WEBVTT - Tesla, Alphabet Shares Slump 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.880 --> 0:00:15.040 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:15.080 --> 0:00:18.079 Eastern on Apple card playing Android Auto with the Bloomberg 0:00:18.120 --> 0:00:21.440 Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.040 or watch us live on YouTube. 0:00:25.040 --> 0:00:28.240 Going back to that Tesla story, disappointing Quartered socks off 0:00:28.240 --> 0:00:31.680 twelve percent, Elon must trying to redirect the focus of 0:00:31.720 --> 0:00:34.640 investors on other parts of the company, AI, robotaxis and 0:00:34.680 --> 0:00:37.560 the like. Steve Man joins as he covers the global 0:00:37.600 --> 0:00:39.400 auto industry for Bloomberg Intelligence. 0:00:39.600 --> 0:00:43.560 Steve, what you make of the quarter last night? Holistically? 0:00:44.120 --> 0:00:45.400 For the Tesla. 0:00:45.080 --> 0:00:49.760 Story, I mean, I still like their long term, medium 0:00:49.840 --> 0:00:53.600 term A look on AI, I'm not you know, in 0:00:53.920 --> 0:00:57.240 our view were not including eight billion optimous robots. I 0:00:57.280 --> 0:01:01.360 think that's a little bit out there. But AI is 0:01:01.680 --> 0:01:05.240 will continue to drive the stock. But I think today 0:01:05.400 --> 0:01:09.000 people are focused on their auto business. It's it's a 0:01:09.040 --> 0:01:14.080 little bit worrying. I think investors were expecting their automotive 0:01:14.120 --> 0:01:17.880 gross margin to flatten out in the second quarter versus 0:01:17.920 --> 0:01:21.480 the first, but it did decline about one hundred and 0:01:21.520 --> 0:01:26.360 fifty basis points to thirteen thirteen point nine percent, which 0:01:26.400 --> 0:01:30.280 is in line with you know, the legacy automaker's automotive 0:01:30.319 --> 0:01:34.360 growth marginal fourteen percent. So there is some concerns with 0:01:34.560 --> 0:01:38.160 the investors. Is you know, are there any more upside 0:01:38.200 --> 0:01:40.560 on margin? Are they you know, are they really that 0:01:40.680 --> 0:01:41.520 good with cost? 0:01:42.560 --> 0:01:44.640 But I guess the question is how do we value 0:01:44.640 --> 0:01:45.080 the stock? 0:01:45.200 --> 0:01:46.640 So I hear you that the auto part of their 0:01:46.680 --> 0:01:49.200 business is very much maybe in line with what other 0:01:49.240 --> 0:01:51.920 auto companies are talking about, but they trade an estimated 0:01:51.960 --> 0:01:55.680 pe of like ninety times, Like is it worth it 0:01:55.880 --> 0:01:58.680 for that? If it's if it's also being valued as 0:01:58.720 --> 0:01:59.720 an AI company. 0:02:00.880 --> 0:02:02.840 I think there's a couple of things that the investors 0:02:02.840 --> 0:02:07.200 are focused on beyond this second quarter. You know, they 0:02:07.240 --> 0:02:11.080 did pull ahead the start of production for a more 0:02:11.120 --> 0:02:14.799 affordable EV from like the second half of next year 0:02:14.880 --> 0:02:17.840 to the first half, which is critical. I think the market, 0:02:18.160 --> 0:02:22.480 the the EV market today globally is actually consumers in 0:02:22.520 --> 0:02:25.320 the EV market actually looking for a more affordable EV 0:02:25.760 --> 0:02:29.120 something that's you know, less than fifty thousand US dollars. 0:02:29.480 --> 0:02:32.360 You know, most of the EV's offered today are above 0:02:32.440 --> 0:02:35.880 fifty thousand dollars, So, you know, I think the investors 0:02:36.000 --> 0:02:39.840 are hoping that, you know, into twenty twenty five and 0:02:39.880 --> 0:02:42.640 into twenty twenty six, we're gonna get a rebound in 0:02:42.720 --> 0:02:47.480 EV sales because there's gonna be more affordable EV's, budget friendly, 0:02:47.520 --> 0:02:49.240 EV's for the mass market. 0:02:49.840 --> 0:02:54.320 Steve Tesla right now is an auto company and it's 0:02:54.360 --> 0:02:57.840 an other company. Elon wants you to focus on the 0:02:58.080 --> 0:03:01.359 other Can you define what's in that other bucket and 0:03:01.520 --> 0:03:06.840 when investors believe it will be material to their revenution profits. 0:03:07.639 --> 0:03:10.440 Yeah, you know, he talks about AI quite a bit, 0:03:11.120 --> 0:03:14.720 you know, robo taxi, optimism, robot but if you think 0:03:14.760 --> 0:03:19.000 of AI, I think there's you know, potentially even more 0:03:19.680 --> 0:03:23.720 ways to generate revenues from AI. One of the things 0:03:23.760 --> 0:03:26.959 that I think the market is also focused on other 0:03:27.040 --> 0:03:30.959 than robotaxi, taking a passenger from point A to point 0:03:30.960 --> 0:03:35.280 B is for example. You know, these cars have huge 0:03:35.360 --> 0:03:39.920 battery storage capacity, right, and these things, if they can 0:03:40.040 --> 0:03:44.440 move about on its own, you can really help out 0:03:44.480 --> 0:03:48.680 the utilities in terms of, you know, redistributing power across 0:03:48.720 --> 0:03:49.120 the grid. 0:03:49.720 --> 0:03:52.040 Well to that point, I mean, their energy business was 0:03:52.080 --> 0:03:55.000 actually quite impressive. It had its highest installation of batteries 0:03:55.000 --> 0:03:59.400 and revenue ever and energy accounted for just twelve percent 0:03:59.440 --> 0:04:04.120 and sixteen percent of Tesla's revenue and gross profit, respectively. 0:04:04.200 --> 0:04:06.920 I mean, yeah, it's going to fluctuate, but that's pretty strong. 0:04:08.200 --> 0:04:11.280 Yeah, it's it's a good good sign. I think, uh, 0:04:11.480 --> 0:04:13.760 you know, those those tend to be a little bit 0:04:13.800 --> 0:04:17.680 lumpy because the orders are big, and so whenever they 0:04:17.760 --> 0:04:21.200 deliver the the the order and when they ever they 0:04:21.200 --> 0:04:23.960 book it that that tends to be lumpy. I think 0:04:24.560 --> 0:04:26.799 we'll have to see if it's going to be consistent. 0:04:26.839 --> 0:04:29.599 But I think the investors are very focused on the 0:04:29.640 --> 0:04:31.960 auto business. You know, what are they when are they 0:04:31.960 --> 0:04:33.960 going to roll out the new are they going to 0:04:33.960 --> 0:04:35.840 be on time? And rolling out the new EV the 0:04:35.880 --> 0:04:40.359 affordable EV? And then longer term it's really uh, you 0:04:40.400 --> 0:04:42.640 know AI, is he going to deliver? What what is 0:04:42.680 --> 0:04:44.320 he going to say in October? 0:04:44.839 --> 0:04:45.200 Uh? 0:04:45.560 --> 0:04:49.160 You know the the AI event that he's hosting. You know, 0:04:49.400 --> 0:04:51.720 there was there were a lot of questions about that 0:04:51.839 --> 0:04:54.880 during the call, but he's pretty they were pretty tight lip. 0:04:55.240 --> 0:04:57.280 So what is that October evan? 0:04:57.400 --> 0:04:59.719 You tell us what the company says it is and 0:04:59.760 --> 0:05:01.839 what you think it may be good distinction? 0:05:02.000 --> 0:05:06.000 Yeah, yeah, I think I think for the most part, 0:05:06.080 --> 0:05:07.920 it's going to be, you know, what is this new 0:05:08.000 --> 0:05:11.359 vehicle they're launching. I think investors will be focused on, 0:05:11.400 --> 0:05:13.440 what is this new vehicle, What is the price of 0:05:13.520 --> 0:05:17.320 this vehicle? How are you going to manufactures so it 0:05:17.360 --> 0:05:22.040 further cuts you know, per unit costs. The other one 0:05:22.120 --> 0:05:28.360 is the full self driving, the full driving system that 0:05:28.560 --> 0:05:31.039 they're trying to roll out, the robo taxi that they're 0:05:31.040 --> 0:05:32.520 trying to roll out. I think people are going to 0:05:32.560 --> 0:05:35.640 be focused on when is that going to generate you know, 0:05:36.040 --> 0:05:39.680 material earnings and material revenue. Now I think it's not 0:05:39.720 --> 0:05:44.800 going to be until twenty thirty, but so but I 0:05:44.880 --> 0:05:47.200 really think the other thing that's going to get really 0:05:47.279 --> 0:05:50.920 people really excited is is it is the Optimist robot. 0:05:51.279 --> 0:05:54.320 Because the Optimist Robot, they really haven't talked too much 0:05:54.360 --> 0:05:56.520 about it yet. I don't think it's going to get 0:05:56.560 --> 0:06:01.560 to eight billion unit sales anytime soon. But you know, 0:06:01.640 --> 0:06:05.440 if they can incorporate those Optimist robot into their manufacturing, 0:06:05.839 --> 0:06:08.480 I think there's going to be a lot of potential 0:06:08.560 --> 0:06:09.719 for cost cuts. 0:06:09.760 --> 0:06:12.159 Okay, so the addressable market isn't John Tucker buying one. 0:06:12.200 --> 0:06:15.119 The adressible market is must using them to build a car. 0:06:16.000 --> 0:06:19.600 That's right, Okay, so don't worry you disappointed? 0:06:19.680 --> 0:06:22.600 Now everything for me to this. 0:06:22.560 --> 0:06:25.159 Point, like if John Tucker wanted one, could eventually he 0:06:25.240 --> 0:06:27.119 actually buy one? 0:06:27.440 --> 0:06:28.400 No, I don't. 0:06:28.400 --> 0:06:31.040 I don't think he doesn't. It's not for sale right now. 0:06:31.080 --> 0:06:33.440 I think what he's he's I think what he's going 0:06:33.440 --> 0:06:36.760 to try to do is, uh, you know, built this robot, 0:06:36.880 --> 0:06:41.760 optimize this robot. Uh, you know within the confines of 0:06:41.800 --> 0:06:44.599 Tesla first be you know, they're going to make it 0:06:44.920 --> 0:06:46.560 good enough, then they're going. 0:06:46.480 --> 0:06:47.520 To offer it to the public. 0:06:47.920 --> 0:06:50.360 All right, So maybe that's going to be not soon. 0:06:50.760 --> 0:06:53.200 Yeah, yeah, So you gotta wait, you gotta wait, John Tucker, 0:06:53.240 --> 0:06:56.440 all right, Steve thinks lot really appreciated. Steve Man Bloomberg Intelligence, 0:06:56.440 --> 0:06:59.080 Global Autos and Industrials research analysts. You have to wonder, 0:06:59.160 --> 0:07:01.520 just people on the call, like really addressable mark? Is 0:07:01.520 --> 0:07:04.080 everyone on the planet? I don't know that's could you. 0:07:04.080 --> 0:07:06.320 Look at the stands, I mean from starting the year 0:07:06.440 --> 0:07:08.640 till like the third week of April, the stock was 0:07:08.680 --> 0:07:12.240 down fifty percent. Since then up seventy five percent. So 0:07:12.280 --> 0:07:14.520 I mean it's just do you buy off on all 0:07:14.560 --> 0:07:17.880 these other bets outside of the car business. 0:07:17.920 --> 0:07:19.920 You have to bend metal or don't you? 0:07:21.000 --> 0:07:21.480 And then how do you? 0:07:21.480 --> 0:07:22.360 That's always been the. 0:07:22.280 --> 0:07:24.360 Case for Tessa story. You have to believe in Elon. 0:07:24.480 --> 0:07:25.120 That's simple as that. 0:07:25.240 --> 0:07:26.920 But it's going even bigger and bigger. It's like the 0:07:26.960 --> 0:07:28.800 other gets bigger and bigger with more stuff. 0:07:30.360 --> 0:07:34.280 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:34.360 --> 0:07:37.880 weekdays at ten am Eastern on applecar Play and Android 0:07:37.880 --> 0:07:40.679 Auto with the Bloomberg Business app. You can also listen 0:07:40.800 --> 0:07:43.880 live on Amazon Alexa from our flagship New York station 0:07:44.240 --> 0:07:47.000 Just Say Alexa, playing Bloomberg eleven thirty. 0:07:48.320 --> 0:07:51.800 This Bloomberg Intelligence Radio, Happy Wednesday, everybody, Happy hump Day, 0:07:52.040 --> 0:07:54.360 and Alex c alongside Paul Sweeney and John Tucker. We 0:07:54.400 --> 0:07:57.320 are broadcasting to you live from Interactive Broker Studio right 0:07:57.360 --> 0:08:00.520 here in Midtown Manhattan. So John Tucker laid out, the 0:08:00.520 --> 0:08:04.240 market declined perfectly. And my really silly question is well, 0:08:04.320 --> 0:08:06.560 Wire stocks down? And I say silly because you can say, oh, 0:08:06.600 --> 0:08:09.080 of course, you know Google Tesla the disappoint and therefore 0:08:09.400 --> 0:08:10.160 stocks are down. 0:08:11.000 --> 0:08:11.640 Is that it? 0:08:12.040 --> 0:08:14.000 Or is it a continuation of last week? And the 0:08:14.080 --> 0:08:17.480 rotation theme is still intact? Is there something else going 0:08:17.520 --> 0:08:20.200 on here. Bill Dudley talking in a Bloomberg opinion article 0:08:20.200 --> 0:08:22.280 about how he changed his mind. He thinks that a 0:08:22.320 --> 0:08:25.400 cut should come in July because employment doesn't look that good. 0:08:25.880 --> 0:08:26.520 So let's get the. 0:08:26.520 --> 0:08:29.120 Read here with Kim Forrest, founder and chief investment officer 0:08:29.160 --> 0:08:32.040 of Boca Capital Partners, joining us from Pittsburgh. Kim, it's 0:08:32.040 --> 0:08:34.959 a dumb question. Wire stocks down so much? 0:08:36.280 --> 0:08:38.800 Okay, I'm going to answer it with a dumb answer. 0:08:38.800 --> 0:08:39.360 Are you ready? 0:08:39.600 --> 0:08:42.040 Yeah, because there's more sellers than buyers. 0:08:42.240 --> 0:08:42.320 No. 0:08:42.480 --> 0:08:45.600 I love this answer. Actually I know well. 0:08:45.640 --> 0:08:48.920 I learned this on my very first day at Parker 0:08:49.040 --> 0:08:51.880 Hunter when I was a cell side analyst. That's how 0:08:51.920 --> 0:08:57.840 one of the radio announcers would say, Parker Hunter anyhow. Yes, 0:08:58.320 --> 0:09:02.600 And they didn't cover this in MBA program on valuation. 0:09:03.120 --> 0:09:06.480 But when people get afraid that maybe they've paid too 0:09:06.559 --> 0:09:09.840 much for a stock, or maybe that things aren't going 0:09:09.880 --> 0:09:15.319 the way they think, they sell and selling makes stocks 0:09:15.400 --> 0:09:17.880 go down because when there's more sellers and buyers, the 0:09:17.920 --> 0:09:20.960 prices fall. And that is why we love markets, because 0:09:20.960 --> 0:09:24.680 it does the inverse. When there are more buyers than sellers, 0:09:25.040 --> 0:09:31.960 prices go up. But the fundamentals really are is everything okay, 0:09:32.040 --> 0:09:34.000 And it looks like some things are okay and some 0:09:34.040 --> 0:09:36.200 things aren't, and it depends on what day the market 0:09:36.240 --> 0:09:38.360 thinks more of one than the other. 0:09:39.160 --> 0:09:42.120 What do you make of this whole AI trade in 0:09:42.160 --> 0:09:44.680 the marketplace certainly was a theme not just for tech 0:09:44.720 --> 0:09:47.840 companies but for the whole market beginning in twenty twenty three. 0:09:48.240 --> 0:09:49.000 How do you view it? 0:09:49.040 --> 0:09:52.240 Because again we've had Tesla talking about it last night, 0:09:52.280 --> 0:09:55.400 Google talking about it still. 0:09:55.559 --> 0:09:58.160 Well, I have a nuanced view because I was a 0:09:58.240 --> 0:10:02.679 software developer in company that actually developed neural networks and 0:10:02.720 --> 0:10:06.679 then used neural networks. So and that is the underlaying 0:10:06.760 --> 0:10:11.560 technology that's behind chat, GPT and autonomous driving and all 0:10:11.600 --> 0:10:14.600 of that kind of stuff. So here's the skinny on that. 0:10:15.440 --> 0:10:18.719 I strongly believe the moment for AI is finally here 0:10:18.760 --> 0:10:21.680 because computers can be fast enough and we have enough 0:10:21.679 --> 0:10:24.440 of the right data to be able to train models. 0:10:24.880 --> 0:10:30.000 But investors are always impatient with new technology, and they thought, 0:10:30.200 --> 0:10:33.199 just like they thought autonomous druck cars were just around 0:10:33.240 --> 0:10:37.559 the corner in twenty sixteen, they're not. It always takes 0:10:37.640 --> 0:10:41.840 longer to develop really good technology. AI is really good, 0:10:41.920 --> 0:10:44.400 but it's not going to pay off in the next 0:10:44.480 --> 0:10:50.000 fifteen to twenty minutes. So investors are becoming aware of 0:10:50.000 --> 0:10:53.640 that right now, especially as Google kind of outlined its 0:10:53.679 --> 0:10:56.840 spending plans that go on for the foreseeable future. 0:10:57.040 --> 0:10:59.400 Well, that's where I think that question then goes to 0:10:59.400 --> 0:11:02.120 my first question of why our stocks are selling off, 0:11:02.120 --> 0:11:05.600 and that basically they have to spend to then monetize, 0:11:05.640 --> 0:11:08.000 and there's going to be a gap between the spending 0:11:08.040 --> 0:11:10.960 and the monetization and there's still a race to spend. 0:11:11.400 --> 0:11:14.440 And as an investor, how do you value something like that? 0:11:15.880 --> 0:11:20.120 Well, in my mind, you don't yet, right I don't 0:11:20.160 --> 0:11:23.520 know what Google is going to be able to monetize 0:11:23.520 --> 0:11:26.720 because we're not clear what problem they're solving. Like that's 0:11:26.760 --> 0:11:29.200 the first thing we have to ask, what problem are 0:11:29.200 --> 0:11:32.360 you solving? Is it worth solving with technology? And how 0:11:32.440 --> 0:11:34.280 much money will you get? And we don't have any 0:11:34.280 --> 0:11:37.000 of those answers, But we do have this idea that 0:11:37.080 --> 0:11:40.199 AI is going to work out. So how we play 0:11:40.280 --> 0:11:45.000 this is we've been buying the semis and then storage 0:11:46.000 --> 0:11:49.520 companies or semis that have to do with storage, because 0:11:49.559 --> 0:11:53.400 we know AI takes tons of data, unbelievable amounts of data, 0:11:53.559 --> 0:11:56.840 probably more data than it takes electricity. I mean, I 0:11:56.920 --> 0:12:00.520 can't emphasize how much data is needed. Okay, I've ever 0:12:00.559 --> 0:12:02.880 done that, but that's what we've been doing. So we 0:12:02.960 --> 0:12:08.240 buy companies like net app, which makes storage enterprise storage devices, 0:12:08.760 --> 0:12:12.280 and then Micron because they make one of the elements 0:12:12.400 --> 0:12:17.160 of storage, which is called nand it's a technology a 0:12:17.240 --> 0:12:20.520 chip that you can store things on. And that is 0:12:20.559 --> 0:12:22.920 how we've played it because we don't know what time 0:12:23.040 --> 0:12:25.800 frame we're going to be in. We just know somewhere 0:12:25.840 --> 0:12:28.080 within the next ten years, AI is going to be 0:12:28.720 --> 0:12:32.120 a thing and show productivity and people will pay for it. 0:12:32.760 --> 0:12:38.360 Outside of technology, Kim, are there areas that are interest you? 0:12:38.400 --> 0:12:38.600 Oh? 0:12:38.920 --> 0:12:41.880 All of them are interesting, honestly. You know, energy is 0:12:41.920 --> 0:12:44.600 a big question mark because it's been kind of unloved 0:12:44.640 --> 0:12:48.400 as we've done the move towards green and now we're 0:12:48.480 --> 0:12:52.960 kind of going maybe we need you know, energy for 0:12:53.000 --> 0:12:55.280 a while longer, you know, the old fashioned kind that 0:12:55.320 --> 0:12:57.920 we dig out of the earth. That's kind of interesting, 0:12:58.440 --> 0:13:01.480 and I think if we're going to be in a 0:13:01.600 --> 0:13:07.880 declining interest rate environment, maybe things like housing and then 0:13:08.120 --> 0:13:12.960 ancillary areas around housing, like home goods and that sort 0:13:12.960 --> 0:13:15.800 of thing. You know, items that people buy when they 0:13:15.800 --> 0:13:19.760 buy a new house that might be interesting. And again, 0:13:19.840 --> 0:13:22.200 these are kind of three to five year time periods 0:13:22.240 --> 0:13:26.160 for us. We don't ever really want to make bets 0:13:26.160 --> 0:13:28.960 on the next six months because anything can happen, right, 0:13:29.040 --> 0:13:30.960 So we're always looking out three to five. 0:13:30.880 --> 0:13:33.160 Years, which brings me though to the election can because 0:13:33.240 --> 0:13:35.080 I appreciate that you're not going to tradeer on the election, 0:13:35.520 --> 0:13:38.400 But there are some policies that feel binary and election 0:13:38.520 --> 0:13:41.000 and energy maybe one of them in a Trump versus 0:13:41.000 --> 0:13:45.160 Harris world, which would then affect investment and returns and 0:13:45.240 --> 0:13:48.079 prices in the next, say, three to five years, which 0:13:48.120 --> 0:13:48.920 is your time frame. 0:13:49.000 --> 0:13:50.439 How do you wind up thinking about it? 0:13:51.520 --> 0:13:54.319 Sure, well, I'm kind of a realist too. As much 0:13:54.320 --> 0:13:58.079 as you would like the world to be driven by renewables, 0:13:58.559 --> 0:14:01.360 it's not practical, isn't if you look at any of 0:14:01.400 --> 0:14:04.920 the numbers. Even as the use of renewables have gone up, 0:14:04.960 --> 0:14:08.880 so too has the use of non renewables. Right, So 0:14:09.960 --> 0:14:13.360 I think if you you know, sure the scale may 0:14:13.360 --> 0:14:17.120 be tilted towards renewables, maybe you play it by finding 0:14:17.120 --> 0:14:21.120 a company that does both. And a lot of the 0:14:21.320 --> 0:14:25.800 energy companies are trying to get a green footprint somehow, 0:14:26.240 --> 0:14:29.080 so I think that might be where you look. 0:14:29.880 --> 0:14:33.840 Fixed income, Kim, how are you guys allocating to fixed 0:14:33.840 --> 0:14:36.120 income these days? Because you know, folks can sit into 0:14:36.120 --> 0:14:37.960 your treasure and get down your you know, four point 0:14:37.960 --> 0:14:38.480 four percent. 0:14:39.480 --> 0:14:42.800 I know, well, we're short. We're still in the short term, 0:14:43.040 --> 0:14:46.080 right Like whenever I have to replace a bond, I'm 0:14:46.360 --> 0:14:48.680 trying to go as short as I can to get 0:14:48.720 --> 0:14:51.640 the highest amount. And two to three years is where 0:14:51.680 --> 0:14:56.120 we're liking to buy. Anything longer than that, I don't know. 0:14:56.120 --> 0:14:59.200 It just seems too risky because it could go literally 0:14:59.320 --> 0:15:03.280 either way. Right if we're going to reinflate, if the 0:15:03.320 --> 0:15:05.280 curve is going to go back to normal, maybe long 0:15:05.360 --> 0:15:07.920 term rates will go up a bit, short term rates 0:15:07.920 --> 0:15:10.520 will fall. So let's live it up and buy some 0:15:10.560 --> 0:15:13.480 short term rates because we usually we don't trade them. 0:15:13.800 --> 0:15:17.240 We just let them expire, right, So we're buying the 0:15:17.320 --> 0:15:20.160 yield so maturity. 0:15:19.720 --> 0:15:20.560 Before we let you go. 0:15:21.200 --> 0:15:23.240 Let's get into the debate about small caps. Do you 0:15:23.680 --> 0:15:25.480 say yay or nay to small caps? 0:15:26.040 --> 0:15:29.200 I am a big ya. I have about half of 0:15:29.240 --> 0:15:32.840 my portfolios in small I would say mid cap. I 0:15:32.880 --> 0:15:36.560 can't really look at anybody less than a billion dollars, 0:15:36.640 --> 0:15:39.360 I don't have the temperament for the companies that live there. 0:15:40.240 --> 0:15:44.760 That being said, those high quality small companies often get 0:15:44.800 --> 0:15:47.760 bought by larger companies, and that's kind of what we're 0:15:47.800 --> 0:15:51.160 looking for, is companies that have a really great track 0:15:51.200 --> 0:15:57.600 record of making products that their clients love, and a 0:15:57.640 --> 0:15:59.480 lot of them tend to get bought out and it 0:15:59.520 --> 0:16:04.160 really does add a boost to your returns. So that's 0:16:04.200 --> 0:16:04.920 what we look for. 0:16:05.480 --> 0:16:07.600 All right, good stuff, Kim, We appreciate you. 0:16:07.640 --> 0:16:10.160 Thank you very much, Kim. Forrest founder and CIO. A 0:16:10.160 --> 0:16:13.640 book of capital partners joining us on that. Okay, de reine. 0:16:13.640 --> 0:16:14.200 But it's interesting. 0:16:14.200 --> 0:16:15.840 It's an M and A play. It's not like a 0:16:15.840 --> 0:16:19.560 fed cutting play. It's not necessarily a rotation play, but 0:16:19.640 --> 0:16:20.480 at takeout play. 0:16:20.560 --> 0:16:22.320 So that's also quite interesting. 0:16:23.760 --> 0:16:27.640 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:16:27.720 --> 0:16:30.320 weekdays at ten am Eastern on Apple, card Play and 0:16:30.400 --> 0:16:33.440 Android Auto with the Bloomberg Business App. Listen on demand 0:16:33.480 --> 0:16:37.560 wherever you get your podcasts, or watch us live on YouTube. 0:16:38.160 --> 0:16:39.720 It's Bloomberg Intelligence Radio. 0:16:39.720 --> 0:16:42.160 We bring you all the top news and business finance, 0:16:42.240 --> 0:16:45.080 economics and earnings. There are lens of our Bloomberg Intelligence 0:16:45.080 --> 0:16:47.040 folks that cover two thousand companies and one hundred and 0:16:47.040 --> 0:16:49.720 thirty industries worldwide, and now is our great time we 0:16:49.760 --> 0:16:53.960 get to focus on Google aka Alphabet that's dock down, 0:16:54.120 --> 0:16:58.080 following the most since February twenty six and hitting its 0:16:58.080 --> 0:17:01.680 lowest level since June eighteenth. This is really hitting it 0:17:01.800 --> 0:17:04.320 the earnings from yesterday. So Man Deep saying Bloomberg Intelligence 0:17:04.320 --> 0:17:07.240 senior tech industry analyst is joining us now in studio 0:17:07.320 --> 0:17:09.439 to dissect it. So on the one hand, we have 0:17:09.560 --> 0:17:11.760 the CAPEX spend and the other hand we have. 0:17:11.760 --> 0:17:13.720 The YouTube stuff. Which one you want? Which is the 0:17:13.760 --> 0:17:15.639 bigger driver of the downside today? 0:17:15.960 --> 0:17:20.399 Capex I mean simply because this quarter companies are not 0:17:20.560 --> 0:17:23.960 getting a pass on boosting CAPEX. That wasn't the case 0:17:24.080 --> 0:17:29.720 last quarter. But clearly I think investors vary about how 0:17:29.800 --> 0:17:32.840 much CAPEX these companies are going to throw on AI. 0:17:33.080 --> 0:17:36.480 And look, in the case of Alphabet, there is revenue 0:17:36.600 --> 0:17:40.280 in the cloud segment, so they quantified the AI impact 0:17:40.320 --> 0:17:44.359 on cloud which was high single digit contribution to cloud segment, 0:17:44.440 --> 0:17:47.760 and cloud segment actually saw on acceleration in top line growth. 0:17:48.280 --> 0:17:52.399 But YouTube miss, I think I attribute that more to 0:17:53.640 --> 0:17:58.920 software spending outside of financial services and retail sectors like automotive. 0:17:59.240 --> 0:18:01.960 They're not spending on digital ads right now because the 0:18:02.000 --> 0:18:05.080 sector is going through a cyclical downturn. So there is 0:18:05.080 --> 0:18:08.960 that cyclical element to YouTube's business. But I think there 0:18:08.960 --> 0:18:12.359 are a lot of positives. Course search growing at fourteen percent. 0:18:12.840 --> 0:18:15.359 I mean, think about the scale of search and the 0:18:15.400 --> 0:18:17.920 fact that they are able to grow double digits. That's 0:18:17.960 --> 0:18:21.240 quite impressive, and that too at a very healthy margin. 0:18:21.280 --> 0:18:24.880 I mean, the biggest fear for this company was margins 0:18:24.880 --> 0:18:28.200 are going to get degraded because of you know, AI 0:18:28.359 --> 0:18:30.800 and whatnot. That we haven't seen that. So a lot 0:18:30.840 --> 0:18:33.680 of positives, but clearly kapex was an overhang. 0:18:34.200 --> 0:18:36.720 All right, I've been making a point today. If any 0:18:36.720 --> 0:18:39.160 team deserves a benefit of the doubt of higher CAPEX, 0:18:39.240 --> 0:18:43.440 it's Sundar, Punchai and all the folks at Google. Let's 0:18:44.160 --> 0:18:47.080 stop whining about capex. Have they ever not generated to 0:18:47.119 --> 0:18:48.000 return on their spending? 0:18:48.560 --> 0:18:51.680 I mean, the problem with Google's management team is they 0:18:51.760 --> 0:18:54.840 say very little on their earnings call. Like even when 0:18:54.880 --> 0:18:58.320 you answer them, like ask a question, they would answer 0:18:58.480 --> 0:19:02.239 it with as little words as possible, So you know 0:19:02.680 --> 0:19:06.760 it sounded like they are bullish on their AI opportunity 0:19:06.880 --> 0:19:11.000 and it's actually monetizing. Uh, some of that capex is 0:19:11.040 --> 0:19:14.119 going towards Wemo. If you think about you know, robotaxis 0:19:14.160 --> 0:19:16.720 and what Tesla had to go through their call last night. 0:19:17.160 --> 0:19:20.520 Wemo actually did two million rides here to date and 0:19:20.560 --> 0:19:24.640 these are all autonomous rides and they're expanding to other cities. 0:19:24.680 --> 0:19:27.760 So think about, you know, the skill in that business 0:19:27.800 --> 0:19:31.600 if they're able to do actually autonomous driving successfully. So 0:19:32.320 --> 0:19:34.840 I do think their capex as well spent, but they 0:19:35.040 --> 0:19:37.879 just don't explain it that well to the street, you know, 0:19:38.000 --> 0:19:38.760 to get the credit. 0:19:39.320 --> 0:19:42.240 So when it comes to then the AI spend, what 0:19:42.840 --> 0:19:45.640 other companies are going to get judged in the same 0:19:45.720 --> 0:19:48.680 harsh light and what's Google's one up on them? 0:19:48.720 --> 0:19:52.640 If any Meta I mean you saw a negative reaction 0:19:52.840 --> 0:19:56.399 with Alphabet, I mean think about what happened to be worse. 0:19:56.480 --> 0:19:58.720 Meta is going to be worse. Even last quarter when 0:19:58.760 --> 0:20:02.040 they raise their capex, Meta had a negative stock reaction 0:20:02.160 --> 0:20:06.240 simply because investors are concerned about how much this company 0:20:06.280 --> 0:20:09.879 is going to spend on metaverse versus AI. And so 0:20:09.920 --> 0:20:12.879 in the case of Meta, they're losing eighteen billion dollars 0:20:12.920 --> 0:20:16.640 a year on reality labs. They're spending Capex in addition 0:20:16.720 --> 0:20:19.720 to the AI Capex, which they launched a new large 0:20:19.720 --> 0:20:23.000 anglid model. And to my mind, any company right now 0:20:23.040 --> 0:20:26.360 with their own large anglid model, whether it's Alphabet, Meta 0:20:27.000 --> 0:20:30.520 or a Microsoft Open AI, they have an advantage. They 0:20:30.720 --> 0:20:34.240 have the best reasoning capability when it comes to the 0:20:34.320 --> 0:20:37.760 AI spend and it's actually a future driver of revenue. 0:20:37.840 --> 0:20:40.679 So it all comes down to how they are going 0:20:40.720 --> 0:20:43.320 to monetize it. And I think with Microsoft and Google 0:20:43.359 --> 0:20:45.560 they have an advantage because it shows up in the 0:20:45.600 --> 0:20:48.719 cloud revenue. In the case of Meta, they have to 0:20:48.800 --> 0:20:54.400 monetize the AI spend through ad revenue or a subscription 0:20:54.560 --> 0:20:58.040 based you know, chat pot offering, which nobody knows when 0:20:58.080 --> 0:20:58.640 that will come. 0:20:59.119 --> 0:21:03.399 What is Gemini and John Talker and I be using it. 0:21:03.400 --> 0:21:08.119 It's a better way to search for certain type of queries. 0:21:08.520 --> 0:21:12.680 So whenever you want you know something with a detailed 0:21:12.720 --> 0:21:15.399 answer as opposed to going through ten blue links to 0:21:15.440 --> 0:21:18.920 find that answer. Gemini is great. The one good thing 0:21:18.960 --> 0:21:22.440 about Gemini is when you search for a query, it's 0:21:22.480 --> 0:21:26.000 going to show you the relevant YouTube link, whereas if 0:21:26.040 --> 0:21:30.040 you search that on chatch Ept or Claude. It's not 0:21:30.119 --> 0:21:32.119 going to have that YouTube link. So it's going to 0:21:32.160 --> 0:21:35.080 generate the text, it's going to generate a summary, it's 0:21:35.119 --> 0:21:37.800