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Dan Ies is saying we're only in the second of a nine ining AI cycle. The best is yet to come. Check this out. Here with more on what to watch is Dan Ies, Wed Bush Security's managing director and global head of technology research. Dan, it's great to see you as always. Um, so we're going into earning season for this company for these companies at a time where there is this debate about valuations.
There is this debate about the so-called circular economy, how much they're all sort of spending on each other. Um, what are you going to zero in on in the in these earnings reports? Yeah, I look Julie, I'd say I mean the street's still massively underestimating what this tech cycle is going to look like.
I think it's an AI super cycle and I think this 3Q earnings is going to be much more of a validation moment in terms of not just for chips but for software. I think the broader buildout look it the bears in hibernation mood. They've missed the last two and a half years and they'll continue to miss this bull market that I think has another two years ahead of it.
You know, it's interesting because I haven't talked to that many bears, right? The bears, the straight up bears are hard to find on this stuff. It's more the message that maybe you should start to diversify a little bit. It's not that you should sell necessarily. Maybe take a little bit of profits and put it in some of the smaller companies in the space.
put him outside of AI entirely because maybe we're in a little bit of a a breathing period here. What do you think of that argument, Dan? Look, I get it. I mean, but my view is we're in the second ending of a ningame cycle. So, I mean, to to peel away from an AI perspective, talk about people have peeled away from AMD over the last, you know, a month ago or Oracle six months ago or Nvidia a year ago.
See, my whole point is like the street's underestimating what this cycle is going to look like. And I think ultimately in the next one, two years numbers are maybe 20, 30% underestimated. I think that's why 3Q earnings is just going to be more validation showing the use cases are exploding. At the same time, what do you make of like the report from the information about Oracle's margins and and that they are just um not making money on this stuff or that they're you know that it is the the the current calculus of the return on investment is very low in some of these projects.
Yeah, I view that as kind of noise. I mean to be honest with you and anytime that sells off on articles like that you just buy it you know in terms of Oracle because I think ultimately when as this plays out from the government perspective and from enterprise look for the first time in 30 years the US is ahead of China when it comes to tech because of this AI revolution and I think we're going to look out and I think how we talk about things like NASDAQ 25,000 and 30,000 the whole time, you know, the the bears or the valuation focused investors, they're going to miss this run just like they've missed it the last few years, like they missed it the last decade.
I I I view this as sort of a fourth industrial revolution, and I think street is continuing to massively underestimate what demand looks like. Dan, what would give you pause? I mean, I've been talking to you for a while. You've been bullish for a while. You've been right for a while, right? that we we've seen these stocks.
They haven't gone up in a straight line, but they've obviously appreciated a lot. Um are is there anything that would change your mind or if not change your mind, at least slow slow your roll a little bit? Look, uh 3 million air miles last 25 years, right? I see it around the world in terms of demand.
A lot of the bears, they they call this new 25th floor of their office building in New York because they can't find it on the spreadsheets. So I think if I see demand soften, if I see the use cases not exploding, if I see ultimately the demand trajectory in terms of the second, third, fourth derivative like our IBS AI30, then you pause.
But right now it's accelerating and I think that's going to continue. You know, look, we're in year three of a 10-year cycle in terms of this buildout. The AI investment cycle is in the second innings of a nine innings gain, suggesting roughly 75 to 80% of the appreciation and earnings growth lies ahead.
Dan Ies states directly, "My view is we're in the second inning of a 9 in cycle." And he later clarifies, we're in year three of a 10-year cycle in terms of this buildout. Dan was asked what would make him more bearish and he said if he sees a change in demand trajectory but right now it's accelerating and thinks that's going to continue.
I think the baseball metaphor is rather fitting as it provides a clear framework for understanding where we are in the AI investment cycle and how much opportunity remains in baseball. The second innings represents roughly 22% completion of the game, meaning 78% ahead. If we translate this to the AI cycle, and if we're in year three of a projected 10-year buildout, we're 30% through by time, but potentially less than 25% through by value creation because technology adoption curves are typically backend loaded.
Early years establish infrastructure and proof concepts, while later years see explosive adoption and moneym, a very typical Scurve. Many investors see stocks have already doubled or tripled and assumed the easy money has been made. But if 75 to 80% of the earnings growth and value creation lies ahead, there might still be a lot more to come for many of these AI companies.
It could be compared and seen similar to investing in Amazon in 2002. 3 years ago would be roughly 2022 when chat GPT launched and kicked off mainstream AI awareness. The 10-year projection to 2032 suggests IFC sustained infrastructure buildout, enterprise adoption, and moneym extending through the end of this decade.
and into the next. This time frame makes sense historically. The internet buildout from roughly 1995 to 2005. The mobile revolution from roughly 2008 to 2018. The cloud transition from roughly 2010 to 2020 all followed similar 10 to 15 year long pass. The progression through second, third, fourth derivative effects shows how value creation compounds in technology cycles.
First derivative is direct infrastructure spending, companies buying chips and servers. Second derivative is software and applications built on that infrastructure. Third derivative is business transformation and productivity gains from using those applications. Fourth derivative is entirely new business models and industries enabled by the transformed landscape.
We're currently seeing first and early second derivative effects. Third and fourth derivative effects, which typically generate the most value, are mostly ahead. supporting the second inning framing. The demand acceleration comment right now it's accelerating and Dan thinks it's going to continue is critical because it confirms we're not at peak but still growing in the phase of that curve.
Technology adoption typically follows an S-curve, slow early adoption, rapid acceleration in the middle, then saturation and a plateau. The most risky time to invest is late in the rapid acceleration phase when everyone is in and saturation is approaching. But if demand is still accelerating from high levels, it suggests we're in the middle of a rapid acceleration phase with substantial runway before saturation.
Dan Ies is continually monitoring demand signals and would adjust his view if they deteriorate. The fact that he says he sees continued acceleration provides high conviction validation of the early cycle thesis. This isn't based on financial models in a New York office, but on firstirhand observation of what enterprises globally are doing with AI.
By the time something is obvious in the spreadsheets, it's usually too late to capture the best returns. If you found this video of any value, why not consider hitting subscribe?
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