Dan Ives on MSFT, NVDA, PLTR, SPCX & "Memory Supercycle" Amid AI Volatility

Welcome to Market Overtime. I'm Sam Vardis. Dan Ies is known for his flashy, colorful suits and tech bullishness and recently stepped into a new role at Yorkville Ives and Co. On today's show, we'll discuss the AI trade, the outlook for mega cap names like Apple, Tesla, and SpaceX, and the biggest risks facing tech investors right now. Dan Ies, thank you so much for joining me. >> Before we dig into all that tech stuff though, it's great to see you as well. Let's talk about you, Dan, because we just learned of your career change, pivot, whatever you want to call it. It felt like it came out of the blue, a bit of a surprise to the market. I'm just wondering why you did that and why now. >> Yeah, and it's great to see you as always. I uh look, for me, it was like the next evolution of my career. I mean, I had a phenomenal eight years at Wed Bush and, you know, all my other places I've been, FBR and others throughout the, you know, 26 years on Wall Street, but I felt like this was the time for me to build something, to build it with the right partners, especially given the AI revolution and where we are in terms of this buildown, to do a modern merchant bank, you know, Yorkville, and to find great partners. It's something I'm just so excited about seeing around the corners, seeing the opportunities, and that's why I just felt like this was the right time for me to do something like this. >> Sure. So, a modern merchants bank. Just explain exactly what that was. Like, if you were speaking to your Uber driver and trying to explain it to them, Dan. >> Yeah. modern merchant bank is if you go back you I'd say in the 90s it was companies where they're investment banks and you go back to Thomas Weisel the Robbie Stevens they have sales they have research they have banking but they also have the ability where they have their own capital and and they could deploy that capital and I think it's it's really having the ability I won't say it's skin in the game but the merchant bank that's what's different about that model. It's having the capital as well as the capabilities of an investment bank. >> All right, let's dig into AI and this moment that we're in. Dan, I mean, I'm just wondering what the biggest thing you think that investors are getting wrong right now about this trade. >> I think it's the scale and scope of just how big this is going to be. Look, Sam, I mean, and me and you've talked about before, four to five trillion that's going to be spent next few years is the multiplier. If every dollar is spent on capex, there's a four, five, $6 multiplier on that across the rest of tech. I think it's you're starting to now see some of that come to fruit. And I think you've seen in the latest earning season, but I think that is something where investors have been kind of missing in terms of just the scale and scope across infrastructure, across software, across energy. I think that's what, you know, I think maybe investors have missed in the AI revolution. But the recent quarterly reports, Dan, Q2 has been quite oying, hasn't it? I mean, we've started to see monetization proof. I'm just wondering who you believe is the best example of that right now. Who has really figured it out? Is it Microsoft or is it more than that? Well, I think that Microsoft quarter was the inflection point for tech because Microsoft is the one that's so tied in on enterprise on Azure revenues was really in the penalty box to some extent, you know, going into the quarter. The monetization that they're starting to see, I think is a huge barometer. I think you combine that with what you're seeing with Palunteer, I think that's been something for the industry that's extremely important. I think hypers scale earnings were so important as well in terms of what we're just seeing on overall cloud from Alphabet to Amazon to Microsoft but it comes down to you need to see monetization and I think that's the tug of war going on between investors. >> You mentioned Palunteer I mean that was an incredible move off the back of that earnings report. It surged nearly 40% in a week post Q2 earnings. I mean you have remained bullish on that particular name even as the valuation Dan has got increasingly demanding I mean over a hundred times. I'm just wondering what you say to those who say there's no room for error with this one that this is priced for perfect execution. Okay. So, it's always my view that for a name like Palanteer, any of these other, you know, high growth names, you have to have a longer term view in terms of, you know, as they grow into valuations. And it's something where if you go back to the early days of Amazon, you go back to Meta, you go back to everything that we've seen, that's something that investors have to have a longer term view in terms of where this ultimately is heading. And I think that's where investors sometimes they get for the right reasons caught up, you know, sometimes like in near-term valuations, but for the longer term names, I think that's the best way you have to to view it. >> Would there be anything out there, you know, as far as potential risks that would change your bullish view on a name like Palanteer? >> Yeah. And again, we like, you know, obviously at Yorkville as right now still waiting for a research license. So I'm not officially covering names right now you know in terms of traditional ratings but what what what I would say is I think the biggest risk overall in terms of AI is is government you know in terms of just data center buildouts the polit politicalization to some extent of it. I think that continues to really be some of the you know biggest risks when you think about the AI buildout >> and Nvidia obviously playing such a big part in this and I understand uh with respect to your research license where you stand on certain stocks but let's just use that as for instance a lynch pin to talk about the broader industry particularly because of the performance this year Dan I mean it's not the sort of parabolic pass that we're used to with a name like Nvidia the narrative this year has been one of valuation compression and consolidated growth. It's still stable. I mean the fundamentals still look good. What are your expectations then you know moving forward for the broader AI trade given what we've seen in that particular name? Yeah, look, I think first of all, it all starts with chips and as much as there's been focus in terms of memory chips and Cosby and what we see Korea, look, Nvidia, they've been the epicenter of AI, you know, relative to what we see in terms of there's really one chip in the world that's fueling AI revolution, right? I think Nvidia and Jensen has the best I think viewpoint in terms of what demand looks like. Look and we said from our last Asia trip demand and supply is 13 to1 terms of demand and supply. >> So I think as that plays out in terms of the broader trade and there's always a debate is it chips is it infrastructure is it hypers scale or is it software it's it's a combination of all of them when you all start to put it together in terms of where it's headed. >> You have spent so much time in Asia you go there often. You and I have spent time in Asia together over the years. I'm just wondering do you think that Jensen will be able to sell his chips to China at some point? >> That's look that that's a big risk because not necessarily just to Nvidia, but I think overall if Jensen and Nvidia are not able to sell into China, it's China that strengthens. Huawei strengthens. And that's why I think when you think about what's happened to beltway, there's such this quagmire going on in terms of what's happened in terms of the China market because I think in the tech industry and it's my view, they understand that by not selling into China that hurts US names because it makes China that much stronger and it's an arms race between us and China. And I think that that's like a very important point where we are today. Let's talk about another big US corporate who obviously has strong ties to China and that is Apple. The Wall Street Journal out with a piece the other day which said the Trump administration does not want Apple to buy memory chips from China. Apple may do so anyway. What do you make of corporate America's approach to China versus what the governments want? It's it's a hot button issue because there's the national security piece and I look I somebody you know spend so much time in DC I understand those risk you don't want Chinese chips in obviously an Apple 2.5 billion iOS devices 1.5 billion iPhones but then it comes down to cost because if you think about Apple there's pressure in terms of memory in terms of just increased cost that's going toward Apple that's why the reality is that government is going to play they're going to play a more outsized role in terms of you know regulation and making sure what's a green light and what's a red light relative to US and China and this is a this is a very very important topic especially for the big tech companies where if you can't go to China that means you have to pay up for ultimately what you're going to need in terms of US chips And obviously the government isn't just playing a role in the US China relationship. I mean there is a big debate around how much of a role they should be playing in the AI infrastructure build out here at home as well. I'm just wondering how much of a feature how much of a role do you believe the debate around innovation versus regulation will play in the upcoming midterms? It's I think this this is probably the biggest risk to the AI trade and it's the biggest hot button issue because regulatory stifles innovation. For the first time in 30 years, the US has a head of China when it comes to tech. Part of the problem is is that you do need oversight whether it's on cyber security or on some of the data center buildouts. But then data centers that's the foundation of AI. So when you vote down data centers in the local municipalities or it becomes much more politicalization or grand sending in midterm elections that becomes a risk and and that's also why I think like the tech industry has created a lot of their own problems in terms of like black eye moments because if you scare people saying that you're going to all white collar jobs are wiped down 18 months and your electricity bill is going to go higher and you're going to lose your job. You know, that's that's part of I think how we're in this situation. So that that becomes I think what's going to be a big challenge for the tech industry to navigate that in this midterm election. If we haven't figured out how to regulate data centers on Earth here, Dan, it's interesting how this is all going to play out in space, which takes me to Elon Musk and what he's been up to. I mean, let's talk about SpaceX. Has anything surprised you about the performance of this stock since it IPOed? Look, I think when you look at SpaceX and you look at Musk in terms of what investors are betting and obviously this is unprecedented relative to the size, the lockup, the indexing, you know, and everything that we've seen. Look, I think a lot of these companies like when they go public, the success will be built not over months but over many years. And that really for investors I think that are for SpaceX that's that's the opportunity and the challenge for Musk in terms of building that out and in this fourth industrial revolution the role that space is going to play >> and what about cyber security Dan I mean you've heard of all these stories about models jumping out of sandboxes into the internet I mean name it half a dozen companies just in the last two weeks where we've heard of reports of their models doing such a thing. I'm just wondering who exactly is AI helping right now. Is it the attackers or the defenders? >> Look, I think cyber security budgets, they're going to double over the coming years because especially with agent surface areas where everything's heading. So, I think they're just going to create more and more opportunity for cyber security. But with the the models, the hacks, that's a that's a risk. And and I think that goes into, you know, one of the biggest challenges now in terms of government regulation is that does it stifle competition given what we see in terms of the cyber security concerns and that's just going to get worse and worse and I think the stakes just get higher given what we're dealing with. So how much of an opportunity is this for some of those companies in the business of cyber? And you know I extend that to broader software companies as well because you have said in the past that you believe that SAS apocalypse um obviously the selloff we saw in softwares earlier this year on some of the AI disruption fears was overblown. I mean do you think it is facing a structural threat right now? Look, I think some of that was a fictional and fictional narrative, but then some of it's real. I mean, software companies do face risks. They face the risk of being disintermediated, but that's the challenge and the opportunity. I I and I think all of them Salesforce service now work everyone that that's focused because software companies for many years control their own destiny but now you could look at it's a challenge but it's also an opportunity and the view that is going to eat everyone's lunch I think that was a fictional narrative but it has changed the landscape for software companies they need to monetize it comes down to the use cases and that's where software you know I continue to believe software is going to play a huge role in the modernization of AI. >> And what about some of these LLMs? I mean, obviously these native AI companies, your anthropics, as you mentioned, the open AIs of the world, which obviously we're waiting to go public and learn a little bit more about their business, but is there a fear or concern about some of the concentration risks with a handful of names like that? >> Again, it comes down to execution, but also the industry. They've also bet on Anthropic and Open AAI. They need them to be successful as part of the broader industry relative to the the financial bets and just the strategic role they play and then this will all play out over the next 3 to 6 months. I think when all these companies go public, SpaceX, you know, if it's anthropic open AI, it's actually good for transparency in the market. >> What about China? I mean is it managing to narrow the gap as far as the artificial intelligence race is concerned? Yeah, I mean someone like myself spends so much time there. Robotics, they got super amount of energy as you know, spend so much time in the region and and they're trying to narrow the gap. But that's also why it goes back to okay like the open source models, they've obviously had success Deep Seek and you know and others that we've seen of late. But then it comes down to if you cannot sell chips into China, it makes them that much stronger. Regulation in the US, maybe some of it's necessary, some of it's not. That have that ultimately helps China more and more. >> And what about China's role in memory chips? I mean, do you believe they have the long-term potential to lower memory costs going forward? I continue to think that's a longer term opportunity but Korea continues to own that market in terms on the memory side >> right and you know has memory structurally shifted do you think to secular type of growth story or is it still remaining very much inherently cyclical in your mind >> I think it's secular because you're going through a memory super cycle at one point you'll have cyclicality but right now it's a memory super cycle that's playing out and I think that's something that's really changed in terms of this environment that we're seeing. >> So in that case, what do you think the biggest risk is as far as the AI bottlenecks are concerned? I mean, is it memory or is it the fact that we just don't have enough energy and power behind all of it? >> I think it's energy power, but I think the biggest risk is regulatory relative to when I think about the AI industry. And but look, energy and power is a huge piece of it because you're going to need that in order to to build this rest of the AI revolution out. And I think the amount of power and energy that we're going to need going forward, >> do you ever think that there's a risk that the AI infrastructure buildout that we're seeing right now overshoots demand? Or would you say right now it is economically justified? >> Right now it's justified. You have to continue to play out monetization. I don't think equilibrium you hit till 2028 2029 but then you'll get to a point where, yeah, it will start to, you know, it will start to run into maybe eras where you're going to have to prove it more and more. >> You hope that they don't get over their skis. I don't see that as a risk right now, but that's why monetization is so important. >> Yeah, it certainly is. So, how long do you anticipate this investment cycle to last? I mean, what are you hearing from big tech about exactly how long the spending will continue? >> Look, I think we're in year three of an 8 to 10 year buildout in terms of the AI revolution. That's and look, you could have starts and stops, but that continues to be my view. >> And how long do you think the market will remain patient, Dan, with negative free cash flow, which we're starting to see now? I mean, you know, I speaking to Nancy Tangler, for instance, the other day who said she probably gives it a year before the market starts to ask some serious questions. >> I agree with Nancy. Yeah. And always has great thoughts. I think that's patience wears thin. You need to start to see free cash. This is not just like a perpetual sort of not going to care about free cash. I think as we go into 2027, that's going to become much more of a, you know, of a of an issue. And I think that's also where some of these names could become more idiosyncratic in terms of the way they play rather than just as a group. >> And you know, we all understand that this stuff is going to be transformative. I mean, it is going to change our lives eventually. But can AI stocks be in a bubble at the same time? Do you think given that you lived through the '9s and the dot bubble? >> I think there's pieces of it that maybe could, but the reality, Sam, is like the the fundamentals will prove itself out. And if they don't, the stocks sell off. >> So I just think like that's it comes down to like companies showing the numbers and showing the validation. I think that continues to be why earnings and monetization are so important. >> It certainly is. I mean there is an argument also I mean tying it back to the macroeconomics Dan that there was a time when tech was largely immune to higher rates. Now, obviously, they're tapping the debt markets to fuel a lot of their AI infrastructure ambitions here. With advanced economies now facing soaring global bond yields, I'm wondering how much that is likely to then become a problem for big cap tech down the road. >> I don't think it's a problem now, but you do hit an inflection point in terms of debt and raises and what you could do from an equity perspective. And I think that's something that will become investors patience there, but that becomes more and more of an issue as we go into this next year. >> Dan Ies, always a pleasure talking to you. Thank you so much for talking to you. Thank you so much. >> Enjoyed it. Dan Ies there, partner and senior manager, director and analyst at Yorkville Ives and Co. Dan, thanks for joining us. Remember to tune in to new episodes of Market Overtime on our YouTube channel and watch market news 24/7 on Schwabetwork.com. I'm Dan Barnes. Thank you so much for joining us.