look on your clientele? That means you don't have confidence. One of the things that I'm trying to drive with the administration is you need to be motivating the chip designers to spend the money to do a design on 14A or they're just not going to do it. I don't think any of the chip designers care about a potential Chinese invasion of Taiwan. What they care about is low risk and crushing it on, on performance. So they need some motivation. The other thing that's said is that they're going to be laying off. I guess, I guess the total number, I think it was, was 25,000 people. So I guess that would mean they were at a little over a hundred. That would mean since their peak, they would be down 25% overall. I think that what we heard when we were at the conference, we were on the call with Lip-Bu and company . They were about halfway, halfway through and final comment on here. We don't yet know what the impact is going to be to the product roadmap or product features. I haven't heard anything about their 2026 AI data center GPU. It wasn't mentioned even up on stage when Lip-Bu made his first on stage out there in Las Vegas that you and I had attended.

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Daniel Newman: Yeah, I think it's going to be an inference chip. I think something built on Gowdy. I think the 18A to 14A news is probably the biggest thing. Just the kind of. It wasn't really an earnings note as much as it was just kind of news around their earnings, but just that 18A is an internal node now, a long node, and it's going to be 14A and it's going to be two to three more years before they're going to fill the foundries with outside. And you're absolutely right, Pat. They've got to incent these companies to want to work with Intel. The governance thing was a step. You know, I really thought all this regulation that was being put into place in the US to drive more manufacturing here could have absolutely created the environment for having to use Intel again, maybe against some of their will. But if we want a US chip champion at the leading edge, it's not going to happen because everybody just likes each other and wants to hang out at dinner, eat guacamole. You know they're going to have to make something a big incentive for these companies to risk, yield to risk, performance to risk, you know, all the cost of running two foundries. Because TSMC, they may have all this price inelasticity, but they deliver. And these companies feel very confident when they go to TSMC, they're going to get the performance and the yield that you mentioned. All right, buddy, I gotta run. I gotta call to get on. I appreciate everybody out there. Thanks so much. Episode 269 we are back. Pat is almost back to full health, full flex all day long. We'll see you all back next week.

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