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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Bloomberg Tech is live

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Speaker 1: from the heart of Silicon Valley with ed La Throw

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Speaker 1: in San Francisco.

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Speaker 2: This is Bloomberg Tech coming up. The AI spending races

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Speaker 2: ramping up, with Alphabet boosting its investment plans, while Tesla's

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Speaker 2: burning through cash to fund Elon Musk's AI ambitions. Plus

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Speaker 2: mobil I founder and CEO and non Shashua will be

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Speaker 2: setting down after twenty seven years. He joins us for

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Speaker 2: an exclusive interview to explain why, and we speak with

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Speaker 2: IBM CEO Arvin Krishna.

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Speaker 3: After a sleep drop.

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Speaker 2: In mainframe sales wide on the company's results. This is

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Speaker 2: a technology earning story about AI spending, how much, how fast,

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Speaker 2: with what returns. We're looking at Alphabet, the parent of Google.

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Speaker 2: We're looking at Tesla in Alphabet place on track for

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Speaker 2: his biggest drop at one point since May of last year.

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Speaker 2: Tesla a very steep decline now of fourteen percent, biggest

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Speaker 2: drop in a long long time. Tesla had a strong

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Speaker 2: quarter for EV deliveries, but profits still tumbled. Shares, as

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Speaker 2: I said, down fourteen percent. This is partially due to

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Speaker 2: ambitious spending. Was Tesla's first cash burn or negative free cash.

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Speaker 3: Flow in two years.

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Speaker 2: Here's what CEO Elon Musk had to say on the

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Speaker 2: company's capex plans.

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Speaker 4: We should be spending on capex as fast as we can,

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Speaker 4: spend as fast as we can without without it being

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Speaker 4: too wasteful.

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Speaker 5: So I'm not trying to aim for like some.

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Speaker 4: Extremely high efficient efficiency capital spend because that would slow

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Speaker 4: things down. So it's trying it's a balance between how

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Speaker 4: much so capital efficiency versus time.

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Speaker 2: Joining us now, Ivan find Sef Tigres Financial Partners, CEO

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Speaker 2: and partner. It's been a long time since you've been

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Speaker 2: with us on Bloomberg Tech. Welcome back. The stocks down

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Speaker 2: a lot, biggest drop since June of last year. We

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Speaker 2: went into this with Wall Street saying we want to

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Speaker 2: see Tesla spend. They are why the negative reaction, Well,

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Speaker 2: they like.

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Speaker 6: To see the companies. Wall Street likes to see companies spend,

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Speaker 6: but they don't like companies that spend. And look, the

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Speaker 6: Tesla has never been a car story. It's always been

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Speaker 6: a technology company story and AI story, and uh, you know,

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Speaker 6: Wall Street has to continue to go back and forth

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Speaker 6: with evaluating that and the whole you know, the the

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Speaker 6: upcoming drivers for the company are its autonomous technology. It's Robotaxi, uh,

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Speaker 6: the Optimist robots and evolving from to a physical AI

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Speaker 6: company and how you evaluate that. And it also takes

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Speaker 6: a lot of capital and it probably is going to

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Speaker 6: take And like Elon just said, they want to spend

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Speaker 6: as much as they can smartly.

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Speaker 5: Yes, but they are also.

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Speaker 6: Competing against a lot of other competitors. And this company

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Speaker 6: is viewed as a tech company, and the profitability from

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Speaker 6: that is still a ways off.

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Speaker 2: Again, I'm going to acknowledge the stop biggest drop since

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Speaker 2: June of last year, down fourteen percent, but at its

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Speaker 2: lowest level since August of twenty twenty five. Let me

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Speaker 2: just go through the sort of non financials, right. Cybercab

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Speaker 2: production has begun, They've been doing employee rides in those

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Speaker 2: cyber cabs.

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Speaker 3: They've expanded the.

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Speaker 2: Robotaxi areas to new cities, but also expansion in Austin,

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Speaker 2: and the Optimus humanoid robot lines have gone in in Fremont,

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Speaker 2: production expected to start later this year. That doesn't seem

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Speaker 2: like enough of an update on those business lines to

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Speaker 2: convince investors.

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Speaker 6: Well, everybody wants to see when the optimist robots will

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Speaker 6: be available, what would be the functionality, how will they

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Speaker 6: be deployed? So that's still a weighs out. So it's

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Speaker 6: still as shown me company. And right now the market

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Speaker 6: is going through a difficult time. I mean, it's held

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Speaker 6: up phenomenally well with what's going on in the world,

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Speaker 6: but and it's been driven by tech. The market strength

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Speaker 6: for the past several years. And you know, this year

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Speaker 6: so far has been driven by tech and that price

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Speaker 6: for perfection. And when you see, you know, a slight

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Speaker 6: pause of concern, the stocks are going to get hit hard.

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Speaker 6: I mean, Tesla has always been a volatile stock and

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Speaker 6: if you look back in its history, buying the dips

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Speaker 6: have paid off. So I feel that this sell off

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Speaker 6: today is a buying opportunity. It's shown that to be

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Speaker 6: the case in the past, and I still believe that

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Speaker 6: to be the case now. And the drivers of its

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Speaker 6: future growth are still ahead of it. And the concern

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Speaker 6: is that we're not seeing currently or real tangible results

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Speaker 6: or not on the near term horizon.

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Speaker 2: Record ev deliveries in the quarter gone, but lower asps,

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Speaker 2: higher interest rates, rising commodity prices, stock based compensation, and

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Speaker 2: then spending AI spending. And what I find so interesting

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Speaker 2: right is capex is still twenty five billion dollars for

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Speaker 2: this year, which is you know, for Tesla, like it's

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Speaker 2: just unprecedented, But they're not even tracking to that right now.

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Speaker 2: They're going to have to really accelerate in the second

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Speaker 2: half of this year going forward, Ivan, what's the story

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Speaker 2: going to be. What is the metric that you'll track

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Speaker 2: as evidence that Elon Musk and the Tesla team are

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Speaker 2: making progress on those future business lines?

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Speaker 6: Well, our number one measure of performance is economic profit.

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Speaker 6: It's an increasing return on capital and these will eventually

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Speaker 6: be high margin businesses with higher returns, but it takes

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Speaker 6: a lot of capital invested now, so that's diluting the

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Speaker 6: near term returns and that's the primary issue. I'm also

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Speaker 6: impressed that they did sell the number of cars that

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Speaker 6: they did. The demand for their EV's remained strong because

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Speaker 6: the overall EV demand in the industry has been solved

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Speaker 6: for some time, and Tesla has sold a lot of

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Speaker 6: cars since inception, and the demand for the cars remained strong.

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Speaker 6: But the future of the company is physical AI, it's robotics,

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Speaker 6: and it's also the cybercab and Robotaxi, and those are

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Speaker 6: still a little ways out. So anytime that things are

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Speaker 6: not perfect, the stock sells off.

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Speaker 2: I find sepe Tirest Financial partners back on the show,

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Speaker 2: thank you very much. Indeed, another piece of news from Tesla,

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Speaker 2: and at a time when memory chips are hard to

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Speaker 2: come by and prices are high, Micron's carving out capacity

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Speaker 2: for Tesla. During the company's owning school, Elon Musk praise

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Speaker 2: Micron for setting aside what he called a significant allocation

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Speaker 2: of memory chips, and he also called them under reasonable terms.

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Speaker 2: It's interesting to see Micron up almost three percent on

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Speaker 2: a day where a lot of chip stocks are down

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Speaker 2: generally speaking, and a lot of tech stocks are lower.

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Speaker 2: Let's turn to the other big, big story. Alphabet, the

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Speaker 2: Google parent, raised the top end of its CAPEX plan

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Speaker 2: for this year to two hundred and five billion dollars.

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Speaker 2: There's cloud growth, there's Gemini engagement. All there, but the

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Speaker 2: discipline on spending is a bit of a concern. Joining

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Speaker 2: us is Eric Sheridan Goldman Sachs Co Business Unit leader

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Speaker 2: of the Technology, Media and Telecommunications Group in Global investment Research.

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Speaker 2: He says Alphabet's well positioned to benefit from the growing

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Speaker 2: demand for AI across both consumer and enterprise markets and

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Speaker 2: reiterates a by rating will lowering is twelve twelve month

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Speaker 2: price target to four hundred and thirty five dollars from

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Speaker 2: four hundred and forty Eric, welcome to the program.

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Speaker 3: Not a surprise really.

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Speaker 2: That they would raise the capex expectation for this year,

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Speaker 2: but the reaction to that seems a bit severe. They

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Speaker 2: did swing to negative free cash flow for the first

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Speaker 2: time as a public company.

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Speaker 7: Was that it They did swing to negative free cash flow,

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Speaker 7: And I think there's a mixture of signals versus noise

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Speaker 7: in this print. The long term signals are Search is

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Speaker 7: to stable business, YouTube continues to gain momentum across the

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Speaker 7: broader media landscape, and Google Cloud revenue continues to re

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Speaker 7: accelerate and will likely reaccelerate in an outsized way for

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Speaker 7: most of the next one to two years. They made

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Speaker 7: some decisions short term to raise cap X and strike

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Speaker 7: deals for third party compute that are impacting op X

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Speaker 7: that are all about closing some of the demand versus

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Speaker 7: supply gap that exists around compute today because they didn't

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Speaker 7: want to slow growth and disappoint external clients. Now we

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Speaker 7: certainly are cognizant that in this market environment, over indexing

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Speaker 7: to investment and under indexing to short term return isn't

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Speaker 7: being rewarded. But we think Alphabet is making the right

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Speaker 7: long term decisions when angling again still larger market opportunity

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Speaker 7: for AI over the next couple of years.

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Speaker 2: We've got a lot of stats that's about Gemini Stat's

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Speaker 2: about enterprise adoption, the cloud units growing eighty two percent

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Speaker 2: year on year. For me, the really simple question is

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Speaker 2: is Google doing well at AI?

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Speaker 7: They are still an AI winner in our view. The

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Speaker 7: market took a step back from that view overnight. The

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Speaker 7: delays around three point five pro and the fact that

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Speaker 7: they no longer have a foundational model that sits right

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Speaker 7: at the frontier of performance and benchmarking has definitely taken

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Speaker 7: a little bit of the shine off the AI winner theme.

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Speaker 7: What sound upper I talked about last night is that

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Speaker 7: they're likely going to have to wait for Gemini for

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Speaker 7: to be back at the frontier of performance with AI models.

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Speaker 5: Two points.

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Speaker 7: I think generally, when you look at access to chips data,

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Speaker 7: the ability to train these models, we think Alphabet is

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Speaker 7: as well positioned as anyone. But there can be short

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Speaker 7: term gaps that open up between performance and training runs

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Speaker 7: around these models. More importantly, we think the world is

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Speaker 7: broadly shifting from token maxing to token optimizing. And some

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Speaker 7: of these other models that are around speed and efficiency,

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Speaker 7: including some of the flash models that they released, will

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Speaker 7: allow them to remain very competitive for incremental workloads. But

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Speaker 7: investors want to see companies spending this amount of money,

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Speaker 7: then they want them at the frontier of model performance.

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Speaker 7: They might have to wait a few months for that

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Speaker 7: with Alphabet.

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Speaker 2: That is a conversation I've been having with CEOs all

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Speaker 2: across the stack recently, the difference between token maxing and

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Speaker 2: token optimizing. If Google nails that, where does it show up?

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Speaker 5: Right?

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Speaker 2: I think you right at the top of your note

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Speaker 2: that cloud revenue estimates now revised even higher.

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Speaker 3: Is that still the metric to follow.

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Speaker 2: On how they are being used out in the real world.

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Speaker 7: Yes, and we believe companies like Alphabet and next week

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Speaker 7: we'll hear this from Amazon that are going into enterprise

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Speaker 7: customers and saying we're going to help you optimize your spend.

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Speaker 7: It's not going to be about just buying tokens no

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Speaker 7: matter what the cost from a single model, but buying

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Speaker 7: a wider array of tokens from a wider array of

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Speaker 7: models is generally where this landscape is going. We wrote

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Speaker 7: a note a couple of months ago about where the

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Speaker 7: AI economy would go over the longer term, and I

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Speaker 7: think what got lost in that note ed would be

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Speaker 7: the fact that to drive utility and to drive token growth,

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Speaker 7: you need deflation. Every technology compute shift i've ever covered

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Speaker 7: an analyzed has unit growth that comes with deflation because

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Speaker 7: you have to incent adoption rates. And we don't think

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Speaker 7: the AI economy is going to be any different than that.

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Speaker 3: We don't have time for this.

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Speaker 2: But China's focused on lowering dollar p token, America's focused

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Speaker 2: on the quality of the token. I just note very

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Speaker 2: quickly that the other hyperscaler is as by association, markedly

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Speaker 2: lower today. Eric Sheridan of Goldman Sachs really enjoyed having

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Speaker 2: you on the program. Thank you very much. One more

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Speaker 2: nugget from Alpha BET's earnings. Its early bets are paying off.

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Speaker 2: Google says it's sitting on ninety four billion dollars worth

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Speaker 2: of SpaceX shares after SpaceX's IPO. Together with its anthropic steake,

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Speaker 2: those holdings delivered nearly one hundred billion dollars in gains

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Speaker 2: last quarter alone, but for now, most of those SpaceX shares,

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Speaker 2: of course, remain under lock up restrictions, limiting when alphabet

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Speaker 2: can cash in cash out. Coming up, a White House

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Speaker 2: official accuses China's Moonshot of improperly using USAI models and

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Speaker 2: in video chips to create the Commune K three system.

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Speaker 2: Details next, this is bloomboog Tech. Yesterday, Open Ai said

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Speaker 2: its advanced AI models mistakenly breached Hugging Faces systems during

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Speaker 2: a controlled cybersecurity test. Bloomberg has now learned the models

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Speaker 2: completed the attack in just hours, a task that would

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Speaker 2: typically take skill hackers weeks.

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Speaker 3: That's according to sources.

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Speaker 2: Open Ai says it's continuing a joint investigation with Hugging Face.

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Speaker 2: Sticking with AI, China's Moonshot improperly used USAI models and

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Speaker 2: in video chips to create the Kimmy K three system.

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Speaker 2: That's according to White House Office of Science and Technology

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Speaker 2: Policy Director Michael Kratzios, making the case in a social

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Speaker 2: media post yesterday. Nvidia and Moonshot didn't respond to requests

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Speaker 2: for comment. Bloomberg's AI reporter in DC, Maggie Easton joins

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Speaker 2: us for more. It is a big accusation by director Kratzios.

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Speaker 2: It's a detailed post. Give us the reporting, the specifics

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Speaker 2: of the accusation, what we need to know.

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Speaker 8: There are two key points here that this White House official,

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Speaker 8: Michael Kratzios is making. The first is that Moonshot, again

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Speaker 8: the maker of Kimmy K three access Grace Blackwell's so

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Speaker 8: those are in Nvidia servers in Vidiaga, inside servers that

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Speaker 8: Chinese companies are not allowed to purchase. So that was

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Speaker 8: kind of the first accusation.

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Speaker 9: He also said that they access those chips in Thailand

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Speaker 9: as well as acquired them. And then the second accusation

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Speaker 9: here is that Moonshot actually distilled from US models. Now

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Speaker 9: this is kind of like an emerging technique that Washington

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Speaker 9: has been quite worried about, in which the Chinese companies

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Speaker 9: are using outputs from the US companies to then feed

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Speaker 9: them into sort of copycat versions of the US products.

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Speaker 2: Bloomberg Tech has made every effort to invite mister Kratzios

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Speaker 2: on the show because people have very simple questions. For example,

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Speaker 2: they look at when Andthropics fable was released and then

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Speaker 2: controlled by the US government and when K three was

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Speaker 2: released and say, well, how is that possible on the

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Speaker 2: distillation side, give us, I guess the context, then the

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Speaker 2: size and scope of K three, and then the distillation

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Speaker 2: accusation a little bit more based on what Misscratsjos is saying.

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Speaker 9: Yeah, I think there's a lot of questions in d

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Speaker 9: C and beyond around this uh, you know, question of

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Speaker 9: distillation and whether this is a real, uh a real

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Speaker 9: thing that Washington needs to be concerned about, right because

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Speaker 9: Anthropic and Opening Eye have been raising these concerns for

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Speaker 9: the better part of a.

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Speaker 8: Year, and essentially some would still say that this distillation

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Speaker 8: technique is perfectly fine. And as you point out, the

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Speaker 8: time between you know, Anthropic's latest release and the release

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Speaker 8: of Kidney K three's is not that long. So some

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Speaker 8: have pointed to that timeline and question, you know, where's

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Speaker 8: the evidence that this distillation is really happening. You know,

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Speaker 8: China obviously has a lot of you know, talent in

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Speaker 8: the AI industry as well, so there's still you know,

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Speaker 8: this lingering question of how much did Moonshot rely on

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Speaker 8: US technology and how much is their own innovation.

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Speaker 2: Bloomberg's mag Eastlam with a critically important report on Bloomberg today.

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Speaker 3: Thank you very much.

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Speaker 2: Now coming up, Mobilized founder and CEO Amnon Shasher announced

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Speaker 2: today that he'll be stepping down after twenty seven years.

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Speaker 2: Shashua joins us next for an exclusive interview.

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Speaker 3: Stay tuned. This is Bloomberg Tech.

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Speaker 2: It's a big dave for Mobili, whose founder is stepping

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Speaker 2: down as CEO after twenty seven years. The news comes

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Speaker 2: as Mobili released its second quarter earnings earlier today, beating

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Speaker 2: analyst estimates with a reported revenue of five hundred and

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Speaker 2: eight million dollars, just above its strongest quarter of twenty

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Speaker 2: twenty five. Mobile I founder and CEO and Non Shasha

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Speaker 2: joins us now for an exclusive interview.

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Speaker 3: Welcome back to the show.

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Speaker 2: And I think the easiest place to start is why

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Speaker 2: why you're stepping down? Why you think now is the

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Speaker 2: right time to hand the reins over to someone else?

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Speaker 5: Well, good morning, Ed.

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Speaker 10: I think that there's never a good time, but at

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Speaker 10: the same time, this is the best time because you know,

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Speaker 10: Mobili built a great foundation, logical foundation going forward, and

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Speaker 10: we are at an inflection point in which now there

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Speaker 10: is no open scientific problem in the tax and the

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Speaker 10: software tax that we are developing. Everything is running either

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Speaker 10: offline or online, and it's ready both for Robotaxi and

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Speaker 10: for everything that we are developing. On the other hand,

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Speaker 10: there is huge expansion, operational expansion, go to market expansion.

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Speaker 10: For example, in the Robotaxi, we want to go B

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Speaker 10: two C to explore B two C not only be

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Speaker 10: to be humanoids. We want to it's a new thing

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Speaker 10: for us B two C as well. And at the

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Speaker 10: same time AI is moving very very fast, as you've

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Speaker 10: just mentioned in your previous articles, and as a scientist,

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Speaker 10: this is really my strongest point in my contribution to MOBILI.

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Speaker 5: So I think it's the best time.

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Speaker 10: To bring a new CEO that will take care of

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Speaker 10: the growth and me focus on the long horizon thinking.

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Speaker 2: You stay posts until a success is found. How active

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Speaker 2: will you be in the process and on finding your replacement.

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Speaker 10: Well, the board has a search cheer committee. I'll of

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Speaker 10: course be very contributing to it and also our management team.

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Speaker 10: We want to cast a very wide net. We want

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Speaker 10: to bring the best CEO we are looking. I'm looking

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Speaker 10: many years into the future and at this point in time,

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Speaker 10: if you find an excellent to CEO, the growth potential

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Speaker 10: of Mobilizer is huge, It's really huge.

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Speaker 2: The stock is down significantly, right, fifteen percent, biggest drop

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Speaker 2: since August of twenty twenty four. And you know, the

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Speaker 2: cell side acknowledge is that your your decision to drop

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Speaker 2: to step down is overshadowing a pretty strong set of results.

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Speaker 2: You know, has that surprised you the reaction to this, Well.

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Speaker 10: Actually I thought the stock would go up, but I

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Speaker 10: think that the markets they don't like uncertainty. And you know,

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Speaker 10: once it will be internalized that I'm here to stay.

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Speaker 10: I'm not going anywhere, just you know, releasing myself from

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Speaker 10: the day to day management and focusing on what really matters,

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Speaker 10: which is the future, technology of the future, science of

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Speaker 10: the future. You know, Mobilize is one of the few,

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Speaker 10: really very few companies in the physical a space that

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Speaker 10: does both autonomous cars and humanoid the robotics. This is

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Speaker 10: this is really this is really huge and there are

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Speaker 10: lots of technological ideas going forward, and this is what

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Speaker 10: I want to focus on.

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Speaker 2: So this is also a fundamental question for the company, right,

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Speaker 2: you know, whoever comes in as the next leader of mobili,

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Speaker 2: what is your expectation that they just completely shift the

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Speaker 2: company's focus to robotaxi as a domain as opposed to

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Speaker 2: being a supplier of SEC for AIDAS. Just going deeper

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Speaker 2: into that segment.

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Speaker 5: Uh No.

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Speaker 10: Look, AIDAS is contributing today about two billion dollars of

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Speaker 10: revenue per year four hundred million.

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Speaker 5: Dollars of a profit.

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Speaker 10: Uh there is at least a single digit growth in

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Speaker 10: the year on year on AIDAS. It is, it is

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Speaker 10: really a cash cow. Nobody wants to remove the focus

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Speaker 10: from from AIDAS. The challenge is to increase not instead,

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Speaker 10: but increase focus on robotaxi and the humanoid on first robotaxi.

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Speaker 5: This is this is really around the corner.

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Speaker 10: We have you know, cooperation with the Folkswagen with the Moya,

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Speaker 10: our first City Orlando and Lake Nona. Just last week

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Speaker 10: there was a very big demonstration of end to end

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Speaker 10: including tele operation.

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Speaker 5: The KPIs are are on.

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Speaker 10: Track commercialization, commercial deployment by the end of the year.

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Speaker 5: Everything looks it looks looks really good.

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Speaker 10: And now that you know the challenges of operational go to market,

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Speaker 10: building the operations and it has it's really orthogonal to

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Speaker 10: aid US.

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Speaker 2: So I suppose you envisage the next lead that being

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Speaker 2: more operational rather than from a science, science and sort

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Speaker 2: of entrepreneur background like you have, right, I think, just

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Speaker 2: to end this, I'm known to be clear, this was

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Speaker 2: your idea. This was you wanting to move to something new,

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Speaker 2: as opposed to the board or anyone else saying, you

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Speaker 2: know what, we should make a change.

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Speaker 5: Well, it's my idea.

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Speaker 10: And also the board has offered me the chairman position,

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Speaker 10: so it shows confidence, it shows confidence in me, it

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Speaker 10: shows confidence in my future contribution. And it's my idea

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Speaker 10: because I think it is the right time not to

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Speaker 10: wait too long, because it's an inflation point and that

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Speaker 10: was really the right time to bring someone that can

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Speaker 10: help with the growth.

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Speaker 3: Just very quick.

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Speaker 2: We have fifteen seconds for which I apologize, But do

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Speaker 2: you have a target timeline date?

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Speaker 5: No, No, I'm here to stay.

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Speaker 10: Well, it'll take as much time it'll take to find

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Speaker 10: a success or a CEO, And as I said, we're

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Speaker 10: casting a white net to find to find the best

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Speaker 10: CEO possible.

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Speaker 2: Right Mobile Ie founder and CEO Amnon Shashua, thank you

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Speaker 2: very much. Coming up, IBM cuts, it's for your sales

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Speaker 2: outlook after weakness in its mainframe demand. We speak with

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Speaker 2: IBM CEO Arvin Krishna, it's half time, will be right back.

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Speaker 3: This is what the markets look like.

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Speaker 2: Alphabet and its raising of CAPEX is weighing down quite

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Speaker 2: a lot of the tech sector Tesla too. This is

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Speaker 2: Bloomberg Tech. Welcome back to Bloomberg Tech, chez VIBM trading

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Speaker 2: NEI le lowist level since November twenty four. September twenty

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Speaker 2: twenty four, the company dialed back its full year sales

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Speaker 2: forecast after a pretty steep drop in mainframe sales, which

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Speaker 2: weighed on results.

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Speaker 3: Joining us from New.

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Speaker 2: York is the co host of Bloomberg's The Clothes Remain

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Speaker 2: Bustic alongside IBM CEO of In Krishna remain Arvan.

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Speaker 11: You've seen the reaction amongst investors. Here are some concerns

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Speaker 11: here about that lowered sales forecast overall, as well as

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Speaker 11: softness in software. You've characterized this as basically a shortfall

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Speaker 11: for one quarter that is limited to CAPEX sensitive areas

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Speaker 11: of the portfolio, but that's still a meaningful area of

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Speaker 11: your portfolio. Were sales coming into that quarter? Was that

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Speaker 11: pipeline overstated?

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Speaker 12: I don't believe so, because when we look at all

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Speaker 12: the deals that didn't close. I think we have done

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Speaker 12: enough verification, including with the clients, to know that they

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Speaker 12: were very real and it was a reproductization of the

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Speaker 12: CAPEC spend at the end of the quarter. This was

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Speaker 12: pretty confined to I'll call it the fortune one hundred

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Speaker 12: the deals that we're within a subset of those. Now

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Speaker 12: one third of what didn't happen has already come back,

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Speaker 12: So that tells us that this was a reprioritization and

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Speaker 12: those deals are very real as opposed to us being

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Speaker 12: optimistic in our projections and romain. I would also add,

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Speaker 12: I think that maintaining a free cash flow tells us

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Speaker 12: that we have levels around productivity and conviction and confidence

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Speaker 12: in the business, and that is also I think going

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Speaker 12: to serve on investor as well.

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Speaker 13: But the next few months will tell us that well.

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Speaker 11: On that cash flow figure, yes, and that certainly pleased

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Speaker 11: a lot of analysts and investors out there, that billion

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Speaker 11: dollar number of protective free cash flow growth. You maintaining

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Speaker 11: the dividend as well, but you're largely done that so

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Speaker 11: far by cutting costs. So that raises the question that

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Speaker 11: if we are anticipating slower growth on the revenue side,

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Speaker 11: does that mean more cost cuts are in store.

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Speaker 12: So the bulk of our cash flow growth over the

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Speaker 12: last four years has actually been on a just adbida,

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Speaker 12: So that tells you that this is mostly through revenue growth.

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Speaker 12: And our model has always been that we are the

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Speaker 12: last dollar is more productive and more profitable than the

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Speaker 12: first dollar. So we've been growing revenue four five percent

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Speaker 12: and we've been growing cash flow up in the seven

438
00:25:24,160 --> 00:25:26,639
Speaker 12: eight nine percent. So that's kind of our model and

439
00:25:26,680 --> 00:25:30,760
Speaker 12: we intend to keep maintaining that now. Right now, if

440
00:25:30,800 --> 00:25:33,080
Speaker 12: we drop revenue by one point because we said four

441
00:25:33,119 --> 00:25:37,280
Speaker 12: to five instead of five plus, we can absolutely make

442
00:25:37,320 --> 00:25:41,120
Speaker 12: it through productivity. Cost cuts is an interesting question. Cost

443
00:25:41,160 --> 00:25:45,920
Speaker 12: cuts doesn't always come down to people reduction in headcount.

444
00:25:45,920 --> 00:25:48,240
Speaker 12: Our headcount has been more or less flat over the

445
00:25:48,280 --> 00:25:50,720
Speaker 12: last many years. I think there's a lot of third

446
00:25:50,800 --> 00:25:53,120
Speaker 12: party spend where we are going to get a lot

447
00:25:53,200 --> 00:25:56,199
Speaker 12: more efficient with that third party spend than we have

448
00:25:56,359 --> 00:25:58,040
Speaker 12: been always.

449
00:25:59,160 --> 00:26:02,080
Speaker 2: In BEG Techs Live on Bloomberg Television and Bloomberg Radio,

450
00:26:02,080 --> 00:26:04,800
Speaker 2: and we're speaking with the IBM CEO of In krishnav

451
00:26:04,800 --> 00:26:09,120
Speaker 2: in good morning. You want to focus on accelerating revenue

452
00:26:09,119 --> 00:26:12,920
Speaker 2: growth and accelerating profitability and just really simply I'd love

453
00:26:12,960 --> 00:26:15,600
Speaker 2: to hear what you're asking the team to do differently

454
00:26:15,680 --> 00:26:18,880
Speaker 2: now in response to all of the factors that you outlined.

455
00:26:19,840 --> 00:26:23,440
Speaker 12: So ed really, so, if I look at our software business,

456
00:26:24,160 --> 00:26:28,480
Speaker 12: eighty percent of it is already an annuity consumption opics

457
00:26:28,480 --> 00:26:31,720
Speaker 12: bused business. Twenty percent of it is a CAPEX business.

458
00:26:32,280 --> 00:26:35,720
Speaker 12: If we think that the CAPEX headwinds are going to continue,

459
00:26:36,040 --> 00:26:39,359
Speaker 12: but eighty percent is already growing at about eight percent,

460
00:26:40,040 --> 00:26:42,040
Speaker 12: we want to put a lot more focus. So we

461
00:26:42,080 --> 00:26:43,840
Speaker 12: are going to direct a lot of the team with

462
00:26:44,000 --> 00:26:47,680
Speaker 12: forward deployment engineers, with people who are focused on deploying

463
00:26:47,720 --> 00:26:51,080
Speaker 12: the software at clients much more technical help and make

464
00:26:51,160 --> 00:26:55,760
Speaker 12: that eighty percent grow even faster. Products like red Hat, Confluent,

465
00:26:55,920 --> 00:27:00,439
Speaker 12: Harshi all fit that model. On the CAPEX side, we

466
00:27:00,520 --> 00:27:02,280
Speaker 12: have to make sure that while we can continue to

467
00:27:02,280 --> 00:27:06,080
Speaker 12: do it, don't depend upon outsized growth on that side

468
00:27:06,200 --> 00:27:09,440
Speaker 12: to go there. Then on the supply chain, can we

469
00:27:09,840 --> 00:27:12,880
Speaker 12: leverage all of our capability and supply chain to make

470
00:27:12,920 --> 00:27:17,800
Speaker 12: sure we have enough distributed infrastructure in storage in Unix

471
00:27:17,840 --> 00:27:20,840
Speaker 12: systems that people can fulfill all of the demand. Because

472
00:27:20,880 --> 00:27:22,639
Speaker 12: we came out of the second quarter with half a

473
00:27:22,640 --> 00:27:26,320
Speaker 12: billion dollars of backlog in that part of the portfolio.

474
00:27:26,600 --> 00:27:28,200
Speaker 12: So those give you an idea of the kind of

475
00:27:28,320 --> 00:27:32,160
Speaker 12: changes that we're making already, not just for the rest

476
00:27:32,200 --> 00:27:32,560
Speaker 12: of the half.

477
00:27:33,520 --> 00:27:37,720
Speaker 2: You summarize the state of the world beautifully. You said

478
00:27:37,760 --> 00:27:42,040
Speaker 2: that customers shifted spending towards servers, storage and memory in

479
00:27:42,119 --> 00:27:45,320
Speaker 2: late June, and when I posted on social media You're

480
00:27:45,359 --> 00:27:47,320
Speaker 2: coming on the show that the question from the audience

481
00:27:47,359 --> 00:27:51,200
Speaker 2: really simple. Did that trend continue from June into July?

482
00:27:51,800 --> 00:27:53,800
Speaker 2: And for how long do you expect it to last?

483
00:27:55,440 --> 00:27:58,480
Speaker 12: We have not seen it in July, but I would

484
00:27:58,480 --> 00:28:02,240
Speaker 12: tell you, look, conductor pricing memory is up what three

485
00:28:02,280 --> 00:28:07,040
Speaker 12: to four times over the last eighteen months. Networking infrastructure

486
00:28:07,160 --> 00:28:11,960
Speaker 12: is up sixty to eighty percent, Fiber is up, connectors

487
00:28:12,000 --> 00:28:14,399
Speaker 12: are up. I do think that some of these trends

488
00:28:14,400 --> 00:28:17,239
Speaker 12: on the underlying components are going to carry on for

489
00:28:17,280 --> 00:28:20,880
Speaker 12: some more time. That works its way up into those things.

490
00:28:21,080 --> 00:28:24,040
Speaker 12: So people are going to have those prices. Now, the

491
00:28:24,119 --> 00:28:27,440
Speaker 12: question is is that going to maintain a reprioritization of

492
00:28:27,520 --> 00:28:30,199
Speaker 12: the capex spent? If I take the signal that a

493
00:28:30,240 --> 00:28:32,880
Speaker 12: third of our deals closed, then that says no. People

494
00:28:32,920 --> 00:28:35,440
Speaker 12: are going to get more careful about how to spend

495
00:28:35,480 --> 00:28:39,000
Speaker 12: their capex. If that goes into September, because a lot

496
00:28:39,040 --> 00:28:41,880
Speaker 12: of capex does get committed at the end of a quarter,

497
00:28:42,000 --> 00:28:46,240
Speaker 12: not always through then it means that that carries on

498
00:28:46,640 --> 00:28:49,000
Speaker 12: for some more time. And that is why we gave

499
00:28:49,040 --> 00:28:52,400
Speaker 12: a guide of four to five percent. Depending upon if

500
00:28:52,600 --> 00:28:54,280
Speaker 12: that carries on, we'll be at the lower end of

501
00:28:54,280 --> 00:28:56,480
Speaker 12: the range, but some of it comes back, then we'll

502
00:28:56,520 --> 00:28:57,680
Speaker 12: be at the high end of the range.

503
00:28:57,800 --> 00:28:59,840
Speaker 11: So, Alvin, I know there's a big focus right now

504
00:28:59,880 --> 00:29:03,200
Speaker 11: on on sort of the clients that sort of did

505
00:29:03,240 --> 00:29:05,800
Speaker 11: not necessarily materialize in the quarter. With regards to the

506
00:29:05,840 --> 00:29:08,440
Speaker 11: existing clients that you have, and I'm primarily referring to

507
00:29:08,440 --> 00:29:11,360
Speaker 11: your mainframe business, I mean, can you share, like sort

508
00:29:11,400 --> 00:29:14,840
Speaker 11: of what percentage of those clients are actually increasing their spending?

509
00:29:15,120 --> 00:29:16,120
Speaker 11: Is that going up still?

510
00:29:16,680 --> 00:29:17,360
Speaker 13: Absolutely?

511
00:29:17,640 --> 00:29:17,880
Speaker 5: So.

512
00:29:18,200 --> 00:29:20,440
Speaker 13: The current machine is called the Z seventeen.

513
00:29:21,080 --> 00:29:24,680
Speaker 12: The Z seventeen has been from the beginning, which was

514
00:29:25,080 --> 00:29:28,320
Speaker 12: May of twenty twenty five to today at one hundred and

515
00:29:28,360 --> 00:29:31,920
Speaker 12: thirty percent in terms of the capacity growth compared to

516
00:29:31,960 --> 00:29:35,120
Speaker 12: the prior machine. That's one very strong signal, and that's

517
00:29:35,120 --> 00:29:38,240
Speaker 12: an aggregate. Then you can say, hey, is everybody in

518
00:29:38,280 --> 00:29:40,960
Speaker 12: there or only a few eighty five percent of the

519
00:29:41,000 --> 00:29:45,040
Speaker 12: clients are increasing their capacity as opposed to the fifteen

520
00:29:45,080 --> 00:29:47,920
Speaker 12: who are not. That optimization goes on all the time,

521
00:29:48,120 --> 00:29:50,200
Speaker 12: and I would tell you this is probably the best

522
00:29:50,360 --> 00:29:51,320
Speaker 12: that we have seen.

523
00:29:51,160 --> 00:29:53,800
Speaker 13: In a long time of what is going on there.

524
00:29:54,160 --> 00:29:55,880
Speaker 13: I'm a software going to.

525
00:29:55,880 --> 00:29:58,400
Speaker 11: Lag, Yeah, software is going to I mean, look, we

526
00:29:58,440 --> 00:30:00,520
Speaker 11: know the hardware capacity is there, softw where's lack? And

527
00:30:00,560 --> 00:30:03,520
Speaker 11: I understand why it's lagging in the moment. And I'm

528
00:30:03,520 --> 00:30:05,160
Speaker 11: going to ask you a question, and I forgive me

529
00:30:05,200 --> 00:30:07,400
Speaker 11: if it's a bit unfair, but I look back to

530
00:30:07,600 --> 00:30:10,040
Speaker 11: the nineteen nineties and whether there are some parallels to

531
00:30:10,080 --> 00:30:12,760
Speaker 11: some of the mainframe issues that IBM went through back

532
00:30:12,760 --> 00:30:16,000
Speaker 11: then under a predecessor two or three times removed from you,

533
00:30:16,080 --> 00:30:19,680
Speaker 11: John Akers, and this idea that at that time we

534
00:30:19,680 --> 00:30:22,840
Speaker 11: were going through this paradigm shift in computing and how

535
00:30:22,880 --> 00:30:25,760
Speaker 11: companies spent and allocated their money, and there was a

536
00:30:25,760 --> 00:30:28,240
Speaker 11: lot of talk by the CEO then that the issues

537
00:30:28,240 --> 00:30:30,479
Speaker 11: were temporary, that they were economic, and that they were

538
00:30:30,560 --> 00:30:32,800
Speaker 11: right them sales. We know in hindsight that it was

539
00:30:32,880 --> 00:30:36,280
Speaker 11: much more structural. Why should we now look at this

540
00:30:36,600 --> 00:30:40,120
Speaker 11: major shift going on with AI and the computation involved

541
00:30:40,160 --> 00:30:43,000
Speaker 11: in that, and think that this time is different.

542
00:30:44,360 --> 00:30:46,280
Speaker 12: Well, we have to look at what the clients are doing.

543
00:30:46,320 --> 00:30:49,760
Speaker 12: I always start there. Our opinion is an opinion. What

544
00:30:49,800 --> 00:30:52,560
Speaker 12: clients do is what matters. So when I check with

545
00:30:52,640 --> 00:30:55,480
Speaker 12: my clients, those who do credit card authorizations, are you

546
00:30:55,480 --> 00:30:58,400
Speaker 12: going to maintain the mainframe? And they go to, well,

547
00:30:58,480 --> 00:31:03,160
Speaker 12: the resilience, the amount of capacity, the unit cost of

548
00:31:03,240 --> 00:31:06,840
Speaker 12: it being five to fifteen times cheaper is important. The

549
00:31:06,880 --> 00:31:10,600
Speaker 12: big difference from that time early nineteen nineties to today

550
00:31:10,960 --> 00:31:15,600
Speaker 12: Romain is the cost issue. You could not argue that

551
00:31:15,720 --> 00:31:18,880
Speaker 12: the mainframe was cheaper on a unit cost basis for

552
00:31:18,920 --> 00:31:21,720
Speaker 12: the workloads that were moving off. Then at that time,

553
00:31:21,760 --> 00:31:25,479
Speaker 12: the mid range computers I'll call it the whole Unix.

554
00:31:25,520 --> 00:31:28,000
Speaker 12: It wasn't really client server, it was Unix taking the

555
00:31:28,040 --> 00:31:32,680
Speaker 12: workloads off in the early nineteen nineties. That issue you

556
00:31:32,720 --> 00:31:35,480
Speaker 12: have to look at if there is a cheaper alternate

557
00:31:35,520 --> 00:31:38,680
Speaker 12: for that workload. I'll sort of look at you and

558
00:31:38,720 --> 00:31:40,720
Speaker 12: say that means in five to fifteen years it.

559
00:31:40,720 --> 00:31:43,760
Speaker 13: Will move off. But that's not the case right now.

560
00:31:43,760 --> 00:31:44,800
Speaker 13: For the workloads that are on.

561
00:31:45,120 --> 00:31:47,360
Speaker 12: We can show the clients that it's five to fifteen

562
00:31:47,400 --> 00:31:49,800
Speaker 12: times cheaper to keep it on the mainframe.

563
00:31:49,840 --> 00:31:50,160
Speaker 13: They're not.

564
00:31:50,400 --> 00:31:53,720
Speaker 12: But that's not all workloads. That is workloads that need protection,

565
00:31:54,120 --> 00:31:58,280
Speaker 12: that need resilience, that need the burst capacity that comes.

566
00:31:58,480 --> 00:32:00,960
Speaker 12: And so for those kinds of workload, the main brame

567
00:32:01,040 --> 00:32:04,320
Speaker 12: is the architecturally superior platform. That was not the case

568
00:32:04,880 --> 00:32:07,640
Speaker 12: thirty years ago for the workload that did go off.

569
00:32:09,360 --> 00:32:12,520
Speaker 2: Live on Bloomberg Television and on Bloomberg Radio. This is

570
00:32:12,520 --> 00:32:16,000
Speaker 2: Bloomberg Tech speaking with IBMCO r Vin Krishna. I've been

571
00:32:16,000 --> 00:32:19,040
Speaker 2: listening to you a lot recently on long form podcasts,

572
00:32:19,480 --> 00:32:21,560
Speaker 2: some clips on the social media about your view of

573
00:32:21,560 --> 00:32:24,440
Speaker 2: the world, what it's like to be a CEO in

574
00:32:24,480 --> 00:32:27,880
Speaker 2: the domains that IBM operates in. And it's interesting how

575
00:32:27,960 --> 00:32:31,400
Speaker 2: quickly it comes back to the macroeconomic backdrop. A lot

576
00:32:31,400 --> 00:32:33,440
Speaker 2: of people looked at the guidance for the balance of

577
00:32:33,440 --> 00:32:36,440
Speaker 2: this year and would say, and they do say, Orevin

578
00:32:36,520 --> 00:32:40,360
Speaker 2: on this show, memory prices are not changing, they continue

579
00:32:40,400 --> 00:32:44,520
Speaker 2: to push higher. They look at the outlook for growth.

580
00:32:46,360 --> 00:32:48,760
Speaker 2: Could you just explain the data points you rely on

581
00:32:48,960 --> 00:32:51,800
Speaker 2: that give you the confidence on the new guidance that

582
00:32:51,840 --> 00:32:55,000
Speaker 2: you've given and whether it is actually achievable or it

583
00:32:55,040 --> 00:32:56,120
Speaker 2: will be difficult to meet.

584
00:32:56,880 --> 00:33:01,200
Speaker 12: Yeah, So ed, I'll come back to For ourselves, we

585
00:33:01,320 --> 00:33:04,600
Speaker 12: have to look at our demand pipelines and our yields

586
00:33:04,640 --> 00:33:07,640
Speaker 12: and how we get things going. But I think for

587
00:33:07,880 --> 00:33:10,760
Speaker 12: your audience, let's look at it this way. Number one

588
00:33:10,840 --> 00:33:13,280
Speaker 12: most important is what is GDP growth going to be.

589
00:33:14,080 --> 00:33:16,240
Speaker 12: We think that that's between two and three percent for

590
00:33:16,280 --> 00:33:19,160
Speaker 12: the year. If I look at the globe and it

591
00:33:19,240 --> 00:33:21,600
Speaker 12: is going to be consistent, even in the Middle East,

592
00:33:21,640 --> 00:33:24,280
Speaker 12: even in Asia where there is a lot more energy

593
00:33:24,320 --> 00:33:27,720
Speaker 12: and disruption, we actually see a lot of growth. Tech

594
00:33:27,880 --> 00:33:29,640
Speaker 12: is going to be I think two to three to

595
00:33:29,720 --> 00:33:33,760
Speaker 12: four points above that. So that puts tech in terms

596
00:33:33,800 --> 00:33:36,040
Speaker 12: of what the market is somewhere in the five six

597
00:33:36,160 --> 00:33:36,800
Speaker 12: seven percent.

598
00:33:37,520 --> 00:33:38,560
Speaker 13: Then that comes back to.

599
00:33:38,640 --> 00:33:41,800
Speaker 12: What parts of our portfolio can play against that demand

600
00:33:42,040 --> 00:33:44,600
Speaker 12: and what parts cannot. And so I look at the

601
00:33:44,600 --> 00:33:46,760
Speaker 12: parts of the software portfolio. That's what I talked about,

602
00:33:46,800 --> 00:33:49,080
Speaker 12: the eight percent growth in the eighty percent of it

603
00:33:49,520 --> 00:33:52,200
Speaker 12: that can play right into that. Then I look at

604
00:33:52,240 --> 00:33:56,000
Speaker 12: our distributed infrastructure that can play right into that. I

605
00:33:56,000 --> 00:33:59,120
Speaker 12: think consulting will be that one two three percent. It

606
00:33:59,280 --> 00:34:01,960
Speaker 12: is not going to be in the double digit growers,

607
00:34:02,160 --> 00:34:05,080
Speaker 12: but we see the demand, and we see the signings,

608
00:34:05,120 --> 00:34:07,240
Speaker 12: and we see the clients leaning in to say they

609
00:34:07,320 --> 00:34:10,480
Speaker 12: want transformercial work done. That's how we kind of know,

610
00:34:11,960 --> 00:34:14,240
Speaker 12: beginning with the macro and then coming down.

611
00:34:14,960 --> 00:34:18,520
Speaker 13: I'll make a prediction for you. I think technology.

612
00:34:18,040 --> 00:34:20,799
Speaker 12: Spend is going to become a larger and larger part

613
00:34:21,000 --> 00:34:25,480
Speaker 12: of every enterprise's budget. Used to be three percent. Since

614
00:34:26,160 --> 00:34:29,040
Speaker 12: Remain raised the thirty years ago, is probably up at

615
00:34:29,120 --> 00:34:31,440
Speaker 12: five to six percent on average. I will not be

616
00:34:31,480 --> 00:34:34,160
Speaker 12: surprised if by twenty thirty five it's ten percent of

617
00:34:34,320 --> 00:34:35,240
Speaker 12: everyone's budget.

618
00:34:36,320 --> 00:34:38,000
Speaker 3: Give you a quick micro case study.

619
00:34:38,040 --> 00:34:41,520
Speaker 2: Bloomberg reported that Starbucks is replacing some IBM tools on

620
00:34:41,560 --> 00:34:43,440
Speaker 2: the software side with in house.

621
00:34:44,600 --> 00:34:45,279
Speaker 3: Let's talk to that.

622
00:34:46,360 --> 00:34:49,440
Speaker 12: So Starbucks is about a little over two million dollars

623
00:34:49,480 --> 00:34:52,800
Speaker 12: a year client for IBM. The portion they're replacing is

624
00:34:52,840 --> 00:34:56,320
Speaker 12: a product called tri Rega that does real estate leads management.

625
00:34:57,560 --> 00:35:00,920
Speaker 12: The version of it that Starbucks has is almost ten

626
00:35:01,000 --> 00:35:04,400
Speaker 12: years old. I'm not surprised at a replacing it because

627
00:35:04,440 --> 00:35:09,520
Speaker 12: I've actually been describing publicly. Software which is largely interaction

628
00:35:09,719 --> 00:35:12,920
Speaker 12: based and is based on ease of use as opposed

629
00:35:12,960 --> 00:35:16,359
Speaker 12: to anything else, can be easily replaced by AI and.

630
00:35:16,360 --> 00:35:18,880
Speaker 13: AI agents, and that is what is going on there.

631
00:35:19,360 --> 00:35:23,200
Speaker 12: However, if I see other parts of Starbucks and maybe

632
00:35:23,200 --> 00:35:28,000
Speaker 12: the ability for our harshy portfolio or security portfolio, I'm

633
00:35:28,040 --> 00:35:29,920
Speaker 12: out if afraid it this way, I would not be

634
00:35:30,000 --> 00:35:32,960
Speaker 12: surprised if Starbucks is a larger client next year than

635
00:35:33,000 --> 00:35:33,919
Speaker 12: it was last year.

636
00:35:34,520 --> 00:35:37,600
Speaker 11: With regards to how this world is evolving, Arvin, I

637
00:35:37,600 --> 00:35:40,720
Speaker 11: am curious that just internally about your plans to hire,

638
00:35:40,960 --> 00:35:46,120
Speaker 11: particularly when it comes to the technological side, have you

639
00:35:46,120 --> 00:35:48,120
Speaker 11: been able to keep pace with some of the other

640
00:35:48,200 --> 00:35:50,920
Speaker 11: companies out there also trying to do what you do

641
00:35:51,960 --> 00:35:53,359
Speaker 11: and pay some of the salaries that.

642
00:35:53,320 --> 00:35:53,879
Speaker 13: You have to pay.

643
00:35:55,360 --> 00:35:59,440
Speaker 12: Well, we hired three times as many college hires this

644
00:35:59,520 --> 00:36:02,799
Speaker 12: year than it did last year, and I think that

645
00:36:03,000 --> 00:36:06,000
Speaker 12: given others seem to be backing off college hiring, it

646
00:36:06,040 --> 00:36:09,200
Speaker 12: gives us an incredible ability to bring in great talent

647
00:36:09,719 --> 00:36:12,680
Speaker 12: and to then grow them inside our company and to

648
00:36:12,719 --> 00:36:15,960
Speaker 12: offer them great careers. I think if I looked at

649
00:36:16,000 --> 00:36:20,239
Speaker 12: it last we had I think twenty million resumes in

650
00:36:20,280 --> 00:36:24,839
Speaker 12: our applicant database, so that gives us a huge field.

651
00:36:24,520 --> 00:36:25,279
Speaker 13: To go look at.

652
00:36:25,600 --> 00:36:29,080
Speaker 12: So I mean I don't worry about bringing in talent.

653
00:36:29,520 --> 00:36:31,640
Speaker 12: I actually worry much more about can we give them

654
00:36:31,680 --> 00:36:35,400
Speaker 12: a great career and a great pathway, because not everybody

655
00:36:35,520 --> 00:36:38,080
Speaker 12: is cut out to do work that is going to

656
00:36:38,120 --> 00:36:41,200
Speaker 12: be demanded, because I don't think there's a lack of employment,

657
00:36:41,520 --> 00:36:43,879
Speaker 12: but the nature of the work. If you can't use

658
00:36:43,920 --> 00:36:47,520
Speaker 12: AI tools, if you can't use the productivity tools, then

659
00:36:47,560 --> 00:36:49,120
Speaker 12: it's going to be really hard for you to be

660
00:36:49,160 --> 00:36:50,880
Speaker 12: competitive with your peers.

661
00:36:51,440 --> 00:36:54,400
Speaker 11: We always we already know sort of the potential impact

662
00:36:54,400 --> 00:36:57,400
Speaker 11: of what AI means for the economy and for your business.

663
00:36:57,600 --> 00:36:59,280
Speaker 11: There are a lot of people looking around the corner,

664
00:36:59,280 --> 00:37:03,319
Speaker 11: including yourself, to quantum. Is that a viable business on

665
00:37:03,400 --> 00:37:06,319
Speaker 11: the horizon or is that just a moonshot that you're

666
00:37:06,360 --> 00:37:07,439
Speaker 11: hoping actually.

667
00:37:07,080 --> 00:37:10,560
Speaker 12: Sticks well when things are two years away. I wouldn't

668
00:37:10,560 --> 00:37:13,359
Speaker 12: call them a moonshot. I think quantum is now in

669
00:37:13,400 --> 00:37:17,160
Speaker 12: the engineering realm, as opposed to the science realm for

670
00:37:17,200 --> 00:37:20,160
Speaker 12: the next five years, and I believe that by twenty

671
00:37:20,160 --> 00:37:23,400
Speaker 12: twenty nine we will deliver a machine that does one

672
00:37:23,480 --> 00:37:28,960
Speaker 12: hundred million competitions of large scale, fault tolerant quantum computer

673
00:37:29,440 --> 00:37:32,799
Speaker 12: in the next two years. I think that's an incredible opportunity.

674
00:37:33,360 --> 00:37:35,839
Speaker 12: I'll quantify it, and this is not just our work,

675
00:37:35,880 --> 00:37:40,200
Speaker 12: a lot of third parties. By the end of twenty thirties,

676
00:37:40,560 --> 00:37:43,600
Speaker 12: we think it's about a trillion dollar total market opportunity

677
00:37:43,640 --> 00:37:47,000
Speaker 12: in terms of value that quantum will create. That is

678
00:37:47,000 --> 00:37:50,120
Speaker 12: why we also double down this morning and announced that

679
00:37:50,160 --> 00:37:54,960
Speaker 12: we bought HRL from GM and Boeing, and that's going

680
00:37:55,000 --> 00:37:57,080
Speaker 12: to help us bring people with a lot of talent

681
00:37:57,120 --> 00:38:04,919
Speaker 12: around materials, spin, Dronis, quantum sensing and other sensor technologies

682
00:38:04,960 --> 00:38:07,359
Speaker 12: to add to our own effort, so we are even

683
00:38:07,480 --> 00:38:10,000
Speaker 12: more well positioned to go win in this market.

684
00:38:11,760 --> 00:38:15,360
Speaker 2: Arvin Krishna, IBM CEO, of course, alongside Bloomberg's remain bustic.

685
00:38:15,400 --> 00:38:17,800
Speaker 2: Thank you both very much. I would note that IBM

686
00:38:17,880 --> 00:38:20,520
Speaker 2: shares now modestly higher three tens to one percent, having

687
00:38:20,560 --> 00:38:23,680
Speaker 2: open lower. But of course IBM pre released some of

688
00:38:23,719 --> 00:38:26,960
Speaker 2: its financials July fourteenth, from the stockfell twenty two to

689
00:38:26,960 --> 00:38:30,080
Speaker 2: twenty five percent. We're going to get back to earnings

690
00:38:30,120 --> 00:38:33,600
Speaker 2: and back to Alphabet's big capex number, while Intel's up

691
00:38:33,600 --> 00:38:35,960
Speaker 2: next on the chopping block later today.

692
00:38:36,000 --> 00:38:37,240
Speaker 3: This is Bloomberg Tech.

693
00:38:46,080 --> 00:38:49,239
Speaker 2: Coast Adventures, one of open AI's early investors, is in

694
00:38:49,320 --> 00:38:51,840
Speaker 2: talks to raise five point five billion dollars in a

695
00:38:51,880 --> 00:38:54,759
Speaker 2: new set of venture investment funds. It would make it

696
00:38:54,800 --> 00:38:58,280
Speaker 2: the largest fundraising event in the firm's history. All according

697
00:38:58,640 --> 00:39:02,320
Speaker 2: to sources. Bloomberg's and Ascarinus broke the story. No surprise

698
00:39:02,400 --> 00:39:07,040
Speaker 2: there find this so interesting. Vinode Coast irregular on the show.

699
00:39:07,600 --> 00:39:09,839
Speaker 2: But I think that people may lose sight of how

700
00:39:09,880 --> 00:39:12,840
Speaker 2: big a firm it was already, and this raise is

701
00:39:12,920 --> 00:39:15,240
Speaker 2: very much in line with what's happening in industry.

702
00:39:15,800 --> 00:39:18,160
Speaker 14: I mean, if you were an early Open AI or

703
00:39:18,200 --> 00:39:21,040
Speaker 14: an anthropic backer, you probably have one of the best

704
00:39:21,040 --> 00:39:23,600
Speaker 14: stories in venture fund raising right now. I mean, last

705
00:39:23,640 --> 00:39:26,479
Speaker 14: month we talked about Menlo Adventures raising its largest fund

706
00:39:26,480 --> 00:39:29,480
Speaker 14: of all time. Now I'm back talking about Cosla and

707
00:39:29,600 --> 00:39:32,520
Speaker 14: early Open AI backer, the first outside investor.

708
00:39:32,200 --> 00:39:35,040
Speaker 2: In open five billions split across multiple funds.

709
00:39:35,080 --> 00:39:37,480
Speaker 14: We think, yeah, yeah, So in this case, they're going

710
00:39:37,520 --> 00:39:39,359
Speaker 14: to keep doing and try and replicate that open AI

711
00:39:39,480 --> 00:39:42,040
Speaker 14: early success. So they're going to be putting majority of

712
00:39:42,040 --> 00:39:44,600
Speaker 14: the capital into early stage bets, and two point five

713
00:39:44,640 --> 00:39:47,719
Speaker 14: billion is reserved for an opportunity fund, which is pretty

714
00:39:47,800 --> 00:39:50,239
Speaker 14: much for the later stage investments as round sizes get

715
00:39:50,239 --> 00:39:53,600
Speaker 14: bigger and concentration becomes a more in vogue strategy for

716
00:39:53,680 --> 00:39:54,680
Speaker 14: venture capitalists.

717
00:39:54,719 --> 00:39:57,440
Speaker 2: You know, we do know the firm's namesake, Vinodekosla, but

718
00:39:57,719 --> 00:40:00,800
Speaker 2: there are lots of interesting people at that firm investing

719
00:40:00,840 --> 00:40:02,120
Speaker 2: at different stages.

720
00:40:02,440 --> 00:40:04,000
Speaker 3: Tell us a bit more about the team.

721
00:40:04,480 --> 00:40:07,040
Speaker 14: Yeah, I mean this is a team that has basically

722
00:40:07,120 --> 00:40:09,600
Speaker 14: chosen to stick with an early stage focus when a

723
00:40:09,600 --> 00:40:13,440
Speaker 14: lot of people are getting into a uniquely broad set

724
00:40:13,560 --> 00:40:17,200
Speaker 14: of side quests as venture firms. I'm thinking of the

725
00:40:17,239 --> 00:40:20,640
Speaker 14: team that is backed Sakana Ai, which is building a

726
00:40:20,840 --> 00:40:25,520
Speaker 14: Japanese LM, companies that are looking at robotics and climate.

727
00:40:25,680 --> 00:40:29,439
Speaker 14: So yes, they're definitely going after the AI application layer.

728
00:40:29,480 --> 00:40:32,080
Speaker 14: But when I think of Coastal Adventures, I actually think

729
00:40:32,280 --> 00:40:35,520
Speaker 14: of a much more biotech focus, hard text focus, deep

730
00:40:35,520 --> 00:40:35,960
Speaker 14: tech focus.

731
00:40:36,000 --> 00:40:37,880
Speaker 2: There are areas of interest for Vino By point out

732
00:40:37,880 --> 00:40:41,080
Speaker 2: as well. Yes, absolutely, just real quick I would point

733
00:40:41,080 --> 00:40:43,360
Speaker 2: out that a spokesperson at the firm declined to comment

734
00:40:43,400 --> 00:40:45,960
Speaker 2: on our reporting. But there's another theme here, which is

735
00:40:46,080 --> 00:40:50,120
Speaker 2: coastal race four billion last year. Yeah, other firms have

736
00:40:50,160 --> 00:40:52,799
Speaker 2: done that. Big funds last year, quick follow on this year?

737
00:40:53,600 --> 00:40:54,239
Speaker 2: What do we need to know?

738
00:40:54,480 --> 00:40:56,600
Speaker 14: I mean, these people are going through their funds at

739
00:40:56,600 --> 00:40:59,600
Speaker 14: a faster than ever Cadence. I mean, we think that

740
00:40:59,640 --> 00:41:02,759
Speaker 14: this is all almost like you're proactively raising ahead of

741
00:41:02,800 --> 00:41:05,279
Speaker 14: needing to even touch the capital. So my understanding is

742
00:41:05,280 --> 00:41:08,400
Speaker 14: that last year's fund is still being actively deployed. This

743
00:41:08,560 --> 00:41:11,359
Speaker 14: fund we broke is being kicked off, and the fundraising

744
00:41:12,040 --> 00:41:14,439
Speaker 14: calls and conversations are happening right now. But it does

745
00:41:14,480 --> 00:41:17,480
Speaker 14: show you how competitive and how expensive being a venture

746
00:41:17,480 --> 00:41:18,520
Speaker 14: capitalist is today.

747
00:41:18,719 --> 00:41:21,440
Speaker 2: Bloomberg's and Tashmos are in US with another big story

748
00:41:21,600 --> 00:41:22,640
Speaker 2: in the world of bench capital.

749
00:41:22,680 --> 00:41:23,040
Speaker 3: Thank you.

750
00:41:23,239 --> 00:41:27,080
Speaker 2: Alphabet's increasing capex figures are raising concerns on the cost

751
00:41:27,120 --> 00:41:30,520
Speaker 2: of AI. Google's parent raised its capex productions to two

752
00:41:30,640 --> 00:41:32,920
Speaker 2: hundred and five billion dollars at the top end for

753
00:41:33,000 --> 00:41:36,239
Speaker 2: this year, but the company's cash flow went negative for

754
00:41:36,280 --> 00:41:38,640
Speaker 2: the first time in its history as a public company,

755
00:41:38,760 --> 00:41:41,680
Speaker 2: which goes back over twenty years. Bloomberg Intelligence senior analyst

756
00:41:42,000 --> 00:41:44,560
Speaker 2: Man deeps saying, joins us and Mandy Leeds our entire

757
00:41:44,600 --> 00:41:46,359
Speaker 2: team on the tech coverage.

758
00:41:46,040 --> 00:41:48,200
Speaker 3: Side at BI. I mean, you were in the.

759
00:41:48,160 --> 00:41:50,400
Speaker 2: Camp of people that saw capex going even higher than

760
00:41:50,400 --> 00:41:53,239
Speaker 2: two hundred and five billion dollars. But the milestone is

761
00:41:53,280 --> 00:41:55,799
Speaker 2: that swing to negative free cash flow. Are you in

762
00:41:55,840 --> 00:41:57,800
Speaker 2: the camp of people that are worried about that.

763
00:41:58,840 --> 00:42:02,080
Speaker 15: Not for Alphabet? And yes, I am in the camp

764
00:42:02,320 --> 00:42:05,400
Speaker 15: that capex is going to go much higher for twenty

765
00:42:05,440 --> 00:42:08,200
Speaker 15: twenty seven, and they did say there will be a

766
00:42:08,239 --> 00:42:12,160
Speaker 15: significant increase next year. So look, I mean, this is

767
00:42:12,200 --> 00:42:16,680
Speaker 15: a full stack company where they've already shown their CAPEX

768
00:42:16,719 --> 00:42:20,880
Speaker 15: spend is far more efficient than anyone else out there,

769
00:42:20,920 --> 00:42:24,440
Speaker 15: and that's why they're going big in terms of getting

770
00:42:24,520 --> 00:42:28,480
Speaker 15: as much capacity because so far, if you have the compute,

771
00:42:28,560 --> 00:42:32,279
Speaker 15: you have the power that's translating into cloud revenues and

772
00:42:32,320 --> 00:42:35,960
Speaker 15: we saw that in Alphabet's cloud segment growth eighty two percent,

773
00:42:36,040 --> 00:42:39,440
Speaker 15: and that's why I think they're going with that TPU

774
00:42:39,640 --> 00:42:43,000
Speaker 15: stack as well, where they want to sell that independently

775
00:42:43,080 --> 00:42:45,319
Speaker 15: of the cloud, and that could be a big line

776
00:42:45,320 --> 00:42:48,080
Speaker 15: of business over the next two years as well.

777
00:42:48,400 --> 00:42:49,399
Speaker 3: It's balancing at right.

778
00:42:49,480 --> 00:42:52,360
Speaker 2: Google is on the hook for eight hundred and eleven

779
00:42:52,400 --> 00:42:55,640
Speaker 2: billion dollars of spending and in your react you kind

780
00:42:55,680 --> 00:42:58,319
Speaker 2: of make the point that it's that versus the very

781
00:42:58,360 --> 00:43:00,120
Speaker 2: strong cloud gains that they're seeing.

782
00:43:01,080 --> 00:43:05,239
Speaker 15: Yeah, I mean, and look, I think they didn't quantify

783
00:43:05,320 --> 00:43:09,360
Speaker 15: the margins of those TPU systems. But once you start,

784
00:43:09,640 --> 00:43:14,040
Speaker 15: you know, basically selling your designs externally, which so far

785
00:43:14,440 --> 00:43:18,480
Speaker 15: TPUs were used mostly for Google Cloud. Now they're talking

786
00:43:18,520 --> 00:43:21,720
Speaker 15: about setting up anthropic data centers with their own design

787
00:43:21,800 --> 00:43:25,360
Speaker 15: and generating revenue out of that. That's huge, and you know,

788
00:43:25,440 --> 00:43:27,680
Speaker 15: it could be a big line of business on its own.

789
00:43:27,760 --> 00:43:31,160
Speaker 15: So from that perspective, Google has got it all in

790
00:43:31,239 --> 00:43:34,759
Speaker 15: terms of large angred models, TPU systems, and then the

791
00:43:34,760 --> 00:43:37,160
Speaker 15: cloud business, and that's why they are really going big

792
00:43:37,200 --> 00:43:38,720
Speaker 15: in terms of their capex increase.

793
00:43:39,520 --> 00:43:42,239
Speaker 2: So the thing about the TPU business that's called it

794
00:43:42,280 --> 00:43:44,040
Speaker 2: is they have these sales packs and I think what

795
00:43:44,080 --> 00:43:47,960
Speaker 2: Alphabet CFO said was the company won't even realize revenues

796
00:43:48,000 --> 00:43:50,719
Speaker 2: from that until I think they said twenty seven, but

797
00:43:50,760 --> 00:43:52,800
Speaker 2: they didn't say which part of twenty seven. But you're

798
00:43:52,800 --> 00:43:54,799
Speaker 2: basically saying that's going to be an important business line

799
00:43:54,800 --> 00:43:55,120
Speaker 2: for them.

800
00:43:55,600 --> 00:43:58,520
Speaker 15: Yes, And I look at what Nvidia has done with

801
00:43:58,640 --> 00:44:01,640
Speaker 15: their system sales and how big n Video has gotten

802
00:44:01,680 --> 00:44:04,960
Speaker 15: over the past three years. I mean, clearly, this is

803
00:44:05,000 --> 00:44:08,080
Speaker 15: a rising tide that's lifting all boats, and we are

804
00:44:08,120 --> 00:44:13,520
Speaker 15: in a supply constrained environment. So essentially, you know, for Alphabet,

805
00:44:13,840 --> 00:44:16,560
Speaker 15: they are the only ones who have the ability to

806
00:44:16,600 --> 00:44:19,840
Speaker 15: do that. Everyone else is still in their earlier versions

807
00:44:19,880 --> 00:44:22,920
Speaker 15: of their chip design. I think Amazon is a third

808
00:44:23,040 --> 00:44:26,440
Speaker 15: as well. But it's really about how many versions you

809
00:44:26,480 --> 00:44:30,440
Speaker 15: have had and how external customers can trust your design

810
00:44:30,520 --> 00:44:33,360
Speaker 15: for their workloads, and in this case, Alphabet has the

811
00:44:33,440 --> 00:44:36,360
Speaker 15: ability to do that for external workloads.

812
00:44:36,960 --> 00:44:38,799
Speaker 2: I would point out that if you just look at

813
00:44:38,800 --> 00:44:41,200
Speaker 2: the stock reaction, the stock is down the most since

814
00:44:41,239 --> 00:44:43,360
Speaker 2: May of twenty twenty five, and we're showing this astonishing

815
00:44:43,440 --> 00:44:46,640
Speaker 2: chart that for the first time in this company's public history,

816
00:44:46,880 --> 00:44:49,000
Speaker 2: it is swung to negative free cash flow. That's an

817
00:44:49,000 --> 00:44:52,279
Speaker 2: astonishing chart. Man Deep seeing a Bloomberg Intelligence, Thank you

818
00:44:52,440 --> 00:44:56,080
Speaker 2: very much. Next up on deck, Intel, the chip maker,

819
00:44:56,120 --> 00:44:58,919
Speaker 2: report it second quarter results today after the closing bow,

820
00:44:59,320 --> 00:45:02,399
Speaker 2: and investors keeping a close eye is Intel's It could

821
00:45:02,400 --> 00:45:05,520
Speaker 2: speak to the strength and breadth of the semiconductor industry

822
00:45:05,600 --> 00:45:09,120
Speaker 2: right now. Bloomberzie and King joins us for a preview Intel.

823
00:45:09,560 --> 00:45:11,520
Speaker 2: What to make of Intel? What to look for with

824
00:45:11,640 --> 00:45:13,359
Speaker 2: Intel this year?

825
00:45:13,480 --> 00:45:16,120
Speaker 16: When the stock is up one hundred and seventy two percent,

826
00:45:16,320 --> 00:45:20,160
Speaker 16: clearly investors have said, Okay, you're actually back in the game.

827
00:45:20,480 --> 00:45:23,160
Speaker 16: But then if you look under the hood at the

828
00:45:23,200 --> 00:45:27,240
Speaker 16: actual numbers, it really isn't. It's showing double digit growth,

829
00:45:27,280 --> 00:45:31,520
Speaker 16: it's showing some demand for its Zeon products, but compared

830
00:45:31,520 --> 00:45:34,400
Speaker 16: to growth compared to what other companies are putting up

831
00:45:34,400 --> 00:45:36,520
Speaker 16: and have been putting up for the last couple of years,

832
00:45:36,560 --> 00:45:38,920
Speaker 16: not quite there yet. So what Intel has really got

833
00:45:38,960 --> 00:45:41,560
Speaker 16: to show is that it's really really a fundamental part

834
00:45:41,600 --> 00:45:42,560
Speaker 16: of this AI race.

835
00:45:42,760 --> 00:45:46,120
Speaker 2: There's the CPU story, which has been interesting more recently,

836
00:45:46,280 --> 00:45:49,080
Speaker 2: and then there's its business as a third party contract

837
00:45:49,120 --> 00:45:52,120
Speaker 2: manufacturer and the latest technology process. I always feel like

838
00:45:52,120 --> 00:45:54,160
Speaker 2: we want to get answers on that and we don't.

839
00:45:54,640 --> 00:45:57,720
Speaker 16: Yeah, I mean that would blow the story wide open

840
00:45:57,800 --> 00:46:02,080
Speaker 16: and would make people consider Intel different, that this turnaround

841
00:46:02,120 --> 00:46:05,719
Speaker 16: would be vindicated. Haven't seen that yet. The company has said, look,

842
00:46:05,760 --> 00:46:08,200
Speaker 16: we can't talk about it. It's up to our customers.

843
00:46:08,560 --> 00:46:10,439
Speaker 16: You'll know we're doing it though. You'll know it's real

844
00:46:10,480 --> 00:46:13,160
Speaker 16: when we start to spend big money on Kapex to

845
00:46:13,160 --> 00:46:15,400
Speaker 16: build those factories out. So we'll be looking for that today.

846
00:46:15,600 --> 00:46:17,560
Speaker 2: I know this is a pretty simple question, but what

847
00:46:17,640 --> 00:46:20,360
Speaker 2: is like financial metric that you learn the most about

848
00:46:20,360 --> 00:46:21,000
Speaker 2: Intel from?

849
00:46:21,280 --> 00:46:23,400
Speaker 16: Yeah, obviously growth is very important, but this is a

850
00:46:23,440 --> 00:46:26,440
Speaker 16: company that's been losing money and its gross margin is

851
00:46:26,480 --> 00:46:29,480
Speaker 16: twenty points south of where it was in the good days, right,

852
00:46:29,560 --> 00:46:31,239
Speaker 16: so we need that margin.

853
00:46:31,280 --> 00:46:35,880
Speaker 2: Historically above sixty five percent, above sixty percent, above sixty percent,

854
00:46:35,960 --> 00:46:39,240
Speaker 2: and yeah, nowhere near that right now. Another busy afternoon

855
00:46:39,360 --> 00:46:41,840
Speaker 2: for un for me, Bloomberg Zy and King, thank you

856
00:46:41,960 --> 00:46:45,520
Speaker 2: very much. Heavy focus on technology earning. So that does

857
00:46:45,560 --> 00:46:47,680
Speaker 2: it for this position of Bloomberg Tech. But go back

858
00:46:47,680 --> 00:46:51,680
Speaker 2: and recap across Alphabet, Tesla, IBM, and then in twenty

859
00:46:51,719 --> 00:46:53,400
Speaker 2: four hours time we'll do it again with Intel.

860
00:46:53,800 --> 00:46:54,680
Speaker 3: Listen on the pod.

861
00:46:54,760 --> 00:46:57,960
Speaker 2: I would say that some of the moves directly tied

862
00:46:58,000 --> 00:47:01,319
Speaker 2: to earnings are big, right. Alphabet is also by association

863
00:47:01,960 --> 00:47:04,760
Speaker 2: dragging down quite a number of the other hyperscalers. Amazon,

864
00:47:04,840 --> 00:47:07,799
Speaker 2: for example, has a pretty deep decline for Tesla. This

865
00:47:08,080 --> 00:47:13,399
Speaker 2: is a big drop down fourteen percent, and really it's

866
00:47:13,440 --> 00:47:14,640
Speaker 2: still a spending.

867
00:47:14,280 --> 00:47:16,759
Speaker 3: Story across the board. Stay with us throughout the week,

868
00:47:16,800 --> 00:47:17,759
Speaker 3: that says bloombog Tech