Squawk alley, Kayla Tausche is in london. Joining us this morning, our super panel, former daily male ceo, John Steinberg and indy go go co founder. First, you want to wait for apples top lawyer in its case against the Government Joins us live later on this hour. Dont miss it. First up, the oracle of omaha, Warren Buffett joining squawk earlier this morning, had a lot to say about a lot of stocks, namely ibm. Take a listen. I dont think so, but it could be. I mean, we weve owned stocks we lost money in. And sometimes when stocks go down, were wrong and we sell them. And sometimes we think were right and we buy more. And sometimes it turns out we are. A stock going down is a good thing, unless the company itself is losing value. And sometimes thats the case and sometimes it isnt. I dont think its the case with ibm. But i could be wrong. All right. So weve talked about this a couple times this morning, guys. But john, ill start with you. Is he looking past some of the shorterterm concerns for this company, because he is so longterm focused . Im not sure hes wrong and i know thats weird to say, given how much ibm takes, including on this program, their services modeled turned out to be a bad longterm bet as they have run into cloud. A number of issues, software, their core, their profit center, is losing momentum. But its not as if this is completely unfixable. Its not clear to me whether they are going to be able to fix it. But if they are, then, yes, the stock could rebound and surprise everybody. If ibm goes up it will be because Warren Buffett is lucky, not because he understands the company. When he talks about watson, its pretty clear he doesnt actually know what watson is. He says, oh, watson is learning with geico. I mean, it was a bit like listening to my mother explain watson and ibm, right . So i dont think he understands technology. This is not sees candy or cocacola. The stock is going to decline in terms of top line sales. Totally unclear whether it growth back in 18. I agree this is not a sweet spot for buffett in terms of being a tech company not like coke or gillette. There is an opportunity here. Seems like there might be a bottom for the first time in five years, theyre projecting their revenue will be flattening out as opposed to declining. They have already lost over 20 of their value from their stock for the last few years. And watson and the other initiatives are showing a little bit of growth. Keep in mind, those are small initiatives, but if they can start growing and instead of defending the proprietary information, build on the fact they have partnerships with j j building and doing these acquisitions, opening up their protocols. By 2020, youre going to see huge growth rates in medical analytics as opposed to core business, a 2 to 3 grower, but theyre declining. So i see potential for 18, 24 months, theyre going to be a big argument this watson area should be spun off. Should this be separated things which would be challenging because then you have the cash cow, which is actually feeding the investment area. What happens then . But to your point, john. I mean, whether its ibm and the cloud or coke and noncarbonated drinks or amx and stripe, or all these other old line businesses, we keep coming back to this theme on buffett. Is he understandable the new trend. Thats the point. He understands these old line businesses like everybody is going to eat a burger, drink a cocacola. Thats not like this. If you look at this company, right now, its trading at just under ten times revenue. Ten times earnings. Cisco, 11. 5. Oracle, 14 times. Microsoft 18. 5 times. These are all companies that are basically down to flat, to slightly up top line growth. So they are decent comps. If ibm had Something Interesting going on, if watson actually made sense to anybody, there is an argument for multiple expansion. I dont think i see that. Ive never heard anyone tell me what watson actually does for their company. Yeah, watson is out of business. They keep trying to market it, but it hasnt shown up and ibm has way too many people. Massive cuts, probably necessary at that company. If its going to get right in front of the cloud era. Havent seen that yet. And when you hear buffett talk about mcdonalds, he says the question is over five years, are they making a people want to eat. These companies are not like that. You need a continual thread of innovation that drives growth and ibm he thinks works its way out. Well said. Next up, some new money on the way for spotify. That kayla is in london and has that story. Hey, kayla. Hey, carl. As we reported for you a couple weeks ago, spotify had had planned and is still planning to sell 500 Million Euros and dollars in convertible bonds on either side of the atlantic. The company is also now in negotiations with private equity firm for an entirely 500 million euro for 550 million investment. The exact terms of the deal unclear. Im told they are similar to the convertible, which is still being raised. That deal pays interest around 3 to 4 and offers a 17. 5 discount to the ipo price if the ipo happens this year. The discount goes up, the longer that spotify takes to go public. Most interesting about the convertible, it keeps the valuation the same, which is about 8 billion premoney. And because it converts at ipo, its equity value will be determined then. Unlike pure equity the companies raise, which is quite annoying. It has to be recalculated every single time money is raised, it goes up, it goes down. And that can be frustrating for companies as we have seen. Bankers have told me, we will likely see a lot more of these types of deals for highprofile household name unicorns. Of course we know tpg has investments in air b b and uber. This is good for a lot of investors and thats why we could see more dales deals like this. They get a high coupon and discount to the ipo price and Companies Get cash when they need it and dont have to reset their valuation, carl, which so Many Companies have had to do. I love your take on this one, knowing what we know about spotify and the way they have been healthily funded with a lot of money. Yeah, mine, clearly they need more money since theyre giving a 17. 5 discount on the ipo price. The fact theyre able to get this money is a good sign, especially since the vc markets have tightened up since q4. I am concerned about the overall market, considering that the Public Markets when companies have gone public has been really tough for some of these recent Tech Companies. And then also the tightening evaluations. I mean, if i was spotify, i would grab on to money. It seems the shift is going more towards the investors as opposed to Companies Getting the deals they want. That brings us to Microsoft Founder Co funder, bill gates, who did weigh in on valuations in it an interview with the ft. He says there is some sorting out taking place it should never be a case of closing your eyes and saying, oh, its a tech company, throw money at it. That strategy worked for two years. Now you actually have to open your eyes and look at the company. This should not be difficult to grasp, john. No. And i think now for me to Say Something nice with Warren Buffett. He put in his letter 2 growth in the u. S. Is not so bad. That effectively gets you to 34 growth in gdp over the course of a generation. What were seeing now is a lot of people looked at 2 annual growth and said we will pay anything for growth at any cost, which led to very inflated valuations in the private market. Now i think we are seeing kind of a normalizing or sanity check where people say, these highgrowth businesses that inevitably we pay up for and miss our expectations or dont have the profitability to them, were less excited. And this kind of spotify desperation convertible note round, which you do when youre a Small Company and dont know what your value is because the Public Market doesnt want the company now. This looks like a good sign were getting a soft landing in this tech cycle to me. When you look at what we went through a few weeks ago, with linkedin, weve had a number of other small cap techs down big. Youre getting more of this talk down. This isnt like a bubble bursting where people are panicking and Office Furniture is out on the street in Silicon Valley at penses on the dollar. A number of companies have come way down, but it hasnt cratered the entire tech market. And explains why sentiment is good. In some cases getting better. Yeah. I mean, like you say, its a soft landing. I would say spotify should take the money and run. We dont exactly where this is going to continue to shake out. Definitely in Silicon Valley and around the world, i think the vc Laurie Segall are really tightening up in terms of valuations. The only valuation around maybe is still somewhat normal is the a round, the first institutional money, a little leverage. But when these late rounds and early angel rounds have been super lofty, and i think were going to see more of these down rounds. There was an organization that was talked about a couple weeks ago about the down rounds. I think that number will continue to go up through q2 in terms of the number of down rounds. And i like johns use of the term soft landing and the chart we had there that showed the unicorns recently gone public trading down 25 to 50 . Thats effectively what were seeing in the private markets. These were unbelievably multibillion dollar companies, so on and so forth. Thats by no means the cataclysm we saw. The other point i would make on what slava was saying, the a and b rounds, no issues right now. Im still seeing highquality companies that are multiapproximately dollar companies, 20 Million Companies that have fundamental businesses getting funded. Its the class of companies effectively Public Companies that should have already been Public Companies that were just seeing trade down. Kayla, the last word on this one. Are we all whistling past the graveyard here . No, not necessarily. I think that there is a softening in valuations you cant deny. And there is a sense that investors are starting to do more homework. Theyre starting to be stricter about the companies theyre investing in. But i think whats interesting about this spotify deal specifically is that the company is incentivized to go public in the next year. When uber did its convertible debt round a couple years ago, it has terms that dont get worse until 2019. So if you were to look at that, you would say that uber has several years to go public, but spotify is a company, obviously thinks that being public is in its future, and in the near future, it just needs the cash to get there. And i wonder how Many Companies will need that cash to cross the finish line and what it means for Public Market investors once they get there. Yeah, absolutely. Kayla, thanks. Finally today, hash tag oscars. Still trending on twitter. Chris rock probably the highlight for most people watching last night. Take a listen. Im here at the academy awards. Otherwise known as the white peoples choice awards. You realize, if they nominated hosts, i wouldnt even get this job so yall be watching Neil Patrick Harris right now. Early ratings not looking great. Nielsons estimates hit about a sevenyear low. Down double digits from the last time rock hosted the show. Yeah. Thoughts, john . I enjoyed moments. It was not great tv. But i think it was a really important cultural moment. He cracked a joke about black peoples grandmotherses swinging from trees as being a reason there wasnt this same protest years ago. When have we seen that during this kind of a telecast . That said, i thought the jokes about asians fell flat. It showed to me that american comments still have comics still have not figured out how to do smart cultural commentary about asianamericans. I was disappointed. Yeah, and just on the whole twitter trending thing. Twitter is usually you win at events or twitter wins at events like this. And last night i was following most of the conversation. But it does seem like with the comments Mark Zuckerberg made about Facebook Live video being the most focus, they want to take even this away from twitter now, owning these live events. I think the next time we have one of these events, it will be interesting to see how aggressively facebook goes after. And carl, to your point, a lot of people were watching, not on television, the live facebook feed from the black carpet, red carpet, watching from the periscope. Were going to make the carpet black the day after. Nice. Slava, to johns point about facebook, stealing the mantle of realtime, right . Trying to take periscopes candy to some degree now. Is that going to work . Video is definitely where things are going, and live video the next step. Facebook has shown a really great opportunity to take video, competing that with youtube and getting all that content. At some point they were pushing video first but now going back to content. I do think that the live video is an opportunity for facebook. And, you know, i think that the oscars is a discretion where there wasnt a huge movie. Usually relies on a huge movie to drive the participation. Between that and also the buy fur occasion i guess thats why oscars had a tough nielson ratings. Not always about the coast. Thanks for joining us today. We do want to check on the markets right now. The major averages are just slightly positive. The dow up about. 14 . The s p also up slightly. Nasdaq doing a little better. Russell up better than all three of those interestingly about a half percent. This comes amid a decent day for the price of oil. Crude up about 2 , carl. All right. When we come back, behind apples strategy in its fight against the federal government. Their top lawyer is going to join us in a first on cnbc interview. Speaking of apple, buffett also weighing in on the companys privacy fight. What he had to say. And tech stocks having a rough start to 16, and janice thinks its a good buying opportunity and will give us some names in just a moment. Dont go away. Out on the town or in for the night, at t helps keep everyone connected. Right now at at t, buy one get one free on our most popular smartphones. No matter how you hang out, share every minute of it. Buy one get one free on our most popular smartphones. And right now, get up to 650 in credits per line to help you switch to at t. This morning on cnbc, Warren Buffett weighed in on apples fight against the government. He was asked what he would do if put in a similar situation to apple. Heres his response. Theres something major, something that the attorney general or the head of the fbi would be willing to sign and go to a judge on and say, we need this information and we need it now, i would be willing to trust that official to behave in a proper manner. Carl, Warren Buffett, of course, just a titan in the world of business. When he talks about this, it drives home even more to me the fact that apple is still kind of behind the 8ball on this story, trying to explain how software is different than handing over the keys to your house or car. Trying to explain why the precedent is something that theyre concerned about. I wonder if tim cook can get ahead of this at this point. Well, for a company that has historically been stingy with media, right, and access, theyre rolling it out. Because i feel like there arent too many choices. Its a complex nuanced argument to make, as cara swisher has said in the past. And that is going to require explanation over and over again in some cases. Indeed. Well be talking about it a lot. A great interview, apples lawyer in its case against the government will join us in a first on cnbc interview later on this hour. And up next, some life in the tech sector, still down more than 5 to start the year. One top investor still bullish on tech for the rest of 2016 tells us why when we come right back. There have been recent signs of life, but 2016 has proven to be rough for the tech sector. Heavy weights alphabet and apple down 7 for the year. Our next guest whose top portfolio include both Companies Says hes bullish for the rest of 2016 in tech. Joining us now, rad slingerland, portfolio member of janice. Thanks for being with us. Thanks for having me. So i want to ask you, your optimism, where is it rooted . Because yes, were in this cloud transition, but at the same time, we have seen some software as a service names, sales force included. Really hit hard thus far this year. Do you expect consolidation to sort of benefit these companies . Do you think Something Else is going to happen to really trigger an upswing in those stocks . Well, its a great question. My optimism is really rooted in the valuation pullback. So coming into the end of last year and the beginning of this year, many stocks had good fundamentals, but were trading at very high valuations that were sort of prepricing in the growth for the next couple years. We have seen a very dramatic pullback, though, anywhere from, you know, 15 to 20 in the low end up to 40 or more for some of the smaller software as a service and Cloud Software companies. When you match up the fundamentals with this great valuation opportunity, thats what makes me so optimistic. I havent really seen valuations line up with fundamentals like this since the 2008 2009 housingled recession and before that, going back to the dotcom bursting. Were talking about a once in every five, six, sevenyear opportunity here. Huh. Well, given what you just said, and looking at the top holdings of alphabet, apple, facebook, microsoft adobe, which is the most compelling buy . Well, i think were seeing a lot of interesting opportunities in the software as a service and cloud space. So you mentioned adobe, which is certainly a benefit there. Google and facebook tend to be more on the Consumer Internet and the shift in ad dollars moving from television to