The Six Five Pod | EP 274: Balancing Hype and Reality: The True Impact of AI on Tech Earnings

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. VMware Explore 2025: Customer retention exceeded expectations, defying earlier concerns. The VCF 9.0 launch provides a compelling solution for enterprises transitioning to hybrid and multi-cloud architectures.

2. Trump Tariff Updates: A New 50% tariff has been imposed on Indian goods, excluding electronics and pharmaceuticals. U.S. government finalizing $9.9 billion deal with Intel for chip manufacturing, raising concerns about potential market distortions and their impact on global trade relations.

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3. Meta and Google Deal: $10 billion cloud infrastructure agreement. Showcases Google's strength as a top-tier IaaS and PaaS provider.

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4. Musk Suing Apple: Musk alleges antitrust violations related to App Store positioning. Claims preferential treatment for OpenAI's ChatGPT app, reflecting Musk's ongoing animosity towards Sam Altman and OpenAI.

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5. Tech Earnings Overview: Pure Storage's impressive performance with 30% growth. Marvell's challenges in articulating XPU strategy. HP's steady performance with a focus on the premium tier and commercial side. NVIDIA’s Q2 earnings.
   
   
6. AI Impact on Tech Companies: - Discussion on the "Jensen tax" and its effect on companies heavily reliant on NVIDIA products. Pat & Dan dissect AI's impact on traditional business lines versus new growth areas.

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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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Daniel Newman:I think I'm going to probably figure that out at some point. But I also, you know, I'm inspired by the journey. I was inspired by your journey and now I'm inspiring my own journey. But like I said, you know, you always made fun of me for being a bit of a robot, you know, in a nice way. But now I'm opening up a bit to people. I'm proud of the fact that in any analyst event I attend, I could walk into the room and I could bench press more than anyone else in that room. And so I may not be the smartest guy, I may not know the most about the technology, but I am certain I can out bench press everybody in every analyst room that we go to every year.

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Patrick Moorhead: I think you've got your priorities straight.

Patrick Moorhead: I really do love that new intro. I know you mentioned that last week, but kudos to the production team here. It's just a wonderful thing. Hey, welcome, everybody. It's episode 274 of the weekly Six Five Pod. Dan is on his phone as usual.

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Daniel Newman: I'm not on my phone.

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Patrick Moorhead: But you are looking good, though. You're looking very good. What's going on here? Are you gray, like, in a bad mood or just in a gray room with a gray jacket?

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Daniel Newman: That's very gray in here? This is, like, modern. They've modernized this hotel. I'm in the Marriott, one of the Marriotts. That's like their kind of color scheme these days, right? I'm in a gray coat with a gray wall and with a really yellow light in front of me. And this is just as good as I can do from the road. But no, man,I'm feeling healthy, and so that's a good thing. Like, lean and mean, fighting machine. I slept well last night. I've gotten some good workouts this week, even though I've been on the road since 5am every morning here on the east coast, which is crazy. But that's when I've been up. My eyes just open up. Now, Pat, I don't know if it's all those peptides you got me on, but, like, I opened my eyes at about six and a half hours after I go to bed. So if I go to bed at like 9, at like 4am, I'm sharp and awake, and it's actually quite frustrating to be up in the middle of the night all the time. But I'm also, like, energetic. I feel good. So.

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Patrick Moorhead: Great to hear that.

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Daniel Newman: Yeah, you put a coat on.

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Patrick Moorhead: I saw some pictures you posted this morning and, you know, shirts off, doing that leg extension. You're just peppering social media with it.  I've been getting questions from people out in the ether, you know, when are you just gonna go full only fans. 

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Daniel Newman: Only dance is the site I'm working on. I'm developing it right now. You know me, I'm innovating, but, I want to set up personalized health in the future. I think there's a business to be invested in there. I think I'm going to probably figure that out at some point. But I also, you know, I'm inspired by the journey. I was inspired by your journey and now I'm inspiring my own journey. But like I said, you know, you always made fun of me for being a bit of a robot, you know, in a nice way. But now I'm opening up a bit to people. I'm proud of the fact that in any analyst event I attend, I could walk into the room and I could bench press more than anyone else in that room. And so I may not be the smartest guy, I may not know the most about the technology, but I am certain I can out bench press everybody in every analyst room that we go to every year.

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Patrick Moorhead: I think you've got your priorities straight. And yeah, I, I just published my second year in my health journey with all the details, pluses, minuses, pushes and everything. I'm taking everything I'm injecting in my body. It's right there, folks, to either mock scorn, appreciate. It is funny though. I got about 10% of the traffic on this one that I got on my one year update and I think that's because, you know, maybe I didn't really move the needle or I, I think people root for the underdog.

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Daniel Newman: Let me, let me give you another way of thinking about this because I know we got to get to some tech stuff, but everybody's probably starting to really love this part of our conversations. You're now fit and you've been pretty fit for a while. And I, I can tell you for sure, as someone who's gone through a fairly significant transformation in this year, nobody freaking notices. And because when you start fit and you kind of end up fit and you're just a varying level of fit, then people are just kind of like, eh, you know, so what you need to do and all you out there should do is put on about 50. So go enjoy yourself for a while. You know, it's all pizza from here. Then lose it again. Everybody will be like, oh my God, Pat, you're amazing. I can't believe you lost all that weight.

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Patrick Moorhead: I mean, I thought, I thought I'd get at least a little. A little based on, you know, I mean, you know, I actually put even body measurements of how much bigger my arms, my hips, my chest, my back. Like nothing.

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Daniel Newman: This is good to great, not bad to good. Nobody gives a. And by the way, I mean, just being really Kent, I told you this, like, I've seen a lot of growth in my X account and it's because I'm posting stupider stuff. Like the dumber I get in terms of how dumb I share and how little real analysis I actually give when I post, the more engagement I get now. It's sort of hard to digest that at times, but at the same time it's like we need people to see this stuff. So it's like, you know, Pat, like, maybe you just need to say something really dumb about your journey, you know, because like all this smartness, nobody can. Nobody can digest it. You know, they got to run it through an LLM to understand what it means.

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Patrick Moorhead: I got it. Hey, we are a tech show. So let's dump jump in here. We've got three sections of the show. We do the decode. We're, we're literally decoding the top news out there. And then we jump into the flip where we do a, a fake debate taking polar opposite sides of a very nuanced conversation. And we think you're going to like this one. And we dive to Bulls and the Bears where we're talking about markets. I mean, Dan spent his entire week or most of the week. I think he did like 27 shows. I just did two, but that's okay. But anyways, let's jump into the decode. All right, Daniel, we're just going to do a quick flyby here. Flyby on VMware Explorer 2025. We did one. Well, you did two videos on the ground and then we did a summary. So make sure you check those out.

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Daniel Newman: Yeah, absolutely.

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Patrick Moorhead: Give me a top line here.

Daniel Newman: Yeah, we will put those out. We have depth with Paul Turner. We've got the breath with Hock Tan, CEO and president. Look, it was the one year victory lap. This was the one year victory lap for Hock Tan. The customers are intact, the business is intact. The prices went up as we expected. The defections are not nearly as severe as the FUD spreaders wanted to make it. The idea that workloads are going to return on prem. There's a real economic case to be made. And VCF 9, which was the real focus of the event, does give a compelling reason for enterprises, especially enterprises that are more slowly moving to this hybrid and multi architecture to be able to do so in a way that they're really comfortable and familiar with.

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Patrick Moorhead: Yeah. The best feedback I got was from Matt Kimball who was on the floor and he talked to customers when he was bumping into them. And he just said the level of optimism was so much higher than it was last year. And really when you look at the room, it really was filled with customers that VMware wants to have and move for in the future and channel partners that they want to work with in the future and also ecosystem partners. So yeah, it was pretty good. And the big thing for me too is private AI is quote unquote free inside of ECF. And you know, I think in the future, right, Broadcom's gonna have to show how it can turn customer dependence into customer confidence. So hey, let's move to the next topic here. Meta and Google did a $10 billion cloud deal. So is this a nothing burger? No, I don’t think so. It signals that Google is viewed as a first rate infrastructure, as a service provider and maybe even as a past provider to Meta. This is not unprecedented for Meta to work with others. In fact, in 2021 it announced that it was doing work with AWS and then even a little bit beyond 2021 Azure was listed as a partner as well for multi cloud. So it's not unprecedented that Meta is doing this. But Meta is being very pragmatic where it needs help, where it either doesn't have the capacity or maybe it doesn't have the optimized tech to make this happen. One of the biggest surprises for me though is, is, is the competitive angle. Google is Meta's number one competitor for advertising and I was a little surprised that to see this and then, you know, out of the other side of my mouth, I'm like $10 billion over multiple years and I compare that to the capex that that Meta is, is cranking out, you know, and I, I'd like to think, and I might be making this up, that this is related to the TPU and infrastructure. They're just getting a dramatically lower cost per token out of, out of Google.

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Daniel Newman: Yeah, not much to add here. Naturally the extended capacity requirements send these companies in different directions. I guess I was sort of reading the tea leaves on what you said pattern. Maybe going to Microsoft would have been a possibility or a different cloud that maybe has a little bit less advertising competition. I mean, AWS is also a juggernaut in advertising now, so it's not like that would have been necessarily a better play. But again, you know, there's not a lot of specifics on the need and why exactly they picked each of, you know, the individual cloud. But we know Mark Zuckerberg's ambitions. He's building gigawatt data centers. So, you know, this is small potatoes in terms of the amount of capex he's planning to spend. And, you know, these partnerships exist. You know, they work together. Google works with Apple and then Apple works with Google and Meta works with Google. And these companies, you know, they collaborate, they leverage one another and then they compete. And that's, you know, so we love this kind of stuff for headlines, but it's really, you know, not that interesting.

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Patrick Moorhead: Yeah, we call this a nothing. A nothing burger. Well, hey, let's go to the next topic and see if this is a nothing burger or something. Burger. Elon Musk is suing Apple and OpenAI for antitrust based on positionality in the App Store. Is this what's going on here? Daniel?

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Daniel Newman: This is sort of a classic. Musk has so much animosity towards Sam Altman and he's defending what he believes is his position that OpenAI is getting preferential treatment. And of course, Apple and OpenAI have a partnership. OpenAI ChatGPT is the brain behind Siri. If you want Siri to ever be useful, it's got to go out to chat GPT but having said that, this is going to be a tough one. These have always been tough cases to prove. Apple says it's not favoring it. Apple says it's not giving it preferential treatment. Sam is arguing the same. The user numbers suggest that it's just the most popular platform. And these app stores do tend to favor the most popular application. So is it possible? Absolutely. Like I've always said, like getting underneath this, these algorithms and how the black magic of search works and what comes to the top and which source gets chosen. There's so much opaqueness there. And all these cases in Europe where they're trying to accuse Amazon of their own, pushing their own branded products and pushing things that are higher, like it's there. But I just don't know who in the regulatory body has the ability to scrutinize the code and the back ends of these systems to understand how any of this works, to make an affirmative decision as to whether this is happening and taking place. But I think Elon Musk has the resources. He's probably the only person on the planet that has enough resources to actually sue these companies. But in the end, like, I just think this is all political theater. I think this is all about posturing and just flexing and saying, you know, I want to put more doubt and so more doubt around this company. You know, he calls him scam Altman, I mean he literally hates this guy. This is like, this is like 8 year olds fighting on the playground.

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Patrick Moorhead: Yeah, Elon really gets a two for here. You know, first of all he gets another crack at the, another at bat against OpenAI and then he, you know, can grind into Apple for, for potentially rigging, rigging the App Store in a very similar way. One ancillary thing that I was thinking through is Google and paid, paid Google search on, on iPhones. Right? Is he trying to stir the regulatory pot with that now? You know, if Musk hadn't gone all psycho on the president, you know, maybe he would have some wedge or some, you know, if he was in the West Wing as much as he used to, maybe he might have the ability to do this. You know, historically Musk tries to get what he wants, but via going out on X and making comments, then if he doesn't get what he wants, he files a lawsuit. I do think that it's going to be super interesting if it does get to discovery, but I just don't think that it's going to get there. You know, there was a big debate and fight between Tim Apple and Elon and you know, they ended up having a dinner and bearing the hatchet after, after a few conversations related to Apple stopping advertising on the platform. So yeah, I mean whoever wins or loses, you know, his lawsuit really is just like a, like a, like a megaphone here to get what he wants. So let's move to the next topic. Imagine that we're talking more about AI Daniel, and that is, oh my gosh, this Meta Super Intelligence Lab exodus. The sky is absolutely falling on this one and you know, let's, let's dig underneath this. So, Meta went on a super hiring spree, you know, giving offers that looked like they were in, in the value of a hundred million to even a billion dollars for folks. And they pulled a lot of talent right out of OpenAI, out of Google, out of Apple even as well. And what I did was dig underneath a little bit. So first of all we're talking about six people, okay, in an entire organization and some of them, most, sorry, half of them were veteran Meta employees, right? One was a 12 year veteran, the other one was a long standing director of Gen AI. Another one was, was it at Meta for eight years and you know, you bring in the hundred million dollar club and you're maybe you're not going to be getting a hundred million dollars, you're going to be pissed you're going to be disgruntled and you're going to, you're gonna, you know, you're gonna pound out. And then I look at, you know, two out of the three who were recent hires, two were from OpenAI and likely OpenAI made them a deal they couldn't refuse and they ended up returning back, right? And it was two people, they returned in less than a month. And you know, they had a guy from Google, DeepMind from, you know, back in April, and he decided to leave after five months. And what's interesting is he might actually be one of those that wanted a better deal that he didn't get. He didn't get the better deal and, and he's disgruntled. So I'm putting this up there with nothing burger, it doesn't matter club.

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Daniel Newman: Yeah. The only thing that could maybe create some alarm is if they're. These people are like. Because obviously the ones that have been there and are leaving to your point, they could be pissed that they've made a fraction of what these new people have made totally logical. Like, what the hell, I'm gonna go get an offer. This is like, I always joke about insurance companies. They like, when you switch insurance, they give you this great price, but if you go back to your own carrier and say, hey, come on, like, I've been a customer for five years and they're like, sorry, nothing we can do. It's like you're, you know, so these companies give the recognition, they pay these people super well to leave, but then they don't retain and take care of their own. So that's a definite risk. That was a good call out. The biggest real risk profile that I see is that some of these new people arrived and just saw what they had and they were like, ooh, this isn't what I thought. The technology, the platform, the infra, whatever it is that they were sort of told, they got under the hood and they realized that there's no chance that they're going to be able to achieve the ambitions of this company. We've seen with Behemoth some of the slowdown with what these next llama models can do. And I've been a big advocate for Meta. I think Meta is a key in terms of open source. I think it's. They're a key in terms of the role to play in democratizing AI at scale. They've got a big role to play, I think, in the future of the XR and augmented reality worlds. But like, that would be the biggest shocker. And we're not hearing that, they're not saying that, so we don't know. That's the speculation. But that'd be the one thing if I were out there kind of as either as an investor or if I'm out there as a, you know, sort of someone that just comments on Meta. Is there something going on in the super Intelligence lab from a technological standpoint that, that these people are like, I can't get done what they wanted me to get done.

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Patrick Moorhead: That's, that's an interesting take, Daniel. Yeah, it really is. Was that, is that somebody calling?

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Daniel Newman: Yeah, but it only rang once. I have no idea why.

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Patrick Moorhead: Yeah, that's weird. Hey, let's bounce into the next topic. You've got Apple, who has failed on pretty much everything new that it has tried to do with the exception of AirPods since Steve Jobs left. And here we are, Apple's, you know, floating AI rumors. They're talking about getting into robotics. I saw some recycled stories on them doing kind of an Alexa, Alexa type device as well.

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Daniel Newman: Yeah, I don't know too much about whether or not they can make the home pod work. That, that was another flopper. You know, Apple has become synonymous with flop technologies but they do still have the phone pretty popular. So Apple's kind of, you know, jumping. Is it, is it sort of, you know, jumping the chasm like they like to say, or crossing the chasm and saying hey, skip Gen AI altogether and we're going to go straight to physical AI and robotics. That's kind of like my sort of quick read through between the lines of, of what they're saying. I mean, we all know they've totally crapped the proverbial bed here. Now I feel like I have to say this, like Apple could get this right in a year and probably do fine. So I'm going to keep applying the pressure to Apple's woes. But they also have the longest runway of anyone given their install base and platform form to actually correct the course of what they've not gotten right with Gen AI. But there's also just very little to indicate they're getting it right anytime soon. Having said that, they kind of came out this like, we're going to build, you know, humanoids and robots and we're going to just go straight to that endpoint. And I got to be candid, like I kind of shrugged. I was like, whatever. Is this like the car? Which one? Which thing is this like that you didn't succeed at? And so at this point, like, you know, not having that engine for language, not having that engine for imagery and all the things that Apple sort of would need. Unless they're just going to take Google's models and put it inside their robot like that. And by the way, that's like some of the talk like they're going to use Gemini to solve Siri. I mean, I'm hearing this crap so candidly, like it's a great story. Jump into the future, get everybody aligned that, you know, you're doing the next thing. But their failures in the current thing really concern me as to whether they can make this leap.

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Patrick Moorhead: Yeah, I mean, listen, it's the trail of tears of Apple since Jobs left. I mean they built a pretty nice services business primarily for charging a bunch of money for backups, charging exorbitant 30% pricing for doing almost nothing. It's got to be 99% profit and just milking the green bubble. If Apple had any courage, it would eliminate the green bubble and offer iOS for Android. They'd watch, watch their North American sales go down by, by 20% easy. That would, that would be courage. So you're now left with stupidity.

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Daniel Newman: I'm not sure which one that would be.

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Patrick Moorhead: I don't know what it is either but, but essentially they're left with what are some markets we can do that, that might be something that we can do. And you know, the speaker, right, they had a home pod and it failed miserably and I guess we're going to put a display on that. So I, I'm just very, very skeptical and I think this could, you know, we even, we always talk about the unraveling of Apple, but they do have a long time to get this, to get this right. I could see them maybe partnering with Nvidia to have the right technology and getting it first and they can be the, I guess the intelligence and the software layer that, that sits on top of that, that could be, that could be believable to me for truly a robot.

Daniel Newman: But could you imagine Apple, Just a thought though, like Apple, the company that, you know, that left intel for dead, actually going to Nvidia and just absolutely letting them just soak their margin. I mean, that has to be a big part of why they haven't done it, as they just don't want that dependence. That's so much margin that's getting pulled out of the system pattern. I mean, that's why I fundamentally believe that the world would move faster with AI if they didn't try to do these custom chips and these custom projects. I do think they could do it with Nvidia. But the business economics is so bad for these hyper. It's just. And Apple's just sort of infamous for verticalizing its supply chain. And so that's the only reason like these partnerships, like they do it out of necessity, but it's absolutely the antithesis of their whole economic model and their whole sort of market model, which is build it all ourselves, hoard the margins, you know, create and destroy little companies in the process until we get everything we want and we control the supply chain. So it's an interesting dichotomy.

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Patrick Moorhead: Yeah, it was great, that was a great rap. Hey, let's, let's move into non AI and that is Trump tariff updates here.

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Daniel Newman: Can you end all my segments, Pat, by telling me they're great? Yeah, I would appreciate that.

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Patrick Moorhead: I'm your best cheerleader, Daniel. So yeah, let's move to tariffs. Yeah, it's funny, the velocity of these conversations is absolutely insane. I guess I should call this, you know, Trump tariff and even investment updates. I'm updating the show notes there. We saw India got hit with 50 tariffs essentially at least the way it was verbalized is, because India is buying Russian oil even though Biden said to go buy more oil from Russia. That was, have that, have that on video. And then you've got the US government finalizing a deal with Intel for $9.9 billion that the CFO says that the check is actually there at, at Intel. So it's the net, net between the 9.9, the 2 point something that they had, that they had received before. You know, the India one is an interesting one and I don't know if anybody in tech should care because they've already said that electronics and pharmaceuticals, electronics and pharmaceuticals don't even matter. So in relation to the intel, you know, I keep getting a lot of questions of, you know, is this the right thing, thing to do and, and what does it mean? And I think short term it's probably fine. Intel isn't putting their hand on the scale though. So, you know, who cares, right, if, sorry, the government isn't putting its hand on the scale for intel. So I don't even know if it matters.

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Daniel Newman: Yeah, the whole debate is dumb. The government puts its, the government picks winners and losers and has for the longest time. The fact that everybody's all butt hurt about this particular vehicle is just insanity. Like, you know, I think we said this last week. This topic's like, it feels like it's only been a few weeks, but I feel like we've beaten this one to death. But it's like, you know, I'd rather have the government put it in a situation where we could get a return to the taxpayers. This is what TSMC did. You know, if Intel Foundry works out, you know, look at how much economic value TSMC has created for Taiwan. And so why not? I mean, President Trump promised a sovereign wealth fund and this is kind of what it's doing right here. It's, it's an investment, it's a stake in what something's considered critical. And the difference is instead of a grant where you're just giving the money away, now at least we have a shot of, or maybe getting a return on it. And as a taxpayer, forget us as analysts, I'd rather have that shot at getting the money back. And if we invest and it succeeds, then, you know, the country should prosper for our tax dollars. It's your money, Pat. It's my money. This is, this isn't his money. It's not Trump's money. It's our money. And so I believe in the cause, I believe in the idea. I don't want to see it become everything. But you know, for the longest time I've been thinking about this, Pat. Like the government has basically picked winners and losers and has done it in a number of vehicles. Grants have been vehicle tax breaks and vehicle certifications and government contracts. Like who gets the SOC compliance. It's able to be sold to the government. They can, they can allow companies in, they can allow companies out. There's three or four companies. These Lockheeds and Northrops, I mean, they're basically companies that are entirely developed to serve the government. And that's almost all of their revenue. And the government makes it almost impossible for anyone to compete with these companies. So it's like, yeah, they're not nationalized, they don't own the stock, but like they basically decide the company's a winner and they shut everyone else out of the industry. So when you people. What's kind of funny to me and I shared this on X, is like, I just laugh about the number of sudden left leaning free market capitalists that have come out of the woodwork over the last few weeks. I mean, you do understand that most of the things we do are not free markets. We have a very modified version of capitalism. And you know, right now, this is just one more example of that.

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Patrick Moorhead: Yeah, the one thing that I don't, I don't, I don't. Like, is the 15 off the top for GPUs. Companies already pay corporate taxes. And I, I see absolutely no rationale for that especially. We don't even know what that 15 is being used for.

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Daniel Newman: You don't, you don't think that, you think that these companies are actually paying that though? Like, I don't. I think they're just going to charge it to China.

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Patrick Moorhead: I'm not coming at this from an investor point of view. That's not what I'm talking about.

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Daniel Newman: Yeah, I'm not either. I just mean, like, it's just. This feels like a tariff to me. Just another way to tariff China is like, okay, we're going to charge you and you're going to charge them. I just feel like that's how it was. I don't know.

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Daniel Newman: Yeah, we may have to flip on this one at some point.

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Patrick Moorhead: Yeah. In fact, we should get to the flip though. So, yeah, let's move to the flip again where we do fake, fake debate and take polar opposite sides of a very nuanced article. Let's dive in and this one we're going to talk about. Is enterprise AI a big bubble or the start of something big? All right, looks like I am debating the bubble side.

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Daniel Newman: You're a bubble boy, Pat.

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Patrick Moorhead: I am a bubble AI bubble boy. So, Daniel, I know you always refer to me as a boomer, but I'm actually Gen X. And I did. I was knee deep in the Internet age and the Internet growth. Not only was I part of the PC growth, believe it or not, back when I was doing PCs, only 50% of households in America had PCs. And then through Compaq, I think we got it to 75%. And then the Internet hit and I went to work for an Internet company, which was AltaVista. It was a search engine that ultimately competed with this teeny tiny zero revenue company called Google. But let's, let's reflect here. What is a bubble? Right. I think a bubble outweighed expectations of the value of a market. And I also think because it's called a bubble, that there's an idea that the bubble will burst. And if I look at, on the Internet, what happened is there was a ton of Capex that was invested on dark fiber. There was a lot of VC investment in companies that not only had business models that absolutely made no sense, but, but also ones that were duplicative. Like you. You had it so frothy that you had VCs that were investing in the same type of company from the same VC. Okay. And then you spread that across the top 20 bcs. You had 40 different companies trying to do the same, the same thing whether it was delivering dog food, whether it was trying to sell electronics, whether it was just selling knitting gear, whether it was, you know, a new type of video service or ripping off music through, through Napster. So what ended up happening is all that infrastructure was laid in there and what happened is because the Internet native companies were all buying stuff from each other, it essentially started to collapse and then they were unable to receive any orders from those Internet companies. You had the Ciscos of the world and even the L3 networking guys that had so much dark fiber that they had to ultimately end up giving it away for free or near free. WorldCom was a great example of that.

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Patrick Moorhead: Collapse and I think that Cisco was as well. And again in this fake debate, I think that we are in this frothy nature. We have Capex that's being pulled into the hyperscalers and we have literally almost no downstream benefit. We've got Google that's just really protecting what they do with search and they've come up with a fancy way called AI overviews to display their data. You have Meta that I think probably is the, is the best example. Right. They've been able to tee up ads, ads better. But when I look at the rest of downstream, we've seen no lift on smartphones, we've seen no lift on PCs, we've seen no lift on the industrial edge, we've literally seen no lift. We've seen a contraction of classic enterprise SaaS like no Lyft whatsoever. And no, I don't count companies that have AI and are expanding by getting into new enterprise SaaS, verticals and applications that really don't have anything to do with AI, their stock. So yes, we are clearly in a bubble right now. But I do want to say bubbles aren't bad.

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Patrick Moorhead: If you didn't have a bubble right then there wouldn't be this crazy investment that every cycle needs and then before the shakeout comes. So yeah, we're in a bubble man.

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Daniel Newman: Okay, Bubble boy. We have one of the largest and most massive build outs of the most productivity gaining and efficiency deriving technologies that the world has ever seen. Companies are going to be able to move more quickly, they're going to be able to scale production, they're going to drive more profitability. And they're going to be able to do so at every end of the spectrum because of this build out of AI. The numbers and the comparisons to the Internet bubble are not only insane, but they're also classically stupid. The companies that are developing the buildout of this AI boom have operating levels that are exponentially higher. They have balance sheets that are much stronger. They have the ability to make these investments over long periods of time. And they are able to wait and be patient to derive returns on these investments in a way that Pets.com and others that, you know, succeeded in moments during the Internet boom could not. You know, we've seen the number. We have a $583 billion number of AI data center infrastructure that's going to be deployed by 2029. We've heard Jensen talk about over 4 trillion in total data center infrastructure spend by the end of the decade. These are sophisticated companies with smart people that are making decisions to spend this money to for one reason, because they have to. If these companies are going to stay the course, be successful, make the turn and deliver in the AI era, they have to build this infrastructure. This isn't a choice. This isn't something that, hey, this is the next metaverse, or this is the next big thing that's going to fade away. This is the thing that's going to drive the global economic future of the entire world. There's a reason that China and the US are battling it out every day for access to GPUs, and it's not because this stuff is a bubble. It's because China absolutely knows that without access to the best technology, the leading platforms from companies like Nvidia, they will not be able to keep up. They will not be able to succeed. They will fall behind. That is not the type of behavior that takes place in a bubble. So it's easy to kind of look at certain edge cases. It's easy to look at the longer tail. It's easy to look at things that maybe you say the time from when something becomes an idea to implementation. That 95% MIT study says all these AI projects are failing. They're failing because people can't change fast enough. They're changing because adaptation to these new technologies is actually quite hard. And they're failing because the systems that we built in the CPU era are not capable of doing what we need them to do in the AI era. That's not going to create a bubble. That's going to create an opportunity. You're going to see the biggest consulting companies, the ones that are able to pivot and deliver services on AI, they're going to grow at great scale and it's going to come at the cost of traditional IT. It's going to come at the cost of traditional SaaS. We will see that bifurcation, we will see that split. But the 20 plus trillion dollars of economic growth that we are going to see because of what AI has been able to deliver and will be able to deliver by the end of this decade is not the definition of a bubble. This is not a bubble. Of course there's outliers, of course there's edge cases. These are the most successful, most cash rich, operational leveraged companies on the planet, investing big in the next big thing.

Patrick Moorhead: I mean, you know, you had me on Jensen saying it's going to be $4 trillion. Literally. The guy who benefits from it the most, I mean, he has no, he has no reason to, to, to, to, to push that narrative. Right?

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Daniel Newman: No, it's all risk for him. I mean, frankly, at this level.

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Daniel Newman: The over, I mean, debate over. Right?

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Patrick Moorhead: Let's talk about how we really think.

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Daniel Newman: At this rate there is probably, you know, people want the up into the right forever thing. I mean, look, there's probably a good reason for there to be some cooling. And there's certainly companies that have benefited from AI that are not doing AI. Like that is true. And those are bubbly things that are happening when people are sort of trying to find second and third and fourth network effects. But the companies that are like the Mag 7s, the Nvidia's, Autonomy and Robot, like the things that AI is powering at scale, this stuff is happening, this is not gonna, and it's gonna happen quickly. It's a bubble in some pockets, but I think that's always the case. But it's not a bubble at scale.

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Patrick Moorhead: Yeah, by the way, we are in a bubble. But that's good. But we're not going to have the big sell off because we're not talking about pets.com. These green shoots are amazing. I mean, man, I've got five agents running that. I get weekly stuff done and I did that on the weekend. I mean, and I'm just this crummy small business and in a way these larger companies have these data states that take longer to get out. But you know, we might see some movement in enterprise SaaS. We might see people going to IaaS and building agents and yeah, I think this is, I do think this, we are in a bubble. But I don't think the shakeout is going to be nearly as big as the Internet.

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Daniel Newman: So I think some of the startups, the things that got money early, the things that were sort of like, oh my gosh, you're doing something really cool and then OpenAI or Google invented something that was better than it, like two minutes later, that shit definitely will burst. I mean, there was a lot of money chasing, but the infrastructure boom, I don't think that's a bubble at all. I mean, I think it's now, now again, depending how you define it, there's definitely a consumption gap from this stuff that's being done. But in some ways, I mean, I don't know what you've been reading, Pat, and you, you, you're more connected than anyone I know on the semis and the channel side of semis. But like I'm still hearing that, like they can't get all the compute they need. Like, I'm still hearing that. So even though the data center number came in at 100 million under and everybody was like, like lauding the mission, like, I don't think it's a lack of demand. It probably is like shipping every freaking unit they can make in the time they can make it. So by the way, networking is like the killer thing.

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Patrick Moorhead: Like, yeah, it hasn't seen the growth that the compute has. And we've always talked about a balanced system where everything has to be hitting at the same time. So that's a great segue into bulls and bears where we talk about the latest market news, earnings reports and things that make this work. Let's dive into bulls and bears, baby. So, Dan, let's do a quick hit on a couple topics that came up. Macro and let's dive right into the earnings. So you know, it's Fed chairman got up on stage, said some comments, some people were fired, like, does this mean their rates are going to go lower?

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Daniel Newman: Look, it's, it was the moment that the world was looking for to hear Fed Chair Powell come out and basically give a bit of a dovish stance. They seem to deprioritize that 2% target. I think they're looking at some of the risks in the job market or they're prioritizing that. And the pressure from the White House probably has meant something. You know, despite the fact that they like to say they're independent. I do think that historically treasury secretaries, presidents, Fed chairs have always been in touch, they've always been talking, there's always been some negotiation. I'll be really quick on this, Pat, but like genuinely speaking, I think the benefits, if you want to push the consumer narrative and you want to push get consumers out and spending more, lower mortgage rates, lower credit card rates, lower car payments, those net dollar gains are probably worth a few pennies. Higher price at the gas pump because you know, if you can get a 2 or 3 or 4% mortgage versus a 7 or 8%, that's massive difference in terms of how much house you can buy, how much mobility that people have, how much car you can buy, how much you can spend on your credit cards. Like getting these rates down matters. I mean these rates are very high and I think that's really compressed the real estate market.

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Patrick Moorhead: Yeah, the Fed's always wanted to wait until their, you know, independent variables were absolutely clear. And the biggest challenge for the Fed is that there's almost no clarity. I mean, you know, the BLS numbers, are they accurate? What's going to happen with tariffs and how, how do we have downstream effects? I mean literally we've got the highest tariffs that we've levied in 100 years and how, how our market's going to react. And you know, the first wave of terrorists was kind of a nothing burger and it was a combination between supply chain rebalancing and, and vendors, vendors eating it. When you've got companies like Best Buy saying we're not going to hit our numbers distinctly because of tariffs. And I don't think, I mean if you have a $1,000 piece of electronics coming out of Vietnam, I mean that's 150, I mean that's, that's 15 points either on your profit margin or it's 15 points on, on price. So yeah, I think there's just too many independent variables then, and then, you know, let's lay in this. Trump is removing Fed Gov Lisa Clark here. And I thought that reaction was interesting in that interest rates actually going up in relation to the, what it comes down to is this notion of the federal government monkeying with a Fed Fed policy. I totally get why that would be the case here. And you know, maybe Lisa Clark needs to go based on, you know, what she had done on mortgages. I'm pretty sure that Trump was hauled into court and, and indicted for not putting accurate information on a, on a loan document. And it, it seems like, it does seem like, my guess is a lot of people do it without even thinking about it. Or, or some people have, you know, other people fill out loan applications. You do get a lower interest rate. If you can say that everything is your primary residence, I think Ken Paxton is even being accused of the same thing as well. It does feel political to me. That doesn't mean she shouldn't go if she blatantly lied. But the Fed doesn't like the idea and the markets don't like the idea of the federal government intervening. And I can't blame him.

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Daniel Newman: This one's, this one's tricky because there's so much political lawfare going on. And I'm sure President Trump, he's not the, he's not the type that wouldn't have a vendetta. He certainly wants more control in the Fed. He wants to replace the Fed governors that do not support the lower interest rate agenda. The interesting challenge of this for Ms. Cook and, and the system though, is like, you know, remember the, I forget the name of the company, the guy that got fired for being at a Coldplay concert with his girlfriend. I already forgot who they are. But the point is, is that like, you know, the court of public opinion is a challenge here and someone of her stature should know better if you're a Fed governor than trying to have two residencies listed as your primary. Now, again, she deserves the date in court. But at the same time, like I said, if you're CEO, you do something that's perceived as bad, you're probably going to be fired from the job even if you didn't do it or you had an explanation for it. So when you're a high ranking official, you have a higher standard to hold yourself to. And the court of public opinion really does matter about what you've done. If she's broken the law, created or, or fraud, it is in the course of the job. They're kind of trying to say it's not a cause thing because it's not in the course of the job. But like, having ethical gaps is something that any leader in any business can be fired for, even if it's not in the course of the business that they're doing. So there's kind of these two sides that I'm, that I'm, that I'm weighing here. This will have to play out in court. It's a difficult situation, but someone at that level of financial acumen certainly knows they can't have two primary residences. So if that is the case, and then the other question, of course, is, was it an accident or was it on purpose? Because on purpose, it's a criminal issue. Accidental, it's usually more of a civil issue that would be taken care of and maybe back payments on missed interest or something like that. But I don't know, Pat, you've got a few properties. Wouldn't it be nice if you could have them all as primaries get that great interest?

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Patrick Moorhead: It would. Now I pay an extra point, even a point and a half on non primary loans.

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Daniel Newman: So I mean, if she gets it, I want it. That's my only point. Like if she's allowed to do it, then I want it to.

Patrick Moorhead: Yeah, you did bring up a good point that I just glossed over, which was, you know, in the Trump, it was business and 100% Trump was not filling out a loan application for a business. It's more likely than not that she had prepared her own personal loan statement. I mean it could have been an accountant or, or something like that. But you know, how many of you listen to fill out your own loan applications or, or do you hand it off to somebody for your. For your own personal property?

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Daniel Newman: Well, housing was, isn't it? Pulte the housing HHS or secretary or whatnot. And he showed those signature cards. I mean he's flashed what he calls evidence that shows. I mean it's pretty damning. I mean that she would definitely sign the affidavits in both cases of primary residency. But again, I do think this, the court needs to work. The problem is the courts just don't work. They're just so damn inefficient that something like this thing will go on for months, years. But we're not lawyers, we're just speculating here, you know. Yeah, I'm gonna leave that there. I'm gonna just leave this there. And because we still got, I guess we got a bunch of earnings to cover, right?

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Patrick Moorhead: Yeah. Let's rip through this. I loved your snarky comment. Your funny, your funny picture. You, you put out. I think we both put out the. Here's all the tech earnings this week and this big slide and you put the big slide up and all. All that was there was Nvidia. That was.

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Daniel Newman: I blocked everything out.

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Patrick Moorhead: Did you do that yourself or.

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Daniel Newman: I did that with a photo editor. I just did that with the photo editor.

Patrick Moorhead: That was so clever. God, I love it. Like you've got a good one. You got like one. One per day and that was your day. Yeah, I was cracking up for a long time. No, let's jump into Nvidia Q2 earnings. All this growth and the stock goes down.

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Daniel Newman: God, I talked about it so much in so many places. Can I just reference you? Like go out there and get mine.

Patrick Moorhead: First of all I want to know how many, how many shows did you do this week when you talked about Nvidia? How many I've done.

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Daniel Newman: I'll have done eight preview and post views by the time this thing's over.

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Patrick Moorhead: That's good.

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Daniel Newman: Yeah, it's a lot and God, I only did three. I'm exhausted. I'm so trying to, trying to defend that these were good earnings. 56% growth a 54 billion dollar guide above the midpoint by the way without access to one of the largest economies on the planet. $0 call option people like literally if China is anything ships that's a zero dollar call option. Just know that above the 54, you know things like here's, here's the you know there's so much out there from us. So I'm gonna kind of like not overdo this here because we could probably spend the whole time on it was very good but like the thing and people got mad at me for saying this but even the thinnest missed on data center did surprise me. Like that was the one number I would have actually expected them to blow out like the automotive beats and the gaming beats. It's like I could have cared less. I didn't care the way the breadcrumbs with all the capex spend and like then the numbers from Lenovo and the numbers from HPE and the number like in the core weaves and all these companies just screaming about compute demand. Like I just thought it would have been an absolute blowout. It was good though. I mean $41.1 billion in one quarter of Blackwell mostly Blackwell It's. It's like 76% now Blackwell and they're ramping that really quickly. But like I said it was kind of cool to see the other businesses doing well because people have kind of written them off. I mean automotive is kind of crushing it which is crazy. Like haven't talked about that much at all. And by the way, that's AI people. You know that's autonomy. Pat. The margins came up a little but they didn't come all the way up to where people wanted them. And again they didn't get the clarity on China by the way I was wrong on that. I really thought there was going to be like a pound the table moment that China there was some clarity. There was not. It was actually I think more opaque than ever. But Pat like this is intact. Like they've. They gave zero reason for investors to think that there's a meaningful slowdown. You're still talking 56 data center growth against by the law of large numbers here. These are huge numbers. It was 26% a year ago on the data center, 41 this quarter. And they're, you know, continuing to push that guide up with each quarter. I'm, I'm satiated here. I'm happy. Like, would I have loved a 46 billion dollar data center number? Some ridiculous blowout? Yeah, I think everybody would have loved that. But by the way, did you see my tweet? About 80% of the immediate press, financial press, was negative about these earnings. 80, negative sentiment on that. It's like, you know, what more can the guy do? I mean, you know, Jensen's doing fine, doesn't need our money, doesn't need our positive quotes. But I think they did pretty damn well.

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Patrick Moorhead: You know, Daniel, I've talked a lot about this too and it's the earnings that bore me at this point. But what I do want to talk about though is what determines the value of a company, right? And you know, in Finance 101, it's the net present value of all future cash flows. Right? And then we can get into the beta of terminal value. We can get into the growth rate. But what it comes down to is how much future cash can be put out. The longest term analysts put out is about five years. We had Stacy Raskin on and you know, he goes out 18 months, right? And then he, and then he flatlines that, that cash flow. So the question is, Daniel, where is the Nvidia growth? Okay, like they could do hundreds and billions of dollars and then flatline and then their, their stock would tank. Now based on the analysis that I did, you know, a finance one on one just by the way, everybody out there, don't take anything I say as investment advice. I have a finance degree. I got two offers to be an investment banker analyst right out of college. But that doesn't make me a stock guy. I am not. But when you run the numbers on, you know, you got to 2030, with a reasonable, you know, 20% growth on Nvidia, you get to $3 trillion. So the market is already putting about a trillion dollars, $1 trillion of incremental value based on, you know, we think it's going to grow even, even more or we think that robotics might be in here. And my apology base case is 15% 15 growth. So you know, we, I'm this to the moon stuff is ridiculous to me, okay? Because if, if Nvidia does what they say they're going to do, I think the market will react fine. Right?

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Patrick Moorhead: The Market said we, based on our expectations, think the company is worth around $4 trillion and it didn't go to the moon. I think this going to the moon stuff is, it's just complete horseshit like, and it's got to get back to fundamentals. The question is what is it that Nvidia did that they stated that they're going to have more growth than they had before and an acceleration of growth that's not already baked in.

Daniel Newman: I actually think that the acceleration period is over. So you have to kind of the, the next acceleration will come potentially when physical AI starts to pick momentum and you start to see that driving the data center. Acceleration we already know is like by 29%, we think it's like 20% GPU growth at that point. So you do have a slowdown. But the other side of this is most companies trade on earnings, forward earnings. So you talked about this a little bit, but the forward earnings is usually the biggest indicator. And you remember that Tesla trades like a hundred plus times its forward earnings. So when someone's bullish about a company's long term prospects, these numbers can go very, very high. AMD trades at a very high forward multiple.

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Patrick Moorhead: It does.

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Daniel Newman: Nvidia does not. Nvidia, based on what it's saying, is trading in the 30s, which you know, the average S & P companies in the low 20s, but those companies mostly are mature companies that, like you said, aren't growing that fast. Companies that have the kind of growth that Nvidia has tend to trade at a higher multiple. So the real thing is that based on their guidance and based on the market expectations that we have for the volume that they're going to do, the profit they're going to create and the earnings that they will ultimately create over the next five years, seeing a $6 to $7 trillion valuation is very realistic. But I do think the fact of gaining a trillion every quarter, that kind of nonsense is definitely becoming, you know, it's, it's becoming untenable to listen to people that want like, oh, I want it to go from 5 to 6 trillion by the end of the year. It's like Jesus' people, you know. But based on 30 to 35 times forward, which is where it's trading in range, that's very realistic in the next couple of years.

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Patrick Moorhead: Yep, good stuff. Hey, let's move to the Neo Cloud winner Dell here. Strong revenue beat led by AI servers. That number is absolutely staggering that they put out there. But their stock sold off and it's selling off today. And that's because they wanted more. Right? They wanted a bigger forecast based on this. I'm here to tell you folks that these are lumpy businesses and if you look at quarter on quarter data centers, Nvidia didn't even grow, you know, or barely grew quarter on quarter in, in data centers. You can imagine what that might mean on a forecast here. The other thing is, that standard enterprise servers didn't do as well as they wanted. And just to be blunt, storage is lagging here and I can tell you why it might lag. Compute first and then, and then storage after that. But I don't think that Dell communicates its advantages or technologies and storage as well as it could and I think it's catching up to them right now. CSG is stable, right? Commercials did better than consumers. That would make sense. You've got Jeff Clarke who's running CSG. They've lost some market share. Their innovation has lagged a little bit. Time to get new stuff out has, has slowed down. And every, every business that Jeff Clark gets involved in, typically it goes up into the right. So he's very hardcore. I look at this stock thing as just a blip. And if you look at the run up where Dell is today, you know, it's, it's, I mean it's. Who else in this category is crushing it in AI servers?

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Daniel Newman: Yeah, nobody. Yeah, I'm with you. I'm bullish. Dell overall. Dell is at this inflection point. They used to be a PC company, but now they're an AI server company. And I'm not saying they're not a P. But the PC business has been basically flat for some time. The hard part I think for the market is absorbing. This is the, this is the Jensen tax. When you're that committed to one thing and they take that much margin out of it, all this growth is great. And of course the net margin is good, but the margin rate is low on these companies that are focused on so much of this Nvidia product. And so it's a lot of questions I would have for a company like Dell is what kind of values can you create around all this work you're doing to drive that margin up. Because you know, whether, you know, one is like the optionality for these companies to like lean into AMD or lean into. It's tough because we all know that when they lean into the competition right now there can be some challenges with Nvidia. We also know that the PC AI thing is not a net gainer. You Said it earlier in our simulated debate and believe it or not, while that was simulated, that was a fact. And that is not wrong. You know, the demand cycle is just normal, the upgrades are normal. And by the way, that's just because the cloud works really well. So you people are using AI on devices. It's just, they don't need it on their devices. They're okay to do it on the Internet and it works really, really well. And so that use case isn't deriving value or money in the way that some people have thought yet. We're going to watch that one. But Dell's got this pivot and the bottom line is everything that's classic Dell is flat or is kind of contracting everything. AI is growing and that's the right flip. That's what IBM is going through. That's what Oracle is going through. I mean these companies are all going through this pivot where they're adding AI to create a new incremental growth engine at the expense of classic businesses starting to fade. Those are companies that are doing the right thing, making the pivot. But look, the 15 to 20 billion dollars raised on AI guide Pat, that's optimistic. But the lumpiness of these big deals and knowing that a lot of the dollars can be in one or two deals each quarter is going to create some, some consternation. But I thought it was good. I'm, I'm just, I'm not worried about it though. I'm not, I'm not worried about it.

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Patrick Moorhead: Yeah, I've got a bolt in like two minutes here.

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Daniel Newman: Yeah, let's just give that, let's do a one minute take on these last couple. Less than one.

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Patrick Moorhead: Yep, Pure Storage absolutely crushed it up 30%. Little profit taking today, but everything's clicking there. A lot of revenue comes out of Meta.

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Daniel Newman: Yeah, I mean long and short is that ARR. That SAS part of their business is accelerating them. Mongo, Snowflake. These companies are all beneficiaries that not all SaaS is created equal. Storage data things that are going to fuel AI are going to do better in this pivot. Pure storage. Big winner. Saw Charlie on cnbc. Did a really nice job. Great quarter for the company. I think you and I will talk to him over the next few days.

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Patrick Moorhead: Yep. Marvell, some challenges there in terms of articulating XPU and there's a lot of rumors going on out there that make it more difficult for them. I think the company could talk a little clearer, but I don't know if they know exactly where the XPU is going in the long term, it's another very lumpy business.

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Daniel Newman: Yeah, and that, that call was brutal, by the way. I mean, just brutal. So it looks like HP's numbers were in line. You know, looking overall they had a nice, nice EPS growth this year. It looks like it was about 23% but about 3% revenue. I think they continue to really do well at the premium tier, Pat. They've continued to do well on the commercial side of the business. But again, the biggest challenge I see for HP is HP is just very much in these business lines that are not getting the same kind of AI tailwind right now. They are in a cyclical situation where, you know, the orders are fluid and they're continuing to come, but they're not, there's not this kind of inflection that HP can pivot off of in print or PC right now. So they've got to be all very focused on delivering margins and just building the best products and winning at the high end.

Patrick Moorhead: That's right. The PC will get its day again. It's just not, not this year and not this quarter. Cost control, EPS focus guidance was muted. The market was uninspired. You know, a steady company still searching for that AI breakthrough. That's very hard with PCs and, and devices. Just look at, look at Apple. Well, hey folks, really appreciate you tuning in. We ripped through Bulls and Bears very quickly. We hope you have a great week. Hit that subscribe button. Thanks for being part of our community. Take care.

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