Speaker 1: From Mahart where Innovation, money and power Collie in Silicon Valley, NBN.
Speaker 1: This is Bloomberg Technology with Caroline Hyde and Ed loved Love.
Speaker 2: From New York and San Francisco. This is Bloomberg Technology
Speaker 2: coming up. Verizon agrees to buy Frontier Communications nearly ten
Speaker 2: million dollars in cash to strengthen its fiber network.
Speaker 3: We speak with the CEO.
Speaker 4: Nvidia pushes back, saying it's been in contact with the
Speaker 4: Justice Department that has not received a subpoena.
Speaker 2: An HP enterprise comes up short as disappointing margins offset
Speaker 2: AI related tailwinds. Another chief exec on the show, but first,
Speaker 2: as check in on these markets, ED the Nasdaq outperforms.
Speaker 3: Benchmarks are lower.
Speaker 2: We're anxious around labor data coming tomorrow, but video and
Speaker 2: Tesla do the work.
Speaker 3: But there's m and A.
Speaker 4: We have some MNA, and that is Verizon to buy Frontier.
Speaker 4: Really interesting. Both stocks lower. The offer is thirty eight
Speaker 4: dollars and fifty cents a share, which is a fit
Speaker 4: thirty seven percent premium to the twenty eight dollars four
Speaker 4: cents closing price on Tuesday. Because you'll remember, the reports
Speaker 4: about this deal started surfacing during the day Tuesday. That's
Speaker 4: Tuesday's closing price. Nine point six billion dollar deal value,
Speaker 4: enterprise value greater than that if you take into account
Speaker 4: debt the story carriers. You know full well it's about
Speaker 4: being more competitive in the high speed internet business. And
Speaker 4: Verizon down top percentage point. Frontier currently in the session
Speaker 4: at thirty five dollars ten cent a share down nine percent, and.
Speaker 2: We want to be digging into some of the share
Speaker 2: price reaction that we have indeed been seeing. Why is
Speaker 2: Frontier training below that current agreed price. And we're very
Speaker 2: pleased to say we can talk about it a little
Speaker 2: bit more now because we welcome to our global TV
Speaker 2: and radio audiences. Verizon agreeing to buy rival telecom operator
Speaker 2: Frontier Communications FRO about nine point six billion dollars in cash,
Speaker 2: giving an enterprise value.
Speaker 3: Of twenty billion dollars. This is the New York phone.
Speaker 2: John looks to expand its high speed internet business.
Speaker 3: Let's bring en Verizon CEO hands Versteg. We welcome you.
Speaker 2: Sir, and look, it wasn't long ago that you actually
Speaker 2: owned some of these assets. Why go back into wyline?
Speaker 2: Why are we seeing this convergence again?
Speaker 5: Thank you for having me first of all, I think
Speaker 5: this is very straight into our core strategy.
Speaker 6: We are sort of.
Speaker 5: Inmobility and broadband serve basically all types of customers in
Speaker 5: this market, CONSUMERSMBS, large entervice, and governments. This is just
Speaker 5: extending the offerings and optionality for the customers we have.
Speaker 5: So this is a really good decision by us to
Speaker 5: do with an economical right. And on top of that,
Speaker 5: as you mentioned, yes we own these assets before, but
Speaker 5: they weren't totally different type of assets. There was basically
Speaker 5: a copper based business. Nowadays Frontier is more than fifty
Speaker 5: percent of the revenue is fiber and more than way
Speaker 5: more than fifty percent of the DTA is coming from fiber.
Speaker 5: So a large transformation have been done and it fits
Speaker 5: in straight to our strategy.
Speaker 4: Over is on hands, Good morning, it's head in San Francisco.
Speaker 4: Frontier is trading at thirty five dollars a sherish below
Speaker 4: the thirty eight dollars fifty cents per share offer. What
Speaker 4: does that tell you about the market's reaction to the
Speaker 4: offer and what you think might happen next?
Speaker 5: I don't tell me so much is so early in?
Speaker 5: Is it two hours of training? I think first of all,
Speaker 5: we feel really good about this deal from also from
Speaker 5: closing it and seeing that this is a possible transaction
Speaker 5: from many angles, because given that we believe it's going
Speaker 5: to take eighteen months and all the regulatory bodies of
Speaker 5: course will be a thorough job, but this is improvements
Speaker 5: for customers going in more choice, and not only that,
Speaker 5: we can only bring our mobility broadband to these customers.
Speaker 5: At the same time, we also have the offerings that
Speaker 5: we have on our broadband today, which is everything from
Speaker 5: streaming services, other services that we have on insurance, etc.
Speaker 5: So we going to bring a lot on new opportunities
Speaker 5: for the custom base or frontier. So I'm really positive
Speaker 5: on this acquisition.
Speaker 3: Can you tell us a little bit about the future
Speaker 3: as well.
Speaker 2: The short term is the convergence trade is wireless wireline content,
Speaker 2: but then there's AI. Then we're talking about the Internet
Speaker 2: of things as we've been talking about for years. Hands
Speaker 2: where does that come into play.
Speaker 5: It come definitely to play in these assets, and as said,
Speaker 5: we expect this to take in a take eighteen months.
Speaker 5: We're already right now have a sort of AI prepared
Speaker 5: network with a lot of compute and storage at the
Speaker 5: edge of the network. We decided already some six years
Speaker 5: ago to fibriize all our transport, so we are really
Speaker 5: prepared of it. The frontier acid is just coming in
Speaker 5: as an extension of that, and we can meet even
Speaker 5: more customers to have a processing storage at the edge
Speaker 5: of the network with the fiberized transport, So this is
Speaker 5: really also another advantage we're getting with the even more
Speaker 5: assets in the ground, and of course serving consumers with
Speaker 5: home broadband together with our mobile and home offering is
Speaker 5: of course a strength in the overall acquisition where we're doing.
Speaker 6: Hans.
Speaker 4: We have a question from an audience member on Bloomberg
Speaker 4: Technology who notes the twenty fifteen sale of wireline assets.
Speaker 4: But I think the question that he and many others
Speaker 4: have is what's changed around the economics in this deal.
Speaker 4: You said the economics work, but give me specifics some
Speaker 4: what's different, particularly for fiber in twenty twenty four.
Speaker 5: So if you look at the deal right now at closing,
Speaker 5: we believe that's going to be a creative of growth,
Speaker 5: revenue growth anibita on day one, so that's really good economics.
Speaker 5: And then it's going to take some twelve months and
Speaker 5: EPA and cashual will be a creative as well. And
Speaker 5: the reason it takes twelve months is there are some
Speaker 5: integration costs coming up in the beginning. So definitely a
Speaker 5: very economic sound business for us. But I said the
Speaker 5: assets we sold the previously was, of course in a
Speaker 5: totally different standard. The Frontier team has put in billions
Speaker 5: and billions of dollars to fiberize the network to be
Speaker 5: the next generation, and many of the metrics that they have,
Speaker 5: you know, Sharen, penetration, etc. Are fairly similar to FiOS,
Speaker 5: and FIUs is of course the best fiber network in
Speaker 5: the States, so there's a lot of similarities on that
Speaker 5: and that we can offer to our customers.
Speaker 2: And some ANDAs we're a little bit surprised by the
Speaker 2: timing and the fact that you're going all in on
Speaker 2: convergence now a bold step. Some call it because of
Speaker 2: your leverage and your commitment to reducing reducing your debt.
Speaker 3: Why do this now? Are you worried about leverage?
Speaker 7: No?
Speaker 5: I think, first of all, we have a very strong
Speaker 5: balance sheet and as we said this morning, at closing,
Speaker 5: these be maybe zero point two zero point three notch
Speaker 5: on our leverage, which is very very low. We still
Speaker 5: are committed to our capt A location. Number One, invest
Speaker 5: in the business and that's what we're doing today. Number
Speaker 5: two committed to the dividend, and you might have seen
Speaker 5: yesterday we came out with our dividend which was for
Speaker 5: the eighteenth consecutive year we increased our dividend. And then
Speaker 5: is to pay down our debt. We have been paying
Speaker 5: down our debts since we bought a c band. We
Speaker 5: still have some eighteen months here that we're going to
Speaker 5: continue to pay down the debt. So we're going to
Speaker 5: be in a really good position balance wise when this
Speaker 5: deal is coming to fruition.
Speaker 4: Hans, what opportunity is there for you in data center
Speaker 4: interconnects DCI in the context of AI. Look at what
Speaker 4: like Lumen's done with Microsoft for example.
Speaker 5: I think that the difference here is that we have
Speaker 5: so many assets in the ground. When it comes to
Speaker 5: fiber and central offices. Many of these central officers of
Speaker 5: course have compute storage power, it ex and many of
Speaker 5: the AI solutions. When there is a real product, they
Speaker 5: actually need to be way closer to the users, the corporations,
Speaker 5: et cetera. And that means that because the transport costs
Speaker 5: and many other things, it will be hosted at the
Speaker 5: edge of the network. That's how we build the Verizon
Speaker 5: Intelligence Edge Network in twenty eighteen when we started with
Speaker 5: the Journey, which we now is just adding Frontier to it.
Speaker 5: So I see a great opportunity for us on the
Speaker 5: B to B side with this footprint to serve customers
Speaker 5: that want to host AI at close to them, secure,
Speaker 5: lower transport costs, and et cetera.
Speaker 2: You're just announcing one deal, and you know we always
Speaker 2: love to push forward hands are you going to continue
Speaker 2: to be acquisitive when it comes to convergence.
Speaker 5: I think, first of all, we are really happy with
Speaker 5: assets we have and now we're adding Frontier. I don't
Speaker 5: think we need much more. We're going to be the
Speaker 5: biggest and wireless, We're going to be clearly the ones
Speaker 5: having the largest broad but offering with fixed wires, access
Speaker 5: and fiber in the market. We have the largest distribution
Speaker 5: and the customers, so we're going to be in a
Speaker 5: really good position to see that we execute for our
Speaker 5: customers but also for our shareholders. So I'm really happy
Speaker 5: with assets we're going to have and we have today.
Speaker 5: When it comes to convergence, I think what is important
Speaker 5: and convergence. We will have the scale of economy for both.
Speaker 5: We will have the ownerships for the wireless network and
Speaker 5: the fiber networks and fixed files access. If customers want
Speaker 5: to make the convergence, we will have the economics for
Speaker 5: doing it. I don't believe it's going to be sort
Speaker 5: of you you discount one product for customer taking both.
Speaker 5: That's not really there's two great products. And we all
Speaker 5: know mobility in broadband is a centure for day society.
Speaker 5: I mean everyone needs a division, corporation, a private person
Speaker 5: or a corporation. You need these services that are even
Speaker 5: more important today than we're five years ago. And Verison
Speaker 5: is number one and basically every segment of that and
Speaker 5: this is just fortifying it. So yeah, we're going to
Speaker 5: see convergence. But it's not like we're going to discount products.
Speaker 5: There are great two products that we're want to offer
Speaker 5: our customers if they want to join. We have an
Speaker 5: improvement on sheer and of course if customers both have
Speaker 5: wibilated in broadland with us, and so we want to
Speaker 5: see our best placehold in the market. Like clearly we're
Speaker 5: going to be best position in the market.
Speaker 6: Run and Council conmergence.
Speaker 4: Verizon CEO Hans Vestberg, thank you very much. In Nvidia
Speaker 4: said in a statement it has not received a subpoena
Speaker 4: from the US Department of Justice, responding to a Bloomberg
Speaker 4: News report published Tuesday that it had. The company said
Speaker 4: it inquired with the DOJ, has not been subpoened, but
Speaker 4: is happy to answer regulators questions. Bloomberg reports, citing a source,
Speaker 4: that in Vidia did receive a request for information in
Speaker 4: what's known as a civil investigative demand, or CID. A
Speaker 4: CID is also commonly referred to as a subpoena, but
Speaker 4: is often issued before any legal seedings are brought. According
Speaker 4: to the Bloomberg source, the request for information issue to
Speaker 4: Nvidia focuses on its acquisition of run Ai and aspects.
Speaker 6: Of its chip business.
Speaker 4: Bloomberg first reported the DOJ's probe of Nvidia in June.
Speaker 2: Caroline coming up ed will be joined by another chief executive,
Speaker 2: the CEO of C three AI. Once again, we're talking
Speaker 2: about artificial intelligence and its latest earnings results.
Speaker 3: This is Bloombog Technology back to tech earnings.
Speaker 2: Now C three ai reporting subscription revenue for the first quarter.
Speaker 2: There seems to be below many analysts expectations, shares off
Speaker 2: by thirteen percent. Pt US dig into the numbers. The
Speaker 2: CEO is with us, Tom Siebolf, you'll join us for more.
Speaker 2: It is a painful sell off, and in fact you're
Speaker 2: now training at the lowest since May twenty twenty three.
Speaker 3: I'm sure you'll tell me.
Speaker 2: You don't look at the share price, but it's trying
Speaker 2: to tell you something. What is it that isn't enough?
Speaker 2: And the numbers for the investor today, Tom, it was a.
Speaker 7: Great quarter, Caroline. I mean a year over your growth
Speaker 7: twenty one percent. That makes us I think one of
Speaker 7: the fast ten fastest growing companies in the public software universe.
Speaker 7: Cash op transaction volume up I think one hundred and
Speaker 7: twenty one percent, pilot volume up one hundred and fifteen percent.
Speaker 1: I think it was a solid quarter.
Speaker 7: And the sometimes markets react in funny ways. Here we
Speaker 7: have in video growing over the announced growth I think
Speaker 7: well over one hundred percent year over your growth rate.
Speaker 1: What's not to like?
Speaker 7: The market reacts by taking what two hundred and seventy
Speaker 7: billion dollars off the stock price the next day, So
Speaker 7: you know, markets reacting funny ways, and you'll all sort
Speaker 7: itself out of the long.
Speaker 4: Run, Tom, I'm still trying to understand the business model, right, Yeah,
Speaker 4: the subscription part and software and then services services seems
Speaker 4: to be strong. What is the story behind software with you?
Speaker 7: It's well, it's a little bit confusing a guy, because
Speaker 7: seventy percent of that services revenue services number is actually
Speaker 7: software delivered to the customer as part of our core
Speaker 7: product that they pay for.
Speaker 1: Over a long period of time.
Speaker 7: So it's the core product functionality, seventy percent of the
Speaker 7: services number, like order of ten million dollars of thirteen
Speaker 7: point eight I think. But due to new accounting regulations
Speaker 7: that came out called ASC six oh six, we have
Speaker 7: to we have to treat these functional enhancements as professional services.
Speaker 1: But it looks like software. It smells like software, It
Speaker 1: is compiled, it's part of the core product. It is software.
Speaker 7: But under the accounting regulations which we do comply with,
Speaker 7: I assure you it is it gets recorded as professional services.
Speaker 3: Stripping away accounting.
Speaker 2: What people are trying to peel back is profitability and
Speaker 2: how long they have to really wait for that profitability
Speaker 2: to kick in. You have to invest in the time
Speaker 2: to scale. I know, but are you just having to
Speaker 2: sell investors to be patient.
Speaker 7: Tom, Well, let's look at profitability. Our profit margins on
Speaker 7: their professional services. I think it's ninety three percent gross margin.
Speaker 7: I mean, it's good work if you can get it now.
Speaker 7: Our revenue growth rates are substantially greater than our expense
Speaker 7: growth rates historically. I think going forward, our revenue growth
Speaker 7: rates will continue to generally be greater than our expense
Speaker 7: for growth rates. Our gross profit margins are substantily greater
Speaker 7: than our cost of sales. So non gap profitability is
Speaker 7: simply a matter of scale.
Speaker 1: This just happens with.
Speaker 4: Time, Tom, I've been reading through the regulatory filings. It's
Speaker 4: the kind of guy I am, and the disclosures and
Speaker 4: the lawsuit suits against NL it seems to center around
Speaker 4: a trade secret issue. But can you help us understand
Speaker 4: more of what's going on there?
Speaker 6: Please?
Speaker 1: Yeah, this is a very unfortunate situation. This is very sad.
Speaker 7: And now was a really valued customer that license a
Speaker 7: lot of our technology, and it appears that they may
Speaker 7: have copied literally thousands of lines of our source code
Speaker 7: into our of our source code into a copy of
Speaker 7: and basically copied our product.
Speaker 1: So that's what this's complained about.
Speaker 7: It appears to be a very significant kind of intellectual
Speaker 7: property theft, and we're we're pursuing that in civil courts
Speaker 7: in Italy and it's sad, and you know, it's actually
Speaker 7: the first time I've seen this in my professional career
Speaker 7: that a company would do such a thing. But we
Speaker 7: are you know, we have to protect our intellectual property
Speaker 7: rights for the benefit of our shareholders, and we are
Speaker 7: doing that.
Speaker 2: And we will see comment from n L you are
Speaker 2: seeking two billion dollars from them in compensation. Tom, just
Speaker 2: going back to ultimately the winning of clients.
Speaker 3: How is market share?
Speaker 2: How are you able to compete with the big companies
Speaker 2: out there trying to compete with you?
Speaker 7: Well, I think the companies that are perceived of as
Speaker 7: accounting with competing with us would be Zoo, it would
Speaker 7: be microsoftware is, z or AWS and Google, because the
Speaker 7: real competition is building yourself. But understand, Caroline, seventy one
Speaker 7: percent of our transactions the last quarter we closed with
Speaker 7: one of Google Cloud aws ors or so we joint
Speaker 7: market with them.
Speaker 1: We joined sell seventy one percent.
Speaker 7: So these are great marketing partners and they're perceived of
Speaker 7: by some as being competitors, but they share looked at
Speaker 7: me like partners, and they looked to our customers like partners.
Speaker 7: So we appreciate the partnership and we go to market
Speaker 7: with them very actively all around the world.
Speaker 2: Well, for now, we really appreciate you coming on after
Speaker 2: earnings shares off on the day. We appreciate the time
Speaker 2: and the expertise. Three AAI CEO Tom siebel.
Speaker 3: Hpe.
Speaker 2: Now it's coming out with its earnings and for some
Speaker 2: we saw profitability perhaps coming weak and then expected for
Speaker 2: its third quarter, suggesting look that lower margins certainly that
Speaker 2: anticipated in its business for selling service for AI seem
Speaker 2: to be holding for now. Hpco, Antonio and Nery is
Speaker 2: joining us, and that's just dwell on the margins for
Speaker 2: a moment, Antonio, because some call it low calorie nature
Speaker 2: of AI systems revenue, is it no calorie for the foreseeable.
Speaker 8: Well, good morning, Kara, thanks for having me. We did
Speaker 8: what we said would do and we had a very
Speaker 8: strong quarter where we had double digits over year revenue
Speaker 8: growth and to your point, was all on the back
Speaker 8: of converting an amazing order book we have in AI
Speaker 8: and continue to add to that order book. However, it's
Speaker 8: also fair to say that we actually improve operating margins
Speaker 8: quarter over quarter by fifty basis points, despite makes heavily
Speaker 8: weighted to AI. And I will say that the reason
Speaker 8: why the gross margin, not the operating margins, the gross
Speaker 8: margin is year over year down is because we have
Speaker 8: less contribution from the networking business, which as you know,
Speaker 8: is going through a market transition through the cyclicality we
Speaker 8: normally see in each of the businesses. So the main
Speaker 8: driver for the gross margin decline was not AI. In fact,
Speaker 8: our AI business, our server business grew operating margins year
Speaker 8: over year by seventy basis points.
Speaker 4: That's actually like an industry wide issue that you've brought
Speaker 4: up that others have talked to us about. I think
Speaker 4: the difference with you, Antonio is the customer bas is
Speaker 4: like much more enterprise centric, and I think on the
Speaker 4: call you talked about improvement in margins relating to that,
Speaker 4: could you just talk a bit more about how the
Speaker 4: enterprise customer is going to push you forward?
Speaker 8: Absolutely, And as you know, at the HPD is covered
Speaker 8: in Vegas, we introduce an HPE Private Cloud AI offering,
Speaker 8: which I call it an AI in the box seat,
Speaker 8: which is actually a four toun key solution for enterprises
Speaker 8: of all sizes to train and deploy inference for their
Speaker 8: specific applications. And that offer is targeted specifically for enterprises,
Speaker 8: including very specific vertical solutions built on top. And we
Speaker 8: just made that offer available just two days ago. It's
Speaker 8: now available for global availability ordering and we are excited
Speaker 8: about that.
Speaker 5: Now.
Speaker 8: In the order book we announced this order, we had
Speaker 8: one point six billion dollars of new orders and meet
Speaker 8: teams of those orders are enterprise related.
Speaker 2: Let's just talk about macro challenges to those enterprises you
Speaker 2: sell to. Are we seeing a pullback in confidence on spending?
Speaker 8: Actually, I have not seen it, you know. In fact,
Speaker 8: we saw orders growth in all our businesses on a
Speaker 8: sequential basis, which tells me, Caroline, we are on a recovery.
Speaker 8: In fact, our traditional server business had doubled it the
Speaker 8: year over here and sequential growth in orders, which also
Speaker 8: tells me there's no cannibalization from the AI servers into
Speaker 8: the traditional servers. And it makes sense, Caroline, because when
Speaker 8: you think about these legacy worloads, some of them are
Speaker 8: not even cloud native worloads. It makes no sense to
Speaker 8: put it on a more expensive infrastructure which should be
Speaker 8: focused on really training these models with their data so
Speaker 8: they can get the time to value from the deployment
Speaker 8: through the business process. And then on the networking site,
Speaker 8: which obviously has been a more negative store in the
Speaker 8: last few quarters.
Speaker 6: In line with the peers.
Speaker 8: By the way, we saw sequential or the growth across
Speaker 8: all geographies and we're driven by the wireless line, the
Speaker 8: SASE deployment, which obvious security is very important at the
Speaker 8: edge and data center networking.
Speaker 4: And so I know you talked about your fiduciary duty
Speaker 4: in pursuing damages in the sad incidents around mister Lynch.
Speaker 4: Just because it's the first time our audience is hearing
Speaker 4: from you, you explain that produciary duty and basically what
Speaker 4: your end goal is in that piece of litigation.
Speaker 8: Well, Lison had the doctor Lynch death is a tragedy,
Speaker 8: as are the death of others in the on the ship.
Speaker 8: So clearly it was a sad moment. However, it does
Speaker 8: not change what happened. You know, the UK judge rule
Speaker 8: that the company is victim of fraud.
Speaker 1: That really happened last year.
Speaker 8: As a physical is duty. We need to see the finalization,
Speaker 8: does the proceedings and obviously our duties to also recover
Speaker 8: the damages on that fraud. So we have to see
Speaker 8: it through. That's what we are and we hope to
Speaker 8: hear soon what are the next steps based on the
Speaker 8: proceedings of the judge.
Speaker 2: Antonia and Arry, we appreciate you tackling what is a
Speaker 2: sensitive subject and indeed your earnings.
Speaker 3: Thank you.
Speaker 2: Welcome back to Blue BEG Technology. I'm Karen Hide in
Speaker 2: New York and.
Speaker 6: I met Ludlow in San Francisco.
Speaker 2: Quick check on these market said, because we are being
Speaker 2: whipswored once again. Yesterday we saw an eke out of
Speaker 2: a recovery on the chip sector, but today we've gone
Speaker 2: back in the red and it's going to be a
Speaker 2: volatile session.
Speaker 3: As we looked ahead tomorrow, of course to the all
Speaker 3: important labor data.
Speaker 2: Now's that one hundred under pressure, as you see, by
Speaker 2: five ten percent, no longer outperforming the other benchmarks. We've
Speaker 2: see the chip stocks down by more than a percentage point.
Speaker 2: And also looking at crypto look, this is a risk
Speaker 2: averse kind of a day once again. Bonds have been
Speaker 2: training pretty flat, but I'm looking at cryptos thinking some
Speaker 2: three point six percent move on and look at some
Speaker 2: individual movers because amid what has been a volatile time
Speaker 2: on the stock markets, companies still have well the ability
Speaker 2: to splash some cash and more than nine billion dollars
Speaker 2: of it coming from Verizon to be buying Frontier. We
Speaker 2: just spoke to the CEO and why he's doing that deal.
Speaker 2: In Vidia still managing just to be above water. But
Speaker 2: remember this is a key stock. Is what's driven some
Speaker 2: of the selloff, and mag seven not doing enough today
Speaker 2: to stabilize the benchmarks. In Vidia up by just a
Speaker 2: tenth of a percent, Tesla still up more than three
Speaker 2: point eight percent.
Speaker 3: This is it seems to be promising full self.
Speaker 2: Driving Europe, China and of course all eyes and what
Speaker 2: will become of a robotaxing conversation in October for that company.
Speaker 3: But we've got to stick with overall outlook for chips
Speaker 3: right now.
Speaker 4: ED we do TSMC supplies Science Tech says AI demand
Speaker 4: is here to stay, the CEO dismissing concerns over AI fatigue.
Speaker 6: After chip stocks.
Speaker 4: Recorded the biggest one month one day decline in a month,
Speaker 4: Bloomberg sat down with CEO Hu ming Chi.
Speaker 9: That's what he had to say from a personal perspective.
Speaker 9: Liz bom In of our AI industry just begin there's
Speaker 9: a lot of application. I do expect we're coming out
Speaker 9: pretty soon.
Speaker 6: For more on the markets and everything going on.
Speaker 4: Christina Hooper, Investigo chief Global market strategist joins us. Now,
Speaker 4: you know, we're learning every week, every month, every year
Speaker 4: that one single session a market does not make But
Speaker 4: where do you go the anxiety in semiconductor's AI demand.
Speaker 4: We have economic data in twenty four hours time. That's
Speaker 4: very important, and we're always thinking about the FED. When
Speaker 4: you wake up, Christina, with a technology investors perspective, what
Speaker 4: do you first think of?
Speaker 10: First of all, I think it's important for investors to
Speaker 10: recognize that they have a longer time horizon than one
Speaker 10: day or one month or even several months, and so
Speaker 10: it's important not to be too reactive. To understand that
Speaker 10: valuations are relatively high. And so when stocks are priced
Speaker 10: near perfection, we're likely to see jitters, we're likely to
Speaker 10: see concerns, and I think one of the overarching concerns
Speaker 10: we're seeing right now is this fear that it can't continue,
Speaker 10: that we won't see companies continue to spend to invest
Speaker 10: on AI, and I think that that's probably more a
Speaker 10: fear than a reality, because what we're seeing is that
Speaker 10: investment in productivity and enhancing areas has actually improved productivity growth.
Speaker 10: And so this is something that companies recognize. And I
Speaker 10: truly believe the risk of not investing is greater than
Speaker 10: the risk of investing, but that might not come investors today.
Speaker 10: So diversification certainly helps, but I think just understanding, we're
Speaker 10: likely to see volatility, but that doesn't mean we won't
Speaker 10: see significant gains over the course of a year, two years,
Speaker 10: and even longer.
Speaker 2: Nvidia back in the red once again and has raised
Speaker 2: a lot of it's market capitalization.
Speaker 3: Christina.
Speaker 2: That has been an anxiety that we've just put too
Speaker 2: much into too fewer companies. When you say diversify, what
Speaker 2: into other technaus or just other types of companies.
Speaker 10: Other types of companies. Let's face it that it all
Speaker 10: goes well. If the thesis for a soft landing and
Speaker 10: we see the FED start to cut rates, that could
Speaker 10: create a very supportive environment for risk assets in general.
Speaker 10: That doesn't mean that tech will outperform, but it's probably
Speaker 10: going to keep up or follow closely behind cyclicals. Smaller caps,
Speaker 10: those areas that are more sensitive to the economy. So
Speaker 10: this could be a very positive environment and I think
Speaker 10: one that investors will appreciate, even if we see some spasms,
Speaker 10: some fits of fear and lack of confidence along the way.
Speaker 4: Christina, you talked about sort of durations a moment, ago, weeks, months, years,
Speaker 4: and in the context of Nvidia, for example, a lot
Speaker 4: of the investors we had in the show after earnings
Speaker 4: were long term investors who say, we accept the short
Speaker 4: term volatility that we're holding because we understand the data
Speaker 4: center build out that's happening. Is it important to be
Speaker 4: diversified though, even if you take that much set.
Speaker 10: So, you know, I think it's critical to recognize that
Speaker 10: there are many many companies that will benefit from AI.
Speaker 10: So if you're you're feeling very confident about the AI story,
Speaker 10: that's going to help companies in a variety of different
Speaker 10: sectors and industries. And in fact, we've heard on earnings
Speaker 10: calls in the last quarter that companies have been using
Speaker 10: AI already and seeing some really significant results in terms
Speaker 10: of their sales, and so I think it's it's perhaps
Speaker 10: taking that AI AI theme and looking to those other
Speaker 10: sectors and industries, especially service areas of the economy to
Speaker 10: find opportunities. There can be a significant diversification by just
Speaker 10: doing that.
Speaker 4: Christina, how important is tomorrow's jobs report? I'm sorry, how
Speaker 4: important is Friday's jobs report?
Speaker 6: So Friday's jobs report.
Speaker 3: I think what we're really likely.
Speaker 10: To see is job gains non farm payrolls around one
Speaker 10: fifty one sixty in line with expectations, and that's appropriate
Speaker 10: given where we are in the cycle. I think the
Speaker 10: FED will be satisfied with that. I mean, it certainly
Speaker 10: said it doesn't want to see any significant deterioration in
Speaker 10: jobs from here. I don't think we see that, and
Speaker 10: that's pretty much a pre pandemic trend level is to
Speaker 10: get about one fifty one sixty one seventy. I don't
Speaker 10: think there's anything that will come out of Friday's jobs
Speaker 10: report that changes the Fed's decision in September. I think
Speaker 10: we're going to get a twenty five basis point raycut.
Speaker 10: I think if we get a week jobs report that
Speaker 10: will not change that. I don't think we're going to
Speaker 10: get a fifty basis point cut. That's because the FED
Speaker 10: really does believe that it is doing the right thing.
Speaker 10: It's on course a fifty basis point cut would be
Speaker 10: an admission of guilt in my opinion, Even when it
Speaker 10: was behind the curve in March of twenty twenty two,
Speaker 10: it only hype grades twenty five basis points. So that's
Speaker 10: how I think this is going to play out, and
Speaker 10: that should be positive for markets. If we've got a
Speaker 10: fifty basis point cut, we might actually see more volatility
Speaker 10: and some kind of sell off because it suggests there's
Speaker 10: more weakness in the economy than many thought.
Speaker 3: Deja vous now versus beginning of August.
Speaker 2: Are we going to get these bouts of volatility as
Speaker 2: aggressive as we're suddenly seeing.
Speaker 10: I suspect we will. There's a lot happening right now.
Speaker 10: We not just have the FED meeting, but we have
Speaker 10: a presidential election. We have a lot of other central
Speaker 10: banks cutting at the same time. I think that creates
Speaker 10: an environment where there's concern, where there's uncertainty. We also
Speaker 10: have this dueling concern among investors where they're looking to
Speaker 10: rate cuts and the opportunities presented by them, but they're
Speaker 10: also still worried. There's this nagging concern that we could
Speaker 10: still go into recession. And so I think that all
Speaker 10: comes together in terms of outsize reactions to economic data
Speaker 10: release as well.
Speaker 2: Christina, so great to get the macro perspective. Christina Hooper,
Speaker 2: chief Global market strategist in Invesco.
Speaker 3: Now coming up.
Speaker 2: Open ai Across is one million customer milestone from an
Speaker 2: enterprise perspective.
Speaker 3: More details on the company growth. Next, this is Blueberg Technology.
Speaker 4: Bloomberg Power Players is underway in New York as Bloomberg Originals.
Speaker 4: Jason Kelly is sitting down today with prominent people in
Speaker 4: the sports industry. He's discussing the global sports boom right
Speaker 4: now with Tony Wrestler, chairman of Arias Management and of
Speaker 4: the Atlanta Hawks.
Speaker 6: Listen to this. Never really helped me up on that,
Speaker 6: and probably should.
Speaker 11: The truth of the matter is many of these as
Speaker 11: Green actually mentioned, a lot of these businesses and industries,
Speaker 11: and certainly leagues and teams have gone through this massive evolution,
Speaker 11: and at the end of the day, it takes a
Speaker 11: long time for leagues franchises to make money to show
Speaker 11: the valuation that the market is now seeing. And yes,
Speaker 11: your point earlier, this is an asset class we had.
Speaker 6: Areas would argue.
Speaker 11: I don't know two and a half three trillion dollar
Speaker 11: asset class people take a step back and say, well,
Speaker 11: what are you even saying? If you think about the NFL,
Speaker 11: there's thirty two franchises. Average franchises maybe five or six
Speaker 11: billion dollars, so one hundred and fifty hundred and sixtyllion,
Speaker 11: one hundred and eighty billion of value in just franchises,
Speaker 11: and each of those franchises has all sorts of ancillary
Speaker 11: businesses from stadiums to real estate developments, technology related businesses,
Speaker 11: retail and food and beverage related businesses. So when people
Speaker 11: say what is the size of this industry? I would
Speaker 11: argue at least most folks looking at it are woefully
Speaker 11: underestimating the value.
Speaker 6: Of this sports world globally.
Speaker 11: So when people take a step back and say, wow,
Speaker 11: this is a really meaningful asset class, and frankly, it's
Speaker 11: an asset class that's not just for rich people. Yeah,
Speaker 11: it's an asset class for investors trying to now investors
Speaker 11: that hopefully do real work and understand the difference. Some
Speaker 11: leagues are really nasse and really early in their journey,
Speaker 11: if you will, and some leagues are really comfortably seeing
Speaker 11: each of their franchises make meaningful cash flow. So there
Speaker 11: is analysis required, but the size and scope and excitement
Speaker 11: of this industry is a little bit greater than most
Speaker 11: folks might have anticipated.
Speaker 6: Yeah, and there's so much to unpack in what you
Speaker 6: just said.
Speaker 12: But before we get too far for evaluations, I want
Speaker 12: to put a poll up if we can, because we
Speaker 12: want to ask the audience what they think about I
Speaker 12: think US sport US sports teams valuations, So this is
Speaker 12: sort of a goldilocks question. Are they too low, just right,
Speaker 12: too high? Or sky high and ridiculous. I might wait
Speaker 12: to see what the audience says before I ask you
Speaker 12: if they agree.
Speaker 6: But you know we we've shown up on the screen here.
Speaker 12: I mean these are it's not quite you know, to
Speaker 12: use the tired old term hockey stick, but it's pretty
Speaker 12: close when you look at NBA valuations.
Speaker 6: You know, your.
Speaker 12: Your friends in Los Angeles, you know, Will Obey and
Speaker 12: Bob Biger just bought the NWSL team, as was mentioned
Speaker 12: out there, Angel City for two hundred fifty million dollars valuation.
Speaker 12: Mat That's that's real money for women's soccer, all right.
Speaker 12: So here's what the audience says. Just right takes it
Speaker 12: with thirty nine percent and growing forty percent too high
Speaker 12: skyhand ridiculous.
Speaker 6: And they're not too low, So it seems like the
Speaker 6: audiences agree with you.
Speaker 12: How how does this play out in the near and
Speaker 12: midterm and how do you as an investor think about.
Speaker 11: Well, firstly, it's so hard, at least in my mind,
Speaker 11: to answer a question like that, because each of the
Speaker 11: leagues and each of the franchises have enormous differences in
Speaker 11: what they're doing.
Speaker 13: Those teams that really have a global or the ability
Speaker 13: to have a global following, those leagues and those sports
Speaker 13: that actually incorporate or expect to incorporate sports betting and therefore.
Speaker 11: Increasing the obsession of young people into their sport have advantages.
Speaker 11: Those that have really a huge amounts of cachet and
Speaker 11: stars that can attract global media rights. These are things
Speaker 11: that distinguish I think the long term winners versus There
Speaker 11: may not be as many losers as people might argue,
Speaker 11: but there'll be some. There'll be some that aren't extraordinary
Speaker 11: and that aren't global and phenomenally valuable sports and sports franchises.
Speaker 11: So I kind of go by sport, and yes, I
Speaker 11: do believe at the end of the day, global media
Speaker 11: rights is something that you have to aspire to, and yes,
Speaker 11: I'm being a little partial to the NBA, but there
Speaker 11: are so many additional ancillary values that come from a
Speaker 11: global following. So to me, sports are not a single entity.
Speaker 11: And one of the things we would argue is understanding
Speaker 11: the benefits and detriments of not just the sport, but
Speaker 11: of the market that they play in and of the
Speaker 11: league that they operate in. And I don't want to
Speaker 11: disparage a certain city versus another, but if you're the
Speaker 11: thirtieth largest metro in America versus the first, second, or third,
Speaker 11: or even the top ten, dramatic difference. So again, that
Speaker 11: too is awfully relevant, not just the league in the
Speaker 11: sport well, and it's interesting.
Speaker 12: So let's talk about that in a little more depth because.
Speaker 6: We believe it.
Speaker 7: There.
Speaker 2: Tony Wrestler, chairman of Areas Management and of the Atlanta Hawks,
Speaker 2: along with our own Bloomberg originals Jason Kelly.
Speaker 4: Open Ai hit a new milestone, reaching one million paid
Speaker 4: users for the corporate version of Chat GPT. That's up
Speaker 4: from around six hundred thousand the company told us about
Speaker 4: here on the show in April. From all, let's bring
Speaker 4: in Bloomberg's Rachel Metz who's leading the AI coverage and
Speaker 4: the point I think is one million enterprise or corporate
Speaker 4: or business customers. That's where the money is potentially at
Speaker 4: for open Ai.
Speaker 14: Absolutely, and this much growth in a short period of
Speaker 14: time really indicates that despite having plenty of competitors and
Speaker 14: businesses having to think more and more about, hey, are
Speaker 14: we really getting a return on our investments in AI,
Speaker 14: they are still bringing in users.
Speaker 1: It's really quite a lot of growth.
Speaker 14: It's what like sixty seven percent growth in over that
Speaker 14: period of time, and they only started selling their the
Speaker 14: enterprise version of chat GPT about a year ago exactly.
Speaker 3: Meanwhile, it's looking to raise funds.
Speaker 2: We understand at a head evaluation and talking of competitors,
Speaker 2: Anthropic is just rolled out its clawed enterprise How face
Speaker 2: is the fight for business users right now?
Speaker 1: It's pretty fierce.
Speaker 14: I mean, you certainly have a bunch of companies that
Speaker 14: are interested in spending on this stuff, but as I mentioned,
Speaker 14: there's more and more pressure to show what you're getting
Speaker 14: from this. And though the companies might have I think
Speaker 14: open ai has done some customer surveys and Entropic perhaps
Speaker 14: has done similarly that show that their customers are liking
Speaker 14: this stuff and getting productivity gains perhaps from it, using
Speaker 14: it for different kinds of tasks. It's still, I think
Speaker 14: for a lot of businesses, really hard for them to
Speaker 14: tell what can do you use it? Or will it
Speaker 14: actually be helpful. We know that these things may make
Speaker 14: things up, and if you have to check a lot
Speaker 14: of the results that you're getting from these systems, is
Speaker 14: that really all that helpful to you?
Speaker 6: It remains to be seen.
Speaker 14: I think for a lot of businesses if this will
Speaker 14: help them.
Speaker 2: Rachel Mattz, we thank you all things, those chatbots, but
Speaker 2: now let's just go back to some of the infrastructure needed.
Speaker 2: We preview Broadcom set to release earnings after the closing
Speaker 2: bell today Bloomberg Intelligence, saying that the company is poised
Speaker 2: for another strong third quarter foroign growth in AI sales
Speaker 2: and VMware's contribution.
Speaker 3: Contin Savani is with us from Bloombag Intelligence.
Speaker 2: You authored this note so the tailwinds can outstrip some
Speaker 2: lagging soft areas in the chip market.
Speaker 6: Exactly.
Speaker 15: I mean the AI in the semis is likely to
Speaker 15: offset its cyclical headwills in its legacy businesses. We think
Speaker 15: in its legacy businesses, the enterprise wireless and server storage
Speaker 15: likely to have hit some bottom, albeit the recovery would
Speaker 15: more be moderate. But the key road driver in this
Speaker 15: quarter in the next quarter is going to come from
Speaker 15: the software, specifically the VMware.
Speaker 4: Revenues pro comes to become a really big chip company
Speaker 4: seven hundred pillion dollar market cap. It's important in data censers, right,
Speaker 4: always think about it in these kind of two proms networking,
Speaker 4: data center infrastructure stuff, but also custom asex explain the
Speaker 4: customer a sex bay, what they do and what we
Speaker 4: might hear.
Speaker 15: Yeah, So whenever we've talked about Nvidia and right, the
Speaker 15: key threat to in media is it's customers designing their
Speaker 15: own chips. Well, Google TPU for example, Yes, Google TPU
Speaker 15: for example. They do need a designed partner, a semi
Speaker 15: conductor company which has experience and the IP set to
Speaker 15: build these chips. So that's where broadcome comes in. It's
Speaker 15: one of the heat has the largest share when it
Speaker 15: comes to designing custom asex or accelerators in lieu of
Speaker 15: the GPU's namely Google Meta. And the key thing going
Speaker 15: into this earnings for investors will be do they announce
Speaker 15: a new customer, which news have been saying likely to
Speaker 15: be open AI and if they upside their AI revenue
Speaker 15: guidance for the full year, which we think they will
Speaker 15: in the range of five hundred million into a billion dollars.
Speaker 2: The anxiety, Kunjin, is that right now the revenue growth
Speaker 2: is strong. We're expecting forty seven percent increase, but it
Speaker 2: dials down quite quickly into fiscal twenty five twenty six.
Speaker 3: How committed is this AI spend.
Speaker 15: So if you look at their two key sources of revenue,
Speaker 15: one being connectivity which is really Ethernet in the AI
Speaker 15: clusters and the back and AI in the front and
Speaker 15: AI and the custom A six, both of these markets
Speaker 15: have just started their beginning ramp. Both of these have
Speaker 15: forecasted to grow significantly for at least the next three
Speaker 15: to five years. And like I said, Broadcom being the
Speaker 15: dominant in both of these areas, we expect these sources
Speaker 15: of revenue for Broadcom to still continue significantly. However, at
Speaker 15: this point, Dotcom is like a conglomerate. It has a
Speaker 15: lot of other legacy semiconductor businesses and software businesses, so
Speaker 15: those do weigh the strong AIRAM that we talked about.
Speaker 4: Well, you forget we used to talk about pro Com
Speaker 4: in the context of smartphones. Namingly Apple, I will be
Speaker 4: going to Apple Park on Monday.
Speaker 6: That business. Is it still relevant? What are they doing?
Speaker 15: It's still relevant, It's still a significant, sizable business. We
Speaker 15: don't expect any key high growth catalyst there because their
Speaker 15: business has been very sticky with Apple right. They do
Speaker 15: increase their asps and growth margins slowly every year. There
Speaker 15: might be some options of some small content gains, but
Speaker 15: nothing very sexy, but still a very high free castle
Speaker 15: generating business.
Speaker 2: We think also of how chips perform after smashing expectations. Conjin,
Speaker 2: who are fundamentals guy? How we positioned into this set
Speaker 2: of earnings?
Speaker 15: Yeah, Broadcom doesn't really is known for very massive beat
Speaker 15: and raises. However, like I said, if they do address
Speaker 15: a couple of the points, a new custom or is
Speaker 15: it customer announcement be upside to their AI revenues and
Speaker 15: VMware is faster integration update, I think that would be
Speaker 15: a significant positive for the sock reaction post learnings.
Speaker 3: Hendre Savani, so great to have you on the show
Speaker 3: Boomberg Intelligence. We thank you now. That does it for
Speaker 3: this edition of Bloomberg Technology.
Speaker 6: Tomorrow. Interesting interview.
Speaker 4: We're joined by the Weimo co CEO Takdra Mawakana an
Speaker 4: exclusive interview, and there's been a lot of news around
Speaker 4: Waimo of late, a lot going on today's show as well.
Speaker 4: It was a short week with a lot in it.
Speaker 4: Don't forget to recap on the podcast. You know exactly
Speaker 4: where to find the Bloomberg Tech podcast from SF in
Speaker 4: New York. This is Bloomberg Technology