Tullman And Fitz-Gerald Talk Tech: Capitalize On Tech Sector's Pullbacks
Summary
- Howard Tullman, general managing partner at G2T3V, and Keith Fitz-Gerald, principal at the Fitz-Gerald Group, both are long-standing, accomplished investors in public and private technology companies, and both think the big names in this space will continue to dominate over the long term.
- That said, they believe shorter-term issues related to regulation, elections, and growth could continue to impact select names in the shorter term.
- Finally, they discuss the outlook for Meta Platforms, Amazon.com, Alphabet, Microsoft, and others, as well as how the AI boom will sort out in the next few years and the implications for investors.
Tara Moore/DigitalVision via Getty Images
By Mike Larson, Editor-in-Chief, MoneyShow
Transcript
Tullman And Fitz-Gerald Talk Tech: Capitalize On Tech
Sector's Pullbacks
Apr. 27, 2024 6:00 AM ET
By Mike Larson, Editor-in-Chief, MoneyShow
Transcript
Larson - Hello and welcome to our latest MoneyShow
MoneyMasters Podcast segment. I'm Mike Larson, Editor-in-Chief at MoneyShow.
And today we're doubling up with a pair of private and public market investing experts
in the technology sector. They're Howard Tullman, general managing partner at
G2T3V, and Keith Fitz-Gerald, principal at the Fitz-Gerald Group. Gentlemen,
welcome to the podcast.
Fitz-Gerald - Thanks for having me.
Larson - I'll tell you, we had a great discussion going
before we even came on camera here. And I guess that's where I'm going to kick
it off. I mean, in the technology arena, a lot of exciting stuff is going on
out there in terms of the underlying technology, and of course, from a public
market standpoint, a little bit of a stumble here as we start Q2 in that sector and
even some of the Mag Seven names have had trouble all year. So, I don't know
who wants to take it first. But where do you think we are in this technology
cycle again, both from a public and private market perspective?
Fitz-Gerald - Well, I'd like to go back just to where
we were when we started because one of the things Howard and I were talking
about, Mike, before we kicked on here was this legacy of tech. People think
that it's all about today. But Howard and I've been around a long time, and
we've been doing this a long time. And we're talking about some of the things
in the trenches, you know, with Microsoft (MSFT) and Intel (INTC). I mean, Howard, what do you think?
Tullman - Well, what I was going to say -- because what
we were talking about is feature integration and what I am concerned about it
because we're a venture fund as well. And so we look at these startups and I
say to them, your entire life is dependent on either "we will fold you in
or we will crush you." We've got four or five platforms, and they're just
out there, and it's like a candy store. You look at Facebook (META) and you look at Amazon (AMZN) and you look at Microsoft.
We finally have a sort of activist FTC. They've looked at
this issue of innovation being crushed by the big guys. And I think we're in
for two years, at least, or a year of more regulatory headaches for the big
guys. Maybe they just sort of flick it off because, it's a legal expense, and
they figure that they'll spend $1 billion on lawyers, and they won't even
flinch.
But I think that, when you talk about the big seven, I think
that Facebook and Google (GOOGL) have some real exposure between privacy and
between all of these other kinds of issues. I feel like Amazon, it would be the
greatest favor in the world if they would force Amazon to spin off AWS. It
would then have two trillion-dollar companies instead of one. They don't even
understand that AWS runs the government -- runs the back end of the government.
Fitz-Gerald - I know it. I mean, these are the same
folks who couldn't understand how to balance a checkbook as we came into the
credit default swap mess. So I share your perspective. I think Google has got
some serious regulatory issues. I think that the recent memo from their search
saying, hey, you guys got to work faster, is an attention getter for any
slacker who thinks they're going to get perks all day.
You better get serious because Google is going to have to
compete. But I worry that it's too little, too late. I think Amazon's got some
regulatory challenges. Certainly, the FTC's ire is building against them. I
know a lot of consumers are frustrated with the fact that, once again, their
data is being used in ways that they didn't sign up for, so they're being
product-ized without their knowledge or explicit consent. But I do also think
that it's going to prompt some unexpected consequences.
Mike, to your question, I think we're going to see offshore
markets blossom because companies like Apple (AAPL), Google, Microsoft and Meta are going to figure
out ways to go to more business-friendly environments. They won't take all of
their operations out there. But to Howard's point, they're certainly going to
adapt.
Tullman - Yeah. And I think when you talk about AI,
that's obviously a whole conversation. But I have a fantasy because I've run
call centers for years, and the shame of exporting a call center to India or
wherever, has to do with language.
And today we have tools. There's just no question in my mind
that somebody sitting in India who's a decent typist could respond to a
conversation in real time, in the voice of somebody from southern Omaha,
Nebraska, and you wouldn't be able to tell for one second that, that wasn't
somebody who was around the corner from you, as opposed to halfway across the
world. So, voice and even video assistants are going to change the way that we
interact with this new digital world. There's a quote that I saw recently
about, how crazy and ironic is it that the computer now asks us to prove that
we're humans.
Fitz-Gerald - The one that gets me is, I'm sitting here
working all day on whatever it is. I mean, we have multiple platforms in our
office, just like you do. And all of a sudden, one will say, hey, are you
human? You better verify your credentials. And the other is going to ask and
well, you got to do x, y, z. It's like, I've been working on both of your
ding-a-ling computer sets all day long, of course, I'm human.
Tullman - To me, my favorite wasted effort box is the
one that says click here if you want me to trust this monitor, you know, in
perpetuity, which means for 32 seconds because then it's gone. And then it's
like, oh, start over again.
Larson - So let's just bring back Clippy and everything
will be fine, right?
Fitz-Gerald - Yeah. There's a blast from the past,
right?
Tullman - I've been trying Copilot, and Microsoft is
creeping toward something that has some utility. But the issue is, it's really
funny because I don't know -- Mike, if you know, there's a sliding dial in most
of the ChatGPT systems now that says, "be more aggressive" or
"be less aggressive."
And I think, frankly, Clippy and all of these things were
examples of some engineer deciding just how invasive to be, instead of giving
us a level of control because each of us wants to sort of customize our
interaction with these tools.
Fitz-Gerald - And that raises a really interesting
point because if you look at how, for example, Steve Jobs came on the scene, he
didn't start with the tools or even the engineers. He just said, make it
useful, make it intuitive. And I think there's a good case to be made that many
of today's tech companies have failed in that regard.
So, the next big jump I'm looking for is going to be how do
we make these tools intuitive. I think the first company that really gets to
the point where we have seamless technology, a la Star Trek, for example, where
it really is an interactive consumer or user-driven experience is going to make
bank. I think we're maybe -- I mean, Howard, you got a better feel for this
than I do, but I think we're maybe five, ten years away from that max.
Tullman - Well, it's funny because in the last couple
of talks I've done for the MoneyShow, I've said, take a step back from a
particular industry or a particular kind of technology and ask yourself
basically four or five questions. Is it going to save me time? Is it going to
save me money? Is it going to make me more productive? Is it going to help me
make better decisions? Is it going to impact my health or my social status?
And honestly, that's the test that I think you need to start
with these days because we're also facing a consumer population. There was a
great article today that said it's just starting to dawn on us. And this is no
knock on Mike, who is a youngster...
Larson - I don't know if I'd go so far as to say a
youngster.
Tullman - But it's starting to dawn on us that the gap
between commentators has not moved down one decade. It hasn't gone from Dan
Rather to one of the -- I don't know, Norah or whatever her name is at CBS.
It's gone down 40 years. So, the people who are now interacting with that
generation aren't experienced leaders. They're not people who've earned their
spokes and their spurs for 20 years. They're kids, their peers.
And so the whole influencer culture and the whole TikTok
world has changed it. It's frightening. I mean, you see some of these kids
talking and you realize that they're from another planet.
Fitz-Gerald - Well, it's interesting to me from an
investing standpoint. Because we see that particularly when it comes to our
technology investments, when we're looking at companies, the way companies are
interpreted is uniquely a function of the lens that the interpreter is using.
And when we start talking about historical events that have
shaped where companies are now and their legacy is why they're dealing with
things, that's information that in many cases has been nothing more than a
history book entry to the young folks in our office who may or may not have
paid attention.
And when they start pulling that onion apart, and they start
delayering that, and they start realizing why Apple is what it is today, or why
Microsoft is what it is today, or why Tesla is what it is today, they're
shocked because history in their mind is nothing more than something on a page,
whereas older investors, older technologists, older people who are looking to
move the markets have lived that information.
So, I think it presents a unique set of opportunities. And
from a trading perspective or an investing standpoint, again, we see lots of
folks here who are video game generation who want nothing more than "Okay,
green light, buy, red light, sell." You can't do that anymore.
Tullman - I think you're lucky. You must be putting
Xanax or something in the water at your place because to have your analysts be
patient enough to look backwards at any of this history is shocking to me
because I think they have no rearview mirror at all.
Fitz-Gerald - Well, we don't let them escape that
because the investment philosophy that we bring to markets is very much one
that history may not repeat, but it rhymes. So, whether they like it or not, my
young analysts, they have got to read this stuff. If I'm honed in on some event
somewhere, they better figure it out because they know I'm going to ask a
question across a conference table. And if they don't have an answer for it,
I'm going to force them to go get one.
So it's a unique point in history, Mike. We're at a Q1 where
there's this day of reckoning according to many of the naysayers. But as
Howard, and I'll tell you, this isn't our first rodeo. Technology has never,
ever, in the history of the world stopped or failed to make innovation happen.
So, I think it's an exciting time to be an investor.
Tullman - I think it is as well. And I also think that
we're going into a period where we're going to have to deal with this issue of,
are four or five platforms going to control the entire space. And right now, I
just wrote a column about Ai, it's the same issue.
It's how many people, how many of these companies, can take
$10 billion from their P&L and make it invested in compute. And the answer
is maybe four or five. I mean, these little guys that are dancing around,
they're all going to be exactly like what happened in the game business.
They're going to live on top of the game machine.
So when I started as a game developer, we thought we would
build a game machine. And everybody was like, well, have you not heard of the
PlayStation, the Xbox, and Nintendo? And that was it. Then it was over. And now
you are simply a contributor above their layer. And I think in AI, because of
the war chests of these big guys, they're going to control the platforms for
the foreseeable future.
Larson - It's fascinating taking that sort of trip down
the historical memory, technological memory lane. I want to ask you, Keith, in
your case what you're seeing in the public markets and, Howard, in your case,
in the private market. You wrote something in Inc. recently that said, "As
the harsh realities of the post-pandemic digital economy sink in". And
then it went on to talk about some of the pressures that are impacting some of
these companies, and how people have to approach their business as founders and
on the other side as investors, slightly differently in the private markets.
Would you care to elaborate on that a little bit?
Tullman - To me, the biggest thing that I'm engaged in
right now with about 25 of our portfolio companies is, there's not a single one
that is looking to increase their bricks-and-mortar presence. Not a single one.
Every one of these guys is shrinking, and they're shrinking in two ways. One,
they're shrinking physically.
Nobody needs to show you a physical infrastructure in order
to convince you that they're real. And that's a mind shift. When we grew up,
the banks had these monumental facilities. Today they're an ATM or they're a
phone. So, number one is the shrinkage in terms of physical. But the second
thing is, we're going to have a four-day workweek pretty soon and half our
workforce or more is going to be remote, too. And then add on top of that the
gig economy that, probably a third to a half of the entire workforce in five
years is going to be independent contractors. Boy, everything that we think of
as a company is going to change radically. And that to me has huge
implications.
Larson - And then, Keith, to shift to the public
markets again, you look at how we came into this year and where we are now,
with a little bit of a shakeout. What are your thoughts on how investors should
approach that, right? Whether they're already heavily invested in tech or are
looking at this as maybe an opportunity to get more involved?
Fitz-Gerald - Well, to the point that Howard and I have
just sort of by discussion demonstrated is that history constantly moves
forward. Innovation constantly happens. And so the question is, how do you
really approach it, right? Anybody who thinks technology is going back in the
bottle shouldn't be in the financial markets. That genie is never going away.
We are creating more information faster and layering it upon
our lives in ways that we couldn't have imagined, 10, 15, 20 years ago. So
investing now is not a question of "Do I or Don't I?" like so many
people think. The question is, "How do I get a hold of it? How do I get in
front of what happens next? Which companies are going to get me there?"
And to our point earlier on, it's a very short list. You can
mess around with all the small stuff if you want, but that's going to be in the
private market. That's going to be a function of people like Howard who have
the expertise to help these folks move forward.
By the time it hits the public market, you want to have big,
strong balance sheets, massively successful management, the ability to protect
margins, making products and services that the world can't live without because
it's all about the layering. And paying attention to this short-term noise,
this is just nonsense to me. Quarterly earnings and digital companies do not
match up. What you've got to do is go a long cycle.
Tullman - And by the way, with our companies, what
we're telling them in addition to shrinking is "Build to be bought."
We're saying one in a trillion of you is going to be the next big win. But 50
of you out of 100, if you're prudent with managing your investors' money, can
give them a colossally attractive return in the next three to five years.
Fitz-Gerald - Absolutely.
Tullman - What scares me is, unfortunately, that three-
to five-year window, which is a venture window, is not the kind of window for
investment that we need for environment, for climate, for medicine. And so,
we're going to need family offices, and we're going to need other sources of
capital to support a ten-year window if you want to change some of these areas
because the VC community doesn't even get it. I mean, they're not even focused
on this kind of stuff.
Fitz-Gerald - No, they're not. It's such a
dog-and-pony-show-driven lottery ticket mentality. It's interesting because
that comment of yours raises a memory in my memory banks -- all three of them
that I have left. Back in the early days in the '80s, we were very actively
involved in a lot of different things.
We learned some really interesting lessons from the junk
bond experience at that point in time. Michael Milken and Ivan Boesky, names
that went down in infamy, but it didn't deter from their brilliance. They told
me years and years ago, you got to buy 150 or 100 of these things, knowing that
99% of them are going to go feet up.
Tullman - It's optionality.
Fitz-Gerald - Big time. But the one that hits is going
to hit so big, you won't even believe it. And investing in tech right now is a
lot like that. If you're dealing with these small companies, you're coming
forward. You're going to position to be bought, you're going to do something
great. To Peter Thiel's words, you got to be 0 to 1. You can't be n plus one.
Tullman - Well, the other thing I would say is, and
I'll say this in the talk coming up, I'm not sure that with yields at five-plus
percent with 100% safety, that a typical MoneyShow investor ought not to be
saying, I'm going to take X percent, and I'm going to protect it because that
kind of yield is reasonably safe, and it's attractive. Then I may roll a 10th
of my portfolio into something like Bitcoin. Because the last MoneyShow we had
in Vegas, I thought the guy was tremendously compelling about Bitcoin, and
purely Bitcoin, not crypto generally and whatever. But the halving has occurred
and we didn't see the bump.
Historically, there's been a bump. We'll see going forward
whether crypto changes or not. But I think that the real scary thing is we're
going to have such a storm of grief in the next six months before this
election. I just think that the people are going to turn off. And I suspect
that we're going to even see that in the market. That people are just seeing
too much noise, too much drama, too much confusion.
So I think we're going to see a fair amount of investors
just park, and if you're going to park in tech, you better park in these big
guys because they may move in a small range, but you could have a company go to
zero if it's one of these little guys.
Fitz-Gerald - That's a really interesting thing. I
mean, my take on this is, chaos produces opportunity. So personally, as
upsetting as I find our politics at the moment, I do money and my job is to
help our investors, our clients around the world figure that out. So, chaos to
us is opportunity.
You got to pick it right. You got to pick it safely. You got
to pick it with confidence. But you always play offense, and parking is an
offensive decision. Because if you decide how you're going to park it, why are
you going to park it, and the conditions at which you come back out of the
garage or out of the bank, do you know what, you've won. So, to me, that's an
advantage.
Tullman - I talked to a bunch of the investors at the
last conference, and they were surprisingly defensive in the sense of, I'm
going to be sure I hang on to mine in these bumpy waters. But you know, when
Amazon moved up to become a part of the S&P, it strikes me that it
diminished the range of viability.
In other words, the wings were going to be less, which makes
it even safer. I mean, it just makes it...
Fitz-Gerald - Yes, and it also attracted a lot of
institutional portfolios. Because when you get something like that, what we
know from our side is that once you start to get involved, many of those shares
are never going to see the light of day again. They have to be there because of
allocations, because of defined benefit plans, endowments, pension funds,
whatever. They have to have names in the portfolio and on the list.
Tullman - Exactly, exactly. I agree with that.
Larson - I'll tell you, sometimes it's so easy hosting
one of these things. You just let the smart people talk and stay out of the
way. So, this has been fascinating. But I do want to say, in the time that we
have left, obviously we're speaking because you're both going to be joining us
for the Investment Masters Symposium Silicon Valley. It's May 7th to 9th.
Beyond what you've already shared, is there a sneak peek or
any nuggets of wisdom you want to tell people that they're going to hear more
about when you join us in May?
Fitz-Gerald - Listen to Howard.
Tullman - Okay. All I would say is that, we're five
years from AI making a serious impact in the business operations of 90% of the
businesses out there, notwithstanding what the business management thinks. It's
just not coming that soon. Now, machine learning is a completely different
thing. I mean, we're behind the curve on machine learning.
Everybody with this amount of data flow going on should be
experts at customer management, all this kind of stuff. But pure AI is down the
road. And when you see a company shoveling a bunch of money, it's cosmetic. And
that to me is bad management.
Fitz-Gerald - Interesting. Well, Howard and I are going
to have a good discussion on stage because I think it's sooner than five years.
But I do go down into the machine stack because the amount of data is an
opportunity. The question is, what do you do with it and how do you do it when
you get here.
But if we know anything from investing, get your money there
first. Get with the right companies and hold on for dear life because like a
rodeo, you want to make it all the way to the buzzer.
Larson - Great. I think that's a great place to wrap
things up. Howard and Keith, thank you so much for joining.
Originally published on MoneyShow.com