The Six Five Pod | EP 257: Google Cloud Next, Tariff Tango, and the Market Whipsaw

"Is this Armageddon or just another Monday morning?" That's the question on everyone's mind as the tech world grapples with a whirlwind of AI hype, market volatility, and geopolitical maneuvering. Patrick Moorhead and Daniel Newman deliver their unfiltered perspectives on what's really happening. This week, they explore a handpicked selection of topics that go straight to the heart of the matter, including:

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1. Google Cloud Next & Enterprise AI: A look at Google Cloud's announcements from Next 2025, and the company's efforts to differentiate itself through solutions like the Ironwood platform and its approach to enabling enterprise AI adoption.

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2. Apple's Challenges with Tariffs: Analysis of Apple's vulnerability to US-China trade tensions and manufacturing relocation difficulties.

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3. A Market in Turmoil: The conversation delves into the recent market downturn, exploring the complex interplay of trade wars, economic uncertainty, and investor sentiment.

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4. The Tariff Tango: Is Trump's tariff strategy a 4D chess masterclass or a dangerous game of roulette? The hosts debate the potential consequences for the US economy and its global trading relationships.

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5. Big Tech's Balancing Act: Amidst the chaos, the long-term outlook for tech giants like the MAG7 is examined, considering their resilience, growth potential, and ability to capitalize on AI-driven efficiencies.

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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.

Daniel Newman: This time in history will be. It will be written about, I would say in textbooks, but there won't be textbooks. Our kids will be Chat GPT-ing about this stuff and their grandkids because this moment is. This is one of the most chaotic moments in history. 

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Patrick Moorhead: Yeah, I agree, Dan. And chaos loves analysts!

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Patrick Moorhead: All right, The Six Five weekly podcast is back. New format, same brains, same personalities. Is that a good thing, Dan? I don’t know.

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Daniel Newman: I don't know if that's a good thing. And my brain's growing. This hat keeps getting smaller.

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Patrick Moorhead: No, it is. I mean, your brain has to keep up with your arms, which we might have to have a different type of camera once they start.

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Daniel Newman: Is this the, is it the part where you want to talk about your personal best this morning? Is that why we went right into the, the, the, the muscle and meat headedness?

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Patrick Moorhead: I'm pretty excited. When you get to my age, you have to have something to be excited about. And yeah, I set a new personal best on deadlift. And even though it wasn't a big leg press day, I did crank out as many as my personal best after doing deadlifts, so I'm pretty happy about that. I think I've doubled weights on deadlifts. And all of you who deadlift, there's a lot of brain interconnectivity that gets, gets in there. It's not all just strength. But I did see our trainer post just a monster deadlift that you did out there. I mean, literally those 45s were covering almost the entire bar.

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Daniel Newman: Did you post that? I didn't see it.

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Patrick Moorhead: Yeah, it's on Instagram.

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Daniel Newman: Oh, nice. Am I like a fitness model now? It's been a goal of mine for a long time. I have a lot of people on X that tend to think that my opinions about the market aren't very good. So maybe if I just take shirtless picks and deadlifts and stuff, I could go back to just being a, being a meathead. You know?

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Patrick Moorhead: I don't know, if I look at the hate that gets delivered on Kramer and all the different markets personalities, I think you're in a very good crew to be attacked. But hey, we have been on the road, I think for four straight, and we are back in Austin. I am not in a hotel. I am in my living room. My wife.

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Daniel Newman: I like your living room so much better than your office, I'm not gonna lie.

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Patrick Moorhead: No, I mean, I do too. And I wish I could do it every time, but the problem is that other people live here.

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Daniel Newman: But they don't have to. I mean, you can change that.

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Patrick Moorhead: Yeah. I could get a bigger office, but I really don't want to spend more cash on that.

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Daniel Newman: You guys start talking about feeling poor now, is this going to happen on the air?

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Patrick Moorhead: I might, yeah. I operate in cash.

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Daniel Newman: Makes me super uncomfortable.

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Patrick Moorhead: Kind of like the trader, kind of like the day trader of running businesses.

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Daniel Newman: But my dad was an entrepreneur and he always called something the privilege of poverty is what he called it. So he would like drive a crappy car to work. Like he'd have nice things but he would wear like easy know it was in trucking, so it was a pretty industrial business. But he had a beat up pickup truck he would drive to work. Carhartt,, he'd wear all the, he owned the company but like, and then he'd have like his Corvette at home or whatever. Never showed it to anybody. I mean you wear $3,000 sweaters, so I don't know if you can ever claim to be poor. But I do love those sweaters by the way. I'm, I'm waiting for you to get so big you grow out of them. And then you're like, Dan, you want this awesome black Prada sweater that I wear. I mean that is my favorite one. So if you ever are going to like downsizing your stuff now that I'm all skinny.

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Patrick Moorhead: No, no, I hear you, Dan. So I, I, I promise I'm not going to talk about your $100,000 watches. Both of them.

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Daniel Newman: You know what, I wore one of those and I had it in like a picture. And of course there's always those people that catch those details on, on X and then they just razz you to death. So again, privilege of poverty, you should just wear your Apple watch and just be humble, man. Nobody needs to know that you're the man.

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Patrick Moorhead: All right. We actually do have a show. We actually do talk tech here, believe it or not. And we've got this new format, we've got Decode, where essentially we go through some of the top news items, the news events and we decode it for you. And then we go into The Flip. You're gonna love The Flip, folks. The flip is where again, caveat here. We don't necessarily agree with what we're debating. We're just debating. It's kind of like CNN Crossfire. And what we're debating this week is, is Trump winning the tariff war? Yes or no? This is going to be a good one. They got prepared for five minutes for this one, so I'm going to be good and ready. And then we have market magnus and this is bulls and bears. I mean one day it's, it's down 10%, the next day it's up seven. I mean it's just, it is absolute market madness.

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Daniel Newman: So whipsaw, baby, whipsaw.

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Patrick Moorhead: Totally. So hey, let's jump into The Decode. All right, here we go. So Dan, you and I just got back from Google Cloud next. A lot of products were announced, a lot of services were announced. We sat in on a lot of keynotes. Actually we didn't make it to the keynote. Long weird story behind that one. But we did have some one-on-one with folks, and met with some key executives. We were your biggest takeaways, Dan.

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Daniel Newman: Maybe we just kind of hit these few at a time, one at a time. I'll start with the thing that I really like to talk about, which is infrastructure and specifically Ironwood, one of my big takeaways. And you said this. Well, I don't want to make a claim on something you said, but we all know Google has been doing the TPU for nearly a decade and has been building its own chips. It was doing it before any of the other cloud companies, but it got, it's seemingly getting really, really serious about infrastructure. Did you lose me for a second there?

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Patrick Moorhead: I did, yeah.

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Daniel Newman: Okay, I'm gonna, I don't know if my Internet just flickered or what, but I'll just pick up something you said was, you talked about how Google got really serious about infrastructure. And I have to say like their whole little layer of stack cake of what they're doing and how, whether it was Thomas Kurian or it was Mark Lohmeyer that we interviewed on The Six Five talked about  the company, they were really talking from an infrastructure up level. And that's a little bit different. It's a little bit of a pivot, Pat. I mean, I know you called it out, but I mean they're up to V7 now. We think it's probably a Broadcom partnership. They're not saying that. It's a very compelling TPU, but it's not just the TPU, by the way. It's networking offload, it's storage innovation, it's a new CPU, new enhancements to the DPU. I mean, I was hot on what they're doing at that kind of hypercomputer up level.

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Patrick Moorhead: Yeah, IaaS is a first party citizen. About two years ago we brought this into the pod and our research and that was that Azure got serious about talking about it. It's not that they didn't do it and didn't do it at scale, it's just it wasn't their first sort order. It was more like paas and SaaS. And the interesting part is, I mean Thomas Kurian started off and I, I often view how a leader, the order at which they talk about things. The first thing he talked about to us was connectivity. Right? With cloud WAN and cloud interconnect. I thought that. Wow, that's wild. And the second one was infrastructure. Right? Very interesting positioning that they had in AI. They want to be the best intelligence at the lowest cost. It was like lowest cost Google?I don't think I've ever heard them ever say that. And I think the best intelligence isn't just architecture. It's essentially using their models on TPU. Okay. And notice that on TPU

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Daniel Newman: Yeah you gotta double down their Pat. They're training all of their models. Right. I mean.

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Patrick Moorhead: Right. They're the only company who's training all of their first party models. Trainium is training a lot of models. I think a lot of the alternatives to OpenAI but blew everybody away when they announced that.

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Daniel Newman: Yeah, I remember. I think TPU also trained at least some of the anthropic, which was, I don't know if I remember reading that, which is interesting because obviously Amazon's the big investor. But this week, I mean, kind of as an aside, we did see an escalation. I mean Andy Jassy went on CNBC and talked quite a bit about this kind of AI advancing and how expensive silicon is. I mean that was his comment, expensive silicon. And this really kind of matches what you and I have talked about. I mean I've been, I think we had a flip here about this topic about Nvidia and the XPU and what's going to win and how's that going to pan out. And we've talked a lot about that Pat, but that's, it's like first party infrastructure to your point, is not a second class citizen anymore, it's a first class citizen. If we're going to do scale AI, we're going to have to bring down costs. And by the way, it's not just the AI chip, it's the CPUs as well. I mean you saw C4A, the ARM instances, I mean they're, they're, Google is going after it and the 5.8 to 50 billion dollar run, they've made since Thomas Kurian took the helm. I mean this is not also a rant.

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Patrick Moorhead: Yeah, I don't know what test they use. This is the first time that I heard Google explicitly go after AWS related to infrastructure and they even put up a slide showing how their ARM chip Axion was better price performance than Graviton. No idea what the tests were, how they were made up. No, we did not test that, nor did Signal 65 but for them to even say they were even making comments about Trainium as well. So it's on. And I think that what Google is recognizing is that IaaS is an on ramp to PaaS and SaaS. And I also think that they're looking at this as maybe a hedge with all that CapEx that they're, that they're spending. They need to soak it up. They just soak it up somehow. An interesting thing on TPU too that caught me was support for VLLM, right? Which is essentially an abstraction layer, industry standard abstraction layer versus lower level CUDA. So you can, you can get TPU as a managed service on Vertex AI. You can do gen basically lower level IaaS and build it yourself with support for JAX, Pytorch, things like VLLM. So yeah, you can sort of build it yourself, right?

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Daniel Newman: Or you can go down the path of sort of serverless and basically use the software out of the box with the hardware sort of just running in the background. I mean they threw out some pretty interesting numbers. I had an intelligence per dollar slide. I think you shared it, we'll put in the show notes. But they said something like their AI hypercomputer is able to deliver 24 times more intelligence per dollar. Now I'd like to get underneath what intelligence per dollar means because sometimes these claims are, I mean this is what signals is why we stood up Signal 65 because these claims always need to be validated. But even five times more intelligence per dollar than you could get out of DeepSeek basically running Gemini 2.0 flash on their hyper computer.

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Patrick Moorhead: So a lot of this had to do with the latest. It was a Gemini 2.0 flash and there was. They're using an industry standard intelligence benchmark on that and sitting on top of TPUs. You know, note this is not sitting on Nvidia, although I would say in parentheses they did say yeah, we're doing, we're the first one, the GB200 and we're going to be one of the first with Vera Rubin. So all three companies are kind of playing this “I love Nvidia”, but I'm going to create my own to have a better price per outcome.

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Daniel Newman: But do they really? Do they really? I mean that's the, that's the real debate that at some point will have to be had with the world. I mean you and I are both, I think, very impressed and continue to see Nvidia as the class of this industry right now. But we also, I, I also think there's some really weird friction going on there that I won't, I won't relent, that I believe there's some weird friction. But actually Google has been the most disciplined about realizing the value of the partnership and not sort of coming out with any sort of aggressive positioning, competitive positioning. So there's two other things I think are worth noting about the event. There's a lot of things, but I think just llet you kind of pick, I'll pick two and maybe you lead into which one if either of them interests you. But I think of course agents, I mean it was a lot of agents and the other one was Google distributed cloud and the air gapped Gemini which tells a big story about sort of how the company wants to enable enterprise generative tools to proliferate.

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Patrick Moorhead: Yeah, a lot of companies talk about being multi cloud actually I don't think AWS uses that word to this day. But when you were the number three player and distant like Google was six years ago, they leaned into it, right? You had Anthos, which was infrastructure that you would put on-prem. But man, when I look at the combination of cloud WAN and cloud Interconnect plus running Gemini on-prem on like Dell infrastructure and they run it as a, as a managed, run it as a managed service. Man, this is what I've been talking about for like 10 years, the hybrid multi cloud. Like we're in this standoff, you've got all this public cloud growth which everybody's talking points once you drill down and even the conversation we had with Satya, he said people are going to have to go to the cloud and with 80% of the data on-prem and not moving in a big way for a lot of different reasons, whether it be controlled, perceived security and cost, it's not moving. So how do you activate that data that's sitting in on-prem and oh by the way, in a disconnected air gapped manner. Azure did bring out an air gapped solution, but it is in an Azure disconnected cloud. I know that sounds weird, but that's the case. But with Google you can actually run it on Dell hardware. And I found that was interesting. I mean, listen, there was a ton talked about agents. Agents were interesting. I don't see a strategic change in what they brought out with agents. What they did do is they built out their capabilities not only internally but with third party APIs. We need to get under this agent to agent communications. Our principal analysts for that will be getting underneath. So any other thoughts, Dan?

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Daniel Newman: No, I was just going to say I think Google has done an interesting job positioning sort of this orchestration layer for agents. I think these APIs and connectors are really important. We've done a ton of evaluation on the Salesforce, Workday, Oracle, and all these applications have their own agents. The bottom line though is no company runs their entire business in a single application.

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Patrick Moorhead: Yeah.

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Daniel Newman: So is it going to get managed in the platform Pat, or is it going to get managed by people? Basically having a ton of different agents and different tools, it seems like having it be platform managed is a vehicle to getting where you want to go. And so Google has an opportunity there and I expect all the other cloud players to follow. Not trying to make this too proprietary.

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Patrick Moorhead: Yeah, I'll end with. I'm still not convinced that I see black and white differences between anybody's horizontal agents across Google, AWS, or Microsoft at this point. But it's game on! Man, you've got vertical agents, you have horizontal agents all pretty much going after each other. And we saw it ignite all the third party agents and the data that can be combined with Microsoft Copilot. So hey, let's jump into the next topic which is the IBM z17 mainframe announcement. You and I were both in New York. I think about two weeks ago to get the pre-briefing. It was a great event. We got to see chips, we got to see infrastructure, we got to see a lot of software. And I think my biggest takeaway here really was, was about the capabilities of what this enables. We've been talking a ton about AI the last couple of years and typically it's been in the context of platforms that were x86 platforms, ARM platforms and Nvidia platforms. But now with the z17, IBM gets in the game. And if you look at the type of customers that they attract, right, the financial institutions doing transaction processing, governments, airlines, a very highly regulated industry where uptime, where security is important. In those environments those customers were doing AI, but they were ETL ing the data out to a server, applying AI on it, training and inference and then rolling it back into the mainframe, which by the way was very slow and it's very costly. And as we know, every time that you move data you're increasing the likelihood of a security incident. And when it comes to transactions there are actually legal guidelines around how quickly you have to make those happen. And still to this day, even though all the cloud guys and all the x86 guys have tried to kill the mainframe, it cannot be reproduced at this point. And then when you layer on top that IBM z17 is really, I would say a first party citizen when it comes to hybrid multi cloud in that you can run Linux, you can run containers, you can run agentic frameworks on top of it, the value proposition just keeps getting better.

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Daniel Newman: Yeah, I think there's a couple things here. There was a pretty big set of infrastructure announcements. Again this stuff is all about us. They literally made these announcements because they were thinking about us like we want to put out a next generation inference chip and then we're going to also build a new network, offload with Spyre and then of course we're going to build the accelerators with their new Telum II chip. But Pat, look people don't like when we make negative commentary about the mainframe not being dead and blah blah, blah, blah. So we won't do that. But let's just basically say this is like the mainframe connecting to the cloud is a real thing and it's being done in a way that's secure is a real thing. The mainframe being able to handle acceleration and implement AI at the software layer. And by the way there's all kinds of integrations they're building with Red Hat and others that enable more advancement in software and development and of course bringing over things like how you can port software and building tools that enable kind of next generation coders with generative AI to build for the historic platforms programming. I don't think you do Cobalt, do you?

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Patrick Moorhead: Not yet, no.

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Daniel Newman: I mean that's. That was what I was going to go back to school for but with.

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Patrick Moorhead: Am, with Amazon Q, I can't decide.

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Daniel Newman: To just go to the gym and, and be a meathead. But in all seriousness like this is critical and Pat, this is also, massive industry enabler for those you talked about highly regulated. But listen, the banks all depend on this technology. This will be a great upgrade cycle for IBM. It always is a huge margin driver for the company and people are not leaving the platform. And actually if anything kind of of the macro and the uncertainty and the challenges that that slows down migrations and it actually makes platforms like this even stickier. The world's transactions depend on IBM Z. So this was a great announcement. Congratulations to our friend Ross Mauri who leads that business. It's very encouraging but I'm actually most encouraged that they're definitely not sitting on their laurels. They're continuing to push innovation and make this an exciting technology and product. And its sister product, the Linux 1 product has also been pretty exciting as IBM has really been the champion of Linux in open source. It's been a big part of their vision and I think that actually spans to some of these bigger on premise opportunities. They're not mainframe opportunities but where you need that kind of heavy horsepower for compute.

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Patrick Moorhead: Some just some final comments on it. What I like is the increasing levels of integration with the entire platform. Right and, and we've seen this historically where something starts off at a card and then it gets integrated into the chip itself. And right. The DPU went from a card into the chip itself and Telum II has a beefier AI module and then if you want more you can get a Spyre card. And one of the things that I thought was super important here is that you don't want to have to change your programming model depending on what hardware you're going to use. So a software model based on the hardware that you use and typically what will happen is over time those tasks that were, let's say easier can move on chip and you get lower latency and you get lower cost. So the software environment that IBM has created across AI can more gracefully take you from the Spyre card, let's say in 2026 to you know, I'll call it Telum III at 2028 or something like that and you don't have to radically shift the software and I think that's super important. And you know right now that's a challenge that Nvidia has, right? Nvidia does not have that end to end capability. Interestingly enough AMD does and so does Intel actually. And ironically Intel has the biggest spread which you can take Gaudy 3 as an accelerator to a Xeon with on-chip acceleration like AMX and you know once that gets super easy you can offload that off of AMX in, in three or four years. So anyways, I like the software story. It's not like something that's a dead end. Final decode topic here is Apple and Tariffs. I think you and I both generally agree that Apple is in the worst shape as it comes to these tariffs, Dan. Yet their stock hasn't tanked, right?

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Daniel Newman: It's kind of tanked, yeah. What's it trading at right now? Let's look at that. Just out of curiosity. I know like, you know, we're not, we're not making stock recommendations.

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Patrick Moorhead: Yeah. Just, just to be clear, tanked versus what it might. Given the amount of business they do. That most of their iPhones are going to get. What are we at? 125% tariffs at this point?

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Daniel Newman: 145.

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Patrick Moorhead: 145. Yeah. It's hard to keep track and you would expect that their market cap would be behalved, but it's not.

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Daniel Newman: Yeah, I mean they're down from a high not too long ago of what, 260. 260 or something like that. Now they're, they went all the way down to about 175 on the biggest fall day and they're sitting at about 191 right now. Which again, you know, we're not looking at technicals and making stock calls but we are looking at markets and technologies and I think we should call this segment. How effed is Apple? How screwed is Apple right now? I was on Fox Business the other day and I kind of went down this path about this. Basically the MAG 7's broken. Like it's not the 7 do not move in any. Like there's always been a little bit of disconnect but there's always also been a lot of correlation to the MAG 7 and right now it's super broken because there's like two companies that are really heavily enterprise centric that I just don't see how this whole situation is going to make a big difference. I mean and then there's like three that are very advertising dependent so that can be very impacted by things like recession and small business. And then there's two that I just think are completely screwed up because they're consumer products and you know, it's the car, the Tesla and Tesla's already super overvalued even though it's a cool company. But Apple, Apple is like a pet. Could everything not go wrong at one time for a company? I mean, listen, first of all they committed half a trillion dollars of spend. I mean, maybe if they actually started doing some of that instead of just talking about it, they would make President Trump a little happier. But in all seriousness,we've got a massive trade war. We'll talk more about that in our next segment. But like China and us, it's pretty much down to that. And so Apple's super dependent on that market for manufacturing. It's also a huge market for buying. So you have both sides of their, their kind of economics, you know, under duress. Right now you've put a 145% tariff on the imports, which means there's just absolutely no way the prices aren't going to be impacted by that. And moving manufacturing isn't easy. Now you could optimistically say Tesla built a gigafactory in China in 11 months. So Apple could accelerate. I'm not saying they could do 11 months, but they could probably try to move fast and build in advance. They could try to move more to India, they could try to move something here. They could look at something under MCA in Mexico, minimum.

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Patrick Moorhead: Dan, how about just making desktops here? Right? They used to make desktops here in Austin, Texas and then they moved that back to China. Right. And you're right, I mean, it's the double whammy, right? You know, the lens that I look at this is, okay, number one, increase cogs and increase CapEx amortization through tariffs. Check. Potential decrease in consumption from higher prices driven by the higher cogs. Check. Here we are. And with 90% of Apple's manufacturing done in China with, you know, five years it would probably take to even meaningfully move volume to India. That, by the way, has 10% tariffs, used to have 34% tariffs and then you've got, you know, 20% of revenue from Chinese consumers that, who knows, maybe China, even though this stuff is built in China, they penalize an American icon company.

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Daniel Newman: So I mean, do they hate, do they hate America more than they love Apple right now?

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Patrick Moorhead: Probably. I think it's a good way to look at, I mean, heck, even the Europeans are looking at tariffing services of American companies. Right? Which isn't even a cross border, not goods other than electrons.

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Daniel Newman: So talk about how much they would screw their own people though. I guess if everybody's going to run their business on SAP apps, huh. I'm serious. Like, like those companies.

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Patrick Moorhead: Yeah, we'll get into that when we talk about the flip policy is stupid anyway. Right now it really is, at this point.

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Patrick Moorhead: Right, it's, it's like up to an administrative reprieve. And the US administrations right across Obama, Trump 1.0 have come in and saved Apple from a lot of these things. And then the question is if, if they get some sort of reprieve, like why not all notebook PC makers like HP and Dell that do all of their notebooks in China, you know, will they play, will they play favorites, right? So you know, services, I said in my tweet, services aren't saving Apple this time, only the administration.

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Daniel Newman: They're going to ban movies in China. That was another thing they talked about, US media is going to get further blocked, Pat. But I mean the desktop, like making any progress in terms of US manufacturing would be great, but I just don't think they can move that quick.I don't know that they can move that quick. And like you said, I don't understand though, between us, like why would it take five years to expand in India? I know India's got a lot of weird bureaucracy as well and red tape, but when you hear about Musk building the mega factories to build cars and doing it in 11 months, I get, I know phones aren't cars, but cars are a pretty sophisticated manufacturing process.

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Patrick Moorhead: Like Oxcon has a million people working on iPhones in China and they actually have to import people from Malaysia. They literally put them on a boat and have them live in the work camps over there to make that happen. So even China doesn't have enough people to pull this off. And then the entire ecosystem that surrounds a factory with all the parts that, that go into that, that has to be created, it's very similar, although less technical to putting a foundry in a country. Okay. And India operates more as a loose affiliation across states compared to China. Like if China wants to take out an entire city and put a highway through, they just do it and then they relocate people. They don't get a vote and they don't get a chance. So very strong command and control in China, where it's a more distributed architecture and distributed governing body in India. And let's not forget water, electricity, while it has been greatly improved, China got a head start on this almost 20 years ago. So that is why it takes this long to get I'll call it meaningful volume to India because right now what, like what, 5%?

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Daniel Newman: Somebody told me it's less than 10.

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Patrick Moorhead: They put screws in or something.

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Daniel Newman: What Ear pods and some other meaningful products that are largely manufactured now in India.

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Patrick Moorhead: Right.

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Daniel Newman: Basically, the bottom line is on a one to ten, they're like screwed nine. Yes, they’re screwed.

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Patrick Moorhead: Well, if, if you believe that these will stick, their market cap would be cut in half at least. I mean, I just don't see. I, I don't see an option. 

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Daniel Newman:  And you know their margins. Have to each eat at eight crow. Right?

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Patrick Moorhead: Yeah.

Daniel Newman: Or, you know, people will have to show they're willing to spend more. And if we go into some type of recession, I. You're not going to pay $2700 for an iPhone. I mean, maybe you will. I don't know. I might.

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Patrick Moorhead: All right, hey, just to make a long story longer, let's dive into The Flip here. And again, The Flip is where we argue not necessarily what we think, but we take two sides of an argument. So here is what we are debating. Trump is winning the tariff war. So let's do that flip of the coin here. All right.

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Daniel Newman: Did I win the flip?

Patrick Moorhead: You did. So you need to argue that Trump is winning the tariff war.

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Daniel Newman: All right. Trump is the ultimate negotiator. This is 4D chess that he is playing. You know, textbook art of the deal. It's always about starting with a monster ask. It's never about precision. This isn't acute. He's not doing a small surgery and improving and clearing the arteries. He's clearing the world from what has been bad policy for multiple decades that has set the United States behind. We just talked about how we can't manufacture iPhones. And it's not about bringing people back to screw in iPhones. It's about building the next generation of the most advanced factories based on robotics that are going to be able to make the things that we need here in the United States. So he was not ever planning to get all these tariffs in place. It was a big chess move, 40 chess move to get there. So the big ask now has come down to a smaller ask because after some consideration and watching some of the variables at stake, he finally came out and said what he was really after. And he's after two things, and he's already winning. The first is getting China on the defense. And China can posture. All these countries can make a posture, but they depend on our consumers. China will get hurt worse than we will. They have population issues. They built trillions of dollars of factories to be able to flood the world with goods. And there's nowhere in the world you can flood with goods the way you can flood the United States. We have the consumers, we have the spending capability here. The cards are in his favor, as he would like to say. He's also all about making the Fed move. And what we've done through all this tariff war is we basically created a ton of uncertainty around the world because our economies and our financial systems are all interconnected. We've got the massive carry trade in Japan that's causing interest rates to move all over the map. We're seeing inflation tonight tumble to lows, and yet the Fed is playing politics and not lowering its rate. Let's be very clear, Trump is putting Fed chair Jerome Powell into the corner. And he is in the corner no matter what he says first. And then next off. The United States has an incredibly monster debt problem right now. More bad policy has put us in a position where we are now $37 trillion in debt and we are running a $2 trillion annual deficit. This is unsustainable. It's a much bigger problem than we want to admit. We've got almost $10 trillion coming due to refinance this year. And yes, the 10 year might be moving around, but ultimately interest rates, when he wins with Powell, will come down. They'll be able to refinance that debt and they will save tens, if not hundreds of billions of dollars when we get those interest rates down. We're already seeing the work of Doge make a difference. The deficit in the last month went to a multi-year low. The spending cuts are starting to make a difference. And remember, he's got the support of Bessent, who's a very smart, very calculated, thoughtful leader of the treasury. And he did the big short on the pound. He's doing a similar game here. He understands how the world works. He understands that what we need to do is bring the world to the table, make them our partner, and then what ends up happening is that China gets left in a corner, the Fed gets put in a corner, and that's the 40 chess game that he is playing. The last thing I will say is, look, we can have a long debate about cheap goods, but cheap goods is not what we are really arguing about here. This is about a broken relationship where we've outsourced all of our critical industry, our critical infrastructure development and our IP. We have to bring IP back. We are getting squeezed by the world because we can't make our own semiconductors. If we can't make our own semiconductors here. We cannot lead the world in technology. If we cannot lead the world in technology, we cannot end up ultimately leading in AI because China can always go after Taiwan, and we are so dependent on Taiwan that all this interconnectedness basically means we don't have the IP we need. So we've outsourced our critical manufacturing, we've outsourced much of our energy needs, we've outsourced critical resources. And significant parts of our defense are now dependent on this as well. We have no choice but to bring it back. It's not about people screwing in iPhones. It's about building the next generation of innovative factories and making sure that we control our destiny. Trump is winning. Paul is in the corner. China, the move is yours.

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Patrick Moorhead: Yeah. So, Dan, I think he did a great job talking in theory of why these tariffs might be a good thing for the United States and the rest of the world. But what we're arguing here is that Trump is winning the trade war. So, you know, you talked about the art of the deal. You know, that book was written when I was still in college, before I think 40 chess was even 

Daniel Newman:50 years ago. 

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Patrick Moorhead: It's been a long time. And since then, you know, what has Trump done? Like, is he a magnet? Like a financial guru? I mean, he sells cheap wine, he has hotels no one wants to stay in, and a guy that won't even show his taxes to reflect how much money his companies have lost. So, I mean, that is the art of the deal here. And you've got people who built real businesses, like Elon Musk who think these tariffs are completely ridiculous. And a lot of people that we respect that think this is ridiculous. And this is going to be the easiest one yet for me to win, and I win most of these. I mean, you're very articulate. You speak in complete sentences. I have some ums and some pauses, Dan. But that's just, you know, my thoughtful nature. So he hasn't won anything yet. Right. There's not a single deal that has been done. But I, I could stop here, but I, I'll go on. So let's look at the policy U turns. Okay, let me quote, unquote, this is not a negotiating tactic to we're open negotiating, open negotiations, quote, unquote to we're going to make iPhones in the U.S. can you be more disconnected? I think we just argued the fact that there is no way that iPhones will ever be made in the US. So talk about ivory tower disconnection from the common man, the common man or common person that got Trump into the White House. Right. Next major point, he's alienating our allies that we have had for centuries. As it is related to France. Europe is looking at adding tariffs on US services like Azure and Google Cloud, which again, we can debate whether that's fair. But that's the reflexive situation going on. Europe is already lowering barriers to Chinese EVs. You and I talked about that yesterday. Europe and the US have to connect to create this blockade versus China, not to dissent them from doing this. I mean, Mexico and Canada, this is completely ridiculous. Who are the two countries? We've got Canada that stands between the U.S. and Russia. Mexico should be our low cost manufacturing hub to compete with China. And by the way, a geographic barrier to what China is doing throughout South America. Let's go to markets. Right? Markets are imploding. Right. Gosh, it had the huge run up once there was the 90 day. But what's happening is the calculus of what China impact is going to be is finally settling. And what about the bond market? Oh my gosh, interest rates for the 2, the 10, the 30 are all up. Okay, and what does that 30 year mean to people? It essentially means that you will be paying a higher interest rate than you were before. Didn't Trump run on lower interest rates and lower inflation? But hey, let's talk about prices, right? So I think yesterday, right, inflation was pegged at 2.4% before the tariffs. And in the end, tariffs are really just a tax on consumers and businesses. So, you know, economists have predicted the import taxes could add up to 3 percentage points to US inflation next year. The NRF National Retail foundation has a disproportionate impact on local communities and small retailers who operate on thin margins. Medicine. Where do you think the core ingredients from all antibiotics come from? They come from China. How about farmers? Right. Key American products like soybeans, right. Are looking at 100 plus percent tariffs in China, double, triple the peak rate in 2018. And what's happening? Right. Brazilian soybean makers are edging in and China is starting to buy from them. Oh, don't like Boeing, we'll buy Airbus. So the switching costs here could be immense. And my final point here. And again, this is the easiest one I've had to debate yet. As prices go up, people buy less and we're in a recession. And you know, whether you want to, you know, make fun of the IMF, right. They're warning that the escalation can cause essentially a collapse of the post World War II free trade order and fracture supply chains, weakening an already ailing world economy. So Dan.

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Daniel Newman: Hey, congratulations on reading the teleprompter from msnbc, Pat. You did well.

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Patrick Moorhead: No, I appreciate that. No, no, I did at least five minutes of research on this, so. But no, that was a good one, man. So again, caveat. We don't necessarily early argue what we believe. My biggest fear, Dan, Flip aside, is that if we go to war with China, there are things that we just can't do. Our side won World War II for manufacturing prowess and pretty much World War I. And with our inability to create basic things, all the medicine that's done in China, it's like, you know, I think, I think we need to put ourselves in a position to be able to do those things. And I do believe we have been taken advantage of and we took our, we took our eye off the ball.

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Daniel Newman: That was your best argument for me so far. I want to thank everybody out there for Pat's close was also basically a vote for the fact.

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Patrick Moorhead: I said it wasn't a Flip. If you weren't

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Daniel Newman: I know. We're done. We're done. But I'm a debater. Doesn't stop debating just because of some sort of clock. I mean, we got to go after. This is like a marriage, man. This war is not over yet. You want to make sure that we keep ourselves vulnerable. Let's make sure that we can't make any of the stuff we need. And we've pretty much done that. So good on us. Mission accomplished. Where’s George W when you need him?

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Patrick Moorhead: Exactly. Yeah. Good old NAFTA, man. Okay, let's dive into the last part of our segment. Market madness. Bulls and bears. Market chaos. All right, Daniel, so just to make a long story longer, we're going to talk tariffs kind of. Where are we? I mean this, this thing goes day to day, right? We've got a 90 day pause on tariffs. Except for China, by the way. The pause was retaliatory. We're still 10 percenting everybody. Okay,let's just get this out there.

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Daniel Newman: We just need to make deals with everybody. We leave the 10%. That's reasonable.It becomes a long term strategy. You know, one of the things neither of us really said is China's playing the long game. I mean, Jinping could be president until he dies. He can do this for the rest of his life and he can then name a successor that's basically going to believe what he believes. And you know, that's why I said like the $2 trillion they've spent building factories to make sure they can put their goods on the world. I mean, look, even Trump is saying it. Like Trump really is kind of saying we've been taken advantage of. And it's not Xi Jinping's fault. He actually admits. Because any good business or world leader will take advantage of a situation in which. Look, the most interesting thing to me about this is kind of how the, what's typically kind of the more socially good party being the liberal and left and Democrat party, is sort of celebrating the idea of outsourcing because that is what has happened. I mean, we can debate how it's being done. Like, I think you and I, if we actually did The Flip in a moderate manner, we would agree that some of the policy ideas are good, the mechanisms are probably not that good and we'd love to see it done in a more precision manner with places that it needs to be done pep with. Look, I mean, we've literally let them spend 2 trillion. They can now dump cheap goods on the world. We can't make iPhones, we can't make semiconductors, we can't make servers, we can't make cars. I mean, we can't make them inexpensively, not in the U.S. 

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Patrick Moorhead: I mean, we have shown that we can do cars and Tesla is a great example. And I think if it weren't for NAFTA and USMCA, we probably would have done more of that. But I, I do like, but the.

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Daniel Newman: Point is largely we haven't been able to.

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Patrick Moorhead: Yeah, no, I agree. You know, I think I said in the earlier segment I like to segment. Right. Which is most at risk, potentially at risk and least at risk given this right now we are talking market madness here. So most at risk are importers of products from China and anything that could be influenced by recessionary impacts, which is consumer plays. So consumer products, advertising, those are going to get hit first. And you know, the potentially and least at risk right in tech are going to be software and SaaS companies, even though the EU is threatening to tax services out there. And right now the semiconductor plays aren't pulling products from China, at least right now, our semiconductors are not being. And then you've got the companies who are doing the servers and the desktops who are doing most of their manufacturing out of Mexico at this point. You know, companies like Nvidia and not enough people are talking about this. They do full racks and they come directly from Taiwan. I mean, Foxconn’s committed to investing $900 billion to build another infrastructure factory, but not yet. And nobody is talking about doing notebooks in Mexico at this point. So if you're looking for those companies, again, do not take anything we say as investment advice. Come up with a segmentation of how you do it. Most at risk, potentially at risk, least at risk. And go all in at least risk and maybe short the most at risk.

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Daniel Newman: Yeah, I'm a long guy. I don't short. But what I'll say is, I know we're coming up on, on some time here. You and I got to get to work. I have a bunch of corporate meetings or whatever it is I do all day. But I really do double down on the fact that, you know, there is some uncertainty about what might happen with software and services, and there is some uncertainty about how the actual supply chain for AI systems and servers works and how the MCA might work and how Nvidia can get around their chips. And I've talked to a number of CEOs involved, some in Stargate, some in big semiconductor companies, and I have it on good accord that there's almost no fear that the AI buildout will continue no matter what happens with tariffs. It is the most bulletproof investment. Again, I believe this to be true because the biggest companies have enough operating leverage, enough cash on the balance sheet, that what they're going to do now is invest and actually separate themselves farther from smaller companies that are trying to compete, that can't get cash, they can't get support, that end up in a tougher situation. And they're going to build out their infrastructure and be ready because this will turn. Look, we might go into a recession, we might go into a deep recession. But the big companies, the Microsofts, the Amazons, the Nvidia's, the Googles, they have the money, they have the balance sheets. They can trim down their costs and they can accelerate and they'll still grow. They may not grow as much, but they tend to still grow even when the economy is bad. I like those companies, but I like the ones the most, like Microsoft and Nvidia, that have almost exclusively enterprise exposure, don't have ads, don't have consumer products of much scale. They're really focused on serving enterprise. I also like some software companies. I like the ones that are enterprise software because you lower your opex cost, you spend less money on people, you spend more money on technology, you deflate the cost of operating and you scale big with tech instead of human capital. You don't love that. It's the quiet part of the cloud. Those are the parts of the market I think that do well.

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Patrick Moorhead: Good stuff, Dan. Yeah, we need to get you to your corporate meeting. So hopefully you enjoyed this show. I miraculously am staying in Austin for two straight weeks here. I know you're traveling to New York to do all of your broadcast interviews. I've got a couple lined up here from home.

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Daniel Newman: Yeah, it's better to do it from home, but I'm hosting so they don't let me do an hour straight.

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Patrick Moorhead: Are you, are you changing your job, Dan? Are you kind of moving on? Is this kind of like, you know, you're becoming a 24 by 7 market guy?

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Daniel Newman: I like this stuff, but I mean, look, we've entered the ultimate period of time in history where technology, policy, economics, politics have all come into this massive convergence. And dude, I mean, we don't have all the answers. We're not claiming to be economists or equities analysts, but the technology itself is so important to driving us into the future. And people like us have the insights, we have the access.I enjoy it. This may not always be a thing, but buddy, this time in history will be. It will be written about, I would say in textbooks, but there won't be textbooks. Our kids will be Chat GPT-ing about this stuff and their grandkids because this moment is. This is one of the most chaotic moments in history. 

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Patrick Moorhead: Yeah, I agree, Dan. And chaos loves analysts and we have analyst companies, we have performance companies with media companies and they all pretty much flourish off of chaos. Good place to be. And anyways, folks, I just want to thank you for tuning in. Hope you like the new format. Give us feedback all the time, good or bad. Keep voting for me that I won The Flip again. I'm not as smooth, but you know, I'll never. Dan, I'll never hold your inexperience against you if you don't hold my age against me. Okay?

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Daniel Newman: Later, gramps.

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Patrick Moorhead: Take care everybody. Hit that subscribe button. Bye.

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