Apple’s $2,000 iPhone Duon Debuts With Limited Supply

0:02 Bloomberg audio studios, podcasts, radio news. You're listening to the Bloomberg intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple car play and Android auto with the Bloomberg business app. Listen on demand, wherever you get your podcasts or watch us live on YouTube.

0:24 And again, one of the cool stories out there is Apple's out with a new phone, the foldable phone. It's, it's a first for Apple, uh, Of course, there are other foldable phones in the marketplace, but like a lot of things, Apple takes its sweet time.

0:35 And it looks better, usually.

0:37 Yeah, it looks.

0:38 It's more expensive.

0:39 Yeah, $ 2, 000. What's it mean to Apple and to the P & L at Apple and to the stock of Apple? Maybe the investment psyche around Apple. Let's check it out with Anurag Rana, Senior Tech Analyst for Bloomberg Intelligence. Anurag, frame out for us what this new iPhone kind of means for the company and for the phone business at Apple.

0:59 I think the biggest thing is going to be, you're going to see a shift from customers that are used to the Pro or the Pro Max models, which is the most expensive models that they have. And they are the ones who are going to migrate towards this duo.

1:11 And we think it's only going to be a small portion of that.

1:14 At any given time and any given year, Apple sells somewhere between 225 to 250 million units globally. We think going into the next first 12 months of the launch, they will do somewhere between 10 to 14 million units. So that's about, you could say, 7% of the base and not too much. But that's really where we are right now. Given what we have heard on the demand side of it, given the orders, we think it's going to be perhaps towards the top end of this bucket.

1:44 And it could be even a little higher if they are able to meet the demand.

1:48 Scarlett, just looking at the stock, I've been reading a lot. seeing a lot recently that maybe Apple's kind of the anti-AI stock within the tech space that has much less exposure, not really spending the money. Stock's up 27% year-to-date, hitting a 52-week and an all-time high today.

2:03 Well, it's kind of like the safe haven play among the big tech names. Anurag, talk about the Duo and how it fits in with Apple's strategy to lease the iPhone, to make the iPhones more accessible to people who may not be able to afford the price tag to buy it outright.

2:21 Yeah, I think this is one of the most important factors about Apple. We've always said that, you know, think of Apple or these products as a subscription-based business, because it's very rare if you get into the Apple ecosystem, and for that matter, you know, Samsung as well on the higher end, you're not going to leave the ecosystem.

2:37 So each individual has their own refresh cycle. You know, some people keep it for three years, four years, and five years. So when you look at Duo, This is a very expensive phone. But if you think about the leasing plan, even on the base model, it starts at $ 55, $ 60.

2:53 Now, for me, it's a little bit higher.

2:55 But for a lot of people who use Uber, Lyft, and Uber Eats, this is probably not that large amount of money. But I think that's going to be one big factor that drives the adoption of this particular phone.

3:08 So give us a sense of just kind of how Cupertino is today in terms of product launches. I mean, is there still the same feeling on Wall Street, on Arag, that this company can continue to deliver really, really good products that customers want?

3:27 In all fairness, that has not been the case for Apple for many, many years. This is the first time, I would say, within a 10-year period, you're seeing a new form factor that has some coolness factor to it.

3:37 And from what we have heard from Mark Gurman.

3:39 And nobody writes better than him in the space about Apple, The new CEO is very focused on design and products, not so much about supply chain, not so much about tariffs and other things. And if that's the case, then we should anticipate a lot more new products showing up. Whether they are hit in the market, to be honest, it doesn't matter, but at least shows that these guys are trying their best to actively play a part in our daily life. For example, this new segment around home, really, that's not going to drive a lot of revenue. But frankly speaking, Right now, a lot of people don't talk to Siri in their house. Everybody talks to Alexa. It's a small instrument, but that's where you have the mindshare

4:19 of the consumer because you're talking to Alexa about what's the weather, order something for me.

4:24 Why shouldn't be that Siri?

4:26 Because Apple controls your biggest ecosystem when it comes to phones and also laptops.

4:32 Why not the home then?

4:33 Right. It feels very insidious, but once you hook someone in, you hook them in. So does that mean with this new CEO, Anurag, that we're going to see less innovation in Apple services and just more products thrown out there, even if it's kind of spaghetti on the wall? You don't know if it's going to work, but at least they're keeping everyone on their toes with new products all the time?

4:54 I actually don't think that, only because from what we have read, he's very focused on design. So they are going to experiment a lot, but they're only going to release stuff, in my view, that is going to be design-centric, that is going to have some cool feature around it, which is It's going to wow the consumer. I think that is the most important part. I think a lot of people feel that the innovation has left Apple and it's not the same what we used to see from the Steve Jobs era. And I'm hoping for the sake of the company, frankly, that that comes back because that really is completely needed for them at this point.

5:27 Anurag, what's the AI call today when you talk to clients? Where are we today? Because it seems like it's a very fluid situation about how people think about the AI trade.

5:37 Yeah, the AI trade is absolutely in shambles right now because the big question is, where are the frontier models going with it?

5:44 What would be the adoption rate?

5:46 There's a lot of angst about the open models coming out and having an impact on it. We recently published a few notes around this topic, and the core of the things is this. We have a very massive backlog on everybody's balance sheet. So when it comes to growth rates over the next one year or two years, I think we are going to be okay with that.

6:07 That's not the issue.

6:08 The big issue that's showing up or the cracks that they are showing up are what would happen if we are not able to get some data center capacity online? What could happen after the midterms if there is even more opposition of new data centers being built up?

6:22 What would happen if the capital.

6:24 Funding costs have gone up, and that's probably the biggest reason now is the increase in funding costs.

6:30 Stay with us. More from Bloomberg Intelligence coming up after this.

6:37 You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

6:52 I don't know.

6:53 I mean, let's talk valuation in the AI space here.

6:57 Go back to what Anurag said when we asked him how the AI trade is doing.

7:01 Yeah.

7:02 Oh, your colleague.

7:03 Oh, this is Mandeep Singh. He covers tech technology for Bloomberg Intelligence. Your colleague, Anurag, we asked, how's the AI trade out there in the marketplace?

7:10 It's in shambles.

7:12 Really?

7:13 Okay.

7:15 Talk to us about open AI because that doesn't look like shambles. I'm seeing maybe going to get a valuation of $ 1.

7:20 25 trillion.

7:22 What's going on with OpenAI?

7:23 Yeah, I mean, they're trying to do another round. And all these companies need a lot of money because of all the compute commitments they have. We know Anthropic has close to $ 750 billion in compute commitments for the next few years. So... You know, $ 30 billion is a small amount, but they need to raise because how else are you going to be able to pay for all the compute that you need to grow the revenue? So this is a high variable cost business. There is no leverage, inherent leverage in the business like software companies have typically.

8:02 And I don't know why.

8:05 What is the economic model for these companies? I mean, Is it just a top line growth story?

8:10 For every dollar of incremental revenue, you need to spend right now about 50 cents on compute.

8:19 Plus all the other overheads. Just the compute costs.

8:23 How long do you spend on compute? Is this like a recurring cost, constant cost? Or is this, you know, you invest in it now and then later on you just kind of maintain and upgrade every once in a while?

8:33 No, so software used to be, you develop the software and then the incremental costs were like negligible. Because we started off with, you know, disks. You used to ship the software and then it was like 100% margins, incremental margins.

8:48 Then it was cloud.

8:50 And now with AI, you're spending, like I said, 50 cents on every dollar you generate. And that's just compute cost. That's your GPU consumption and all the... uh overheads that come the power you need to run those gpus you need that there is no shortcut in terms of ai compute so do we.

9:10 Have any sense of what the net income margin is for these companies vis-a-vis a traditional software company like a.

9:16 Good question yeah so look uh what these companies will tell you and we are waiting for anthropic uh s1 is they will say, we are spending still half of our compute on training the next model. So Anthropic, it already has Opus 5.5 and Mythos 5.1. It's training the Mythos 5.5, the next version, whatever they want to call it, and spending almost 40% to 50% of their compute on training the model. That's a big upfront investment they have to train that next frontier model because you want to stay ahead. Open rate models are catching up and that's why your net income margin is most likely going to be negative on a gap basis because you're spending so much on keeping up with the frontier.

10:07 Is that an ongoing thing to Scarlett's question or is it some point we're going to get to a mature.

10:11 P & L?

10:13 And that's the thing with every tech company, a new technology that comes about, you spend a lot upfront, but you know there is a mature state where you will generate tons of free cash flow.

10:25 That's the hope here because.

10:27 I was going to say, how confident are we in that?

10:29 But these companies are already $ 100 billion in revenue.

10:33 I've heard the revenue number. I'm asking about the profits.

10:35 They will.

10:36 Look, if you look at my 35% to 40% R & D on training the next model, if tomorrow they decide everyone is facing the frontier, which they have talked about facing the frontier, what does that mean? Don't spend any more on training costs. So now suddenly you start to generate, you know, 30 cents on every dollar you generate as revenue.

10:59 And that could be your free cash flow. You don't spend on training the next version of the model.

11:04 Two days ago, I thought I had cocktail party knowledge of AI that I can hold my own. blown it's blown to smithereens yeah i got nothing i got nothing and.

11:14 Now that everyone's kind of questioning the ai trade you know i feel things that felt certain before that were like just assumed maybe you can't assume them anymore all.

11:22 Right i don't know well i'll try again on monday i'll try again stay with us more from bloomberg intelligence coming up after.

11:29 This You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

11:48 We are in the thick of earnings season and most of the banks have reported. So now it's time for the non-bank lenders. American Express being an example of one of those. It means a credit card company, credit card issuer. And Ben Stein is our consumer finance analyst who covers American Express. And Ben, American Express under pressure to keep, retain, add to its premium card members. How's it been doing in that effort?

12:15 Look, Amex is doing great, right? They're running at a 10% top line revenue growth and a 15% bottom line EPS growth. You know, Warren Buffett is still one of the largest shareholders in Amex or the largest shareholder. And that's for a reason. I mean, it's got an incredible growth algorithm. It's built on the wealthiest, most resilient customers. And, you know, spending growth is strong and credit is pristine.

12:40 You know, Ben, just give us a sense. I just have to refresh my memory. How global is Amex? What's their business kind of U.S. versus rest of the world? And are there growth opportunities geographically for them?

12:52 So they're predominantly in the U.S. They have a couple different international markets that are pretty important to them, including the U.K.

12:59 And Japan.

13:00 And anecdotally, Paul, I don't know if you ever tried to swipe your Amex card in Europe, but can be quite challenging, even though they're, they've spent years trying to work on parity of acceptance over there. Um, but, but importantly, international is growing faster than the U S it's growing at like a mid teens rate. Um, so it's a big part of their strategy in the future, but right now it's still predominantly a U S business.

13:25 And my apologies, Ben Elliott, not Ben Stein.

13:28 My fault there.

13:29 Ben, when we go back and talk about American Express for a moment here, not popular in Europe, even though they tout the benefits of this card when you're traveling, presumably sometimes overseas. Also in the US, you now start to see companies saying, if you charge by credit card, we're going to charge you that extra 2% or 3% fee.

13:47 A lot of those stores won't even accept American Express because the interchange fee is even higher than for Visa and MasterCard. How is that showing up for American Express? I mean, do you see that making a dent in its revenue and its bottom line?

14:02 So it's not showing up yet. You know, the bulk of the spending is things like airlines and hotels, places that are sort of always going to accept American Express. But I think looking forward, the value proposition of the Amex Platte in particular is really core to earnings growth. And as they sort of increasingly kind of try to pull in the cost of the Amex plat and you see, you know, the sort of like reduced acceptance at certain smaller merchants, I think it does sort of wear on the sheen of the brand and it affects how loyal customers might be in the future. But obviously right now, you know, they're having, they have like a 99% retention rate on their Amex plat. So it's really not.

14:48 An issue yet.

14:49 I like the way that he calls it the Amex plaque. I know. It's for people in the know.

14:52 What do you do?

14:53 You're one of those crazy people with cars, right?

14:54 Yes, I did sign up for it because I got this massive sign-up bonus. And whether I keep it or not depends on what the perks are, although they did add Airbnb to one of the perks where you can get a certain amount of credit and apply it towards that. So that might be worthwhile.

15:09 Let's go there, Ben.

15:09 I mean, I'm old school.

15:11 I got the green card, dude, that I got back in like 1986.

15:13 OK, you're one of those members since 1986.

15:16 Yeah.

15:17 You know, but talk to me about like these affinity programs like like my daughter and Scarlett. They're all into, you know, comparing the cards and arbitraging the cards and doing all this and maximizing the points. How big of the part of the business is that kind of stuff become?

15:34 It's a really big part because MX is leaning into growth in millennials and Gen Z in particular. And they tend to be lower spenders today, but in the future, they're sort of the future high spenders. And a lot of that lifestyle sort of coupon book stuff is focused on millennial and Gen Z customers. And so that's where they're getting their new account growth. But the risk you see there is the fatigue and sort of the existing Gen X, Boomer Plus spenders who, you know, they don't want to spend... oh, they're free time gaming out a coupon book and then they just want a core value proposition.

16:09 But by and large, it's working and it's driving their growth algorithm. And so I think we'll continue to lean into that.

16:16 It's tiresome when you have to consult an Excel spreadsheet first before you decide how to pay for something.

16:22 You know, I'll get phone calls.

16:24 I'm like, and she'll get these crazy deals.

16:26 You know, I'm like, why are you in Barcelona?

16:28 Oh, because I got a special tip from my.

16:30 X and Y and Z card. I was like, all right, all right.

16:33 And they wanted to.

16:34 Go to Barcelona.

16:35 Yeah. And I think Amex's response to that is they've just recently introduced a new business card, the Graphite card, which is a pure 2% cash back card. So I think they understand the fatigue there. And I would imagine that in the future, if it becomes an issue, you'll start to see a return to sort of more traditional rewards and less coupon book. But so far, it's working.

16:59 Why fix it?

17:01 Stay with us. More from Bloomberg Intelligence coming up after this.

17:08 You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

17:23 We talk about tech spending. It just seems like the numbers are going up, up, up, up, up with no end in sight. That's true for the AI stuff. But for the rest of the tech stack, it seems like those folks have to fight for the crumbs here. One of those companies is Infosys. Tamlin Basin joins us here, tech analyst for Bloomberg Intelligence.

17:39 He's based in London. So Tamlin, talk to us about Infosys.

17:43 What is Infosys and what are they telling you about their results and their guidance here?

17:49 Yeah, sure. So Infosys is an IT services company. Now, so this is a company that's not in the software space. What they do really is a lot of the implementation for enterprises. They make sure that that tech stop is operating from top to bottom. So they reported earnings earlier this morning. They reduced their fiscal year 2027 sales guidance.

18:11 Now they've lowered that range both at the top end and the lower end. And this is the second consecutive year. cut to their fiscal guidance following 1Q results. So what they're pointing at is a continued muted discretionary spending backdrop. All of this money, as you said, is going to AI. And a lot of that is putting pressure on spending elsewhere.

18:33 And this is a company that's definitely feeling it. And so they're reducing their near-term guidance. They do see AI as a tailwind. Their AI revenues accelerated 29% from last quarter. But that's just so far not enough to really lift revenues overall.

18:48 So, you know, there's a lot of uncertainty out there.

18:51 And if I'm spending money on my tech budget, I mean, I got geopolitical issues. I got surging energy prices. I got overall inflation. So what does it mean for, like, IT services? That used to be such a steady, steady growth business there. But, you know, I guess they're not immune to just uncertainty in general, plus the AI industry.

19:08 Crowd out.

19:10 Yeah, and I think it is a lot of that AI crowd out coupled with those macro pressures that you just pointed at. So growth is not going negative necessarily, but we're looking at very low single digits rather than sort of the mid single digit growth that we were seeing sort of pre-COVID. Through COVID, it expanded, accelerated faster than that. But really, the industry is used to that mid single digit growth, but it is a lot of that AI crowd out. You know, decision makers want to invest heavily in AI. They don't want to miss the boat there. And what that does mean is going back to their services providers and saying, you know, what, we're not going to be able to raise our budget with you to the extent that you're used to from years past.

19:50 So I think that's where a lot of this is coming from, coupled with those macro pressures that are really tightening enterprise budgets elsewhere.

19:58 So when I see a scenario like that where an industry is undergoing what might be a secular process, you know, kind of reduction in growth rates. I've been a part of them myself in the media space. Suggest maybe consolidation might be a solution for some of the companies that really want to make a go of it. How do you think about the IT services sector from a consolidation M & A standpoint?

20:20 Sure, absolutely. And we have seen some consolidation, especially with companies wanting to sort of expand their AI capabilities. So we've seen Accenture is probably the leader in the space, and it's been most aggressive recently. on M & A. However, we haven't seen them necessarily go off after a larger peer for acquisitions. What they are doing is doing a lot of bolt-on acquisitions, especially in the consulting space, especially for smaller firms who are focused on lifting consulting and lifting AI exposure in niche areas, whether it be financial services, whether it be healthcare or So I think that's where we're looking to see is probably more of the acquisitions going forward, not necessarily tie-ups of two large behemoth firms. Again,

21:04 these are companies that have 500,000, 600,000 employees. They are quite massive overall. So I don't think we're necessarily expecting consolidation at that level. Probably downstream, we'll see more bolt-on acquisitions to sort of enhance AI capabilities.

21:21 Now, Tamlyn, President Trump or his administration named Infosys as one of the companies abusing immigration policies. There's an imposition on restrictions on those H-1B visas. What does that mean for an Infosys, for other companies that it competes with, like a Wipro?

21:38 Yeah, absolutely. And this certainly is risk at retaining talent. So these are really mid-level executives who are already living in the U.S. It's going to be harder for them to get permission to continue staying with this company and working in the U.S. So this is really targeting those mid-level. This is not necessarily the H-1B exposure where they're trying to attract talent to the U.S. to begin with. What all these companies have so far said is that they have already reduced their reliance on a lot of these visa permissioning. This is sort of as Trump came into the second term, they could sort of see the headwinds coming their way. But certainly we are going to see, you know, it's going to be a little bit harder

22:16 to retain that mid-level talent. There's going to be more competition within the space for that. So I think this is definitely a, you know, it's a political risk. It's a reputational risk. But I don't know if it's really going to change their operations over the near term because they've reduced their reliance on those visas.

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