The Six Five Pod | EP 272: The Great Tech Reshuffle: Insights on Cisco, NVIDIA, and Industry Shifts

On this episode of The Six Five Pod, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week, with special guest Jeetu Patel, President & Chief Product Officer, joining for Off the Record! The handpicked topics for this week are:

1. AI and Technology Industry Updates: NVIDIA, Intel, and ChatGPT-5, plus Elon Musk's recent controversy with Apple's App Store.

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2. Economic Indicators and Market Analysis: Discussion of recent CPI (Consumer Price Index) and PPI (Producer Price Index) data, debate on the reliability and methodology of economic measurements. Observations on inflation trends and their impact on various sectors.

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3. Cisco President and Chief Product Officer Jeetu Patel Goes “Off the Record”: Jeetu Patel discusses Cisco's strong Q4 performance, with product orders up 7% and over $800 million in AI Infrastructure business. He highlights that AI is driving a fundamental shift in networking and that Cisco's in-house Silicon One and security integration are key structural advantages.

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4. Company Earnings and Performance Reviews: Analysis of CoreWeave's financial results and business model. Cisco's continued strength, particularly in AI-related revenues. Examination of Coherent's recent spin-off and market reaction. Lenovo's quarterly results highlight its PC market share and challenges in the data center segment. Applied Materials' earnings and the impact of China-related guidance.

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5. Industry Trends and Strategic Moves: Intel's potential government investment and revised foundry strategy. The importance of traditional enterprise IT in the AI era. Implications of U.S. government actions on chip sales to China.

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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:

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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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Jeetu Patel: The reality is AI has infrastructure constraints, it has a trust deficit and it has a skills gap. And we're helping with all three.
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Patrick Moorhead: Six Five Pod is back. We are jacked and excited to be back. Episode 272! We have not been canceled. Daniel, how are you doing, my friend?

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Daniel Newman: Back in jacked. I love it.

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Patrick Moorhead: Yep.

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Daniel Newman: You know that like, little bit of like, text that we have going back and forth right before the show starts. Inevitably someone hits the start. And I was like, that was really funny. Like a cold open. Like that part where I'm like, Patrick, just imagine if you actually went on one of these CNBC shows like you're going to do today and you talked about your book. You're like, I gave two years of my life to this company and got a $3,400 check or, or even better, like, you know, you could tell the story about bored apes or whatever great investments you made. You know, it's a good thing that  you know a ton about this technology though, because you do bring a ton of value. But I like your jokes about not actually doing what I do.

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Patrick Moorhead: Exactly. Yeah. Hey, I invest in this IRA. I'm allowed like one change every six months. And it's got to be in a certain class of equities. But it is good. But Dan is. It is great to be back. And I gotta tell you, man, it has been a tough three weeks. You know, some people were working nine to five. I've been working five to nine and on the weekends. I know that's kind of normal for you in perpetuity, but I'm finally getting it back on track. And I do realize that I have limits. But what I'm most excited about is that I'm back in the gym with almost no regulators. Right. My doctor's like, you can't push it to the max. And that's not one rep. Max is just, you know, I'm doing reps of 10 to 10 to 15. And it is hard working your way back. And bestie, I, I pray that you don't get an injury because it sucks or you have to get surgery.

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Daniel Newman: I've had a few, but nothing yet. That's it. Well, when I was 30, maybe 30, 31, I was still trying to play soccer, Pat, and I got hit on the side of my leg and I tore an MCL and a meniscus and I did get taken out now at that time I was still very committed to my soccer though. So I did actually retrain. I tore it, had surgery and I was thinking back in like 12 weeks, which is pretty remarkable. But at 30 now, at 44, I fall down trying to play soccer with my son gently onto my shoulder and I was down for like 12 days. So yes, I am with you that we should protect these old man bodies. I think the one mistake we make, Pat, is that we need to stop one rep maxing. I just, it's, I mean it's really stupid at this point.

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Patrick Moorhead: Injured my shoulder, so I'm never doing one. It's until I do.

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Daniel Newman: Well, I mean the only problem is you kind of don't know until you do. But like you're like, I'm gonna do four. And you're like, oops, I can't even do one. But I mean, realistically, you're kind of. No, I just think that push just doesn't make a lot of sense at our age anymore. Being injured on airplanes and trying to hobble around convention centers. I don't know, you look silly. You know you're gonna be at Patrick on a knee scooter like, like trying to get meeting to meeting.

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Patrick Moorhead: Yeah, you just never know. I just need to shoot more peptides and I'll never get injured anyways.

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Daniel Newman: Do you think we could do like a full on peptide shill thing on this show? If I really get into this?

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Patrick Moorhead: I think so.

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Daniel Newman: Little advertisers at the bottom, get your peptides.

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Patrick Moorhead: Probably, probably. And then we'll have to shut it down after this administration. You never know what's going to happen. The FDA is kind of fast and loose on this stuff. Now you can buy anything anywhere, which I do appreciate.

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Daniel Newman: It is a little fast and loose and interesting you say that though, because they do. They want to keep us kind of sick. I don't want to sound like a conspiracy guy, but eating good food and stuff is not really as heavily recommended as maybe it should be.

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Patrick Moorhead: I'm not at the conspiracy theory point. Not saying you are, but I do think you've got the biggest donors to FDA, happen to be processed food companies. You're going to have processed foods. So it is nice to see rolling back some of the dyes, rolling back some of the additives and my gosh, even drinking. Right. Like where did that come from? Right. It's not cool to drink. We have the lowest drinking since I think 1953. I read. So you know, love or hate.

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Daniel Newman: I like it when you drink, to be honest.

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Patrick Moorhead: A lot more fun. I'm willing to sell my company for nothing and I'm pretty excited and I'm in a much better mood. Daniel.

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Daniel Newman: That's right.  So let's get you after it. Let's bring back, bring back fun Pat. Let's do it. Yeah, let's make it happen. How about today we can bring back fun Pat and we'll stop torturing our audience talking about health and stuff. You know why they're here, right? I mean you already tweeted your workout for the day. Pretty much, yeah.

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Patrick Moorhead:  Pretty much, yeah. Let's dive in here. We got a great show for you today. We are talking a lot about Nvidia. We're talking a little bit about Intel and the drama that's going on there. We're going to be talking about kind of the hangover of chat GPT5 kind of what are  our informed thoughts of Musk pulling Apple into the App Store controversy. But anyways we got a lot of great stuff coming on. We have a special guest as well. We're not going to do the flip but I will leave that for then to keep the anticipation going and then we're going to jump into bulls and bears talk to some overall high level market. What's going on, what came, what new measurements came out and then we got a lot of earnings that we got to cover. So let's jump into the decode. Daniel Pay to play Nvidia and AMD 15% off the top which is more like 30% on the bottom and as we know very well, if you can negotiate an off the top deal with anybody, it's a pretty good deal.

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Daniel Newman: Yeah, it's led to people being overpaid by gross amounts for the longest period of time. But in all seriousness this was really easy for me. It's not off the top for Nvidia and AMD. This will absolutely be passed on to China. The people that are wanting these chips will pay the extra toll. My opinion of course you can argue because just this is like tariffs by the way, everyone that's arguing out there that tariffs need to be passed on and become inflationary and they bring up the costs of things and maybe our PPI number this week proved that that is starting in some ways. So if you believe that happens, do you think that these companies here in the same situation going in the other direction are suddenly just going to eat these costs? The answer in my opinion is no. Furthermore  I'll really, actually make it a really simple debate, Pat. Nobody in China wants Huawei chips. China wants four year old deprecated Nvidia. Not because Huawei is so bad, it's just that Nvidia is so good and the developers there, the researchers, the enterprises and of course AMD a little bit, but their numbers are substantially smaller, just to be very clear. The other thing is like I kind of, again, this is one of those things where it's kind of like this is kind of smart. I'm not saying that it's kind of another way to, to extend more tariffs onto China because of the assumption that I'm making is right and China eats this, then as far as President Trump is concerned, he's actually getting more out of China because now he's getting them to pay more, which will end up bringing more money back to U S companies. So as I see this Pat, I think China needs U S technology very, very much. There is a bit of a give and take with rare earth magnet. We want a rare earth magnet. They're kind of positioning they don't buy Nvidia but they're not enforcing it. So clearly that's one of those sort of political theater things in my opinion. But Pat, you know, this to me is great fundraising. It does open the door to some questions about how much this can happen and how often and where. But it's another way to drive revenues back to the US and it's another way to put costs on the markets that we may or may not want to actually sell to.

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Patrick Moorhead: Yeah, Dan, that was a great breakdown. And the whole notion of there's so many things going on here. You've got the notion of reverse tariff and like it's unprecedented. Like who do you write the check to? And is it the transfer cost? Is it the cost, you know, what's the revenue base that it needs to come off of? ButI'm not surprised. You know, when I was in Washington D.C. at winning the AI race when, you know, Trump and, and Lisa and Jensen were there, a company called MP Materials presented and the US government took a stake in them and, and therefore, you know, there's no surprise. And,I think it was Bessent versus Lutnick who talked about the deal they cut with Japan. They had an element of a rev share or a I'll call it a success share or a mutual success that I think is interesting. So I wasn't completely blown away by this, but it is something that companies are going to have to play in there. And yeah, Trump could just completely cut his deal with China, wink, wink, nudge, nudge, and then get the money another way. So I think it's another potential loophole here and also pertains to a potential deal with intel which I wanna, I wanna shift into right now. A lot of stuff has happened, right? You initially saw Tom Cotton who was attacking Lip-Bu for his China investments and then you had Trump saying that he needs to be fired. And then you had Lip-Bu and team go to the White House and the President had some very complimentary to say based on that and essentially said, hey, we'll see you in a week. Come to me, with a plan. So there's so many moving pieces going on and then we get this Bloomberg piece which by the way, I don't know who said it first, me or you, but look to the US Government to secure an investment there, put a stake in, in Intel. And you know, Daniel, that's this during war time in World War II and even World War I, you get war powers where you can essentially tell companies that hey, stop building automobiles and start building tanks or weapons or, or something like that. So this is unprecedented, would be unprecedented in the state of that we're not at wartime. But if I look at what they did with MP Materials and you know, sometimes I think we're getting too legalistic here. Like you have grants from the US Government that are money that's shifting. I mean the Science Act and you had, and you had the CHIPS Act, that was thrown out there. We're writing checks to companies to have them do what we, what we need them to do. And I think it's the manner that we're thinking the investment meaning, hey, I'm going to take an equity share likely would be during a split. Now a funny part is I had a few conversations with folks out of Washington D.C. on, on the defense side and they don't want a breakup, right, because they buy, they want chips that are not only designed  fabbed with American transistor technology, coming from the same company. And gosh, I think I've been on the phone with five CEOs of chip companies, and a couple conversations with EDA companies. And it's interesting the conversations around how each of them would like to see this go on. So I wasn't being too dramatic where I said hey, this reminds me of a game of musical chairs, right? And a lot of scenarios, right? When this thing ends up being fully baked, which one of the designers is going to be left out in the cold? Right? Who is not going to connect with Intel Foundry? Will Intel Foundry, Intel Product Group be split? Will there be a consortium of investors in Intel Foundry? Final point is Craig Barrett. By the way, he's a beast. I don't know if you've ever read about him, Daniel, but he ran Intel when everybody feared Intel. Okay, they were the biggest semiconductor company by a factor of two. Okay? They had the best designs, they had the best foundries, and they were selling products that people wanted in the age of the Internet and in the age of PC growth. And after having a bunch of conversations in the industry, his floating the idea of $40 billion. That's exactly how much Intel needs to productize. 14A for foundry. And make no mistake, Intel is going to do 14A for its own products. But what you have to do, Foundry, is you have to buy extra capacity for the new customers. You've got to make sure you've got the right tools and you've got to make sure that you've got the right IP. Okay, from Cadence, Synopsys and other IP companies like ARM.

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Daniel Newman: Oh yeah. I talked to six CEOs and five people in Washington.

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Patrick Moorhead: I thought you were going to say 100.

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Daniel Newman: 100 people, 100 CIOs a week call me to ask me which ERP they should use every week.

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Patrick Moorhead: Sounds pretty valuable in the age of generative AI.

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Daniel Newman: Yes,  I take 45 minutes to an hour with each of them to talk to them in one day. Anyway, look, TSMC spent a hundred billion dollars or you know, took a hundred billion dollars of government subsidy or roughly over, you know, a multi decade period to become TSMC. TSMC is now the biggest juggernaut in the world. Arguably the most important technology company in the world. And I know people say it's Nvidia or people might say it's something else, but we don't have any of this without TSMC right now. It just doesn't exist. It just doesn't exist. The US being 100 dependent and beholden. It's great for Taiwan's national security because it keeps the US very interested in keeping Taiwan independent and strong. But it does nothing to protect our interests long term. It does nothing to protect the situation in which China Taiwan escalates and the US is unsuccessful in immediately defending it. Because like I said, even if we do go to their defenses, we bring that down. IP stagnates. The US can't keep up. We don't have it here. Intel Foundry is the answer. Now here's the caveat though, is when I talk about Intel, everyone thinks I'm instantly saying back intel holistically. I'm not sure about that. I'm not saying you don't. I'm just saying I'm not sure that's the answer. And to your point, Pat, in your conversations in Washington is whether or not Intel and Foundry are one company and it's a kind of an IDM with a foundry aspect of it where people outside of Intel can use their foundry or intel does split off as a design company and then it becomes some sort of USMC. Intel could still do the whole thing here in the US; they would just look more like an Nvidia or an AMD or a Broadcom, which by the way are pretty successful companies. And most of the analysis of intel as a design company using an outsourced foundry have them being pretty darn successful if they actually split up the attempt to absorb all the costs to become this integrated manufacturer and Foundry has basically made them close to insolvent. And, that's really the question mark. So I'm sort of inviting. If we look at TSMC and if everybody's going to sort of idolize and laud TSMC, then I think it's important that we remember how TSMC became TSMC and that was a conscious effort by the government, not to mention a conscious effort by US companies to support its efforts to become TSMC. So we need that. I mean, if we believe that AI is the most important multi generation secular trend and the future is going to be AI robotics, autonomy, we need to make sure that there's no situation in which IP in the US stagnates and we can no longer make the leading edge chips we need to make. And realistically, if we want Nvidia and Apple to be able to do what they're promising to do in terms of bringing manufacturing back to the US, we need to offer that capacity. Putting all that weight on TSMC and to a lesser extent Samsung doesn't do the job. So I am here for it. Pat,  I think there's a lot of questions exactly how it gets done, but I think it's the right move. I think the US should get behind it. I always thought the chip act was a little light. I thought it was a little light and I thought it underwhelmed the real work that needs to be done. We spend more money on tarp and garbage plans to bail out idiots in Wall Street than we are right now to make sure the US is absolutely infallible when it comes to leading the world in chip development and manufacturing.

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Patrick Moorhead: What an interesting flip flop though with Lip-Bu, which was, I believe he quit the board because he wanted to split the company and Pat didn't and he leaves and he, you know, runs on a platform that we're going to split the company and he gets in and he sees something that says, you know what, I don't think we should split the company here. And my guess is, and listen, I've debated with a lot of people on this this week. It is a distraction that it would take to do this. You know, I was at AMD, it took us 10 years and I even left beforehand to go from proprietary tools in a proprietary foundry to third party tools, a lot of reuse of IP and even using third party IP to ultimately go to TSMC. That was a 10 year journey and it's tough to make that swivel. And I was very disappointed to not see when, you know, Intel had announced it was going to have an independent board, operating board for, for its foundry. And, and that never hit right. Where is it right? I think that was discussed nine months ago. So I understand direct competitors like Apple, AMD, Qualcomm and you know, who doesn't want to go on here. So anyways, today when the pod airs on Monday, we should be hearing about what had happened at that meeting. So Trump had said within the week. But hey Dan, let's move off of Chip Chip Chippery and move into chat GPT5 which was announced a week before last. And you know, there are people who are debating, was it a good launch, was it a bad launch, where do you sit on this?

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Daniel Newman: So I, it's a tale of two sides, Pat. I think OpenAI's sort of meaningful lead has evaporated. So I mean I think Google's in play. I think, you know, GROK from X is in play. It's not anthropic of course. So this launch did not do what their past launches have done to sort of set this meaningful gap between OpenAI and everyone else. But I also locked myself in my office for like 14 hours this weekend playing with it and it's pretty freaking incredible. I know people are not loving, it's a little slow, it can get a little. Because it's doing this whole negotiation like where. Which by the way is how it has to work. When you search Google, it doesn't ask you, well, which algorithm do you want to search with? It's like Google navigates all of that in search and then determines what the best results are. Well, with all the different models, when you're looking for different things, when you're coding, when you're looking for information, when you want deep research, there's a model for that quote, unquote. And so this GPT5 capability allows it to navigate which model it should use and it interacts with you really intelligently to be like, here, I'm going to get you something quickly, but if you want more, I can go deeper. And I love some of the services they've built for like turning this into a slide or do you want me to reformat it? I was working on a TV hit this morning. I was prompting and prompting and prompting. It's like, do you want me to condense this to a 30 second sort of bit for you to set. And it really does a lot of great things. The other complaint, Pat, is that it's less personal. Like that the last ones felt a little bit more. But like, I don't know, I just think that's, I don't really care. Like, so that's not a thing for me. Like I'm not trying to become friends with this thing. Like, I know that some people are like, you know, marrying their LLMs, dating them and sharing their most intimate secrets with it. I think that's freaking weird. So maybe call me a boomer, by the way, I'm a millennial. Yeah, eat your chomps. Keep eating, dude. But my take on it all is I think it was a good launch. I just think this is quickly getting commoditized and I think these, you know, that's a look I'm familiar with, by the way.

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Patrick Moorhead: No, we pound these so many times, you know.

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Daniel Newman: Yeah, not on you, by the way. Not familiar with that look on you. Overall though, Pat, like this stuff's incredible. By the way, we added the GPT5 service into Futurum, our intelligence platform, our AI platform. I mean it's doing great stuff. Like it is really very turnkey for language. You pair it up with some great proprietary data, build the right backend data lake. I don't think RAG is good though, by the way. I think RAG is weak.

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Patrick Moorhead: I mean we're on to MCP and we're on to. Right. You know.

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Daniel Newman: I think that the ability to navigate data for the enterprise, there's a reason enterprises have gone slow and I, I found it out myself. And you're doing some stuff on your end as well, but like RAG just. I find that half the time just the open Internet does better than ragging against proprietary data. But if you can build the data lake correctly, you can get some pretty incredible results. But I think it's a good launch. I just think, like I said, this is becoming a bit of a nothing burger at this point because like in a week will get GROK five and then in two weeks we'll get Claude four and then in two more weeks we're gonna get, you know, whatever comes, you know, comes next from whomever. And you know, the only thing I'm asking everybody out there is please don't, don't hit me up on Twitter telling me that the DeepSeek is going to end Nvidia and that it's going to evaporate open AI in the US’s technological lead. I'm not here for it. I'm not interested in it. Don't at me. As they like to say.

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Patrick Moorhead: Yeah, it's crazy. Yeah, it was interesting, the back and forth and you know, even my son didn't, didn't think it was any good. But his measuring stick, his measuring stick is, is code completion.

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Daniel Newman: Yeah, right. Yeah.

Patrick Moorhead: And they did have improvements in code completion, but it doesn't even hold a candle to what Claude can do. Claude rules man opus and stuff like that on that. But it's interesting in my own personal opinion. I literally spent the entire weekend doing queries and A: I appreciate auto because if I have just a normal query that I want a quick response back. I don't want it doing pro and waiting 13 minutes to tell me what the weather is like in Austin. Right? That's nonsense. I really, really appreciated the ability for it to ask me suggestions and you know, it has memory, guys. Perplexity doesn't have memory. So I don't have to prompt the heck out of it. Right? It knows what companies that I'm engaged with. It knows the tonality of the responses. Like I don't want any marketing nonsense. Like, like I don't want any fluffy terms. Don't give me emojis. Right? I don't want any of that crap. Right. I'm a serious business person and I want serious responses. So Daniel, I mean I was like 90% Perplexity, 10% GPT. I have completely flipped that at this, at this point.

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Daniel Newman: Here's where my head's at on that, by the way, because I agree with you, is for financial data, Perplexity has done a great job. So if, like, you're like, wanting to quickly read everything else, though, like, it seems like that'd be an easy thing, though, I guess maybe they don't care.

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Patrick Moorhead: Yeah.

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Daniel Newman: But like GPT5. I love the memory feature, by the way. Remember this, by the way, I'm not a serious person. I love emojis. Every tweet comes with a rocket and a fist, just in case.

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Patrick Moorhead: Oh, and. And caps.

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Daniel Newman: I'm sure that's not like all the time, though. I'm getting a lot of grief about that. I occasionally copy and paste Shy's tweets just so I can feel better about myself because apparently whatever he shares, I can actually reshare his share without actually making any changes. And there's something about what he says that just drives better engagement. So I think we're just. We're just too old and boomery to actually fully embrace the power. We need more millennials/Gen. Gen, was it? Gen Zers.

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Patrick Moorhead: Yeah.

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Daniel Newman: You know, they want to make a lot of money and not have actually accomplished anything. And then they can also tweet and TikTok really effectively.

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Patrick Moorhead: Except for my son.

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Daniel Newman: He's awesome, by the way. I can't wait for him to come work for me.

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Patrick Moorhead: Gosh, I know. Me too. He can steal all your.

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Daniel Newman: Actually, I just let him take over the company. Can we work this out?

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Patrick Moorhead: Yeah, I think we can. 

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Daniel Newman: Let me do a deal where he runs it. He makes it very solvent, and he's just paying you and me dividends every month.

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Patrick Moorhead: I would love that. Let's make sure we cut the deal after six vodkas.

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Daniel Newman: E. Make it happen, buddy. Let's go.

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Patrick Moorhead: Hey, let's move to the next topic here. We have a new battle between. Is it the Musk Altman battle or is it the Apple, you know, Tim, Apple and Elon controversy. They've butted heads and broken bread together and smoked the peace pipe, but it comes down. It comes down to this. Elon does not like the way that Grok is promoted or ranked inside the Apple store app, saying it disadvantages X and XAI and it puts ChatGPT at the top. Right. And it could come down to the deal that Apple and OpenAI cut together. And he's threatening to threaten to sue. Says it's an Anti competitive behavior and wants the regulators to come in and probe distribution, blah, blah, blah. Is this just another rant from Elon? Does he have a good point or something different?

Daniel Newman: I just think he hates Sam Altman. I mean, I literally think this is just like pure vendetta at this point. Like, I don't know, I mean, like I said, I think Sam is like. I think he's, he's more likable in some ways, but I still think he's the most diabolical. Like he actually, you know. You ever seen Stewie Griffin in Family Guy?

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Patrick Moorhead: No.

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Daniel Newman: You gotta watch Family Guy. It's actually a great show. It's a ton of history.

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Patrick Moorhead: You and I watched a couple times together. Yeah.

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Daniel Newman: But a ton of historical references. Like you actually really have to know culture. But it's super inappropriate. So it's got those two things going for it. But like just this diabolical. I'm gonna take over everything. Yeah, he actually hasn't taken over anything yet. And at this point, the one thing he had some type of lead in, he actually is quickly losing, in my opinion. Not to mention he's got the whole Microsoft issue. But it was funny because like that one day Elon basically kind of went after Satya, which we never talked about on the show here.

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Patrick Moorhead: Yeah.

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Daniel Newman: And Satya, just with so much grace. Just. Absolutely slayed him.

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Patrick Moorhead: Man. I wonder, is that Frank Shaw or is that actually Satya?

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Daniel Newman: How do you perfectly respond and troll someone that trolls you?

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Patrick Moorhead: I know. It was so good.

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Daniel Newman: It was so good. You know, I don't have any beef with Elon. Like, I like, I think he's great. I think he's great for the world. He's interesting. He's kind of got this, you know, he bought a platform and I'm pretty sure it was to just pump his ideas, which has gone well. And I'm so glad he saved it because can you imagine life without X? Like, it wouldn't have survived.

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Patrick Moorhead: By the way. LinkedIn is a social media platform, which is exactly what it's like to work at a big company. It's antiseptic, everybody's fake and it's just absolutely horrible.

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Daniel Newman: Yeah, I actually, I really don't even like to post there anymore. Which, by the way, Satya makes that better. I'll get back on topic eventually. Just, I'll just wrap this up and basically say Elon is gonna say what he thinks. Yeah, there may be, there may be some truth. There is a benefit to Apple pushing open AI. It is the only AI that Apple has that works as of right now. And so maybe he's right. I mean, these are, this goes back to the same thing, like if this probe became real. It's the same type of thing as the investigations as to whether Amazon favors its own products. You know, the App Store has gotten away forever with all kinds of things that I could argue are antitrust issues. So why would this one be any different? But maybe Elon's the, the person that could finally give it enough attention and bring enough money to potentially get this out into the open. I think in the end, Alon wants GROK 4 on Apple, so, you know, to his benefit. But Pat, I. Would you be surprised, I would not be surprised if there's some code deep inside the marketplace that favors things that Apple wants favored,

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Patrick Moorhead: Of course there is, guys, unless there's an absolute numerical ranking. So let me close it. Here's the only thing I know for sure. When platform policy meets billionaire ego, antitrust lawyers rack up the billable hours. How's that to close?

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Daniel Newman: Lawyers always make money.

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Patrick Moorhead: Yeah, absolutely. Hey, let's go into this next topic. Daniel. I think this might be the last topic we'll see. Apple, after failing at pretty much everything new that it tried to do after Steve Jobs, with the exception of AirPods, failed vision, getting out of cars, failing AI, it decides it's going to do robots, home security and smart displays.

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Daniel Newman: Yeah, I don't know, it's like a yawner to me. Hey, Tim, why don't you try to get Siri to work first? Like, I get it. And honestly, like, if Apple can do it, like, yeah, people would probably buy it. I mean, can Apple challenge it? Is this another thing now? Is Elon mad? Because now Apple's gonna challenge Optimus, but, but frankly, if anyone else is gonna sell you a $30,000 robot in your house, it's gonna be Apple. But everything Apple has tried to do that isn't. The iPhone has sucked. Sorry. Fairness, Macs, iPads, everything that doesn't fit the sort of traditional, well respected, you know, consumer device platforms. Like everything they've tried outside of that has really not worked. I mean, XR has not worked. Car did not work. The home pod has been pretty darn unsuccessful as far as I know. What have they done, Pat, that isn't a PC laptop or tablet that's worked in the last, I don't know, two decades.

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Patrick Moorhead: So before Steve Jobs passed, he had literally a video like, of, of his thoughts and he had a very long term road map that a lot of stuff was on. And, the company has just fumbled from an innovation standpoint. They've crushed it operationally. And you know, Tim Apple is great at that. And you know, I don't know how long or how far this goes. By the way, when Tim Apple was with Trump, did you hear the funny comment he made about something like, well, it's apparent that Tim doesn't work out, but, you know, we're not gonna hold that against him.

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Daniel Newman: Yeah, he did call him small. Kind of like you called Connor small. One picture.

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Patrick Moorhead: Right.

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Daniel Newman: I just thought Connor's still reeling from that. I think he even mentioned it yesterday, by the way. Connor, sorry about that, but at least you're getting a feature in our show.

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Patrick Moorhead: No, no, totally. I mean, and what do you expect? Like, you go on vacation for three weeks and you're on a yacht, right?

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Daniel Newman: Yeah. It is sad to be him.

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Patrick Moorhead: It is. If I was in my 20s and, you know, was making all that cake and crushing it. He's got a great life and I do appreciate what he does. Does. Hey, you know what? Let's move on to the next element of our show and. Which is typically going to be the flip. But we are exchanging the flip for a secret guest. Not so secret anymore. We're going to talk to Jeetu Patel. He is the chief product officer and president at Cisco. Unfortunately, I had a CNBC interview that I had to do. Talking on some other stuff, but let's roll the tape. 

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Daniel Newman: President and Chief product officer Cisco Jeetu Patel, a regular here, by the way, on the Six Five. Thank you so much for taking some time. First of all, I just want you to know, because you may not know this, Jeetu, but every week Pat and I have this segment in our podcast called the Flip. And it's like, where we simulate a debate and we'll pick a topic like should Intel, should the government sponsor intel or not? And we have to debate either side. And even if we don't believe it, we debate with each other. We go after it with one another. But I win every week. And so it got really boring. And so when we have a guest, when we have this segment where we bring, you know, someone like you on and we don't bring many people on, we skip the flip that week. So I'm super happy because I was just, you know, did you ever get tired of winning? 

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Jeetu Patel: Does Patrick think you win every week?

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Daniel Newman: Or do you think I'm tired of winning and I've convinced myself that I've won. But speaking of winning, gifts to great print. I mean, I'm pretty sure it was a beat on all, on all ends. And, you know, I just first and foremost, give me, Give me a little inside baseball. Give me a little Cisco inside Baseball.

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Jeetu Patel: About the quarter, look, we had a strong quarter, and firstly, I'd like to say I think we've got an amazing team of people that are working really hard. And thank you to everyone for working as hard as you are to deliver an amazing quarter and an amazing year. You know, we had product orders grow 7% and it was solid growth across all the geographies we had. You know, our Q4 revenues were up 8%. You know, revenue, gross margin, operating margin were all on the high end of the guidance range. So overall, an amazing quarter we have. We have to continue to kind of make sure that we keep innovating. I think in my mind, the way that this thing happens is you just continue to relentlessly keep innovating. I think the AI infrastructure demand is very robust. And that's probably the. If you were to think about it. One of the highlights of the quarter was that AI orders exceeded 800 million for the quarter. And so. And we can talk more about that.

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Daniel Newman: Yeah, I do want to talk about that because that's probably one of the things that I've been pouting the most about is all these tech companies making an AI play that will not share AI's impact on their business overall. So they talk about AI, they tell stories, they sing songs, they spin tales. But then it's like, well, how much revenue is this actually changing? And in some cases the AI revenue is only replacing old revenue for other businesses. It's growing, it's incremental. And the number you came out with, which was I think about 2 billion in the year and about 800 million in the last quarter, AI infrastructure on the back end that's basically supporting this build out and that, by the way, if I'm not mistaken, two times what you had expected.

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Jeetu Patel: Yeah, so we had set the target of a billion dollars in orders and product orders for the year. We did 800 million in Q4 alone, 800 million. And we did about 2 billion for the year, over 2 billion for the year. And so that was double our original target. And you know, the reality is AI has infrastructure constraints, it has a trust deficit and it has a skills gap. And we're helping with all three. So you start thinking about infrastructure constraints, like what are the constraints? There's a constraint for power, there's not enough power in the world to go out and satiate the demand for AI. There's a constraint for compute, and there's a constraint on network because as these agents start getting to be more and more prolific and as they start operating autonomously, by themselves, for longer and longer periods of time, the inherent demand for networking is going to go up. Especially as the use case of computer use gets to be more and more prominent where agents are using a computer just like a human would use it. And if you have 10 agents per human and these agents are working seven by 24, that's like the capacity of 30, you know, kind of 30 humans that got added for every human that you have. And so there's a huge amount of upside on, you know, just fulfilling the network demand. And that's going to have to. Organizations are going to have to rethink their network infrastructure, both in the data center as well as in the campus branch. Especially as you have physical AI and robotics and all of that, you're going to need to have networking on the edge.

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Daniel Newman: So let's talk about another thing that I, I think Cisco has done really well and that's security. Jeetu, I know this is near and dear to your heart, but AI, especially in the enterprise, has moved a little slower, you could argue, than say consumer AI. And there's a lot of challenges. There's obviously building out the network, there's the complexity of enterprise IT environments, there's the need to keep data private, secure, compliant, and governed. Cisco's really taken an active interest in that. I think you landed on our, you know, on our recent Cyber7 report by the way.

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Jeetu Patel: Thank you for that.

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Daniel Newman: We see the innovation and the growth, but talk a little.

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Jeetu Patel: That was really good content by the way. You folks are really thoughtful in the way that you've done. You know, some of these dialogues and discussions, they're, they're very substantive. So I appreciate you doing that.

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Daniel Newman: We're trying to help the market really understand the kind of what's the underpinnings of innovation disruption. And you know, there's so much the right word is domain knowledge provenance in a company like Cisco understanding an enterprise's IT needs to transform. It's not the same thing as just hey, built on Nvidia from day one, from zero with no backbone, no data, no lineage, no governance, no compliance. But of course Cisco securing the network AI is only going to make that harder. So it seems like such a great opportunity.

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Jeetu Patel: It's a great opportunity. It's also very natural as an extension for Cisco and it's very timely given what's happening in AI, because if you think about it, one of the big requirements of AI is low latency, high performance, so that you can make sure that there's no idle time for the GPU and the packets are moving fast. Now. That's actually a very important thing. One of the things that contributes to low latency though is security has to be baked into and fused into the fabric of the network. And so, you know, when I say that there's a trust deficit right now within the industry with AI, what I mean by that is most people are afraid of what the implications of AI would be because these models that everything is built on, all the applications are built on are by definition non deterministic, they're unpredictable. And so safety and security is really important because you have to figure out a way that you can validate whether a model is behaving the way that you want it to behave. And then when it doesn't, you have to have runtime enforcement guardrails. And for the millions of applications that are getting built, you can't expect everyone to build a cyber security stack. That's just not how the industry has evolved in the past. And so what you have to do is you have to make sure that there's a common substrate for security across every model, every agent, every application that anyone builds. And that's what Cisco brings to the table, is we can provide that common substrate of security fused into the fabric of the network. So that AI is not only low latency, but that low latency is when you have security embedded in a switch. What that allows you to do is it reduces the latency for how, how quickly the packet can get inspected too. And so there's just a ton of benefits to these things. And the architecture shifts occur and this is a, it's this platform shift with AI is creating an architecture shift on security and it's creating an architecture shift on the network side. And that's where we're at the forefront of both of those.

Daniel Newman: So let me wrap up with one thing because I know we only have a few minutes and of course, you know I'm a big fan of silicon and you have a product, sometimes I think that it doesn't get enough attention. Silicon One, we always talk, you and I, both private and public about these three sort of rate limiters of AI one's compute. One is energy and the third is the network. And so you have this full stack architecture for networking, Silicon One that you use at Cisco, but you also provide this. And I think sometimes people don't even realize that Cisco's in the semiconductor business, in the silicon business. Talk a little bit about that business and what you see in terms of that business and the opportunity there.

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Jeetu Patel: Look, I think one of our most strategic things that we've done that I had nothing to do with by the way, I give all the credit to Chuck and team on that one, was the fact that we got into the silicon business and silicon A6 for networking specifically is what I mean by that. And so if you think about it, we are one of the very few companies that builds our own silicon, builds our own systems, builds our own os, builds, builds our own security platform. On top of that, we have our own observability platform with what we are doing with Splunk. We have our own data platform, we've got our own models that we build and then we've got our own applications that full stack hardware, software, silicon systems, all of those pieces working together harmoniously is very strategic. In fact, I would say, you know, one of the beauties of what this allows the industry to benefit from, from us, us being in the silicon business in network A6 is they have choice. You know, you don't have to be beholden to just a few. You have another vendor that you can provide as a choice. And that's been one of the most strategic, you know, vectors for Cisco is we're not just A reseller or someone silicon. We make our own silicon, we make our own systems, we make our own OS and software. So. And by the way, Martin, who I know, you know, the gentleman that runs our silicon business, has done a fantastic job over the course of the past couple of years and we continue to keep getting better and better and better at it. So you should know that the future is very bright for Cisco with silicon. And it's one of the most important dynamics of our business.

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Daniel Newman: Yeah, we are tracking it closely as you know, and continue to think it's an opportunity for a lot. And by the way, it's whether it's a customer, whether it's an investor. I mean, underneath a lot of the networking infrastructure that's out there sits silicon from Cisco. And at the same time, I think that companies that build their, you know, we, we, we all get super excited about Google building its own AI chips and we get excited about, you know, all this custom. Well, you're networking in many ways and have been, by the way, a lot longer than they have what these compute companies are doing. And it's very much part of that AI story. Gt we're going to have to have you back. You had something you want to say something quick?

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Jeetu Patel: I just wanted to say one thing which is if you think about our structural advantages right now at Cisco, I think it's important for people to understand this. First one is we actually make our own silicon for the network asics. The second one is we have fused security into the fabric of the network. We're the largest networking company in the world. We're one of the largest security companies in the world. And the fact that those two coming together is very timely given the AI movement. And third is we essentially are able to serve the breadth of our capability from networking to security to data with Splunk all tied into a unified platform is something that's very hard to replicate by our competitors. Those are the three big structural advantages in my mind, our breadth, our fusing of security with the network and our silicon. Thanks for having me, Daniel.

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Daniel Newman: Jeetu, we'll have you back soon. Thanks for joining us for this Off The Record.

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Patrick Moorhead: All right. I know that's awesome because maybe I watched the video that I, that I wasn't in, Daniel.

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Daniel Newman: You never watch a video you're not in, Pat. That is a lie. Go back and do that again.

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Patrick Moorhead: I do, all the time.

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Daniel Newman: What do you watch? Everyone out there should know this, Pat, because they should know what they're getting into when they watch our show. Pat does send me weekend photos with him and his dogs in his lap under the blankets. God knows what you and your dogs are actually doing. And you have our podcast up on the screen. He'll send me notes. He's like, we are so good.

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Patrick Moorhead: In my brain, I thought I was saying, like, that was really good, but. No, it was. We are really good.

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Daniel Newman: Yeah, I just, that's so, I, my assumption after that is that literally you just on weekends you're like, Paula, come on in. Pico, come on over, let's watch The Six Five. I mean it is the best television out there right now so.

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Patrick Moorhead: I mean, yeah, it really is.

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Daniel Newman: I can't blame you.

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Patrick Moorhead: But it is good.

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Daniel Newman: I'm sorry you couldn't join me though. That was fun. Jeetu is always great to talk to. Yeah, and he's really shaken up that company. I mean they've, they've had a great run.

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Patrick Moorhead: No, I just love, I mean, I love the way he views products. He's viewing product development in a modern manner where it's not about the thousand people you have doing this. He's got six person pods to go create some amazing stuff and hopefully is money whipping them which is required to do that. And, the folks who aren't motivated to either grind or innovate or take risks or be accountable for execution are, are invited to go be successful at another company. But it's, it's impressive. So hey, let's go to the final element of our show and this is Bulls and Bears where we pull apart the latest in the market earnings. Any reports that come out of the federal government that we can choose to trust or not trust. Let's dive in. Daniel. All right, baby. CPI, which is essentially what the consumer sees, the ppi, which is what the wholesalers see, some really mixed numbers. I think on the whole people thought it was higher than expected.

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Daniel Newman: Yeah, CPI wasn't bad, but it was, I believe it was the first reading, over 3% on core. And so, you know, this can be a little confusing because it's different. The core. The core basically measures all the things in CPI, but it doesn't look at food and energy, which by the way, I've always said, why do we even care? Like that's the two things. Like people need, they get gas to get to work and they need food. So it's like, I guess that's better. You'd think core would be the more important number though it was really high. I mean it was way above. But isn't President Trump firing the BLS lead? So if his goal was to effectively neuter the BLS and the numbers that came out, I think he achieved it. And by the way, when the number came out, the market sold off pretty hard. You even texted me, you're like, PPI, you know, it's shitty because I was actually in the gym getting huge when that was going on. I didn't even see it rare. It was a rare moment. I wasn't looking. And as funny as it was, Pat, it's like it went, everything went red and the market ended up green. It's like the whole market's been trained to shake off any bad news at this point. Like, it can't be worse than 150% tariffs on China. We're good. Let's go to the moon, like, you know, so it's really hard to bet against things. I actually think it's going to cool off, but that could be passed but on a serious note. This could be the first indicator of some of the cost, and I do think it's going to be a balance. Some of the costs that are being absorbed are going to get passed along on some things. Here's the thing that I think is super important and maybe this is my healthy skepticism on data, Pat. But like, I, you know, I still grocery shop for myself. I know you have people that do all that. They walk your dogs, they pull up your cars. But like, I still actually go to the store sometimes. I know, fancy boy, but I buy my own clothes. And inflation is not higher now than it was two or three years ago. Like, there was a window of time where it was like $20 for like a bunch of bananas and they were like, it's up 2%, 2.4. It's like, no, it's like 40. And now maybe it is 3 and 4. I mean, there is some inflation, but what I'm saying is, like, it's so hard to trust anything. And by the way, can't we get like a Palantir, like a smart company with AI to just do this, like in a way smarter way than like having people go to the grocery store and like weigh a pound of bananas and then like enter a form and send it in And I mean, this is embarrassing. Like, I thought we were leading the world in AI and then we, you know, we still count physical. I don't get why we're so stupid sometimes. Like, there's so much.

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Patrick Moorhead: Dan, I don't even believe any of the numbers now. No, I really don't know over an extended period of time. I do. I don't buy these monthly things.

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Daniel Newman: Yeah, yeah.

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Patrick Moorhead: And then the adjustments. I just don't buy any of it. You know, there was an interesting thesis or interesting data point that I saw in CNBC that showed that we are actually buying more of our goods from the countries with the lower tariffs. Ding, ding, ding, ding, ding, ding. Right. You got Mexico and Canada right at the very top. And my gosh, people are looking for other suppliers in different places with lower tariff rates. And this is, you know, what I think we are trying to do here? Ultimately getting the right stuff built here. I think there were also services that were driving a ton of the costs, which again, those could be complete nonsense, Daniel. Like health care, you know, hospital stays, all of these different services. Home care. Right. Went up, I think 4.7%. Right.

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Daniel Newman: Insurance is freaking insane.

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Patrick Moorhead: Yeah.

Daniel Newman: Companies try to provide decent insurance to employees. You're talking 20% and 30% premium increases every year. I mean, it is absolutely mind boggling. Like this seems like something like we could use a little help with, by the way. But like, so I believe some of the data from outside sources anyways. I know we got a lot of stocks to cover off on, which by the way is way more interesting to me than all this macro nonsense. I mean, who cares about that? The market's going up, so like, don't even care. Economic data doesn't matter. Jobs don't matter. Doesn't matter that there's going to be no jobs in like three years. Because, by the way, building a bot. I want to replace myself. Anyone knows how to do it, call me up, tweet me, I will pay you to build the Dan bot. I gotta get off the road, Pat. I mean, you know how much more time I could spend in the gym if I wasn't on the road?

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Patrick Moorhead: You've been at home so long. I mean, are you kidding?

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Daniel Newman: I actually traveled every week, but I've had like a day on the road. Like, I've done way better about that. Like we haven't had those four days in Vegas crap that we deal with. But by the way, it's all about to start again. Like two weeks from now it begins. And then I looked at my calendar. Do you look at your calendar?

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Patrick Moorhead: Yeah, I do. And my travel's all in red because you know me, I'm anally retentive on my calendar.

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Daniel Newman: If there was a hellscape that was created for someone that wants to be at home more, I've created that hellscape. My end of August through Christmas, if I had a calendar with real stuff on it. Because I don't have a calendar. But just kind of the bulk notifications I'm getting is gonna be home like one day a week for like 16 straight weeks.

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Patrick Moorhead: Yeah.

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Daniel Newman: Feel sad for me, Pat, this is where you show a little robotic Pat. This is the part where you give me a little empathy. So, Dan, I'm sorry you're dealing with this.

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Patrick Moorhead: Dan, I am sorry you're dealing with this.  I am. I'm serious. I'm serious now. I've taken 34 trips so far this year and finally got a breather here. But it is interesting. My stress, my measured physiological stress is sometimes lower on the road now because, especially in Vegas because it's so regimented. But hey, Dan, let's jump right into earnings here. CoreWeave, right? I mean, is this just a scam stock? Is this like the real deal? Like, like what is it actually listening to, I've heard it called just a Ponzi scheme before. What's going on, how’d they do?

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Daniel Newman: So, I mean, amazing growth. I mean, you know, you can go online and kind of read that. I mean, a 207 revenue growth. So like off they go. Big loss, wider than expected. Lost a hundred million more than expected. You know, their adjusted EBITDA was fairly high. But this is a company that creates a lot of EBITDA because they've got this incredibly unprecedented six year depreciation schedule on their H200s. Yeah, this company bought a lot of Nvidia. A lot of Nvidia. And they put it all in their books and then they put it as assets. It's a little bit of clever financial engineering. And then the way they basically create their income is by depreciating all this hardware. So they are growing revenue, Pat. I mean, a lot. I mean, in Q2 they did a billion two in revenue. They're gonna do 5 billion in revenue. But I can't figure out how that GPU depreciation schedule is sustainable. I'm, I'm, I'm really struggling with that. But I mean, the only thing I can say is CoreWeave is to the AI trade what US Congress budgeting is to the global economy. All right, so here's my parallel: CoreWeave can only have one option is to outgrow. It's really odd accounting the same way the US has to outgrow its incredibly terrible fiscal management. So we have to grow faster because we can't control our debt. They have to grow faster because the way they make money is by depreciating these assets. But it's incredibly challenging on cash flow because EBITDA and depreciation doesn't create cash. So they're going to probably have offerings in the future. They're going to probably need to raise more money because they're going to have to keep buying hardware and anyone that's seen, I mean this company's buying hardware at an unprecedented rate and they have to to support growth. We've seen what happens when these cloud providers underestimate the amount of capex they need to make. They end up getting themselves pinned into a corner. And Core Weave doesn't even have as much of a dynamic offering pad in terms of like the true unique value prop but what they have is just a ton of capacity and that capacity is being consumed and it's creating a lot of growth and they should be happy with that. But I think they're always going to have people concerned about how that's all constructed.

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Patrick Moorhead: Yeah, this is a growth at all costs. This company exists because first of all if you just want to do GPU workloads and like and these folks came from bitcoin mining, right? And they're financiers. There is, you know I know one amazing product person there from, from AWS, he's a total rock star. But we have to realize why these companies were how they were set up. They're faster, they're bare metal, they don't have to run a ton of workloads and they're there for one reason, which is GPU compute. The question I have that I don't understand is what is their sustainable advantage outside this? Once the hyperscalers end up setting up bare metal, minimal software layers like what is their advantage? They don't buy enough GPUs to have a price advantage. They buy less power and energy which means they don't have the cost advantage. They don't have their own proprietary AI accelerators which means they're probably at a cost disadvantage. And I would say if they're going to run full up applications there, they're going to have to add some of the layers that companies like AWS and Google Cloud have to add. So listen, it's super, you know, I mean like I, I love it as and the other reason is, is Nvidia needed to set up an alternative to the big hyperscalers who are building their own ASICS. If, if they got, if they got too arrogant or were taking too much business away from them. So interesting company, need to know more about sustainability. So hey, let's move into Cisco here. Cisco absolutely crushed it. Literally a triple beat. On a day, stock was up and you know, during a, I would say a sea of red for the day, crushing it on, on AI. 2 billion for the year, 800 million for the quarter and for the year. That's twice of what was forecasted. It appears that in the Ethernet versus Infiniband war, Ethernet is winning. Splunk is delivering, albeit at smaller growth than I would have been expecting. But I think there are some things they can do there and I guess, you know, in the future I'm looking for order to scale conversion, carry through from security observability as part of networking deals and federal budgets. But net, I think, Daniel, the AI, at least on the networking side, is working and we haven't really even seen the enterprise kick in yet.

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Daniel Newman: Yeah, you hit it. And of course everybody check out the conversation we had with Jeetu where we dug into it. I did a segment this morning on Fox Business and I kind of called it out. You know, I did one a few weeks back where I said what's old is blue with IBM. You know, there is a bit of a renaissance, Pat, with some of these older sort of well established companies that people thought had been left behind. And I think it's just there's been a, probably a gross miscalculation of how critical they are, especially to enterprise. Meaning that like, while yes, you're a startup from scratch building AI applications, CoreWeave might be the right partner for you. But if you have a massive on premises deployment of your enterprise IT and you want to make pivots to AI, you're going to have to connect that, or as you like to say that back end to the front end. And whether you're going to the cloud or not, you're going to need to update infrastructure and you're going to need companies that can really help understand there's a lot of domain expertise in enterprise that I think people are underappreciating. So while, while there are those like me that love to kind of call out the demise of gartner and it's 50% fall and that, you know, calling out the end of kind of traditional IT and then the end of smart consultants, I think there is a value at the very top of the market for wisdom. People like you that are wise and old, that will never go away and an LLM will never replace and you can't build that from the bottom scratch. You're going to have to connect it. And so companies like Cisco that are thinking about securing your network, they're connecting your data and that are, you know, innovating in a way that can take kind of what's traditional, not old, and make it work with the new stuff, you know, so basically, it's enterprise. It meets Bitcoiners, and that's the future. And so we need a lot of that traditional enterprise IT and a lot of that domain knowledge. And Cisco's bringing it right now.

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Patrick Moorhead: Yeah. Good. Nice. Tidy.

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Daniel Newman: Tidy today. You told me to bring it. Pen always tells me in the background, you know, to be good, as if I'm not always good.

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Patrick Moorhead: Okay. Or are you faking it before the show?

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Daniel Newman: Oh, I'm faking being mad and I'm actually happy.

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Patrick Moorhead: Right.

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Daniel Newman: That's kind of funny.

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Patrick Moorhead: I mean, you're kind of psychopathic and certain.

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Daniel Newman: No, you're not sociopathic. Better described. You know what? We could. We could rename our show the Sociopath Meets a Narcissist.

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Patrick Moorhead: There we go. We might be both.

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Daniel Newman: Yeah, I. I do think there probably is a high propensity to those two things. Crossing over.

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Patrick Moorhead: Yeah, there is. I've had 15 years of psychotherapy. You'd think I would know these things. But you can't fix broken, right?

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Daniel Newman: I did say the other day to someone, I said, you know, hey, here, I'll do a little public therapy. You know, I have a dad that's not particularly emotionally connected. Never really said he loved me, and, by the way, to this point in my career, has never been able to, like, say out loud that he's proud of me. Maybe he's notI mean, there's a possibility he thinks I'm a dipshit. So when I come out with my next big thing and people are poo pooing me, I'm like, I dealt with that. Do you think I care about, like, some rando on the Internet trolling me? I'm good with it. In fact, you know, what is the old Reggie Jackson saying? You know, it's kind of like, people don't talk shot down. Anyway, so.

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Patrick Moorhead: Yeah. All right.

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Daniel Newman: Anyways, that was my therapy session for the day. Can we add something? The producers, we got the loser lap, the victory lap. Dan doing psychotherapy on air. I mean, we're opening up to people. We hope that as we become the world's best podcast, you get to know us. We're already there.

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Patrick Moorhead: We're already there. Hey, let's jump into Coherent. Gosh, it got hit 20%. Dan. What’s up?

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Daniel Newman: This one was harder. This company's a little harder to explain which I think you and I do a pretty good job. Let me first say that they are so closely connected to like all this data center connectivity. So when you think about connecting these data centers, the optical transceiver, this company is in a great position. Their CEO Jim Anderson is a regular on the show, we're very big fans. You can see he's operating the business very well. Margin growth, earnings growth, revenue growth. But they have a bit of a, I don't know what the right word to explain it was but like the market they spun off their aerospace and defense business and got like $400 million for it and the market just apparently hated this. And I don't know if it was an algorithm, I don't know if it was conscious. I think it was probably the right spin but for whatever reason what did it drop 20% in reaction to this? Now with the opportunity that the company has in the data center I think going all in, double, triple, quadruple down on that is the right strategy. But they did get a bit of a reset on that and for that and Pat, between you and me, like I couldn't tell why. I mean it did drive their net income down like the way that the one time impact of that sale showed them having a loss on a cash basis and so maybe the market just hated that. But you know I still focus on the fact that if we're going to see gigawatts of data centers built, this is a company that's providing technology to the biggest hyperscalers in the world. And I like that as an adjacent play.

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Patrick Moorhead: Yeah, for sure. I mean listen, I did a lot of research on this man like figuring out what in the heck happened and where I'm at it. I don't think the spin off had any impact. In fact they put out the, they put out the, the release before and their stock actually went up. Okay. So then it left the guide and if you look at, at their stock performance, you know a couple weeks back when they did the, the run up with the, the new CapEx numbers from people like Meta and, Microsoft it had a huge, you know, a pretty big rise in the stock. So the expectations were that because they're super aligned with these hyperscalers, the numbers would go up in accordance with that Capex and I think what Microsoft went from 80 billion committed to 120 billion or was it a, 100 to 120. But anyways it was a huge improvement and they baked that into the expectation out there which was, which was gigantic and net. And you know Jim had said this on the call, these were supply chain related stuff. They couldn't get enough demand there. They just couldn't ship enough to, to deliver to the spike that came immediately takes a couple months. So I am expecting that that revenue will increase and, and maybe on the guide they could have put that in there but maybe they're just not confident that they're going to get supplies. But once they get a good track of their supply chain they can improve that. There were some Chinese folks who saw the pop that was interesting. They don't supply to the American hyperscalers, right? These were Chinese competitors that delivered into China so it's not like the Chinese are taking that. But anyways.

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Daniel Newman: Certainly not going to benefit from the build here the way Coherent could.

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Patrick Moorhead: Yeah, no that's, that's exactly right. And, the US hyperscalers just, just don't buy from them. So hey, let's move on. Let's move on to Lenovo who had an excellent quarter, right? They had a double beat and they increased their revenue by 22%. Really on the back of the PC. It's kind of  wild. I mean the highest market share ever in PCs. I think it's around 25%. PC Group made $505 million in profit. Right. I know we like to talk about PCs being zero profit but not with Lenovo. You've got the Motorola brand from a smartphone crushing it. You know they filled this gap when LG exited the market, but they've increased market share even, even, even more there. Which is impressive. You have SSG right? Good trajectory. We were on, on a call with their senior leadership team. We got the download. You know, not exactly a segment of the market that's crushing it. Right. And you know I, I agree with you when you say that hey most of that heat has moved to being all AI and if I look at their numbers, where they derive the revenue from, it was primarily X as a service and there was a lot more non PC related services that went into that. But there's a flip side to this. You know their stock took a beating because the data center growth of 35% in revenue was great. But the losses continue and investors want to know, hey, when are you going to start driving revenue, sorry profits, from the data center. I mean it's super hard. It was hard before for Lenovo to do this. It's even harder now when Nvidia is taking so much more of the profits, profit dollars and there's not a lot and there's not a lot left there. So they need to not only challenge, but Lenovo needs to increase scale with volume, get better penetration into the enterprise up market and they need to become more profitable but they need to invest in order to make that happen. So yeah, a great, great growth from certain markets and data centers is challenged.

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Daniel Newman: Yeah, not much to add. Good take there. I think the AI infrastructure number was great. That's what the market wanted to see. The growth overall is good. The distribution of revenue outside of the consumer and PC and devices business is very promising and I think it's on a good trajectory. I like the ESMB number too. I've told the Lenovo team to sell the enterprise that's a part of the market that I think they could really shine. And it looks like that's been happening. It was a mid double digits growth there. All the other stuff like I said I'm, you know, I'm kind of watching But Pat, I mean if you're evaluating that company, that's what to look at. And the only thing is how do you squeeze more margin out of that infrastructure business? Because that business is getting squeezed. So it's like tons and tons of revenue but at what cost? So the more they can figure out how to, how to drive revenue and maintain and protect margin the better. And I think that's where ESMB for instance is such a good spot because you have a lot more pricing control than when you're kind of selling up to the hyperscalers. So good quarter.

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Patrick Moorhead: Yeah. Hey, let's go into Applied Materials, the United States darling of chip equipment and really the company that's beyond the shrinks. Right. They do everything else and if I look at them, anyways.

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Daniel Newman: Yeah I mean they're getting beat up but it was a very simple reason. They basically followed a little bit of the Lisa Sue playbook, a little bit of the Jensen Playbook, but without the same sort of affection of having GPUs and saying China just got taken off the table for us. And so we are going to completely guide as if that market almost doesn't exist over the next quarter. So they had a great quarter by the way, like a Record quarter, great growth. But as we always say, Pat, it's not what you've done, it's what you plan to do. And the market did not like the idea that China was out of play. But it is. I think there's a company that will benefit from the build here strategy. I think this is a company that has the China market, I do think China's market will open up. I think you have a lot of political theater going on right now. Right now the US wants to sell to China.

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Patrick Moorhead: Yeah.

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Daniel Newman: That 15% may be something Applied sees in Broadcom and all these other companies end up seeing. Not just AMD and Nvidia, but again, they need to. China needs what we have. So it will buy it and it will buy it for 15 more. So my take though, Pat, is it's a, it's a company that's an absolute necessity to the industry. It has a very, very strong moat, it has strong results. But it's going to take a little hit until people see that the China market opens up. And it's not just directly to them, it's as it opens up to the others. It's the companies that supply and sell stuff to China that will need what Applied Material does. So that's my take there.

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Patrick Moorhead: Yeah, it's interesting. I know, you know, everybody loves to love asml, but it, but basically ASML does node shrinks. Okay. It's making the transistor smaller. And I'm going to try to keep it simple here. Applied Material, what they do is not only do they, obviously they have the materials, but what they do is they focus on things beyond, beyond the shrink, which are super important things like backside power. Right. And when it comes to packaging, right. As you move to chiplets and pretty much every market is moving to chiplets, you need Applied Materials  to make that happen. Yeah. So they zeroed out China. Right. While some other companies, they didn't zero out China because they have lower, much lower end stuff that could be shipped to China, like notebook PC chips from amd. But Applied Materials doesn't have any of what's considered, you know, below the line or, or in the green from a BIS schedule. And, and so they just went in and they zeroed out. The second thing is lumpiness. Okay, Think about this. With decreased competition out there for, for all of this, you've got Samsung that's having challenges, you've got Intel that's having challenges, you've got TSMC that is stealing the day, you are going to have lumpiness. My gosh, we saw this with Lisa Sue where there's more competitors across her market than there is in this very specialized equipment. So you know, it would have been nice if their lumpiness means that you're going to see stuff in the future, which would mean that you would put it into your forecast. But you know, maybe we'll see, as confidence comes, we'll see a revision for next quarter or maybe, who knows, maybe they'll do a mid quarter revision. But what I do know is they've got thousands of waivers and exemptions. They're trying to get with the federal government to send it there, like GPUs. And you know there will be an announcement that said, hey, like we're good, we got, we got these, then the stock's gonna fly just like we saw with Nvidia and amd. So. Ah, well, what a show, man. An hour and seven minutes plus. We're good, we're good, we're done.

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Daniel Newman: You're pretty good. I thought it was okay. B plus. B plus.

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Patrick Moorhead: You're always awesome. You're always awesome. Hey folks. And I just want to thank you for tuning in. I hope you have an amazing week here. This market is crazy. It's going to be good to not have earnings next week. At least I don't think so. Well, Nvidia's coming up, We'll talk the next two weeks about Nvidia. But anyways, thanks for tuning in. Hit that subscribe button. Thank you for being part of our community. Take care.

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