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Tech Earnings on Tap: What to Expect

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Bloomberg Jul 29 14:11 · 134.4k Views

Gerber Kawasaki President and CEO Ross Gerber discusses how he is investing ahead of the tech earnings scheduled to be released this week on Bloomberg Television.

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Transcript

  • 00:00 Is this text baton to lose here next week?
  • 00:04 Oh no,
  • 00:05 there's no baton to lose.
  • 00:06 And
  • 00:07 as my friend Dan said, he's using the 9A9 PM party.
  • 00:11 It's really like the second inning in AI.
  • 00:14 You know what, we prefer the baseball analogy.
  • 00:16 But
  • 00:16 but that said, you know, these companies are making investments that are going to pay off over the long term and their core businesses are just killing it right now.
  • 00:24 So I think
  • 00:24 having an over exuberance on what you expect from AI results might be a little premature, but the actual investment that's being done is massive and
  • 00:33 and that's why investors need to be patients and the valuations have gotten a little ahead of themselves.
  • 00:38 That's exactly what investors don't seem to want.
  • 00:40 Just look at Google, they do not want them to spend a lot and monetize later or the question marks around monetization.
  • 00:46 So how does evaluation reconcile for that?
  • 00:49 Well, that that's very short sighted, OK.
  • 00:51 These are companies with tons of cash flow and tons of cash that should be putting their cash to work.
  • 00:56 I mean, they earn 4 or 5% sitting in the bank or they can be investing for their futures over the next 5 to 10 years.
  • 01:02 And that's exactly what I want my companies doing.
  • 01:04 So so I think investors who just want to make like
  • 01:07 short term gains or missing the, you know, forest for the trees, as they say, because
  • 01:11 really we're long term investors in my fund GK and at my firm.
  • 01:14 So what we've really done is we've positioned clients so that they can take advantage of tech and AI, but they also have diversification into small caps and other types of industrials and other areas in the market that we like, like real estate right now with rates going lower.
  • 01:27 Well,
  • 01:28 when it comes to sort of, I guess
  • 01:29 having making sure the clients sort of benefit or at least have the potential to benefit
  • 01:34 from what is clearly a longer term structural shift right now, at least in the tech space.
  • 01:37 Ross,
  • 01:38 do you, is your strategy or at least your general thinking that you just kind of stick with the names that you know are benefiting, whether that's an NVIDIA or Microsoft or whoever?
  • 01:47 Or do you kind of go down a step or two to maybe those second tier companies that have the potential, but maybe just haven't shown it yet?
  • 01:55 The way we're playing it right now with our clients is we're really looking at the hardware element first because first we have to build the infrastructure and then down the line, we'll look at names that will benefit greatly from the services that the hardware providers can provide.
  • 02:09 So we're really in stage one, as I said, of, of what's going on.
  • 02:11 And that's why we really like,
  • 02:13 there's a lot of investment being done from the big tech
  • 02:16 companies, but there's also a lot of beneficiaries of this investment, whether it be ASML or NVIDIA on the beneficiary side and the investors being Microsoft, Google, Meta and such.
  • 02:26 But we think that these companies will benefit greatly from these investments.
  • 02:30 So we are sticking with the names.
  • 02:31 If you look at my fund, there are a lot of names around AI that are the bigger names and I think they'll benefit the most on the short term.
  • 02:38 So for those hyperscalers and those other companies that are effectively are the ones spending the money, meaning the ones having to make that investment, Ross,
  • 02:44 are you sort of comfortable with the amount of money that they're having to spend with the knowledge that it might be several quarters or even several years before we start to see a material
  • 02:54 impact on the bottom line?
  • 02:57 Exactly.
  • 02:57 And I think that people have to separate like CapEx spending from actual operating results.
  • 03:02 And
  • 03:03 and so as I said, these are very profitable companies with tons of cash and capital, and we want them to deploy that where they see growth.
  • 03:10 And
  • 03:10 I've never really seen tech executives so bullish about
  • 03:13 the future of something sincethe.com area that I grew up in.
  • 03:16 So this is my third decade of investing.
  • 03:18 And the way we do it at my firm is you have to have investments that are future focused along with conservative investments that produce income and stability in the portfolio.
  • 03:27 And that's the way we build our account.
  • 03:29 So we'll get all the upside on AI success, but we try to lower the volatility of owning these kind of names by owning other types of names like Lennar, for example, which are a great opportunity as interest rates go low.
  • 03:41 You are the second person who recommended Lennar
  • 03:44 in the program today.
  • 03:44 So clearly we're long term owners of it.
  • 03:46 Yeah, that that that's in the zeitgeist.
  • 03:48 Do you feel though that the consensus
  • 03:52 longs and tech,
  • 03:53 are they out enough?
  • 03:54 Like are the consensus longs and other assets out?
  • 03:57 Like is that tree played out or you think we're going to see more of that next week?
  • 04:02 Well, once again, I've, I've started investing 30 years ago in the same names that I'm buying today, whether it be Dell or Microsoft or Apple.
  • 04:08 You know, it's like,
  • 04:09 I'm kind of like going through this like flashback almost of what really made me wealthy the first time, whichwasthe.com era.
  • 04:16 So it, it's actually an easy playbook for me because I think if you think long term, these are names you want to own in your portfolio over the long term.
  • 04:23 And I think investors need to think about over the next five years or 10 years, what are the names that are really going to do well for me?
  • 04:29 And a lot of those names are the same names that have done well for us in the past.
  • 04:32 And that's what the market statistics have shown is a very small portion of the market has made a large portion of the gains over the last several decades.
  • 04:39 And, and I don't see that changing, you know,
  • 04:42 then based on that too,
  • 04:44 where do you think the money stops flowing first?
  • 04:47 So eventually when we get to the point where these hyperscalers are like, all right, I get the message, I'm going to spend less.
  • 04:54 Who does that first and how does that ripple through the market?
  • 04:58 I think it all.
  • 05:00 Ripples around return on capital and investment where if you look at like the streamers where they invested like 10s of billions of dollars and then
  • 05:07 it was much harder for them to get a return and then they've pulled back.
  • 05:11 What we see is more, you know, there's this first burst of spending and then they'll be incremental spending as they see values.
  • 05:18 So we expect a much more cost discipline on investment from the big cap companies as we move forward.
  • 05:24 But but just the same, we're building a whole new infrastructure, data center,
  • 05:29 AI, you know, infrastructure to support lots of different businesses.
  • 05:33 So
  • 05:34 so I see this as a a
  • 05:35 pretty,
  • 05:36 you know, long term
  • 05:38 trend that will continue and it could be an amazingly profitable time for investors who are willing to deal with volatility and be patient.
  • 05:45 But valuations once again, have gotten ahead of themselves
  • 05:48 and that's why we're seeing a pullback and that's very healthy for the market and investors.
  • 05:52 We do not want a.com situation where the market just like double S and then we go into this collapse.
  • 05:58 That's that's not ideal.
  • 05:59 So, so I'm I'm fine with this right now.
  • 06:02 It's great.
  • 06:02 It's a great opportunity for investors.
  • 06:05 Good.
  • 06:05 Ross, I'm glad that you're happy now.
  • 06:07 And I still can't believe that you've been doing this 30 years.
  • 06:09 You don't look really
  • 06:10 over
  • 06:11 25.
  • 06:12 Final question.
  • 06:14 Absolutely
  • 06:14 we're here for the compliments.
  • 06:15 I am curious, Ross.
  • 06:16 So
  • 06:17 when you look at the big tech
  • 06:19 cohorts out there, the individual names,
  • 06:21 are there any out there that you just kind of avoiding right now that you kind of look at and just say
  • 06:25 either it's not right
  • 06:27 the right time or the right company or
  • 06:30 just not necessarily being in the zeitgeist?
  • 06:33 Yeah.
  • 06:33 I mean, you're kind of leading me into the Tesla question here.
  • 06:36 You know, Tesla's the worst of the Mag 7 performance and, and has the highest, you know, PE ratio for yourself, forward earnings and earnings estimates, which I think are vulnerable to more downgrades.
  • 06:46 So
  • 06:46 Tesla is going through a very difficult time because the CEO, Elon Musk has chosen a very
  • 06:52 divisive route
  • 06:54 and many of their customers have chosen other EVs or other vehicles to own other than Tesla.
  • 07:00 And we're seeing this with
  • 07:02 sale, you know, average sale prices continuing to drop, margins continue to drop while they invest in the AI and robotics and hopefully have some return at some point into the future.
  • 07:10 So I think Tesla mostly because it's the highest PE of the Mag 7, but yet
  • 07:15 is declining earnings, is the most vulnerable and investors should be very cautious about their position.
  • 07:21 And we still own Tesla, but we've lowered our position, you know, substantial eventually over the last six months.
  • 07:26 And we'll continue to own Tesla for the time being.
  • 07:29 But we'd love to see a change from the anti marketing campaign that's been going on with Elon instead of like marketing the wonderful vehicles that they do have.