Speaker 1: From the Heart where Innovations of Money and Power Collie
Speaker 1: in Silicon Valley, NBN. This is Bloomberg Technology with Caroline
Speaker 1: Hyde and Ed.
Speaker 2: Ludlow and Plaine Hyde at Bloomberg's World headquarters in New York.
Speaker 3: And I'm Ed Lovelow in San Francis. This is Bloomberg Technology.
Speaker 2: Coming up, Microsoft, Alphabet amdo they struggle to meet high
Speaker 2: AI expectations?
Speaker 4: Will break down the earning supports and.
Speaker 2: Discuss just how these big tech chants can prove themselves
Speaker 2: down the road.
Speaker 3: Plus the fifty five billion dollar question, should Musk's payday
Speaker 3: go away?
Speaker 5: At Delaware?
Speaker 3: Judge thinks so and as voided the Tesla's CEOs compensation package.
Speaker 3: We speak to the lawyer that beat Musk in court and.
Speaker 2: The heads of five of the largest social media platforms
Speaker 2: for Congress today testifying about what their companies are doing
Speaker 2: to keep kids safe online.
Speaker 4: We're live from DC.
Speaker 3: Later in the hour, the three big AI names have
Speaker 3: reported their earnings. Get right to AMD it is concerned
Speaker 3: about their outlook for the current period and a lack
Speaker 3: of rebound in end markets and echo from what we
Speaker 3: heard with Intel, and at the same time, their AI
Speaker 3: accelerator the MI three hundred ramps really well in the
Speaker 3: quarter gone, and they exceeded that guidance they'd given us
Speaker 3: that there will be a four hundred million dollar contribution
Speaker 3: to revenues from the three hundred. So what's going on here?
Speaker 3: Because the stock is down. Later today we will speak
Speaker 3: to Lisa Sue, the CEO AMD, and work out what
Speaker 3: the AI.
Speaker 5: Story is here.
Speaker 3: Similarly with Alphabet parent of Google, the markets zeroed in
Speaker 3: on the miss in the core search business, but also
Speaker 3: a worry about margins. Interesting because the cloud outperformed. If
Speaker 3: you look at operating in club for the cloud in
Speaker 3: the quarter gone, double what the street was looking for.
Speaker 3: And when I spoke to Ruth pro actually said very
Speaker 3: matter of factly, there is a contryution from generative AI
Speaker 3: to what's happening in cloud, as well as our efforts
Speaker 3: to cut costs.
Speaker 5: Perhaps the winner of the three.
Speaker 3: Microsoft growth in the Azure unit thirty percent year on year,
Speaker 3: up sequentially from the prior quarter. A six percent contribution
Speaker 3: to growth in cloud from AI, according to the CFO
Speaker 3: Amy Hood in an interview at Bloomberg. But we're down
Speaker 3: one point two percent. This was a high high bar quarter.
Speaker 3: We knew what Microsoft had invested. We wanted to see
Speaker 3: evidence that we got a boost in sales on software
Speaker 3: and a boost in sales on cloud, and we got that,
Speaker 3: but the market had very high expectations.
Speaker 2: Caroline, I mean to have cloud revenues up twenty four
Speaker 2: percent year on year, and that's still not meet those
Speaker 2: lofty goals. Let's just talk to an investor in really
Speaker 2: what her reaction is, Iako Yashioka, where police of Say
Speaker 2: joins our senior portfolio consultant Wealth Enhancement Group holding both
Speaker 2: Google and Microsoft, among many other names, and I go,
Speaker 2: the overall feeling is that these companies delivered, but not
Speaker 2: enough to meet the anticipation. Do you think let's talk
Speaker 2: about Microsoft first and foremost that detail. We got the
Speaker 2: six percent increase in revenue because of AI. Was it
Speaker 2: just that she wasn't able to paint it forward for
Speaker 2: this coming quarter that disappointed?
Speaker 6: I don't necessarily think so, and thanks again for having
Speaker 6: me today. You know, these stocks were up substantially year
Speaker 6: to date, up over eight percent. You know, Microsoft itself
Speaker 6: was up over our near seventies percent on a trailing
Speaker 6: twelve month basis. So expectations have been by sort of
Speaker 6: going into this quarter. And you know, for Microsoft they
Speaker 6: were able to at least quantify the impact of AI
Speaker 6: on the growth of cloud, unlike Alphabet or Google, which
Speaker 6: I think is part of the differential here in terms
Speaker 6: of why the stocks are behaving as they are.
Speaker 2: Yeah, Alphabet less detail on really what contribution AI will have,
Speaker 2: particularly on search IAGA. What about the capital expenditure that
Speaker 2: both companies are having to give it the moment, the
Speaker 2: investment to bring about the AI process.
Speaker 4: Is it too much?
Speaker 6: I don't know if it's too much, it is definitely
Speaker 6: what is needed. I mean, Nvidia has talked about the
Speaker 6: pricing of their chips in both Alphabet and Microsoft talked
Speaker 6: about cappex increasing substantially in twenty twenty four relative to
Speaker 6: twenty twenty three, and so that will be an extra
Speaker 6: spend by both of these into data centers and servers,
Speaker 6: and that's going to help build out the infrastructure in
Speaker 6: which AI and all the applications can be built on.
Speaker 3: Erco Dan Ives at Webbush has this note out that
Speaker 3: Setia and Adella delivered a masterpiece that should be hung
Speaker 3: up in the loover. The stock is down one point
Speaker 3: two percent. Expectations were high as I went on about earlier.
Speaker 3: I guess the question from someone like you that holds
Speaker 3: a decent chunk of Microsoft shares is did you see
Speaker 3: enough in the financial to keep buying into the stock
Speaker 3: long term and believe in the AI story?
Speaker 7: I think in the near term, and you know, we can.
Speaker 6: We obviously expected a little bit of a pullback.
Speaker 4: As I said, the.
Speaker 6: Stocks really reflected a lot of high expectations, and so
Speaker 6: you know, with any pullback there is an opportunity. I
Speaker 6: think it would be nice to have the stock pullback
Speaker 6: additionally in order to have you know.
Speaker 7: New entry points.
Speaker 6: And you know, for most people, I think Microsoft is
Speaker 6: already at core position, So we just have to let
Speaker 6: the dust settle on the stock, at least in the
Speaker 6: near term.
Speaker 3: Alphabet pairent of Google is down severely, and we're trying
Speaker 3: to understand what the focus is here. Initially it seemed
Speaker 3: like the anxiety was the core search business. Then people
Speaker 3: started talking about margins. But if you take into account
Speaker 3: the one time charge from headcount reduction and cost margins
Speaker 3: look a bit better. And on an operating income basis,
Speaker 3: the clouds did great. You know, they're saying, well, we
Speaker 3: think jenn Ai is contributing here. Why are they not
Speaker 3: getting credit for that cloud story?
Speaker 8: Sure?
Speaker 6: And you know they focused on operating income efficiencies over
Speaker 6: the last year, and I think that's been a great
Speaker 6: story for Alphabet, and you know, they've delivered on those promises.
Speaker 6: I think the issue with Alphabet is really just getting
Speaker 6: out there and telling the story and quantifying the impact
Speaker 6: of AI into the cloud. I mean, and you know,
Speaker 6: Microsoft talked about how there was a six percent contribution
Speaker 6: and despite the spend that they are doing in order
Speaker 6: to broaden out that infrastructure, they also saw some leverage
Speaker 6: in their operating income there. So we'd love to see
Speaker 6: more detail from Alphabet in terms of how that's going
Speaker 6: to come about. Perhaps we'll get that once they launched
Speaker 6: Gemini Ultra later this year, which will you know, really
Speaker 6: impact Alphabet's Google Cloud division.
Speaker 3: The k Senior portfolio consultant at Wealth Enhancement. Great to
Speaker 3: have you on the show. Across so many earnings.
Speaker 5: Thank you.
Speaker 3: The next earnings on the doc is a MD let's
Speaker 3: break down those results with Pierre Faragu, heads up the
Speaker 3: Global Technology Infrastructure Research team at New Street Research.
Speaker 5: Per great to see you.
Speaker 3: You know, for me, the story on AMD is which
Speaker 3: is more concerning or important to the market, right the
Speaker 3: outlook for the current period, which makes us worried about
Speaker 3: broad end markets or the progress they made on mi
Speaker 3: I three hundred, because they showed a lot of progress.
Speaker 5: Where's your head at?
Speaker 9: Well, if you look at the stoke over like let's
Speaker 9: say a two three year horizon, very clearly, the way
Speaker 9: we get it is as a CPU business is going
Speaker 9: to stabilize until he's coming back. That market is going
Speaker 9: to balance sowood and really aimed. You managed to build
Speaker 9: over the last five years of very sustainable challenge acquisition,
Speaker 9: so not much is going to happen, but it's.
Speaker 8: A very strong, very solid base.
Speaker 9: Then, like the embedded part of the business, exiling start
Speaker 9: of the business is very cyclical, and it's going down
Speaker 9: at the moment, it's three coming down.
Speaker 8: It hasn't reached the track yet, but the truff.
Speaker 9: Is in line of sight, and then you have this
Speaker 9: amazing opportunity in AI.
Speaker 8: The way I read the situation today.
Speaker 9: Is that MD is the only alternative to MVDR with
Speaker 9: like a relatively general purpose, very similar GPU architecture, which
Speaker 9: means that for all these people who number one find
Speaker 9: it difficult to get enough Nvidia ships and number two
Speaker 9: want to have an alternative supplier MD with the MI
Speaker 9: I three hundred is probably a no brainer, and that
Speaker 9: ramp is fascinating. And so we're talking MD potentially being
Speaker 9: if m did a three point five or four billion
Speaker 9: dollars of GPU revenues this year, that mean at the
Speaker 9: end of the year they will get five maybe six
Speaker 9: billion dollars of front ray for the thing to become
Speaker 9: what Nvida was like what eighteen months ago, maybe yes,
Speaker 9: eighteen months ago, in just a year, that's fascinating.
Speaker 2: I mean, Pierre, you got a two hundred and twenty
Speaker 2: five dollars price target, you got a buy recommendation. I mean,
Speaker 2: what therefore is the catalyst to get us from one
Speaker 2: hundred and sixty five to that two to five? Is
Speaker 2: it articulation from Lisa to how they're going to end
Speaker 2: up seeing the rewards of the AI.
Speaker 8: That's a great question. Let me give you first what
Speaker 8: I look look at.
Speaker 9: My only question on Nvidia on a sorry on AMD
Speaker 9: is execution. Does m I three hundred get into the
Speaker 9: hand of clients and do these clients find it reasonably
Speaker 9: easy because it's never easy to rent that new architecture
Speaker 9: along with with Nvidia, and if that happens, then it's
Speaker 9: like my price is actually probably far too you know, cautious.
Speaker 9: So that's the way we look at it. So between
Speaker 9: now and the end of this year, I want to
Speaker 9: hear feedback from in the clients. I want to see
Speaker 9: volumes ramping and people being like, yes, we are not
Speaker 9: using so much of the gypis, we're going to continue
Speaker 9: to use them. How the street looks at it is
Speaker 9: a bit different. I think there is an elemental earnings
Speaker 9: momentum and of course on that from that perspective, embedded
Speaker 9: is still you know, with gaming in the down cycle,
Speaker 9: CPU is uncertain, and of course everybody understands the obside
Speaker 9: on GPU. When people start putting up expectations that don't
Speaker 9: really that are not like on solid drown and when
Speaker 9: expectations are too high, even if he talks about something
Speaker 9: fascinating happening this year, there is a bit of a
Speaker 9: technical disappointment.
Speaker 8: And that's the reason why the stucky is today.
Speaker 5: Pierre, in terms of what you still want to hear.
Speaker 3: And I would never ask you to do my job
Speaker 3: for me, but I am going to speak to Lisa
Speaker 3: Sue a little later on this morning, what is the
Speaker 3: question that's not been answered in this earning cycle?
Speaker 5: What would you ask her?
Speaker 8: First?
Speaker 9: Say hello for me and the question the question I
Speaker 9: would ask her at this at this stage is when
Speaker 9: do you think you will have like a very strong
Speaker 9: visibility on whether your clients are comfortable ramping for the
Speaker 9: long run, for the long term I three hundred along Nvidia.
Speaker 9: It's like it's very too early to say does she
Speaker 9: need six months to have confidences that, does she need
Speaker 9: a year?
Speaker 8: And not too sure.
Speaker 2: We really appreciate you, yeah, yeah, giving you a few
Speaker 2: little hints for ED. A little bit later with Lisa
Speaker 2: Soup Pierre Faragu, we thank you so much. New Street
Speaker 2: Research Global Tech Infrastructure need coming up, Well, we're going
Speaker 2: to be discussing in on masks fifty five billion dollar
Speaker 2: pay package that is struck down by Delaware judge. Next,
Speaker 2: we'll speak with one of those key lawyers representing the
Speaker 2: shareholder who challenge the conversation and one elol Musk's fifty
Speaker 2: five billion dollar Tesla pay package that.
Speaker 4: Has been struck down by judge and Delaware.
Speaker 2: That's after shareholder Richard Tanetta challenged it as excessive that
Speaker 2: the ruling leaves the fortune of the world's richest man
Speaker 2: now kind of up in the air.
Speaker 4: He'll only be the third world's richest person. Cry cry.
Speaker 2: Joining us now for more is Bloomberg's Max Traffkin, And
Speaker 2: of course one of the lawyers for Richard Tanetta, this
Speaker 2: Greg Ferrallo. He's from Bernstein, Littowitz Berger and Grossman. Bloomberg
Speaker 2: reached out to Musk and his lawyer Evanchesla, but we
Speaker 2: have not received a response thus far.
Speaker 4: But Greg, I turned to you.
Speaker 2: This was a long, hard fought case, and I think
Speaker 2: actually the judge said, look, the defense tried very hard,
Speaker 2: but it was the most an impossible task.
Speaker 4: Will you expect and appeals?
Speaker 2: Now, do you think that the board will go back
Speaker 2: and just try to restructure some sort of payment for Alon?
Speaker 10: Wouldn't surprise me at all if we saw an appeal
Speaker 10: Delware practice. There is a direct appeal to the Delaware
Speaker 10: Supreme Court, which is the final word on matters like this,
Speaker 10: So it's likely there'll be an appeal.
Speaker 2: And Max from Elon inc your expertise of all things,
Speaker 2: I mean, he has been avidly against Delaware. More broadly
Speaker 2: and clearly, there has been concerns about from Elon himself
Speaker 2: a lack of control of his own company.
Speaker 4: Now what do you think happens after this payper?
Speaker 11: I mean, this is a huge development, not just because
Speaker 11: of the amount of money that is at stake in
Speaker 11: these options. The value of the options I've seen, you know,
Speaker 11: figures as high as fifty billion reported of course he
Speaker 11: hasn't exercised them yet, but also because this kind of
Speaker 11: throws not just Tesla in the chaos. They have to
Speaker 11: figure out a way to try to retain Elon Musk.
Speaker 11: He's already been sort of making these kind of veiled
Speaker 11: threats that he might be doing AI research outside of
Speaker 11: the company if he doesn't get a bigger pay package.
Speaker 11: And then at the same time you have all his
Speaker 11: other companies, which of course depend on his financing. And
Speaker 11: we remember one of the kind of one of the
Speaker 11: reasons he wanted all this money supposedly was to pay
Speaker 11: for is you.
Speaker 5: Know, Mars explorations. You have to ask where every where
Speaker 5: all of this goes.
Speaker 11: Last thing I'll say is this is another big loss
Speaker 11: on Della. Remember Delaware forced him to buy Twitter for
Speaker 11: forty four billion dollars. So now even for the world's
Speaker 11: richest man. Forty four billion, fifty billion. That's starting to
Speaker 11: add up.
Speaker 5: Greg, good morning. It's ed in San Francisco.
Speaker 3: As far as I can tell, you and your clients
Speaker 3: are the only ones to actually ever take a look
Speaker 3: at the compensation package. So as a starting point, Greg,
Speaker 3: what was it in the first place that worried you
Speaker 3: or that you thought was unusual about the package that
Speaker 3: caused you and your clients to look.
Speaker 10: You know, I have to say that I have a
Speaker 10: hard time articulating fifty five billion dollars. I often misspeak
Speaker 10: and say fifty five million dollars. Fifty five billion dollars
Speaker 10: are such a large pay package that it basically skewed
Speaker 10: dramatically upward the entire data set for the compensation consulting industry.
Speaker 12: I think we.
Speaker 10: Put out a press release yesterday referring to it as
Speaker 10: a gargantuan package. Let me start by saying it was
Speaker 10: so large that we looked at it specifically because no
Speaker 10: one had ever tried to come this close. And oh,
Speaker 10: by the way, when you look at the nearest comparable,
Speaker 10: it's Elon's prior pay package.
Speaker 3: Okay, but Greg, here's the thing. It may be the
Speaker 3: biggest compensation package in history. But there are a really
Speaker 3: large body of Tesla investors out there that say, so what.
Speaker 3: Seventy three percent of those investors voted in favor of
Speaker 3: the package in twenty eighteen when it was awarded, And
Speaker 3: there are is a big body of people out there, Greg,
Speaker 3: I hope you don't mind me saying that, are pretty
Speaker 3: mad at you and your client who had Tesla shareholders,
Speaker 3: because they say, look at the share performance of Tesla
Speaker 3: since that package was awarded. Look at Tesla's position as
Speaker 3: the market incumbent in evs and their growth globally and
Speaker 3: other products. Why does it matter?
Speaker 10: Well, you know, there's this idea in efficient capital markets
Speaker 10: that shareholders ought to have a say in things like this,
Speaker 10: and this package was in fact put to shareholders, but
Speaker 10: it was put to shareholders on approxy that the court
Speaker 10: found to be materially misleading in several respects. And look,
Speaker 10: the bottom line is, capital markets don't work if you
Speaker 10: don't tell stockholders material facts when asking them to take action.
Speaker 10: And that's exactly what happened here.
Speaker 4: Max. This puts into question the board.
Speaker 2: In particular, the accusations from many an investor is that
Speaker 2: there is no pushback, and the judge articulated there was
Speaker 2: at no point any sort of questioning that this pay
Speaker 2: package was ever perhaps successive. What does it mean for
Speaker 2: the board of Tesla.
Speaker 5: Well, it's not clear to me.
Speaker 11: You know, it's as Ed is kind of hinting at
Speaker 11: many Tesla shareholders were aware that the Tesla boarder of
Speaker 11: directors was essentially a rubber stamp.
Speaker 5: You have a lot of people who are very.
Speaker 11: Close friends with Elon, and I think one of the
Speaker 11: reasons he lost his case is because you had nominally
Speaker 11: independent directors who were going on vacation with him, and
Speaker 11: we had clearly had a close relationship with Now that's
Speaker 11: kind of like how Elon Musk has done business and
Speaker 11: by Elon.
Speaker 5: What's so I think.
Speaker 11: Difficult about this going forward is that that's kind of
Speaker 11: been If you asked Elon Musk, like, what is your playbook?
Speaker 5: How have you been able to achieve so much?
Speaker 11: He would say, well, it's because I have a you know,
Speaker 11: I've been able to do essentially whatever I want to do.
Speaker 11: And again, as I said earlier, he's been asking for
Speaker 11: even more control from where he got so I don't
Speaker 11: know where that goes.
Speaker 5: I do think there is some piece.
Speaker 11: Of risk that probably didn't exist yesterday that Elon Musk
Speaker 11: could either threaten to or even And again I think
Speaker 11: this is a far off possibility to decide to walk
Speaker 11: away from Tesla.
Speaker 2: I mean, this is why the share price is somewhat underpression,
Speaker 2: not massive, Moss Gregg. But the articulation from the judge was,
Speaker 2: at no point did it seem that this fifty five
Speaker 2: billion or these options awarded was necessary to keep Elon motivated.
Speaker 2: But then to that end, why not recompense the leader,
Speaker 2: a founder with such a significant upside if he's going
Speaker 2: to deliver for shareholders.
Speaker 10: Well, the judgemente the point I think very coachingly, and
Speaker 10: that is, I believe his net worth increased in increments
Speaker 10: of ten billion dollars based on the stock he already
Speaker 10: held without this pay package, for each increment that was
Speaker 10: identified in this pay package. And so I think the
Speaker 10: judges point of view was, if you look at other
Speaker 10: successful founders, Bezos, Zuckerberg, others, they don't take pay packages,
Speaker 10: or they don't take any material pay package. They rely
Speaker 10: on driving value for their shareholders in their own underlying stock.
Speaker 10: Mister Musk had the opportunity to increase his net worth
Speaker 10: by almost one hundred billion dollars. I have to stop
Speaker 10: and make sure I get the b right. One hundred
Speaker 10: billion dollars if he accomplished what he set out to
Speaker 10: accomplish under this pay package without getting a single option.
Speaker 10: And at the end of the day, this is a
Speaker 10: car company, it's not a space exploration company, and it's
Speaker 10: a public company, and public companies live by different rules
Speaker 10: than private companies.
Speaker 3: If you're watching us live now on Bloomberg Television and
Speaker 3: you're eternal subscriber, you can send questions to us via
Speaker 3: ib greg I told our audience on social media you
Speaker 3: were coming on and that there were lots of questions.
Speaker 3: I think the most common is is just a want
Speaker 3: for deeper understanding of what the pathway forward is, so
Speaker 3: you talk with Caroline about a likely appeal. I think
Speaker 3: my understanding from sources is that's likely as well. But
Speaker 3: the other thing is that this current board, which is
Speaker 3: different to what it was in twenty eighteen, could put
Speaker 3: together a new compensation plan and then take it to
Speaker 3: shareholders to be ratified. How involved do you think you
Speaker 3: will be with your client? How involved you think Kathleen J.
Speaker 3: McCormick will be in that process if it's all.
Speaker 10: Well, the simple answer to that is that's a question
Speaker 10: for the board to determine in the first instance, and
Speaker 10: assuming it fulfills its fiduciary duties and uses ordinary and
Speaker 10: reasonable means to arrive at a result, my guess is
Speaker 10: I won't be involved at all, And my guess as
Speaker 10: well as the judge won't be involved at all if
Speaker 10: the Board comes out with a package which either facially
Speaker 10: is ridiculous, gargantuan, or otherwise raises concerns from a fiduciary perspective.
Speaker 10: I suspect you'll see my firm and I involved as well.
Speaker 3: Right Max, There's so much to discuss here. I guess
Speaker 3: the board could also say, well, here's another fifty five
Speaker 3: billion dollar package. Looks different, same number.
Speaker 5: I mean, one thing I'm curious about.
Speaker 11: You know, musk Overnight was sort of threatening to leave
Speaker 11: Delaware and to reincorporate in Texas. I believe or you know,
Speaker 11: I think X he moved from Delaware in a.
Speaker 5: Is that a re Can he do that?
Speaker 11: And is that like, like, will there be another sort
Speaker 11: of leg you know, transfer of lawsuits if it happens?
Speaker 11: Because shareholders will saying, oh, he's he's just doing this
Speaker 11: to reduce our rights or something.
Speaker 10: So look, the simple answer to that is Musk can't
Speaker 10: do anything himself. That's a matter that the board has
Speaker 10: to decide in the first instance, and then it's presented
Speaker 10: to shareholders for a vote. If shareholders, upon the board's recommendation,
Speaker 10: decide to move to Nevada, they have a right to
Speaker 10: do that, but it's not a Musk decision. Let me
Speaker 10: also say that I'm not an expert in all fifty
Speaker 10: states laws, but I suspect I get I would guess
Speaker 10: that even Nevada prohibits you from putting out misleading proxy statements,
Speaker 10: and that if Musk wants to go to Nevada and
Speaker 10: do the same thing, he's probably going to run into
Speaker 10: some problems there as well. It's this little idea of
Speaker 10: telling the truth, you know, it's it's real base.
Speaker 3: Right, Hey, Greg, real quick an audience question, and I'm
Speaker 3: just going to read, do you worry about changing the
Speaker 3: norms around Delaware corporate law? Way from non intervention? That
Speaker 3: was a follow on from what Max asked we have
Speaker 3: about thirty seconds.
Speaker 8: No, not at all.
Speaker 10: I think it's very important to recognize, and this is
Speaker 10: something that's deeply embedded in Delaware law that every decision
Speaker 10: is twice tested both from a legal perspective and an
Speaker 10: equitable perspective. And when fiduciaries act in a way that's
Speaker 10: not equitable or in violation of their duties, you're squarely
Speaker 10: within the long tradition of the Delaware law to call
Speaker 10: them on that.
Speaker 3: I point out that Tesla had a sharp reaction after ours.
Speaker 3: It's now down just four tens of one percent. We
Speaker 3: thank Greg Varari, lawyer at Bernston Littlwitzburger Engrossman, and of
Speaker 3: course friend of the show of Bloomberg's Max Chafkin.
Speaker 13: Actually, I'm very boolished for the SMP five hundred, not
Speaker 13: just for the Magnificent seven.
Speaker 6: The DZSM for the Maneficent seven will continue.
Speaker 14: As you look at the mag seven, you know there
Speaker 14: are companies that have a broad exposure.
Speaker 15: I think semi conductors will continue to be strong.
Speaker 3: I think we have to look at areas like semiconductor
Speaker 3: where AI could drive a lot more than they and
Speaker 3: going forward, I.
Speaker 14: Think twenty four is really about differentiation. Some will be
Speaker 14: determined that they really aren't true AI beneficiaries.
Speaker 5: Some of them were right and some of them were wrong.
Speaker 3: Welcome back to Bloomberg Technology Ed Lovelow here in San Francisco,
Speaker 3: and in the market's context, this is what the session
Speaker 3: looks like right now in the moment. You can see then,
Speaker 3: as that one hundred softer by one point four percent.
Speaker 3: The earning story a big contributor to that. Microsoft off
Speaker 3: one point three percent despite delivering what was a strong quarter.
Speaker 5: There was evidence that AI.
Speaker 3: Made meaningful contributions to the top and bottom line, but
Speaker 3: it was a high bar quarter. Investors just wanted more.
Speaker 3: But largely that was the positive story. More worrying, AMD
Speaker 3: now softer three percent gave a worrying outlook for the
Speaker 3: current period. Remember, they go into lots of end markets
Speaker 3: where we're just not seeing the rebound we thought we would.
Speaker 3: But the AI story was strong, right their AI accelerator
Speaker 3: MI I three hundred. They ramped production in the quarter
Speaker 3: to a reasonable volume and it ceded their sales guidance
Speaker 3: that they'd previously given. Investors still a little concerned. Then
Speaker 3: there's what's happening away from earnings in the media landscape.
Speaker 3: A big bid for paramount from Byron Allen that sock
Speaker 3: is now up seven point eight percent.
Speaker 5: It had been much higher.
Speaker 3: What about that conversation we were having in Caroline about
Speaker 3: Paramount and Warner Brothers Discovery And then in the back
Speaker 3: of your mind, remember somebody recently suggested that ESPN plus
Speaker 3: goes on Netflix and what is happening here? No, I
Speaker 3: think we have a conversation coming up.
Speaker 5: Yeah, so much.
Speaker 2: Discuss activist investors meets desire to.
Speaker 4: Make some big bids on some TV assets.
Speaker 2: That's returned to the comedian turned TV media mogul Byron
Speaker 2: Allen because his latest take of attempt is a massive
Speaker 2: one head fourteen billion dollars is offering for Paramount in
Speaker 2: a text, the media mogul made basically that offer for
Speaker 2: voting shares of the company and a fifty percent premium
Speaker 2: to recent training. According to sources. Now, when you include
Speaker 2: existing debt of Paramount, total value the deal thirty billion
Speaker 2: him with more as US media analyst so Brie bag Intelligence, KEITHA.
Speaker 2: Ranganathen and I mean, ultimately, do you think this is
Speaker 2: a realistic deal? Barn Allen is known for making well
Speaker 2: waves in media landscape and headlines, But is this a
Speaker 2: realistic deal that you could follow through with.
Speaker 1: It's definitely a solid deal, Caroline. I mean that the
Speaker 1: premiums are solid, and this is really the first full
Speaker 1: cash bid that Paramount has received for all of the company.
Speaker 1: Having said that, though, I mean, you're absolutely right Byron
Speaker 1: Island has kind of been in the take of all
Speaker 1: of the media conversations, right. He's been making bids all
Speaker 1: over the place, whether it was for you know, Disney's
Speaker 1: linear assets, whether it was for bt TV stations from Scripts.
Speaker 1: So I think it's still the market at least I
Speaker 1: think views this as pretty much a long shot, just
Speaker 1: kind of given that you know, there there is a
Speaker 1: huge amount of debt, as you pointed out, over fifteen
Speaker 1: billion dollars. Paramount is one of the most levered companies
Speaker 1: in the media world over five times, and financing is
Speaker 1: definitely going to be a problem, especially in the current
Speaker 1: market environment.
Speaker 5: Gita, I want to do the math.
Speaker 3: You're right, fifteen point six billion on the debt side,
Speaker 3: the offer is fourteen billion. Paramount's current market capitalization is
Speaker 3: nine point nine five billion. But I guess what I
Speaker 3: don't understand is like, where's Barron getting this number from?
Speaker 3: Where is the value? Forget the kind of risk on
Speaker 3: the debt side. But what is it the Paramount offers
Speaker 3: or can be fixed.
Speaker 1: Paramount actually offers a lot. I mean, it is a
Speaker 1: very compelling collection of assets. One could argue that, yes,
Speaker 1: they do have a very heavy exposure to TV networks,
Speaker 1: you know, linear networks like the CBS broadcast network, like Nickelodeon,
Speaker 1: you know Comedy Central, which are all in secular decline.
Speaker 1: And remember, I mean, you know, advertising every quarter, if
Speaker 1: you look at TV advertising, it's down about ten fifteen percent.
Speaker 1: Affiliate fees again down because of cord cutting almost you know,
Speaker 1: eight to nine or ten percent of cord cutting is
Speaker 1: what we're seeing a quarter and water out. So yeah,
Speaker 1: I mean it's definitely a tough landscape. But having said that,
Speaker 1: I mean, you know, the linear networks still throw out
Speaker 1: a decent amount of cash. But I think more importantly,
Speaker 1: you know, is really the content assets. Paramount has an
Speaker 1: absolutely formidable content production arm, whether it is the film
Speaker 1: studio or the television studio, and that is really what
Speaker 1: a lot of the other suitors. I'm not necessarily sure
Speaker 1: whether Byron Allen is looking at the studio itself, but
Speaker 1: we know that, you know, sky Dance Media, backed by
Speaker 1: David Ellison has been very interested in in Paramount and
Speaker 1: kind of combining it with sky Dance as well as
Speaker 1: Apolo and of course Warner Brothers Discovery as.
Speaker 5: Well Nickelodeon Blast from the Past.
Speaker 3: When I was a kid, rug Rats, Wild Thorn Breeze,
Speaker 3: that was my jam. And if you know what I'm
Speaker 3: talking about on social media at me, I don't care,
Speaker 3: no shame there US media analysts for Bloomberg Intelligence Geeta
Speaker 3: rang and eighth and Nickelodeon. My goodness, let's keep a
Speaker 3: conversation going and bring in Laura Martin's senior entertainment analyst
Speaker 3: at need him and let's get right to it. Byron
Speaker 3: buying Paramount thoughts.
Speaker 16: Right, fantastic for Paramount shareholders. This company is too small.
Speaker 16: It needs to have a different management team. I like
Speaker 16: the idea of splitting it up. It's worth more on
Speaker 16: pieces than together. We need new management here. Great idea.
Speaker 3: So this is the stock that you cover in Caroline
Speaker 3: and I've been talking over recent days kind of broadly
Speaker 3: what's happening here, you know, take into account this proposal
Speaker 3: that ESPN plus from Nelson Peltz, according to Bloomberg Sources,
Speaker 3: does something with Netflix. It's still an industry where they're
Speaker 3: trying to kind of right size and find the formula
Speaker 3: for profit.
Speaker 5: Is at least my read on all this newsflow.
Speaker 16: So on ESPN, I don't think Nelson Puts will actually
Speaker 16: win his board seats, so I think ESPN will stay
Speaker 16: part of the Walt Disney company. I think a far
Speaker 16: more interesting value creative solution for ESPN is to take
Speaker 16: to get the MBA and the NFL to take pieces
Speaker 16: like equity pieces in ESPN and they become basically ESPN
Speaker 16: become the anchor tenants streaming like linear its TV streaming
Speaker 16: for the leagues. That's a good idea, sort of like
Speaker 16: what Hulu used to be for entertainment. I think the
Speaker 16: Professional Sports League should do that with ESPN plus much
Speaker 16: better idea than what than selling it to Netflix.
Speaker 2: Just taking that step back, Laura and the idea that
Speaker 2: M and A seems inevitable in twenty twenty four in
Speaker 2: some way, shape or form. Who become the key players left?
Speaker 2: In your mind's eye? Who are the winners from all
Speaker 2: of this?
Speaker 7: Bigger?
Speaker 16: You must be bigger, So who you're competing with here
Speaker 16: is Amazon Prime Video and Amazon It never needs to
Speaker 16: make money from streaming, so that's your competitor. My opinion
Speaker 16: is Apple comes in eventually, but they're not really a
Speaker 16: serious player today. They spend two billion dollars on content
Speaker 16: and as we know, Netflix spends seventeen billion without sports content.
Speaker 16: So these players are the winners are going to be
Speaker 16: the Walt Disney Company in my opinion, either it gets
Speaker 16: bought or it's just big enough with enough IP franchises
Speaker 16: to win. And I think Warner Brothers Discovery is like
Speaker 16: the dark horse. But I gotta tell your paramount is
Speaker 16: too small. There's no advantages to small size in this war.
Speaker 2: What's interesting, Laura is also we were originally bringing you
Speaker 2: on to talk about the earnings and the fact that
Speaker 2: we have, you know, advertising looking pretty good when you're
Speaker 2: looking at YouTube for example, and Alphabet out there managing
Speaker 2: to still bring in the ad revenue when everyone really
Speaker 2: wants to hear about AI. But from your perspective, Laura,
Speaker 2: what is it that some of these tech companies in
Speaker 2: Alphabet for example, can bring to the table when it
Speaker 2: comes to our own consumption of content?
Speaker 16: So I think what's really interesting about yeah, Google's strategic
Speaker 16: position alphabet strategic position is YouTube is now the number
Speaker 16: one streamed entity, and YouTube advertising grew sixteen percent and
Speaker 16: they're now up to we think three billion dollars in
Speaker 16: subscription revenue, which is sort of hidden in the other line.
Speaker 16: You have to sort of go digging, but they said
Speaker 16: they had fifteen million subscribe one hundred million subscribers and
Speaker 16: fifteen billion.
Speaker 7: Dollars in subscription revenue last year.
Speaker 16: So this is another revenue stream sort of building up
Speaker 16: under the sheets, and it's all video all the time.
Speaker 7: YouTube is a YouTube TV with the.
Speaker 16: NFL Sunday ticket really really rapid adoption, It's almost doubled
Speaker 16: their subscribers that product.
Speaker 3: Laura, I guess going into the earnings and coming out
Speaker 3: of it, it simply came down to understanding the AI
Speaker 3: story in a way that Google or alphabet demonstrates they
Speaker 3: can make money from all of this investment in chat.
Speaker 3: Do you now have a better understanding of that?
Speaker 7: Yeah.
Speaker 16: I think what's really interesting about they said AI sixty
Speaker 16: seven times in their transcript, and they said generative AI twelve.
Speaker 16: I think what's really interesting is their margins. They hired
Speaker 16: zero extra headcount, they grew revenue at thirteen percent with
Speaker 16: no extra costs, so guess what's happening to free cash flow.
Speaker 16: Operating margins went up five hundred basis points to twenty
Speaker 16: seven percent.
Speaker 7: These companies that are now integrating.
Speaker 16: Generative AI and AI not only are having faster product
Speaker 16: innovation and product introductions, they're also cutting costs already, they're
Speaker 16: not using as many people.
Speaker 7: You keep seeing alphabet.
Speaker 16: You know, a release seeing statement saying it's cutting more people.
Speaker 7: This is all about automation.
Speaker 16: So my opinion is the faster companies adopt generitive AI
Speaker 16: and machine learning AI, the faster costs go down because
Speaker 16: you're replacing people with machines.
Speaker 2: It's tough, but from a bottom line, it's positive. Laura Martin,
Speaker 2: it's so good to have you on the show.
Speaker 4: As always. We thank you.
Speaker 2: Just going the whole gamut of the media landscape with
Speaker 2: our senior entertainment analyst over at Needham Stay well. Meanwhile,
Speaker 2: coming up, look tech leaders, they've just sent it on
Speaker 2: Capitol Hill to testify at a Senate herring focused on
Speaker 2: children's digital safety. We have so much more on this
Speaker 2: as we go live to Washington.
Speaker 4: That's next. It's a really big technology.
Speaker 3: There is a problem with accountability. Okay, tech CEOs across Meta, X, Snap, TikTok,
Speaker 3: and more have descended on Capitol Hill to testify at
Speaker 3: a Senate hearing focused on children's online safety. Joining us
Speaker 3: live from Washington, Bloomberg's Alex Brinka and in any of
Speaker 3: these hearings, you have to take the prepared remarks of
Speaker 3: the speakers, the CEOs themselves, and then see what happens
Speaker 3: with the line of questioning, which can sometimes be outside
Speaker 3: the scope of the brief What have we learned so far?
Speaker 5: Well?
Speaker 12: So far.
Speaker 13: Both the tech CEOs and the senators in the hearing
Speaker 13: room came to the room with a lot of vigor
Speaker 13: for those prepared remarks. It started with Senator Durbin showing
Speaker 13: a somber video of victims who had experienced sexual exploitation online,
Speaker 13: and went into Senator Graham telling Mark Zuckerberg, the CEO
Speaker 13: of Meta, and the other CEOs on the witness table
Speaker 13: inexplicably that they have quote blood on their hands.
Speaker 12: The hearing room erupted in applause.
Speaker 13: After those prepared remarks, we did get some new news
Speaker 13: from the likes of Linda Yakarino, the CEO of X,
Speaker 13: who said that her company would be the first to
Speaker 13: support the stop see SAM Act, an act that is
Speaker 13: meant to protect victims of who have their sexual images
Speaker 13: uploaded online and expand the reporting process for them with
Speaker 13: the tech companies. As we speak, the questioning is still
Speaker 13: going on and some of those back and forth have
Speaker 13: gotten a little bit testy, particularly as we get into
Speaker 13: the day after the prepared remarks.
Speaker 2: All of this comes as bills and legislation is debated,
Speaker 2: but ultimately goes nowhere.
Speaker 4: Alex, is there any sense.
Speaker 2: That some sort of rules will change for ultimate liability
Speaker 2: for these companies or in general? Is this more about
Speaker 2: self regulation still?
Speaker 12: I can tell you.
Speaker 13: Senator Klobuchar had her seven minutes of questioning, and she
Speaker 13: had an exasperated tone because she said, this conversation has
Speaker 13: been going on for more than a decade now.
Speaker 12: She had a really pointed statement.
Speaker 13: She talked about the issues with the Boeing plane, saying,
Speaker 13: if we have a piece of a plane fall off
Speaker 13: and threaten lives, we ground those planes. If there are
Speaker 13: children dying from interactions online by suicide or by coming
Speaker 13: in contact with sexual credits, why aren't we doing that?
Speaker 13: So that exasperation is certainly felt from in the members
Speaker 13: on both sides of the aisle.
Speaker 12: But we did hear folks like.
Speaker 13: Republican Senator Lindsay Graham come to the table today saying
Speaker 13: Republicans are happy to come to the table. Meanwhile, there
Speaker 13: is kind of folks across the aisle who have bills
Speaker 13: in motion. That being said, we've seen bills before that
Speaker 13: aim to reign in the power of big tech when
Speaker 13: there are children's lives and children's safety on the line.
Speaker 13: Perhaps this is the moment that they can actually get
Speaker 13: things over the line.
Speaker 3: Ale's kind of in parallel and adjacent to this Bloomberg's
Speaker 3: reporting with regards to Meta that previously some executive went
Speaker 3: to Mark Zuckerberg and said we need to hire more
Speaker 3: people focused on child's online safety in terms of headcount,
Speaker 3: and that proposal was rejected by Zuckerberg. What's the story
Speaker 3: there and what has the company's response been.
Speaker 13: Sure, And I actually heard from Senators Blackburn and Blumenthal
Speaker 13: yesterday before the hearing who talked about these emails that
Speaker 13: the Committee is releasing in accordance with this hearing. They're
Speaker 13: from around the time of September twenty twenty one from
Speaker 13: a letter from those two senators. In response, Nick Klegg
Speaker 13: met As head of Policy, basically came to Mark Zuckerberg saying, Hey,
Speaker 13: I have a plan here for additional investment in wellness.
Speaker 13: It's very important, it's a top issue, and we're having
Speaker 13: outside pressure.
Speaker 12: Can we look at this plan and invest in it.
Speaker 13: Those emails went unanswered for a number of months, and
Speaker 13: ultimately that investment was pushed back upon.
Speaker 12: I do expect that the senators.
Speaker 13: Will bring this this idea up today and query Mark
Speaker 13: Zuckerberg himself and pose the question, why haven't we seen
Speaker 13: additional investment. You have so many engineers, so much headcount.
Speaker 13: In twenty twenty one, you hired more than ten thousand people.
Speaker 13: Why isn't there more being done to protect kids on
Speaker 13: metas platforms?
Speaker 4: Alex BLERINCA.
Speaker 2: We thank you for bringing us the latest on the
Speaker 2: reporting and indeed the questioning that's going on on the
Speaker 2: hill right now.
Speaker 4: We want to stick with that hearing and.
Speaker 2: Ultimately what policy could potentially come from it. The Center
Speaker 2: of Humane Technology Policy Director Camille Carton joins us now
Speaker 2: to really discuss where they think real change can happen
Speaker 2: to protect children on social media and what these hearings
Speaker 2: really mean for big tech Ultimately, Kamille, what if any
Speaker 2: policy can be put in place to ensure that children
Speaker 2: are that little bit safer. We can't cure humanity, but
Speaker 2: we can potentially hope that we put some barriers in place,
Speaker 2: whether it's technology or indeed just policy more broadly.
Speaker 15: Yeah, absolutely, I think we're at a point, as everyone
Speaker 15: has said so far, where we are happy that these
Speaker 15: hearings are happening because the public needs to see it.
Speaker 15: But we're also at the point in our democratic process
Speaker 15: where it's time to push forward change. And some of
Speaker 15: the things that we look for in bills specifically around
Speaker 15: kids safety are three main pillars. We want a duty
Speaker 15: of care, which essentially means just like a doctor has
Speaker 15: a fiduciary responsibility to ensure that patients are treated in
Speaker 15: their best interests. We want platforms to ensure that kids
Speaker 15: are not harmed on their platforms. We want privacy by default.
Speaker 15: This means if a kid goes onto Instagram, the moment
Speaker 15: they sign up, they have all of their settings at
Speaker 15: the highest level of privacy. It means that they won't
Speaker 15: get messages from people that they're not friends with, their profiles,
Speaker 15: won't be able to see PC and by exert people,
Speaker 15: and we want safety by design. We want no more
Speaker 15: addictive features, features that are known to be harmful to
Speaker 15: kids that platforms continue to utilize because it keeps them
Speaker 15: on longer.
Speaker 2: I'm going back to that privacy focus now. Some companies
Speaker 2: I think of one in France, Youbo, that came onto
Speaker 2: the show last week saying how, ultimately you can use
Speaker 2: technology as a force for good. Here you can have
Speaker 2: some sort of ability to really age appropriately who is
Speaker 2: part of using that system, But then privacy comes into it.
Speaker 2: How do you allow the camera to identify whether a
Speaker 2: child is indeed the age they say they are without
Speaker 2: in some way impacting their own privacy. How do you
Speaker 2: see technology being the sol fare.
Speaker 15: Yeah, I think that that's a great point. But part
Speaker 15: of what's missing is that these companies already have age
Speaker 15: estimation tools that they use to know the age of
Speaker 15: their users. I mean, one thing that came out of
Speaker 15: the ag lawsuit that's happening across forty one States is
Speaker 15: the fact that Meta knows that it has millions of
Speaker 15: users under the age of thirteen on its platform, and
Speaker 15: it's keeping that knowledge from the public. So they know
Speaker 15: this and they use their estimation tools to actually target
Speaker 15: against these kids and to target advertising to age ranges.
Speaker 15: So we actually don't need new technology. Companies already have
Speaker 15: this information, we just need them to enforce it.
Speaker 3: Emil, I still go back to the idea that when
Speaker 3: this Senate hearing is finished, what comes out of it,
Speaker 3: because many of the social media companies have codified policy rights.
Speaker 3: So if you take TikTok as an example, they have
Speaker 3: restrictions on age. I think thirteen is the barrier to
Speaker 3: using TikTok. And those are policies. The question seems to
Speaker 3: be on enforcement, and as Caroline rightly points out, either
Speaker 3: a lack of or use of technology to enforce those policies.
Speaker 3: And I just wonder what your perspective is on policy
Speaker 3: versus action.
Speaker 5: Yeah.
Speaker 15: I think the fundamental difference that we're talking about, though,
Speaker 15: is self regulation policy by these platforms, which is where
Speaker 15: we're at right now, as opposed to regulation.
Speaker 12: That's codified in law.
Speaker 15: So these platforms at any moment can change their terms
Speaker 15: and conditions, and what we're seeing right now is that
Speaker 15: they release features that folks have been asking for for
Speaker 15: years ahead of a big pr moment, and that's great.
Speaker 15: We want, you know, we want these better features, but
Speaker 15: releasing these features because of a PR moment is no
Speaker 15: substitute for regulation that incentivizes safe innovation and appropriate strategies
Speaker 15: from the beginning.
Speaker 3: Camille Pinterest's CEO, Bill Ready, has an op ed in
Speaker 3: The Hill this morning likening the social media industry it's
Speaker 3: a big tobacco.
Speaker 5: That is something I've heard before.
Speaker 3: Why do you think social media companies would do something
Speaker 3: like that? Are they trying to get in the psyche
Speaker 3: of lawmakers and show that they're on the same wavelength
Speaker 3: or something like that.
Speaker 15: Well, I think every social media company and the ways
Speaker 15: in which they utilize their products are different. Pinterest has
Speaker 15: a different business model and a different position than other
Speaker 15: social media companies. We've seen that with Snap coming out
Speaker 15: and endorsing the Kids Online Safety Act, now with X
Speaker 15: coming out and endorsing CESUM. They're all taking slightly different positions.
Speaker 15: But I think the main takeaway here is that we're
Speaker 15: starting to see them come to the table. There is
Speaker 15: overwhelming support by parents, by ags, I mean, schools are
Speaker 15: suing these platforms, and I think that they're realizing that
Speaker 15: the time is up of this move to brief things mentality,
Speaker 15: and we need to come to the table and figure
Speaker 15: out exactly what a path forward looks like, and that
Speaker 15: path does require regulation in the same way that we
Speaker 15: had to have with tobacco.
Speaker 3: Okay, as we say the hearings ongoing, Senator to Ted
Speaker 3: Cruz using props behind him, you can tune into that
Speaker 3: hearing for the full detail center for your main technology
Speaker 3: policy Director Quill Carlton, fantastic conversation.
Speaker 5: Thank you.
Speaker 4: I'm now for going what's going viral?
Speaker 2: TikTok may find itself without music from thousands of artists
Speaker 2: represented by Universal Music Group UMG has issued an open
Speaker 2: letter to the Bytdance owned company condemning it for offering
Speaker 2: unfair terms during licensing negotiations. Now UMG is posting on X,
Speaker 2: then it must call time out on TikTok. Ed this
Speaker 2: is about TikTok saying, look, you get free promotion for
Speaker 2: your stars by the music on TikTok, but UMG saying
Speaker 2: you're using AI that is going to ultimately take away
Speaker 2: the power of our own artists.
Speaker 3: I go to what Ceci and Nadella said on that
Speaker 3: NBC interview in the content of them in the New
Speaker 3: York Times is going to come down to intellectual property
Speaker 3: versus fair use. And that's a different medium music, but
Speaker 3: that's the case.
Speaker 2: Yeah City Group saying, look, these are going to be
Speaker 2: difficult negotiations, but actually I think UMG is taking the
Speaker 2: right stance. The best, it secures better terms. The worst
Speaker 2: looks like they protect their artists.
Speaker 4: That does it for this edition of Bloomberg Technology Ed.
Speaker 5: Check out the pod This is Bloomberg