Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
Speaker 1: from coast to coast with Caroline Hide in New York
Speaker 1: and ever though in San Francisco.
Speaker 2: This is Bloomberg Tech coming up. Cisco shares gain after
Speaker 2: boosting it's twenty twenty six forecast, showing progress in its
Speaker 2: efforts to capture more AI spending. We're going to discuss
Speaker 2: with the CEO plus shares of Disney.
Speaker 3: They're falling today as the company invests in its content
Speaker 3: slate and stream bundling. Our conversation with the Disney CFO Hugh.
Speaker 2: Johnson, and ten Cent strikes a deal with Apple under
Speaker 2: which the iPhone maker takes a fifteen percent cut for
Speaker 2: purchases in we chat, minigames and apps.
Speaker 3: First free checking on these markets and maybe a little
Speaker 3: bit of chot as we try to discern when we
Speaker 3: get the government data and what that will show the
Speaker 3: Federal Reserve, canondean do or do not when it comes
Speaker 3: to cutting in the future. The market a little bit
Speaker 3: uncertain at the moment. It seems as though that lifting
Speaker 3: of a government shutdown have been priced in. We're currently
Speaker 3: off by one point four percent. We're dragged down by
Speaker 3: the key names in Magnificent seven. But ed, you're looking
Speaker 3: at the company that's adding the most in points upside.
Speaker 2: Yeah, one of the big movers to the upside is
Speaker 2: Cisco shares currently up around four percent. They'd open much
Speaker 2: higher than that. The key bit is they're trading at
Speaker 2: their highest level since the year two thousand, after the
Speaker 2: company raised its outlook and showed progress on capturing more of.
Speaker 4: The global AI spend.
Speaker 2: Let's get the details with Cisco's CEO, Chuck Robins. Chuck,
Speaker 2: in the year two thousand, Cisco is one of the
Speaker 2: original four horsemen of technology. Based on the numbers you
Speaker 2: gave and what you said on the call, do you
Speaker 2: feel like customers, the new ones and investors now understand
Speaker 2: Cisco's place in this new AI era.
Speaker 5: Well, first of all, thanks for having me, and you know,
Speaker 5: I'm super proud of what teams have accomplished. We had
Speaker 5: a record quarter and set ourselves up for what's likely
Speaker 5: going to be the best year we've ever had. So
Speaker 5: it was just a great performance. And as I've been
Speaker 5: asked a lot over the last twenty four hours to
Speaker 5: reflect back on two thousand and it's kind of an
Speaker 5: interesting comparison, but I think that, Look, the hyperscalers are
Speaker 5: some of the most advanced customers in the world. They
Speaker 5: do the deepest analysis of the technology before they make decisions,
Speaker 5: and I think that their decisions to continue spending more
Speaker 5: with us speaks volumes about the innovation and the technology
Speaker 5: that our teams are building right now. So I'm really
Speaker 5: proud of them, and I think it'll just extend into
Speaker 5: the enterprise over time.
Speaker 2: Chuck, who are some of those new customers that you've
Speaker 2: been able to sign in the air context.
Speaker 5: Well, we're just talking about the major hyperscalers, primarily in
Speaker 5: the United States, but we've also announced these sovereign deals
Speaker 5: in the Middle East with G forty two and the
Speaker 5: Emirates as well as Humane in Saudi There's a lot
Speaker 5: of work going on in the neo cloud space. We're
Speaker 5: seeing sovereign players start popping up now in parts of
Speaker 5: Europe as well as Southeast Asia and India. So it's
Speaker 5: a broad swath of customers. But the one point three
Speaker 5: billion that we talked about is strictly the top hyperscalers
Speaker 5: that we're doing business with.
Speaker 4: So you're talking about five companies and.
Speaker 3: They're good for the money, as you can tell from
Speaker 3: the cash flow that they.
Speaker 6: Have chuck not two hundred million dollars.
Speaker 3: That you are expanding into sovereign, you are expanding into
Speaker 3: enterprise and neoclouds. How do you bake in some of
Speaker 3: the risks that the market just cannot get enough of
Speaker 3: talking about this circular economy.
Speaker 5: Well, so we did talk about the fact that we
Speaker 5: have over two billion dollars now in our pipeline through
Speaker 5: the end of the fiscal years over the next three
Speaker 5: quarters in neo cloud, sovereign cloud, and enterprise, and we
Speaker 5: see that continue to accelerate. We took two hundred million
Speaker 5: dollars in orders in Q one, and it's just it's
Speaker 5: a natural way the technology technologies have been evolving over
Speaker 5: the last decade. More they start in the hyperscalers, they
Speaker 5: move through the telco space in this case the neo
Speaker 5: clouds and the sovereign players, and then into the enterprise.
Speaker 5: And it's happening exactly that way. And our bread and
Speaker 5: butter over the years has been in the enterprise. And
Speaker 5: we have lots of technolo knowlogy, We have a partner ecosystem,
Speaker 5: we have full stack solutions, we have security, we have
Speaker 5: all the things that they're looking forward to actually build
Speaker 5: out AI workloads and deal with AI with confidence.
Speaker 3: Let's just go to that security a little bit of
Speaker 3: a fly in the ointment. Let's say, I know you've
Speaker 3: talked clearly about perhaps how the booking of revenue can
Speaker 3: be misinterpreted, but how are you going to sell that
Speaker 3: more holistically? How do you think the security part of
Speaker 3: the offering can really start firing on all cylinders.
Speaker 5: Well, I started by saying clearly we're not pleased with
Speaker 5: where we are yet, but I will say over the
Speaker 5: last two to three years, we've made a lot of progress.
Speaker 5: It's a major decision for customers to make big platform decisions.
Speaker 5: In security, We've had a lot of great wins. I'm
Speaker 5: proud of what the teams have built. And we saw
Speaker 5: our next generation our walls, we saw mid teens growth
Speaker 5: and orders there. We saw double digit arr growth and Splunk.
Speaker 5: We saw our new and refreshed products on the security
Speaker 5: side continue to show growth. And the issue we had
Speaker 5: in the quarter was really it's an accounting issue around
Speaker 5: how cloud delivered Splunk versus on prem delivered Splunk. The
Speaker 5: cloud stuff is radable and realize revenues realized over the
Speaker 5: life of the term, and the on prem stuff gets
Speaker 5: recognized immediately, and we just had a major shift in
Speaker 5: how our customers consume it, which is great for us
Speaker 5: in the long term that they're buying more cloud based solutions,
Speaker 5: but it creates a little bit of a challenge on
Speaker 5: revenue during the quarter. The good news is the networking
Speaker 5: business is doing incredibly well and can cover that for us.
Speaker 2: Chuck, it is fair to say at a minimum that
Speaker 2: the Cisco of today isn't the same as the Cisco
Speaker 2: of two thousand. What you've done is kind of been
Speaker 2: open about the product lineup and you've used M and
Speaker 2: A to change the footprint of the company. What's your
Speaker 2: latest thinking on that, the products that you offer and
Speaker 2: what you need to do, either organically or inorganically to
Speaker 2: offer what the world of AI wants.
Speaker 5: I think the big things that we did we obviously
Speaker 5: introduced a lot more software into our portfolio in areas
Speaker 5: that are strategic, like security, and this Plunk acquisition has
Speaker 5: been a great one. I think the other thing that's
Speaker 5: worth calling out is is this investment that we started
Speaker 5: in twenty sixteen to be clear on our silicon strategy
Speaker 5: that is absolutely the reason that we're having success today
Speaker 5: in the hyperscaler space. If we did not have our
Speaker 5: silicon and develop and design our own silicon, we wouldn't
Speaker 5: be participating at all. It's just black and white. And
Speaker 5: so as we as we look at both internal innovation
Speaker 5: as well as or inorganic opportunities. We're very focused on security,
Speaker 5: We're very focused on AI. We've made some tech and
Speaker 5: talent deals. Anything that can help us accelerate our solutions
Speaker 5: in those areas we're open to look at.
Speaker 2: Chuck, I do not apologize for this next question. Are
Speaker 2: we or are we not in an AI bubble?
Speaker 5: Oh, it's just it's so funny. Look, the customers that
Speaker 5: are buying the predominant amount of this technology have incredible
Speaker 5: balance sheets, have incredible cash flow, have incredible profitability. I
Speaker 5: think Caroline said it. They actually pay their bills and
Speaker 5: and so, and they view it as an existential issue
Speaker 5: for them. That's that's a really key element. They don't
Speaker 5: view this as something that's nice to have. They don't
Speaker 5: view it as something that is okay if we if
Speaker 5: we're successful, great, if we're not great. They view it
Speaker 5: as existential, which you see with the level of spending
Speaker 5: that they're putting into it. So it's it's a lot
Speaker 5: and it's moving fast. And but the difference between now
Speaker 5: in two thousand is that these are massive companies with
Speaker 5: strong financial performance and they believe in this one hundred percent.
Speaker 5: So I don't think it's going to change. We haven't
Speaker 5: gotten into physical AI. We have, we're just getting into
Speaker 5: synthetic training. Yeah, we haven't gotten into robotics. We haven't
Speaker 5: gotten into the enterprise in a big way yet, and
Speaker 5: so there's a there's a huge opportunity ahead for all
Speaker 5: of us. I believe.
Speaker 3: Well, Chuck Blouemberg Intelligence Analysis says, your projections are conservative.
Speaker 6: Briefly are the conservative?
Speaker 5: Well, I think you said that last quarter, so you've
Speaker 5: proved to be correct ninety days ago. But look, I
Speaker 5: think based on what we know today we're ninety days
Speaker 5: into the year, were taking what we have in our backlog,
Speaker 5: what we see in the forecast. But again we got
Speaker 5: we have three more quarters to play out. Lots of
Speaker 5: things can change, the world's very dynamic, but we're very
Speaker 5: confident in the numbers that we put up yesterday.
Speaker 3: Cisco CEO Chuck Robins always a joy to catch up
Speaker 3: with the thanks for spending time. Meanwhile, as I'm going
Speaker 3: to look at some other shares on the move, JD
Speaker 3: dot Com, Tencent, I want to shine light on these
Speaker 3: ad rs. They're under water a little bit like the
Speaker 3: rest of the market. But JD dot Com actually relieve
Speaker 3: many an investor with a few fifteen percent increase in revenue,
Speaker 3: managing to show that maybe the investment in the food
Speaker 3: area is really building more broadly into the overall merchandise sales.
Speaker 3: We're looking at Tencent social media app more cautious in
Speaker 3: AI spending, but it's making it work in terms of
Speaker 3: selling its overall products and the gaming strength really coming
Speaker 3: to bear. We're seeing again a fifteen percent increase in
Speaker 3: revenue there as well. But fifteen percent is an interesting
Speaker 3: number end because it's a theme in the next story.
Speaker 2: Ten cents US shares trading tropic because at one point
Speaker 2: we're hiring the session. Ten Cent has struck a deal
Speaker 2: with Apple that we'll see the iPhone maker handle payments
Speaker 2: and take a fifteen percent cut of purchases in we chat,
Speaker 2: minigames and apps doing both. Global tech editor Petere Elstrom
Speaker 2: joins us for more that there's one of several stories
Speaker 2: actually about ten Cent today, but.
Speaker 4: Let's start with the Apple one. What do we need
Speaker 4: to know?
Speaker 7: Yeah, so ten Cent in Apple have been in this
Speaker 7: standoff for a number of different years. Tencent offers a
Speaker 7: bunch of different services, including games, but they also offer
Speaker 7: we Chat, which is really the original super app. It's
Speaker 7: a messaging app, but you can do many other things
Speaker 7: within it too. Now, Tencent has wanted to offer different
Speaker 7: services and games through this super app, and they've allowed
Speaker 7: developers to circumvent the Apple Store to avoid some of
Speaker 7: the fees that you would typically pay by using the
Speaker 7: Apple Store. Apple hasn't liked that. They want everybody to
Speaker 7: go through their Apple Store, where they take a thirty
Speaker 7: percent cut of most things that are going on. So
Speaker 7: we understand from our sources, the sub bloomberg Scoop that
Speaker 7: they've reached an agreement now where customers within the ten
Speaker 7: Cent we Chat ecosystem are going to pay a fee
Speaker 7: of fifteen percent to Apple, so about half of their
Speaker 7: usual fee. But they'll begin to reach some sort of
Speaker 7: truce between Tencent and Apple as they collaborate on games
Speaker 7: and other kinds of services.
Speaker 6: So to push us forward, is this good for Apple?
Speaker 3: Because they can start to well reap more rewards from
Speaker 3: these companies that are super apps.
Speaker 6: Or is this a concern.
Speaker 3: Because everyone else is going to be looking at a
Speaker 3: fifteen percent number.
Speaker 7: Yeah, it's a very good question. Certainly, Apple faces this
Speaker 7: kind of pressure in many different markets. It's not just China.
Speaker 7: In China it's a little bit different though, because they
Speaker 7: don't have the kind of market power that they do
Speaker 7: in places like the United States or Europe for that matter,
Speaker 7: or they can just take their thirty percent cut. Regulators
Speaker 7: are looking at those fees. They'd like to bring them down,
Speaker 7: but in China they haven't been able to make that
Speaker 7: much progress because there are these alternatives like ten cents,
Speaker 7: ecosystem and other kinds of areas too. So this is
Speaker 7: at least an altre for them into a China market
Speaker 7: that they really haven't been able to tap that effectively
Speaker 7: in the past.
Speaker 3: Peter Elstrom, all across the world of te tencent we
Speaker 3: so appreciated. Meanwhile, coming up, we're all across Disney falling
Speaker 3: today after what.
Speaker 6: Some investors are calling we're underwhelming forecast. More on that next.
Speaker 3: Meanwhile, check out shares of Verizon. We have breaking news
Speaker 3: coming from the Wall Street Journal talking about how there
Speaker 3: could be some fifteen thousand job cuts to come. Remember,
Speaker 3: we've had a relatively new CEO in place, Bloomberg reporting
Speaker 3: earlier that layoffs could be announced as soon as next week,
Speaker 3: according to people familiar, as we have a major step
Speaker 3: in the transformation led by the new CEO, Dan Shulman
Speaker 3: in New York.
Speaker 6: Is a really bad tag.
Speaker 2: Shares of Disney really falling today after posting fourth quarter
Speaker 2: earnings that missed estimates and projecting forecasts that underwhelmed Wall
Speaker 2: Street were down almost ten percent.
Speaker 4: We spoke with Hugh Johnston Disney.
Speaker 2: CFO earlier today to walk through those results.
Speaker 8: I thought it was a good quarter overall, and frankly
Speaker 8: versus Wall Street, we beat expectations by six cents. So,
Speaker 8: as you noted, the experiences business did very very well,
Speaker 8: six percent revenue growth thirteen percent of wide growth was terrific.
Speaker 8: Sports did very strongly while we were launching the new
Speaker 8: DTC product, which is off to a great start. And
Speaker 8: then in terms of experience the entertainment business, it was
Speaker 8: largely just the overlap of the film slate that drove
Speaker 8: the numbers. I know, the linear business looked a little
Speaker 8: bit soft, but that's primarily due to the fact that
Speaker 8: we had India in the numbers last year where we
Speaker 8: made eighty four million bucks and wasn't in the numbers
Speaker 8: this year. Take that out Apple Staples basis. Overall, I
Speaker 8: thought the quarter was good and it actually allows us
Speaker 8: to end the year with a lot of momentum as
Speaker 8: we think about where we are right now. We grew
Speaker 8: EPs nineteen percent for the year and nineteen percent Keeger
Speaker 8: for the last three years, and that's why we both
Speaker 8: guided to double digit EPs growth in twenty six and
Speaker 8: on top of that, doubled the share of purchase and
Speaker 8: increased the dividend by fifty percent.
Speaker 4: You good morning. On that momentum.
Speaker 2: The focus for a lot is streaming, right and you
Speaker 2: have the confidence to say streaming is going to continue
Speaker 2: to be profitable through twenty twenty six. What are the
Speaker 2: factors behind that? What allows you to have the confidence
Speaker 2: to have such visibility into how that streaming business is
Speaker 2: going well?
Speaker 8: Of course, streaming all we begins with the quality of
Speaker 8: the content that we have and the quality of the
Speaker 8: slate that we have going forward. So if you think
Speaker 8: about the film slate we have right now, number one.
Speaker 8: We obviously have Zootopia two, followed by Avatar, followed Bright,
Speaker 8: the Double Wars product two, followed by Toy Story five, Milana,
Speaker 8: and then we've got an Avengers movie as well. So
Speaker 8: if I look at all of that playing its way
Speaker 8: into the streaming service, certainly feel good about those ten
Speaker 8: pole events. In addition to that, our TV side continues
Speaker 8: to perform very strongly. The ratings are great, the number
Speaker 8: of hit shows are great. And then on top of that,
Speaker 8: we're investing in the product in a significant way, creating
Speaker 8: a unified app, and in addition to that, improving our
Speaker 8: recommendation engines and improving the navigation withinside within the DTC app.
Speaker 8: Put all of that together and what we really see
Speaker 8: is just a huge opportunity for growth Spire to grow
Speaker 8: that business double digits along with the double digit margins
Speaker 8: we expect to achieve this coming year. And as a result,
Speaker 8: I think we're going to continue to see that business
Speaker 8: do really well and be a real growth driver for Disney.
Speaker 3: But the profitability who streaming operating income for the first
Speaker 3: quarter of twenty twenty six, you got to be three
Speaker 3: hundred and twenty five million dollars. That's a lot less
Speaker 3: than the street was anticipating.
Speaker 6: Why is that?
Speaker 8: I think it's primarily due to the fact that we're
Speaker 8: investing in product in the business, and we're investing in
Speaker 8: in bundling. So we all know that bundling ultimately is
Speaker 8: a very profitable thing to invest in. It increases retention,
Speaker 8: reduces churn, increases engagement. And that's not a theory. We
Speaker 8: have proof on that, Hugh, Is.
Speaker 2: This the last earnings report and quarter before Disney's board
Speaker 2: names a successor to Bob Eiga's CEO.
Speaker 4: That's a great question.
Speaker 8: So what the board has previously indicated, and I will
Speaker 8: say the board has been about as transparent as any
Speaker 8: CEO succession I have ever seen in my long career.
Speaker 8: What the board is indicated is that will take place
Speaker 8: sometime during the first calendar quarter of twenty six. We
Speaker 8: report in next February. Whether that'll be before or after,
Speaker 8: I'll be up to the board. But we should have
Speaker 8: it done by the end of March.
Speaker 3: Part of our conversation with Disney's CFO, Hugh Johnson, let's
Speaker 3: stay on Disney, stink a little deeper into the numbers.
Speaker 3: Ether Rangon Athams with us BlueBag Intelligence senior media analyst.
Speaker 3: You've been writing the overall view for fiscal twenty twenty
Speaker 3: six is strong within guidance, maybe conservative, given multiple levers,
Speaker 3: including the launch of two new cruises, multiple blockbuster theatrical releases,
Speaker 3: and greater operating leverage at streaming driven by price increases.
Speaker 3: But getha, the market's not giving any sort of optimism here.
Speaker 3: Why are they beating up so hard on Disney?
Speaker 9: Yeah, I think after Caroline, you'll come off of fiscal
Speaker 9: twenty twenty five delivering nineteen percent EPs growth. You know,
Speaker 9: you obviously have some very solid momentum in the business. Yes, granted,
Speaker 9: fiscal you know, first quarter of twenty twenty six looks
Speaker 9: a little light. They're dealing with a lot of different
Speaker 9: cost issues, whether it's on the studio side, in terms
Speaker 9: of launch costs for you know, cruises, So there's a
Speaker 9: little bit of all of that that they have to
Speaker 9: contend with. But I think, you know, the street was
Speaker 9: really expecting. I think something much more specific and much
Speaker 9: more concrete, something better than just double digit EPs growth
Speaker 9: for twenty twenty six, especially when they have the benefit
Speaker 9: of a lot of different catalysts that come in fiscal
Speaker 9: twenty twenty six.
Speaker 2: I mean the stock's down ten percent, right, that puts
Speaker 2: it on track for its biggest drop since November of
Speaker 2: twenty twenty two. You heard the final question asked and
Speaker 2: answered to Hew of what happens next with succession?
Speaker 4: Is that the overhang on the stock here.
Speaker 6: I think a little bit ed.
Speaker 9: I mean, you know, we know that, you know, the
Speaker 9: Disney succession issue has really been you know, bungled so
Speaker 9: many times right now, it's this has been an ongoing
Speaker 9: question for them for almost a decas I would say,
Speaker 9: you know, it seems like things are moving in the
Speaker 9: right direction. It's kind of turning into I think a
Speaker 9: two horse race between Dana Walden, who heads the creative
Speaker 9: division at Disney, as well as Josh Tomorrow, who heads
Speaker 9: the parks. And this has kind of been the eternal
Speaker 9: question for Disney. Do you have somebody who is at
Speaker 9: the head of creative who can talk to talent, who
Speaker 9: can talk to all of those Hollywood executives, or do
Speaker 9: you need somebody who you know, heads the parks, who
Speaker 9: you know which is basically sixty percent of the company's profit.
Speaker 9: I really don't know how it's going to shake out.
Speaker 9: Maybe they have a co CEO structure like Netflix, like
Speaker 9: Spotify is doing, but again we have to wait and
Speaker 9: watch till the end of March.
Speaker 2: Keeth Rang and Eathan of Bloomberg Intelligence. Great to have
Speaker 2: you back on Bloomberg Tech. Thank you so much.
Speaker 4: Breaking news from Bloomberg.
Speaker 2: Tesla is developing support for Apple's car Play system in
Speaker 2: its vehicles.
Speaker 4: That's, according to sources.
Speaker 2: Working to add one of the most highly requested features
Speaker 2: by Tesla customers, and in car Play would mark a
Speaker 2: pretty stunning reversal for Tesla and its CEO, Elon Musk,
Speaker 2: who have long ignored please to implement the popular feature.
Speaker 2: We're going have much more detail later this hour with
Speaker 2: Bloomberg's Mark German. Cara, you've got another one of our
Speaker 2: top stories.
Speaker 4: Yeah.
Speaker 3: Everyone reading about the sec findings revealed that Michael Burry's
Speaker 3: Scion Asset Management has terminated its registration status, raising the
Speaker 3: possibility that Barry could be shuttering his hedge fund or
Speaker 3: closing it to outside investors at least now. The move
Speaker 3: comes just one month after Burry warned about marketing exuberants,
Speaker 3: particularly in AI. For more, Bloomberg's Tom Metcalf joins us
Speaker 3: he'd cover financials banking and what really do you think
Speaker 3: this is signaling that he just couldn't bet against this
Speaker 3: so called AI bubble.
Speaker 4: Yeah, look, I think.
Speaker 10: Your speculations is probably on the nose in terms of
Speaker 10: the you know, this fund might well be closed in
Speaker 10: it and you know that's what you know. You read
Speaker 10: his message and he's always been saying he just cannot
Speaker 10: read this market. It's extremely exuberant, and you know, it
Speaker 10: was hard to interpret these he was offering of like
Speaker 10: pictures of his character from the big short, for example,
Speaker 10: you do get a sense of the frustration.
Speaker 4: And obviously he put.
Speaker 10: Out some shorts on Palenteer and n Video quite recently.
Speaker 4: They would disclose in the thirteen f's.
Speaker 10: So it's very interesting that, you know, relatively small fund
Speaker 10: but very closely followed, and you know the fact that
Speaker 10: he's potentially taken a step does suggest perhaps even a
Speaker 10: Michael Burry is starting to lose faith in trying to
Speaker 10: time this bubble.
Speaker 3: I know that's what's so interesting really about the timing
Speaker 3: of it. He hinted that there's better things to come
Speaker 3: November the twenty fifth, So I'm sure we've not seen
Speaker 3: the end of this ride. But what clarification did we
Speaker 3: get in terms of the bets he's made against the
Speaker 3: likes of Palenteer that has just defied fundamentals for so long.
Speaker 10: Yeah, and that was one of the things he points
Speaker 10: out in his post, which which basically one one image
Speaker 10: in the post said, I've sort of de registered the
Speaker 10: firm without clarifying any further what that precisely means. But
Speaker 10: the other kind of lays out the precise nature of
Speaker 10: that bet he had against Palenteer. So in the post
Speaker 10: he says he spent about nine point two million dollars
Speaker 10: effectively betting on Palenteer shares would sell, would fall. Sorry,
Speaker 10: And as part of that he's got I think until
Speaker 10: twenty twenty seven the option to sell those Palenteer shares
Speaker 10: that I think it was fifty dollars, so, you know,
Speaker 10: for a fund which is about you know, one hundred
Speaker 10: and fifty million AUM at least it was in March.
Speaker 4: That's a pretty sort of striking bet. But yeah, of course,
Speaker 4: as you.
Speaker 10: Look at Palenteer shares, it's sort of he's on the
Speaker 10: wrong side of it at the moment.
Speaker 6: Tom.
Speaker 3: I think it's so greatly remind us that it is
Speaker 3: a relatively small fund. And the reason it has outside
Speaker 3: interest is because many have read the Michael Lewis book,
Speaker 3: many have watched the movie.
Speaker 6: But why do we listen to what Michael Barry does?
Speaker 4: Well?
Speaker 10: I think you know, the way he presents his theories
Speaker 10: and stuff is always entertaining for one, but most principally
Speaker 10: you know, it's that incredible win he had back in
Speaker 10: the financial crisis, right, He really was out front and
Speaker 10: center on that huge effort to to you know, quintuple
Speaker 10: his investors' money. So I think whatever he says people
Speaker 10: who sit up and listen. And you know, he has
Speaker 10: built this social media following. I think also with the honesty, right, Like,
Speaker 10: he's made bets and when they've gone wrong, he's been
Speaker 10: happy to kind of hold his hands up.
Speaker 4: So it's always been interesting to follow him the most.
Speaker 3: Tom Metcalf following him for us, we so appreciate it.
Speaker 3: Welcome back to Blomberg Tech. Let's take a quick check
Speaker 3: on these markets, shall we, Because in fact, we're on
Speaker 3: sell off mode on the NASAQ more broadly, off by
Speaker 3: one and.
Speaker 6: A half percent.
Speaker 3: We've got anxiety around actually the government reopening that's already
Speaker 3: priced in. But what does that mean in terms of data?
Speaker 3: What does that mean in terms of the Federal Reserve
Speaker 3: its ability to cut into this market.
Speaker 6: We're up by one and a half percent.
Speaker 3: Some of the biggest tech names are on the downside.
Speaker 6: Let's go to where the earnings.
Speaker 3: Have led us, because one of the key names in
Speaker 3: the red is indeed Disney. We're off by almost ten percent.
Speaker 3: We're having a significantly poor day.
Speaker 6: Worst in several years for Disney.
Speaker 3: This is as they actually pointed to still double digit
Speaker 3: earing for share growth into the fiscal twenty two six,
Speaker 3: but revenue was flat for their fourth quarter and actually
Speaker 3: owners for share dropped.
Speaker 6: A little bit.
Speaker 3: Maybe people wanting to see more of a narrative around
Speaker 3: the growth is they inject more investment into streaming, as
Speaker 3: they invest into their slate, as they invest into marketing
Speaker 3: and the like. We're looking at Cisco up by four
Speaker 3: and a half percent. Boy, Chuck Robbins on a tear
Speaker 3: as we see this company now trade at the highest
Speaker 3: since the previous bubble two thousand. Of course, Cisco currently
Speaker 3: up four point six percent as they managed to beat
Speaker 3: and raise in terms of their earnings and they managed
Speaker 3: to just really show the AI path that they're currently
Speaker 3: navigating and sell into, in particular to hyperscalis this is
Speaker 3: where we want to go to the questioning around AI.
Speaker 6: Is it a boom? Is it a bubble?
Speaker 3: Well, it's certainly fueling records in VC funding public markets,
Speaker 3: as you've seen growth there and indeed in infrastructure, But
Speaker 3: the questions are abound. Is in an AI bubble? How
Speaker 3: far can it run? And what if it pops? Pellet
Speaker 3: Butteri's with US partner at Axcel and one of the
Speaker 3: authors of the firm's latest AI report published which just
Speaker 3: there is still more room in AI spending, he joins us. Now,
Speaker 3: so bluntly, is the rebubble?
Speaker 4: Well, I mean, this is the question.
Speaker 11: I think it's interesting to put that in context. So
Speaker 11: if you look at the NASDAQ in the past fifteen years,
Speaker 11: like with every platform shift, which is every five years,
Speaker 11: so you ad mobile, cloud and AI, the nasdack is doubled.
Speaker 11: So basically where we are right now, where the NASAK
Speaker 11: is is basically in line with historical trends. So yes,
Speaker 11: with every platform shift, you know you're seeing frosty evaluation
Speaker 11: and we're clearly seeing that with AI, and not all
Speaker 11: companies are going to be winners. But we're seeing tremendous
Speaker 11: opportunities here for value creation and we think that the
Speaker 11: winners are going to take a large share of that
Speaker 11: value creation. So it's all about picking the right companies.
Speaker 3: Well, if we look at the public markets, the winners
Speaker 3: have been clear, and you call them as the super
Speaker 3: six that have really been generating real cash. That was
Speaker 3: something that Chuck Robins just said to us. Look, my
Speaker 3: biggest demand has been coming from the hyperscalers and they're
Speaker 3: pretty good for the money. But then in the private markets,
Speaker 3: all winning bats have sort of been on a certain
Speaker 3: few names Open AI for example, Philip, Where else are
Speaker 3: you seeing the money being allocated to, particularly in Europe?
Speaker 11: Yeah, I think it's it's worth looking at where the
Speaker 11: venture funding is going in terms of you know, cloud
Speaker 11: and THEI. I mean the total for Europe and Israel
Speaker 11: and the US about one hundred and eighty four billion
Speaker 11: dollars for this year. Sixty percent of that is going
Speaker 11: into the models, so that's open AI on Tropic X,
Speaker 11: but the rest forty percent is going into a new
Speaker 11: generation of AI native native application that are growing very
Speaker 11: very fast and that are very exciting. So you have
Speaker 11: the Cursor, the Perplexity, the DECA going in the US,
Speaker 11: you have the Sairah, the lover Ball and eight ten
Speaker 11: and Synthesia in Europe. And what's very interesting here is
Speaker 11: that if you look at the model side, yes, the
Speaker 11: majority of the vast majority of the funding is going
Speaker 11: into US company, but if you look at the AI
Speaker 11: native application side, actually the Europe fares very well against
Speaker 11: the US because it's thirty billion in Europe versus forty
Speaker 11: five in the US, so that's about two third. And
Speaker 11: Europe had shown that it can really generate its shares
Speaker 11: of winner in this category.
Speaker 3: And you've been backing some of those winners in particular.
Speaker 3: I think of Lovable for example, that everyone has been
Speaker 3: very excited about the way in which vibe coding has
Speaker 3: taken over absolutely everything. But how do you know that
Speaker 3: you're not paying too much when getting into those rounds?
Speaker 11: Well, I mean, I think this is a question we
Speaker 11: ask ourselves every time we, you know, we invest. I
Speaker 11: think what we're trying to understand is like how far
Speaker 11: can this business run? I think if you look at Lovable, yeah,
Speaker 11: I mean it's vibe coding. What does vibe coote means
Speaker 11: that means that any human on earth can start to quote,
Speaker 11: I mean, we feel that is a pretty pretty large market. Uh,
Speaker 11: and these you know this. It can be vibe coders
Speaker 11: who are creators, and there can be vibe coders who
Speaker 11: are in the enterprise and who are trying to very fastly,
Speaker 11: you know, very quickly developed mockups of new products. So
Speaker 11: we actually think there's a lot of room to run
Speaker 11: in the case of Locoble. And as I said, I mean,
Speaker 11: I think evaluation are where they are today, but I
Speaker 11: think if you look at the value creation for the winners,
Speaker 11: I think the opportunity we're seeing and that are unlocked
Speaker 11: with AI, I think are much bigger than what we
Speaker 11: have seen in the past because the productivity improvement potential
Speaker 11: that EI is giving goes well beyond what any of
Speaker 11: the previous platform shifts have generated.
Speaker 3: Some of these companies are scaling so fast, and I
Speaker 3: feel like we've had the CEO since you're on, plenty
Speaker 3: of times to talk about how he is just driving
Speaker 3: forward in enterprises at such scale and the ability to
Speaker 3: produce AI real video that feels incredibly realistic, Philip. But
Speaker 3: I'm interested as to you in your past and in
Speaker 3: the companies that you've helped navigate have gone public. You've
Speaker 3: seen it with Docusti, and we've seen it with u iPath.
Speaker 3: How will we see these companies eventually tap the public
Speaker 3: markets because they're getting enormous without needing.
Speaker 11: To well, I mean, I think at some point, you know,
Speaker 11: getting public is in the natural path for for companies.
Speaker 11: And I think the bar to go public now is
Speaker 11: much higher than it was, you know, five years ago.
Speaker 11: So to go public, you want companies to be you know,
Speaker 11: probably in the five hundred to seven hundred million in
Speaker 11: in annual recurring revenues.
Speaker 12: Uh.
Speaker 11: So there's still room for this company to grow into
Speaker 11: you know, into these numbers.
Speaker 10: Uh.
Speaker 11: And you know, getting public is just like a financing milestone.
Speaker 11: So the fact that they remain private is not something
Speaker 11: that is preventing them to grow because they have access
Speaker 11: to the capital they need on the private market side
Speaker 11: as well.
Speaker 3: What's been interesting is a lot of these AI native applications,
Speaker 3: whether they've been snapped up for aqua higher purposes or
Speaker 3: they've been snapped up for the underlying technology for they
Speaker 3: have been snapped up and by some of these super
Speaker 3: six as you mentioned, is that M and A trend
Speaker 3: going to continue, and how are you ensuring that all
Speaker 3: the founders protect the rest of the employee base they've
Speaker 3: been growing?
Speaker 11: Well, I mean I think they're they're you know, a
Speaker 11: lot of the mn A that we have seen so
Speaker 11: far have been more on the model development side, with
Speaker 11: the Big six trying to kind of snap really big talents.
Speaker 11: I think on the application side, I think the founder
Speaker 11: that we're seeing extremely ambitious. They have global ambition and
Speaker 11: and they won't they won't see how you know, how much,
Speaker 11: you know, how fast and how big they're their business
Speaker 11: can be. So we haven't seen this as as any
Speaker 11: source of concern right now. And as I said, given
Speaker 11: that they have access to the capital that they need
Speaker 11: to you know, to run the business, and that they
Speaker 11: also have the opportunity to potentially sell some stock along
Speaker 11: the way through through seculary sale, there is everything that's
Speaker 11: needed to keep them motivated to build a big global businesses.
Speaker 3: Do they have to come to American capital markets? So indeed,
Speaker 3: American venture capital two scale, if they are European, if
Speaker 3: there Israeli.
Speaker 11: Based, well, I mean I think there's there are two
Speaker 11: different things. There is the market that you address and
Speaker 11: there's where the capital is coming from. I think what
Speaker 11: we've seen of Europe and Israel is great, great talent,
Speaker 11: great team, great engineering.
Speaker 4: Resources.
Speaker 11: And so what companies are doing is they are basically
Speaker 11: building their product and engineering team in Europe and Israel.
Speaker 11: And if they're selling software, I mean the biggest market
Speaker 11: for every dollar span of software fifty cents is spent
Speaker 11: in the US. So then they have to develop their
Speaker 11: go to market in the US. So I think from
Speaker 11: a market standpoint, yes, if you want to be a
Speaker 11: global leader in software and AI, you have to be
Speaker 11: a leader in.
Speaker 4: The US market.
Speaker 11: Now, in terms of you know where the capital is
Speaker 11: coming from, I think there are big pools of capital
Speaker 11: on both sides of the ocean, and European companies that
Speaker 11: have been raising rounds of similar size than the US,
Speaker 11: so they have access to the same pockets of capital,
Speaker 11: whether it's from Europe or it's from the US.
Speaker 3: With global scape, which is the enormous amount of research
Speaker 3: that you've managed to bring to US, and you analyze
Speaker 3: trends and innovation and you go global and you think
Speaker 3: about funding levels, where aren't we talking about enough?
Speaker 11: Well, I mean, I think what's going to be interesting
Speaker 11: to see is you know, how far can the models go?
Speaker 11: I think so far we have seen a pretty pretty
Speaker 11: steep curve of innovation on the model side, and I
Speaker 11: think the big question is when are we you know,
Speaker 11: is that improvement curve going to continue to accelerate or
Speaker 11: at some point are we going to tap out with
Speaker 11: the current architecture and uh and then you know, I
Speaker 11: think if we tap out, then there's been there's going
Speaker 11: to be a plateau until we get to the next
Speaker 11: level of architecture. But I think if I look at
Speaker 11: where we are right now, we're just scratching the surface
Speaker 11: in terms of deploying the technology that we have today.
Speaker 11: So I have you know, probably any if you look
Speaker 11: at the enterprise, uh, we we haven't reached the S
Speaker 11: curve in terms of the agenttic adoption for for different reasons.
Speaker 11: We think that's going to happen in the next in
Speaker 11: the next couple of years. So I think we have
Speaker 11: plenty of room to grow and plenty of plenty of
Speaker 11: opportunities for for a company to improve their productivity using
Speaker 11: a knowledge.
Speaker 6: Is Philibertary of ACCEL.
Speaker 3: We are so appreciative of you coming on talking about
Speaker 3: the wealth of research that Accel has just done.
Speaker 6: I appreciate it.
Speaker 3: Now let's go into another area of AI, because AI
Speaker 3: has been fueling chip makers, in particular the memory side
Speaker 3: of the equation.
Speaker 6: But then we've just.
Speaker 3: Had results out of Japan's Kyoxia holdings, and it's putting
Speaker 3: pressure on sand Disk because you say, off by thirteen percent,
Speaker 3: Western Digital of by almost four percent. Particular City is
Speaker 3: out there writing that these Japanese results were somewhat negative.
Speaker 3: The market may react negatively to the way that near
Speaker 3: term earnings are undershooting consensus that there is a strength
Speaker 3: of demand for solid state drives for AI inference. So
Speaker 3: for now people trimming back on some big AI winners
Speaker 3: of late. But coming up we talk more about key
Speaker 3: mag seven names Tessa in particular.
Speaker 6: Working to add Apple car Plays support to it vehicles.
Speaker 6: While that next this is briom leg Tech.
Speaker 3: We've got to get back to that news that Tesla
Speaker 3: is developing support for Apple's car.
Speaker 6: Play system in vehicles according to sources. Take a look
Speaker 6: at the shares Actually.
Speaker 3: Apple managed to turn from negative into positive on the news.
Speaker 3: Tesla still much in the red, off by six percent,
Speaker 3: but Bloomberg's Mark German joining us now help break the story,
Speaker 3: and I think the context is so interesting here because
Speaker 3: this feels a real about face. Why would now be
Speaker 3: the right time for the two companies to work together.
Speaker 13: Yeah, this is absolutely a huge reversal for Tesla. There's
Speaker 13: two things going on here. One, as we've discussed on
Speaker 13: this show many times, Tesla sales have not been as
Speaker 13: hot as they have been in years prior. There are
Speaker 13: a lot of new ed players. There's a lot of
Speaker 13: pressure on the company, particularly in China, to up its
Speaker 13: saled game. We saw some executives leading earlier this year
Speaker 13: because sales.
Speaker 4: Have not been so hot.
Speaker 13: What is the most in demand feature in e these
Speaker 13: right now when making purchase decisions. Well, it's Apple car Play.
Speaker 4: People like to walk.
Speaker 13: Into their car and have their iPhone interface projected onto
Speaker 13: their infotainment system. I use it in my car. People
Speaker 13: are not buying Tesla's because of it. In some cases,
Speaker 13: people are buying other cars because of the well integrated support.
Speaker 13: Tesla wants to hit every lever it could to improve sales.
Speaker 13: You do that with car Play, right, and I would
Speaker 13: expect them to go down the list of all the
Speaker 13: requests that people have for wanting to buy a new
Speaker 13: car and hit those one by one to help sales.
Speaker 13: It's time for Tesla to do that as good as
Speaker 13: their infotainment system is. The second thing, of course, is
Speaker 13: Elon Musk's one trillion dollar pay package, which includes some metrics,
Speaker 13: particularly around selling a certain number of vehicles and integrating
Speaker 13: car play could potentially help with that. And so I
Speaker 13: think this is a good thing for Tesla. They have
Speaker 13: engineers developing support for this, testing support for this, and
Speaker 13: we anticipate a rollout unless it is canceled, of course,
Speaker 13: which Evon Musk is known to do with some features
Speaker 13: late in development in the coming months.
Speaker 3: Mark, you worked with ed on this story, and I'm
Speaker 3: interested is to well, what is in it for Apple?
Speaker 3: More broadly, Elon in many ways had refused to do
Speaker 3: deals because he didn't want the sharing of data, particularly
Speaker 3: when Apple was basically building a competitor. At one point
Speaker 3: Apple backed away from that. Now, how do they win
Speaker 3: by getting car play within it Tesla?
Speaker 13: You know, from Apple's perspective, this is something that they
Speaker 13: don't really have to participate in. There's no agreements behind
Speaker 13: the scenes. Apple provides this functionality. It provides developer tools
Speaker 13: for car makers to integrate this into their cars, so
Speaker 13: there's no money exchanged here. It's really car play, a
Speaker 13: iPhone ecosystem feature. If consumers rely on their iPhone for
Speaker 13: use of their car, for Apple, that keeps people buying iPhones,
Speaker 13: upgrading iPhones, keeping them locked into the ecosystem. So that's
Speaker 13: the business play for them. And Tesla right has a
Speaker 13: you know, over a third of the used market. They
Speaker 13: are a gigantic player in terms of car sales globally
Speaker 13: as well in aligning Tesla with the iPhone brand, and
Speaker 13: that's great for Apple, whether they're making money directly on
Speaker 13: in or not.
Speaker 3: Do you think Elon's going to continue to criticize Apple
Speaker 3: on his ex platform and the.
Speaker 13: Like, Oh, I'm sure of it. But you know, his
Speaker 13: relationship with Apple has taken a turn since Apple stopped
Speaker 13: developing its own competitor. He relies on them very heavily
Speaker 13: now for distribution of grock and X, so it's pretty
Speaker 13: critical for him to be on Apple's good.
Speaker 3: Side, romain on Apple's good side. We'll continue to see
Speaker 3: how the rollout continues and if indeed it does happen
Speaker 3: as you said, sometimes Eno Musk can be prone to
Speaker 3: u turns. Mark German we so appreciate it. Now it's
Speaker 3: time for talking tech. First up, JP Morgan is Lenny's
Speaker 3: managers use AI to help write performance reviews. Now the
Speaker 3: max's new guidelines allow supervisors to use an internal chatbot
Speaker 3: to drop their evaluations, but caution that the technology is
Speaker 3: quote not a substitute.
Speaker 6: The human judgment. Us Google spacing a new EU probe.
Speaker 6: The European Commission alleges the.
Speaker 3: Tech gilt and unfairly demotes certain news results, violating the
Speaker 3: Digital Markets Act. The investigation could add another eleven billion
Speaker 3: dollars to Googles, growing it tally of fines in Europe
Speaker 3: and delivery startup go pack as race to one of
Speaker 3: fifty million dollars an evaluation of eight and a half billion.
Speaker 3: But that's down for fifteen billion dollars in its twenty
Speaker 3: twenty one funding round so all, according to sources. Now,
Speaker 3: the company says the new funding will help accelerate its
Speaker 3: investment in AI.
Speaker 14: I don't believe we're in an AI bubble, and the
Speaker 14: reason for that is we're going through a natural transition
Speaker 14: from an old computing model based on general purpose computing
Speaker 14: to accelerated computing. We also know that AI has now
Speaker 14: become good enough because of reasoning capability, research capabilities, its
Speaker 14: ability to think it's now generating tokens and now generating
Speaker 14: intelligence that's worth paying for.
Speaker 3: That, of course, was in video CEO Jensen Wang speaking
Speaker 3: with our own Ed Ludlow at GtC, just brushing off
Speaker 3: those concerns about an AI bubble. But the scale of
Speaker 3: spending for data centers and of course by AI startups
Speaker 3: continues to raise eyebrows, so we wanted to dig into
Speaker 3: it with Brianna Doherty, she's analyst with Bloomberg Intelligence. You've
Speaker 3: been putting out some great rethinking of whether open ai
Speaker 3: has scale, has the financial wherewithal, and whether there's risk
Speaker 3: within this.
Speaker 6: It's been some of the most red analysis I've seen.
Speaker 3: What is your takeaway as to the circular financing and
Speaker 3: whether this is a concern.
Speaker 12: I think that there's clearly a lot happening right and
Speaker 12: the integration that we're having between the private markets as
Speaker 12: well as the public markets is clearly something to be watching,
Speaker 12: and it's a space that we follow very very closely.
Speaker 12: We think that actually what we've been seeing with open
Speaker 12: aized relationships is the fact that they're broadening them, They're
Speaker 12: creating structures that are allowing them to potentially IPO long term.
Speaker 12: That's obviously something that's been talked about, I think over
Speaker 12: the last couple of weeks especially and what we're thinking
Speaker 12: when we look at these companies. So we've got a
Speaker 12: few hecticorns that we watch very closely, and actually hecticorns,
Speaker 12: I'm pretty sure it's a term. Over one hundred billion dollars,
Speaker 12: that's what we call them. We've got three of them
Speaker 12: in the data set that we track, over twelve actually
Speaker 12: decacorns that we also track really really closely in our
Speaker 12: data sets Open AI, Anthropic XAI. Naturally right now, at
Speaker 12: their current implied valuations, they would rank in the top
Speaker 12: thirty if they were public and in our Bloomberg Benchmark
Speaker 12: AI Index, which has over one hundred and twenty equities
Speaker 12: in it. So the scale these companies is huge. The
Speaker 12: partnerships there forming are critical, and we do think we're
Speaker 12: not in the bubble camp. We do think that there's
Speaker 12: a lot of opportunity down the road. As it relates
Speaker 12: to this.
Speaker 3: When someone then sits set a dinner table with you
Speaker 3: at a cocktail party and they're saying, I cannot see it.
Speaker 3: I just Why on earth is AMD giving it stock
Speaker 3: to open AI to seal these sorts of deals. What
Speaker 3: is your general narrative as to why we can avoid
Speaker 3: some sort of bubble? Is it just the sheer revenue
Speaker 3: that could scale for open AI? But you do have
Speaker 3: to have a belief, Yeah, I.
Speaker 6: Think you do have to have a certain bit of belief.
Speaker 4: Right.
Speaker 12: I think what we've seen is even over the last year,
Speaker 12: we've seen opening eyes implied valuation more than double, right,
Speaker 12: I mean, naturally a lot has happened in that AI ecosystem.
Speaker 12: And actually, something that we've been really focused on, and
Speaker 12: Jensen actually said something the other day about this as well,
Speaker 12: is we're not just talking about where we are right
Speaker 12: now with AI. We're talking about an AI to quantum continuum, right,
Speaker 12: We're talking about this continued acceleration and where we're going
Speaker 12: to see and continue to prove it. Right. So, even
Speaker 12: if it's that you're thinking, Okay, well, what if some
Speaker 12: cost come down, or what if the power needs come down, Well,
Speaker 12: the demand elasticity is just so strong that for every
Speaker 12: little bit of efficiency you gain, you're going to gain
Speaker 12: some extra demand that's going to drive a next new evolution.
Speaker 12: So we're really looking at this as continuum and investing
Speaker 12: through that type of disruption. I mean, it's not easy,
Speaker 12: it's not without tension. So while there's tons of opportunity,
Speaker 12: we are flagging. We've talked about this previously, about this
Speaker 12: potential tension that can come with that. In twenty twenty six.
Speaker 12: We're seeing over the last few weeks we get a
Speaker 12: lot of pullbacks, right, We see a lot of optimism.
Speaker 12: What we're seeing is investor's fear of missing note right,
Speaker 12: really wanting the innovation, but also every now and then
Speaker 12: pivot into a risk off. And that tension is something
Speaker 12: that we think is going to persist through twenty twenty six.
Speaker 3: So ride the volatility, expect the volatility when you're thinking
Speaker 3: about the fundamental analyiso only briefly look Michael Berry basically
Speaker 3: having to shut up shop on his hedge fund. It
Speaker 3: would see the reporting is leading us there on his
Speaker 3: negative bets on some of these companies.
Speaker 6: You think it's impossible.
Speaker 12: Briefly, nothing's impossible, yeah, right, and yes it does make
Speaker 12: for good dinner side conversations. What we're like and the
Speaker 12: way we approach this is we look very much the
Speaker 12: theme holistically, right, It's one of the reasons why we
Speaker 12: say picking single individual winners and losers is really tough
Speaker 12: when you're talking about investing through disruption. We really look
Speaker 12: at benchmark industries. That's one of the reasons why, you know,
Speaker 12: the way we create our work is very much looking
Speaker 12: at that benchmark approach, understanding that as these systems evolve,
Speaker 12: you're going to find new connections, new correlations, and that's
Speaker 12: really a way to continue investing through disruption without that nability, vulnerability.
Speaker 6: And amazing analysis.
Speaker 3: Go read it and Doherty a Bloomberg intelligence that does
Speaker 3: it for this edition of Bloomberg Tech.
Speaker 6: Check out the podcast
Speaker 9: M hm hm