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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak AISIA podcast. I'm Doug Krisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: Byde's quarterly adjusted operating income beat expectations by five point

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Speaker 2: four percent due to better cost control. However, AI related

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Speaker 2: losses deepened and adjusted profit in BYDO was actually down

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Speaker 2: seven point one percent, and the stock is trading off

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Speaker 2: four point three percent in the early action this morning.

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Speaker 2: Joining us now for some analysis is Robert Lee, who

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Speaker 2: is senior analyst at Bloomberg Intelligence.

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Speaker 3: To take a closer.

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Speaker 2: Look, So revenue was up something like six percent. That's

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Speaker 2: not particularly good for a company of this ILK really

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Speaker 2: in the area of technology for Hong Kong and China.

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Speaker 2: But then the expenses, as we mentioned there.

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Speaker 3: Were up a lot. Is that likely to continue? Robert?

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Speaker 3: And can we see losses going forward?

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Speaker 4: Great questions. I think taking a step back the reality

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Speaker 4: of what body is today. Although it was seen a

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Speaker 4: year ago as China's leading AI play.

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Speaker 5: The reality is it's a.

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Speaker 4: Search engine business that accounts for the bulk of its

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Speaker 4: revenue and the bulk of its earnings. Searches, like in

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Speaker 4: most countries, are fairly mature industry. By Doo is the

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Speaker 4: number one ranked search engine in China. You know, Google's actually,

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Speaker 4: because of geopolitics, etc. Is not operational in China.

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Speaker 5: So the issue for the core of Bidou's.

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Speaker 4: Business is their search business is advertising driven revenue model,

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Speaker 4: which is obviously tied to the underlying economy, and as

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Speaker 4: we go into a period of slowing economic growth, obviously

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Speaker 4: corporate clibs and advertisers are tightening their belts and that

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Speaker 4: we saw early evidence of that coming through in the

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Speaker 4: numbers that were reported last night, plus it was referred to.

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Speaker 5: On the call.

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Speaker 4: So I think that's one issue that impacted sentiment and

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Speaker 4: accounts for the decline we're seeing in the market today.

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Speaker 4: The sort of other side of the businesses, they have

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Speaker 4: a fingers in a lot of different pies on the

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Speaker 4: AI side, from autonomous vehicles to their early bot chap

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Speaker 4: GBT like product. They do have some traction there on

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Speaker 4: the revenue front or their revenues remain very small at

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Speaker 4: this moment. They're looking for a few hundred billion of

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Speaker 4: revenue this year. That's in the context of a business

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Speaker 4: that turns over something like one hundred and thirty billion revenue,

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Speaker 4: So it's quite small beer at the moment, and it's

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Speaker 4: AI businesses in aggregate and loss making, and those losses

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Speaker 4: are likely to increase in the coming year. So you've

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Speaker 4: got the core advertising business which is going into a

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Speaker 4: period of slow in growth, potentially with some margin pressure,

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Speaker 4: and AI businesses that remain very early stage, and arguably

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Speaker 4: the losses on those interneture are going to widen. So

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Speaker 4: you know, we're not seeing that earning earning kicker come

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Speaker 4: through unlike a lot of them, you know, magnificent seven.

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Speaker 1: So when it comes to the use of AI in search,

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Speaker 1: whether you're by do or here in the States, whether

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Speaker 1: you're talking about Google, is there a lot of evidence

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Speaker 1: to suggest that the implementation of AI is necessarily going

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Speaker 1: to deliver better results where we're kind of conventional search

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Speaker 1: is concerned, or we just don't have enough data to

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Speaker 1: make that statement.

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Speaker 5: Again, great question.

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Speaker 4: I think the anecdotal evidence is absolutely there that it

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Speaker 4: does it will enhance the search capabilities, etc. But the

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Speaker 4: key question is are people going to pay for it?

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Speaker 4: Because on the consumer side, and particularly in China, we

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Speaker 4: live in.

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Speaker 5: A world where people are used to these services for free.

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Speaker 4: I mean again, you go on the web, you Google,

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Speaker 4: you pay nothing as a consumer. So I think it's

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Speaker 4: very difficult for Buydo, and it's peers overseas as well, to.

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Speaker 5: Start charging for these services.

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Speaker 4: And the other side is again that the corporate users

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Speaker 4: going to start paying extra for their advertising on the

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Speaker 4: back of any incer enhanced search. And again that remains

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Speaker 4: very unclear at the moment. So the monetization efforts are

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Speaker 4: very unclear and indistinct at the moment. Not just for

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Speaker 4: by Do, I'd say that also applies to a lot

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Speaker 4: of the uspers as well.

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Speaker 2: So just to remind our listeners that we have our

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Speaker 2: reporters in Bloomberg News and then we have our analysts

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Speaker 2: in Bloomberg Intelligence. So Robert is giving you his neutral

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Speaker 2: analysis of the company. And I want to go back

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Speaker 2: to the point you made, Robert, which seems like you're

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Speaker 2: saying that the misstep that we see here for by

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Speaker 2: Do is really down to weakness in the economy and

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Speaker 2: not in fact missteps in strategy management considerations. Is this

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Speaker 2: company do you think in good shape with its fundamentals

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Speaker 2: and will get better if and when the economy improves.

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Speaker 4: It's a profitable business, it's generating healthy free CA flow.

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Speaker 4: Its core search business may not be particularly high growth,

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Speaker 4: and as I've said, it is tied to the outlook

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Speaker 4: for economic growth, but there's no fundamental concern on that front. However,

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Speaker 4: as I said, it was certainly a year ago it

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Speaker 4: was seen as China's leading AI play. The sort of

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Speaker 4: level of AI related revenues is going to generate in

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Speaker 4: the next year is relatively.

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Speaker 5: Small and they're all loss making.

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Speaker 4: So are we going to get that earnings kicker coming

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Speaker 4: through from AI in the next year or two.

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Speaker 5: It's highly unlikely.

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Speaker 4: Therefore, there's nothing fundamentally wrong with by Do in any way.

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Speaker 4: But I don't think it, you know, anybody would really

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Speaker 4: describe it as a growth company. And I you know,

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Speaker 4: and the other thing on the AI side, the China's

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Speaker 4: leading Internet giants like Ali, Barbar, ten Cent and Huawei,

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Speaker 4: are you know, quite quickly narrowing the technology gap and

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Speaker 4: catching up with by Do.

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Speaker 5: So theres a competitive.

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Speaker 4: Element potentially threatening them over the next three years as well.

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Speaker 1: We were just talking the other day about this investment

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Speaker 1: that is making in a new AI startup. The name

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Speaker 1: escapes me at the moment. I think it was a

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Speaker 1: billion dollar leading the funding on the round, and I

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Speaker 1: think the startup is valued now at around two and

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Speaker 1: a half billion US. Was it Moonshot or something like that, Yeah, yeah.

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Speaker 5: Yeah, moon Ai.

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Speaker 1: Okay, So generally speaking, when if you had to compare

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Speaker 1: what's happening here at the consumer level, where AI is

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Speaker 1: kind of intersecting a lot of these platforms, with what's

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Speaker 1: going on in China, one of the things that I

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Speaker 1: think about in China is the restrictions on the Internet

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Speaker 1: more broadly, and if you have to train these models

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Speaker 1: on data that is really not as inclusive, I would

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Speaker 1: think that that the end, the output is going to

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Speaker 1: be very limited. Am I right in that?

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Speaker 5: Absolutely?

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Speaker 4: Because something like ninety percent or thereabouts of all the

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Speaker 4: data and information on the World Wide Web is in English,

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Speaker 4: so Chinese language data and information accounts for around ten

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Speaker 4: seven and as you've just you know, referred to, their

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Speaker 4: are censorship restrictions. So I think and I read something

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Speaker 4: interesting last night as well, looking at the longer term

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Speaker 4: performance and accuracy of some of these chatbots, and that

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Speaker 4: they all sort of average out a sort of similar

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Speaker 4: level over time. The key differentiator is access to training data.

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Speaker 4: So if China's AI models and chatbots are being trained

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Speaker 4: off for a relatively restricted data set, that will impact

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Speaker 4: their accuracy and usefulness in the long run. Having said that,

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Speaker 4: by Do is China's number one ranked chatbot on the moment,

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Speaker 4: and from you know, from where we see at the moment,

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Speaker 4: it will likely remain in that position for the foreseeable future.

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Speaker 4: But is it making money or is it likely to

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Speaker 4: make money?

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Speaker 2: We've seen some notable stumbles from Google with Gemini and

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Speaker 2: it really set back to start quite a bit. And

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Speaker 2: then today we hear that even Microsoft has had some

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Speaker 2: issues with its bot as well. And I'm wondering whether

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Speaker 2: or not buy Do in China. I'm not sure it

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Speaker 2: would be made public. But have we heard anything about

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Speaker 2: any mistakes or distorted data coming out of it's AI search?

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Speaker 4: Yeah, I think again, going back to censorship in the

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Speaker 4: early days, you know, if you want to ask something

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Speaker 4: about politics or the president, you know, it gave some

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Speaker 4: potentially inappropriate answers which have been clamped down on by sensors, etc.

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Speaker 4: But you know, just again anecdotally, obviously myself and my

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Speaker 4: colleagues of UC systems and experimented with them in a

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Speaker 4: very sort of informal way. I think the accuracy of

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Speaker 4: the answers that ernie bot produces versus a chat GPT,

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Speaker 4: there is a noticeable lack of detail on the Chinese side. Again,

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Speaker 4: whether that's due to the underlying algorithms or the accessibility

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Speaker 4: of the underlying data set for training, it's probably more

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Speaker 4: the latter, I would say.

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Speaker 1: So next week we're looking to the NPC meeting and

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Speaker 1: one of the questions that we've been asking is about

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Speaker 1: you know, the growth target, yes, but also the focus

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Speaker 1: of where this activity, this economic activity is going to

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Speaker 1: come from. And I think for the private sector, particularly

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Speaker 1: in China, where technology is concerned, there has been a

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Speaker 1: little bit of trepidation, big question mark over government policy.

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Speaker 1: I think that the people who play in this field

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Speaker 1: have sometimes felt as though the rug has been pulled

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Speaker 1: out from underneath them perhaps midstream. Do you think the

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Speaker 1: leaders in China understand the importance of this technology economy

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Speaker 1: in providing a lot of the engine for future growth.

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Speaker 4: Absolutely, I think they do, and I speak as someone

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Speaker 4: who's British and hopefully independent of everything. No, absolutely, Ali

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Speaker 4: Baba and China. Ali Baba, Tencent and Huawei are the

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Speaker 4: three and may arguably Bite Dance as well, are the

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Speaker 4: three or four large technology giants within the Chinese economy.

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Speaker 4: They absolutely underpin not just the growth in the technology

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Speaker 4: sector itself, but they're important drivers of economic growth and

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Speaker 4: if you look at any pronouncements from the senior leadership

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Speaker 4: in China, I think they do understand that.

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Speaker 5: However, as a one party.

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Speaker 4: States, there are you know, particular issues with the way

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Speaker 4: trying to like to manage things, censorship, etc. But looking forward,

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Speaker 4: I think we should see a more stable regulatory environment

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Speaker 4: going forward. That's a key point which has obviously been

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Speaker 4: an area of significant concern in the last few years.

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Speaker 2: Well, that fuels my next question, which was kind of

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Speaker 2: about politics. So we saw Ali Baba stumble to a

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Speaker 2: certain degree because of jack Maa's relationship with policymakers, and

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Speaker 2: although it didn't come out in public, ten Cent with

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Speaker 2: a little bit of a struggle ponym I had to

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Speaker 2: step back a little bit. How is Baidu's relationship with

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Speaker 2: the party.

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Speaker 4: As far as I'm aware, I think they have good

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Speaker 4: relations so it's not so much an issue of that. Again,

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Speaker 4: it's fundamentally it do have the monetization model, the right

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Speaker 4: revenue model to drive significant earnings growth on these AI tools,

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Speaker 4: and you know, it's very unclear. And then from my

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Speaker 4: point of view, I think it's highly unlikely we'll see

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Speaker 4: that earnings kicker come through, not just this year, but

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Speaker 4: in the next two to three years.

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Speaker 5: That's the main issue for them.

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Speaker 4: It's just an issue of the corporate management and the

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Speaker 4: fundamental earnings model.

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Speaker 5: It's not an.

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Speaker 4: Issue of their relationship with the party or the government, etc.

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Speaker 4: I think the government would love to support them as

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Speaker 4: in as best they can, but if they don't have

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Speaker 4: the right business model there, they're not going to make money.

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Speaker 2: Yeah, I probably should have instead said the relationship with

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Speaker 2: the party. I probably should have said with policy or

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Speaker 2: with the regulators, and that would be a little bit

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Speaker 2: less political. And the current always says after coming off

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Speaker 2: this program that he really enjoyed his morning workout. Deep breath,

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Speaker 2: excel slowly, Glad that's over with Robert. Nice to have

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Speaker 2: you playing game with us, playing the game. Robert Lee,

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Speaker 2: Senior Analyst, at Bloomberg Intelligence. This is bloom joining us

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Speaker 2: to discuss this a little bit further as John Leu,

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Speaker 2: who is Bloomberg.

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Speaker 3: Executive editor in Beijing.

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Speaker 2: So, John, a couple of issues here. One is the

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Speaker 2: root of the problem, what's causing people to want to

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Speaker 2: short stocks and to make these downside bets. And the

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Speaker 2: other is, you know, some of these measures taken by

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Speaker 2: quant funds that actually sort of lead to exacerbating the losses,

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Speaker 2: are they Do you think policymakers are getting at both

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Speaker 2: of those objectives.

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Speaker 6: So on the first question, Brian, I think there is

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Speaker 6: a lot of pessimism about the outlook for the economy.

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Speaker 6: That has been the case for the last probably I

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Speaker 6: would say a year or so. That last year, you'll remember,

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Speaker 6: there was a lot of optimism coming out of COVID,

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Speaker 6: people expecting an economic boom to happen as people got

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Speaker 6: out of lockdowns, went out and spent, and that just

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Speaker 6: never occurred. And on top of that, we had the

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Speaker 6: property crisis that has made things worse. And so we

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Speaker 6: come into twenty twenty four with a lot of people

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Speaker 6: worried about where the economy is going, and that has

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Speaker 6: led to this desire to hedge their positions when it

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Speaker 6: comes to the stock market, to short the market when

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Speaker 6: it comes to this strategy and quant funds there the

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Speaker 6: regulator at this moment has been trying to stop the

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Speaker 6: trajectory of the downward trajectory of the market by every

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Speaker 6: means that its disposal. We've seen state funds go into

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Speaker 6: the market, We've seen regulators step in to tell institutions

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Speaker 6: what they can and cannot do, and this is part

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Speaker 6: and parcel of that. There was a lot of blame

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Speaker 6: placed on this strategy. People saw it as having amplified

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Speaker 6: some of the some of the declines that we saw

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Speaker 6: at the start of the year, partly because it was

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Speaker 6: such a It was a strategy that relies so much

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Speaker 6: on leverage.

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Speaker 1: Yeah, that was going to be one of my questions,

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Speaker 1: the degree of which to which leverage is being used.

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Speaker 1: And the other thing, I don't know what the swaps

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Speaker 1: market is like in China. Here in the US it

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Speaker 1: trades kind of in the over the counter market, so

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Speaker 1: there's not an exchange per se that's creating a level

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Speaker 1: of visibility into potential counterparty risk. So it just kind

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Speaker 1: of exacerbates a little bit of the volatility. And if

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Speaker 1: we're talking about using the equity market as a way

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Speaker 1: to measure sentiment. Obviously, if you're a retail investor and

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Speaker 1: every day you look at you know, media to try

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Speaker 1: to gauge an understanding of where equities are trading, just

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Speaker 1: to use the equity market as an example, and you

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Speaker 1: see a steady decline in the value of those assets,

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Speaker 1: I mean it's going to weigh on sentiment in quite

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Speaker 1: a dramatic fashion to the downside.

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Speaker 7: Exactly.

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Speaker 6: So, you know, the swaps market is fairly opaque here

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Speaker 6: in China, and a lot of these this direct market

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Speaker 6: access the strategy, A lot of it was directly between

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Speaker 6: the quant fund and the broker, and so there was

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Speaker 6: not a lot of visibility. That was one of the problems.

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Speaker 6: You had leverage that was up to three times and

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Speaker 6: now the securities regulators saying that has to be rained

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Speaker 6: back to one times. Whatever the amount of money is

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Speaker 6: being deployed there is especially for the retail investors, if

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Speaker 6: you look at the media, I think we have in

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Speaker 6: the past few months seen a big attempt by state

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Speaker 6: media to put a brave face on things, to try

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Speaker 6: and highlight and amplify the positives, and I think the

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Speaker 6: biggest thing that's happened so far is so far in February,

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Speaker 6: we've mostly had green days, days when the market has

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Speaker 6: gone up, mostly because of the regulator's intervention in the market,

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Speaker 6: but that is having an effect on centiment.

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Speaker 2: Sometimes you read between the lines on what the regulator

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Speaker 2: puts out. In this case, it added the CSRC did

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Speaker 2: that they would severely crack down on illegal activities. So

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Speaker 2: it was this illegal and what sort of message does

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Speaker 2: it send that you know that the regulators seem to

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Speaker 2: always think that it's because of bad actors rather than

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Speaker 2: bad policies, So.

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Speaker 7: This strategy is not illegal.

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Speaker 6: I think the there have been other actors that have

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Speaker 6: been punished by the securities regulator in.

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Speaker 7: Recent weeks for activities that were illegal.

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Speaker 6: I believe last night the securities Regulator also announced that

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Speaker 6: they were taking.

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Speaker 7: Some punitive measures against another fund for sort of.

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Speaker 6: Controlling unbeknownst to the regulator other funds that they had

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Speaker 6: not disclosed, and so that that obviously was in violation

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Speaker 6: of rules. And so I think the regulator is trying

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Speaker 6: to do two things at once. One is trying to

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Speaker 6: rein in strategies that are illegal and allowed, but trying

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Speaker 6: to reduce the amount of risks that they they bring

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Speaker 6: to the market by raining in how much leverage they

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Speaker 6: can take, but at the same time also issuing warning

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Speaker 6: to any traders institutions that they have to get their

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Speaker 6: acts together and that the regulator, if anything is being

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Speaker 6: done that's not up to the rules, the regular is

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Speaker 6: going to punish.

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Speaker 1: So I'm wondering, as I'm listening to you, John, I'm

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Speaker 1: wondering whether at next week's NPC, the National People's Congress

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Speaker 1: meeting that gets underway on the fifth, whether the new

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Speaker 1: Premier Lee Chiung is going to address any of these

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Speaker 1: issues that he will discuss, or at least address the

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Speaker 1: issue of maybe tighter regulation in terms of the way

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Speaker 1: financial markets have been behaving.

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Speaker 6: So I think a good way to look at the

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Speaker 6: Premier's address at the NPC is to see it as

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Speaker 6: sort of the Chinese form of the state of the

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Speaker 6: Union that we have in the United States.

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Speaker 7: And so this.

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Speaker 6: Address will be will be written in a way to try,

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Speaker 6: I believe and still confidence, to make the public feel

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Speaker 6: good about the economy. So I would expect a lot

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Speaker 6: of verbiage in there about how things are getting better,

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Speaker 6: how underlying fundamentals are not as bad as people might think,

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Speaker 6: and how things are starting to look better. I think

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Speaker 6: he will probably mention the fact that the economy is

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Speaker 6: not as great as everybody had hoped, that the families

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Speaker 6: across the country are facing hardships, But I think the

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Speaker 6: main point he will make is that things aren't going

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Speaker 6: to get better.

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Speaker 2: John, do you feel that policymakers will feel as though

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Speaker 2: they need to be delicate here because if they come

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Speaker 2: out with really sweeping policy changes, like let's say, running

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Speaker 2: budget deficits spending up over four percent, that it might

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Speaker 2: send a worrisome message.

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Speaker 3: Is that part of the consideration do you think?

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Speaker 6: I think there is a lot of concern within government

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Speaker 6: here in Beijing that, let's say, if we lever up

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Speaker 6: central government books and sort of borrow kind of borrows

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Speaker 6: its way out of this current situation, that that will

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Speaker 6: lead to an even worse crisis down there. There is

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Speaker 6: a lot of concern about that. But at the same time,

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Speaker 6: I think there's a lot of people here who are saying,

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Speaker 6: if the house is on fire, you got to put

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Speaker 6: the fire out first.

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Speaker 7: And so I.

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Speaker 6: Think at this point, the government, based on what we've

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Speaker 6: heard from the premiere. Just a couple of weeks ago,

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Speaker 6: they had a meeting where to discuss his work report

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Speaker 6: that he'll deliver at the NPC, and the readout from

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Speaker 6: that meeting actually had a lot of verbiage around him saying.

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Speaker 7: We got to do more.

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Speaker 6: We have to take real, concrete steps to show people

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Speaker 6: that the government is responding to the economic situation.

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Speaker 7: So I do think in turns aside, they're going to

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Speaker 7: try to do what they can.

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Speaker 1: So I understand what you're saying in terms of admitting

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Speaker 1: that things are really difficult right now, But internally, I'm

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Speaker 1: wondering whether what's happening right now in the economy is

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Speaker 1: being viewed to something that is or was as serious

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Speaker 1: as what we had in twenty fifteen.

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Speaker 6: I think the I think the concern is greater at

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Speaker 6: this point for a few reasons. One, the relationship with

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Speaker 6: the United States is not good. It's much worse than

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Speaker 6: it was in twenty fifteen. That was the Obama administration.

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Speaker 6: China hosted the G twenty. Barack Obama and Shijiqing stood

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Speaker 6: up at the G twenty in Hanjo and announced that

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Speaker 6: the US and China we're going to cooperate on carbon goals.

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Speaker 6: That period of time has ended. The relationship is much

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Speaker 6: more competitive. At the same time, there are other issues.

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Speaker 6: The population in China is now shrinking. There's a demographic

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Speaker 6: sort of conundrum that is much more pronounced now than

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Speaker 6: it was in twenty fifteen. And so those issues I

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Speaker 6: think make this current situation much more different.

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Speaker 2: Yeah, it does seem it seems a little bit more

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Speaker 2: dangerous at the moment, John, Thanks so much for joining us.

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Speaker 2: John Liu, Bloomberg, executive editor in Beijing. Doug, if we

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Speaker 2: had a political analyst on instead of our own executive editor,

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Speaker 2: I might have asked him, is there a gap between

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Speaker 2: the premier's approach and the president's approach? Most people would

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Speaker 2: say perhaps no, but one seems to want to get

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Speaker 2: more aggressive, the other a.

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Speaker 3: Little bit more cautious. This is Bloomberg.

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Speaker 2: Well, tech stocks have taken a little bit of a

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Speaker 2: back seat of late in the US market. We've seen

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Speaker 2: a few other sectors like industrials and financials and consumer

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Speaker 2: discretionary take a little bit more of a leading role

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Speaker 2: in the markets here of fleet.

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Speaker 3: Does that continue? Is tech done?

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Speaker 2: Let's get to Dan Ives, managing director and senior equity

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Speaker 2: analyst at Wedbush Securities. I know that you will raise

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Speaker 2: an eyebrow of that comment, Dan, because I know that

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Speaker 2: you're still quite bullish on selected stocks in the tech arena.

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Speaker 2: We had a guest on earlier this morning who said

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Speaker 2: that the dollar has been strong in part because the

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Speaker 2: money flows into tech stalks in the US and also

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Speaker 2: the oil market expanding in the United States. Is AI

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Speaker 2: fueling a mega trend in the US?

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Speaker 8: I think that's a great point, because, look, this is

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Speaker 8: a revolution that we're talking about, a nineteen ninety five

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Speaker 8: type moment star of the Internet, and I think that's

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Speaker 8: why what we're seeing with tech and to your point,

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Speaker 8: I believe this party is just starting. And there was

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Speaker 8: a bitar view that we're in the midst of what's

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Speaker 8: going to be a two to three year Tech Bowl

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Speaker 8: market and that's something where led by the godfather of AI,

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Speaker 8: Jens and Nvidia and of course Microsoft and others. But

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Speaker 8: now we're seeing the second, third, fourth derivatives of this

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Speaker 8: play out. And that's why we believe unless you have

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Speaker 8: a telescope, hard to find this recession that's bullish for

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Speaker 8: tech with AI parties just starting.

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Speaker 1: Yeah, we were talking a moment ago about the buy

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Speaker 1: do numbers and the reflection in the resils else that

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Speaker 1: maybe there was a very aggressive tech spend on AI

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Speaker 1: that's not yet panning out. I mean, so I understand

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Speaker 1: what you're saying in terms of front loading the buying.

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Speaker 1: I mean, I remember back in the nineties when Cisco's

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Speaker 1: Systems was basically underwriting client purchases of their networking gear.

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Speaker 1: Right when that went pair shaped, Cisco was left holding

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Speaker 1: the bag. I just wonder if there is a level

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Speaker 1: of enthusiasm that may be, in the words of a

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Speaker 1: great Sage, irrational exuberance. Yeah.

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Speaker 8: Look, and I think that's been the debate over the

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Speaker 8: last year. But I think what we've seen over the

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Speaker 8: last month with Microsoft's numbers, the godfather of AI, Jensen

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Speaker 8: and Video last week named pall and Teer Mangoud deb

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Speaker 8: and others the Monizian's happening. See that's the difference is

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Speaker 8: someone like myself that's covered tech stocks going back to

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Speaker 8: waight nineties. That's why we weave. This is a nineteen

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Speaker 8: ninety five moment.

442
00:23:55,880 --> 00:23:56,040
Speaker 7: So.

443
00:23:57,480 --> 00:24:00,879
Speaker 1: Come right, this is like not like pet Dot's it

444
00:24:00,960 --> 00:24:01,400
Speaker 1: will look.

445
00:24:01,520 --> 00:24:05,360
Speaker 8: I mean, there was so much fraud back then, and

446
00:24:05,400 --> 00:24:10,040
Speaker 8: there was the monization was all on the horizon. Stocks

447
00:24:10,040 --> 00:24:13,240
Speaker 8: were training a thirty times revenues and eyeballs. Now we're

448
00:24:13,240 --> 00:24:16,520
Speaker 8: talking about companies that have thirty forty to fifty billion

449
00:24:16,920 --> 00:24:18,360
Speaker 8: of cash.

450
00:24:18,480 --> 00:24:20,440
Speaker 2: But then you know, pets dot Com is probably not

451
00:24:20,480 --> 00:24:22,800
Speaker 2: a good example because it didn't have much in the

452
00:24:22,800 --> 00:24:24,280
Speaker 2: way of earnings. There are a lot of companies then

453
00:24:24,320 --> 00:24:27,840
Speaker 2: that didn't. But there were companies then Cisco has already mentioned,

454
00:24:27,840 --> 00:24:30,440
Speaker 2: that did have earnings and they still went into a

455
00:24:30,520 --> 00:24:33,399
Speaker 2: kind of black hole for about ten to fifteen years.

456
00:24:34,640 --> 00:24:37,600
Speaker 2: You need to pay close attention to valuations and whether

457
00:24:37,680 --> 00:24:41,199
Speaker 2: or not these earnings can continue. Do you see some

458
00:24:41,359 --> 00:24:43,399
Speaker 2: of those parallels and do you worry that some of

459
00:24:43,440 --> 00:24:45,200
Speaker 2: these stocks are getting extended.

460
00:24:45,520 --> 00:24:48,679
Speaker 8: Yeah, Look, I think it all if twenty three, to

461
00:24:48,720 --> 00:24:53,600
Speaker 8: your point, if twenty twenty three was really the start

462
00:24:53,880 --> 00:24:58,760
Speaker 8: of the AI revolution, and obviously all about multiple expansion.

463
00:24:58,840 --> 00:25:03,840
Speaker 8: Twenty twenty four is about showing the numbers. It's not

464
00:25:04,359 --> 00:25:07,160
Speaker 8: about multiple spects. It's showing the numbers. And that's what Look,

465
00:25:07,200 --> 00:25:10,040
Speaker 8: that's what we've seen throughout earnings. Well you look you

466
00:25:10,080 --> 00:25:14,480
Speaker 8: across earns, we've seen that and we believe the mons.

467
00:25:14,840 --> 00:25:19,240
Speaker 8: I think investors the street could be underestimated tech earnings

468
00:25:19,640 --> 00:25:22,520
Speaker 8: by fifteen to twenty percent when we look out next

469
00:25:22,520 --> 00:25:23,399
Speaker 8: two to three years.

470
00:25:23,440 --> 00:25:26,800
Speaker 1: So the techs, the cap x may be there. I

471
00:25:26,800 --> 00:25:30,719
Speaker 1: mean in video, big beneficiarybody wants the you know the

472
00:25:30,760 --> 00:25:34,440
Speaker 1: processors that in video manufacturers. But I'm just wondering, when

473
00:25:34,640 --> 00:25:36,800
Speaker 1: you know the end user, whether they really get the

474
00:25:36,840 --> 00:25:41,720
Speaker 1: bank for the buck, whether their productivity strengthens to such

475
00:25:41,760 --> 00:25:46,000
Speaker 1: a degree, whether it becomes obvious that the AI revolution

476
00:25:46,320 --> 00:25:48,560
Speaker 1: is not only durable but practical.

477
00:25:49,280 --> 00:25:52,000
Speaker 8: Sure, And I think that that hits on the key point.

478
00:25:52,040 --> 00:25:55,679
Speaker 8: It's all about use cases. And from a use case perspective,

479
00:25:55,720 --> 00:25:59,040
Speaker 8: we've over eatey use cases for AI. You go back

480
00:25:59,040 --> 00:26:02,199
Speaker 8: three four months ago, it was fifteen to twenty so

481
00:26:02,400 --> 00:26:05,800
Speaker 8: use cases are exploding. But right now the golden goose

482
00:26:05,960 --> 00:26:09,320
Speaker 8: it's not the consumer, it's the enterprise. The enterprise where

483
00:26:09,320 --> 00:26:12,399
Speaker 8: you're gonna see the use cases. The consumer piece that

484
00:26:12,400 --> 00:26:15,320
Speaker 8: will be twenty five twenty six. That's where Google, Meta

485
00:26:15,320 --> 00:26:18,359
Speaker 8: and others are going to significant benefit. Right now, the

486
00:26:18,680 --> 00:26:21,520
Speaker 8: focus is the enterprise AI revolution.

487
00:26:22,000 --> 00:26:23,520
Speaker 3: So you've mentioned a few names.

488
00:26:23,840 --> 00:26:27,880
Speaker 2: Clearly in Vidia and also Microsoft are among the leaders

489
00:26:28,280 --> 00:26:32,080
Speaker 2: in the AI revolution. What are some other companies that

490
00:26:32,119 --> 00:26:36,800
Speaker 2: you think are quite durable in their approach to AI

491
00:26:36,840 --> 00:26:38,640
Speaker 2: and the benefits that they will derive from AI.

492
00:26:38,840 --> 00:26:39,000
Speaker 3: Yeah.

493
00:26:39,040 --> 00:26:41,960
Speaker 8: I think the best pure play AI play out there

494
00:26:42,080 --> 00:26:45,200
Speaker 8: is that we call them the MESSI of AI pound tier.

495
00:26:45,320 --> 00:26:49,680
Speaker 8: I think from a use case perspective, that is really

496
00:26:49,720 --> 00:26:51,960
Speaker 8: front and center in terms of all of these use cases.

497
00:26:52,000 --> 00:26:55,440
Speaker 8: Other names Mango, dB in terms of what I view

498
00:26:55,440 --> 00:26:58,280
Speaker 8: as a core AI play. I also have used some

499
00:26:58,359 --> 00:27:03,359
Speaker 8: of the software Salesforce, dot Com, Adobe that are going

500
00:27:03,400 --> 00:27:06,440
Speaker 8: to be AI place. Then you look at areas like cybersecurity.

501
00:27:06,440 --> 00:27:09,640
Speaker 8: There's names like varonas that benefits. You look at names

502
00:27:09,680 --> 00:27:13,080
Speaker 8: like Pegas Systems, which is on the developer tools. Our

503
00:27:13,160 --> 00:27:17,960
Speaker 8: point is second, third, fourth derivatives of the revolution is

504
00:27:18,000 --> 00:27:19,840
Speaker 8: what you got to be focused on right now?

505
00:27:20,040 --> 00:27:23,960
Speaker 1: Okay, Well, you mentioned Salesforce after the Bell Company giving

506
00:27:24,000 --> 00:27:26,840
Speaker 1: a disappointing a full year revenue forecast, and I guess

507
00:27:27,640 --> 00:27:30,440
Speaker 1: it suggests to some people that this AI revolution that

508
00:27:30,480 --> 00:27:33,120
Speaker 1: we're talking about, certainly the features that Salesforce has been

509
00:27:33,119 --> 00:27:36,719
Speaker 1: trying to embed in its applications have really not been

510
00:27:36,800 --> 00:27:38,879
Speaker 1: driving a lot of growth. I mean, is that a

511
00:27:38,920 --> 00:27:41,080
Speaker 1: fair statement? Is that the way that you're reading the

512
00:27:41,119 --> 00:27:42,200
Speaker 1: Salesforce results.

513
00:27:42,600 --> 00:27:44,919
Speaker 8: Yeah, so I'd read it. It's a comeback for the

514
00:27:44,960 --> 00:27:48,400
Speaker 8: ages from Benioff and Salesforce. And if you looked up

515
00:27:48,440 --> 00:27:51,119
Speaker 8: conservative guidance in the dictionary, you'd see that.

516
00:27:51,280 --> 00:27:52,639
Speaker 5: And I think that's so.

517
00:27:52,720 --> 00:27:55,840
Speaker 8: I've used Salesforce as a stock that goes much higher

518
00:27:55,920 --> 00:27:59,880
Speaker 8: from here. AI monization will be on the horizon. But look,

519
00:28:00,080 --> 00:28:03,879
Speaker 8: Benioff's flying the plane. I'm very comfortable being in twenty

520
00:28:03,960 --> 00:28:05,639
Speaker 8: nine E watching Netflix.

521
00:28:05,720 --> 00:28:07,120
Speaker 3: Dan, you're here in Asia.

522
00:28:07,400 --> 00:28:10,000
Speaker 2: You're coming presumably because you have a lot of clients

523
00:28:10,200 --> 00:28:11,119
Speaker 2: that you want to see.

524
00:28:11,240 --> 00:28:12,160
Speaker 3: Do they want to see you?

525
00:28:13,080 --> 00:28:14,920
Speaker 5: Well, I mean, look, it's good.

526
00:28:15,320 --> 00:28:18,239
Speaker 8: It's funny because all these empty offices when I come in,

527
00:28:18,400 --> 00:28:20,399
Speaker 8: I thought it was a hint. Maybe I should have

528
00:28:20,400 --> 00:28:25,719
Speaker 8: got no. So but to that point, the demand maybe

529
00:28:25,720 --> 00:28:30,679
Speaker 8: what i'd say here told say this year is dramatically

530
00:28:30,760 --> 00:28:32,280
Speaker 8: different than it was a few years ago.

531
00:28:32,560 --> 00:28:35,720
Speaker 2: Because I was cheating on that, Doug, because one of

532
00:28:35,720 --> 00:28:37,560
Speaker 2: the things we were chatting about before we started the

533
00:28:38,440 --> 00:28:40,800
Speaker 2: session was that he's getting more and more people coming

534
00:28:40,800 --> 00:28:41,960
Speaker 2: to the meetings.

535
00:28:42,320 --> 00:28:44,800
Speaker 3: Dozens and dozens and dozens where it used to be fewer.

536
00:28:44,880 --> 00:28:45,640
Speaker 3: This is Bloomberg.

537
00:28:45,920 --> 00:28:48,280
Speaker 1: It's because Dan's here with us that we've got to

538
00:28:48,320 --> 00:28:52,560
Speaker 1: talk about Apple and one of the things that I

539
00:28:52,600 --> 00:28:55,920
Speaker 1: know you've been bullish on the stock for for quite

540
00:28:55,920 --> 00:28:59,080
Speaker 1: some time. Were you disappointed that they pulled a plug

541
00:28:59,120 --> 00:28:59,600
Speaker 1: on the car?

542
00:29:01,360 --> 00:29:05,280
Speaker 8: I mean, I'd say disappointed in the fact that it

543
00:29:05,320 --> 00:29:08,880
Speaker 8: was a decade long headache where the billions could have

544
00:29:08,880 --> 00:29:13,200
Speaker 8: been spent in other places, but actually happy that they

545
00:29:13,240 --> 00:29:15,640
Speaker 8: finally ripped a band aid off and ended it because

546
00:29:15,720 --> 00:29:18,720
Speaker 8: right now you need to see them leaser focus, all

547
00:29:18,760 --> 00:29:22,800
Speaker 8: hands on deck on AI. That's that's where the focus is.

548
00:29:23,160 --> 00:29:25,520
Speaker 8: This was really a race to nowhere. Rying was in

549
00:29:25,560 --> 00:29:27,160
Speaker 8: the wall. They needed to shut this down.

550
00:29:28,040 --> 00:29:31,000
Speaker 2: You know, A big, big input for in Video was

551
00:29:31,000 --> 00:29:34,080
Speaker 2: getting all these by orders from Meta. You know, he

552
00:29:34,200 --> 00:29:36,840
Speaker 2: had the CEO out crowing about that for a while,

553
00:29:36,880 --> 00:29:39,880
Speaker 2: not not in Video CEO, but Mark Zuckerberg. Is Apple

554
00:29:39,960 --> 00:29:42,680
Speaker 2: going to become the next big customer of Nvidia or

555
00:29:42,720 --> 00:29:44,640
Speaker 2: will they develop some of these chips on their own.

556
00:29:44,800 --> 00:29:44,960
Speaker 6: Oh?

557
00:29:45,000 --> 00:29:47,600
Speaker 8: I think they will be a major customer of Nvidia

558
00:29:47,760 --> 00:29:50,640
Speaker 8: because when we look at their plant, we believe that

559
00:29:50,720 --> 00:29:53,560
Speaker 8: they launched an AI app store this summer, that they

560
00:29:53,760 --> 00:29:57,840
Speaker 8: that they'll talk about WWDC and then I believe AI

561
00:29:58,160 --> 00:30:02,320
Speaker 8: actually gets incorporated into IPHI sixteen. So this is Look,

562
00:30:02,400 --> 00:30:06,280
Speaker 8: this is the start of a renaissance of growth at

563
00:30:06,320 --> 00:30:09,600
Speaker 8: Apple as they further monetized. They are not going to

564
00:30:09,640 --> 00:30:14,000
Speaker 8: be left out as AI party cook and Coopertino tacticians.

565
00:30:14,440 --> 00:30:16,800
Speaker 8: Every time you bet against him, it's been the wrong move.

566
00:30:16,920 --> 00:30:20,160
Speaker 1: Okay, But let's talk about regulatory risk. In Apple's case,

567
00:30:20,240 --> 00:30:22,960
Speaker 1: it's the app store. The Justice Department, we are told,

568
00:30:23,040 --> 00:30:25,840
Speaker 1: is taking a hard look at how the company is

569
00:30:25,880 --> 00:30:30,560
Speaker 1: basically locked out competitors from playing.

570
00:30:30,240 --> 00:30:30,960
Speaker 5: In that space.

571
00:30:31,040 --> 00:30:34,520
Speaker 1: When Apple contracts with a lot of these software developers

572
00:30:34,800 --> 00:30:37,440
Speaker 1: making and writing the latest apps. That's one, and then

573
00:30:37,480 --> 00:30:41,000
Speaker 1: you've got other concerns. Elizabeth Warren just yesterday talking about

574
00:30:41,120 --> 00:30:46,600
Speaker 1: the overconcentration of AI in names like Microsoft, Alphabet even

575
00:30:46,720 --> 00:30:51,320
Speaker 1: Amazon at the exclusion of the startup community. And is

576
00:30:51,360 --> 00:30:54,840
Speaker 1: there a way that you're viewing regulatory risk right now

577
00:30:54,840 --> 00:30:55,479
Speaker 1: in this space?

578
00:30:56,200 --> 00:30:58,080
Speaker 8: Yeah, And I spent a lot of time in DC.

579
00:30:58,840 --> 00:31:02,160
Speaker 8: It's a double edged sword because probably the biggest strength

580
00:31:02,240 --> 00:31:05,680
Speaker 8: right now within the US, especially from a when you

581
00:31:05,760 --> 00:31:08,520
Speaker 8: think from an industry perspective is tech is the community

582
00:31:08,600 --> 00:31:11,320
Speaker 8: is AI. So as the mag seven that has the

583
00:31:11,360 --> 00:31:14,120
Speaker 8: strong have gone strong, that's actually been a huge positive,

584
00:31:14,680 --> 00:31:16,960
Speaker 8: which is part of that double edge short when you

585
00:31:16,960 --> 00:31:19,840
Speaker 8: look at the regulatory I think the lack of consensus

586
00:31:20,120 --> 00:31:23,120
Speaker 8: it continues to make that more noise than reality. I

587
00:31:23,160 --> 00:31:25,600
Speaker 8: think for Apple it's a little different when you could

588
00:31:25,680 --> 00:31:30,160
Speaker 8: DJ and them, you know clearly coming down on the

589
00:31:30,200 --> 00:31:33,000
Speaker 8: app story, looks that's gonna be something that they're gonna

590
00:31:33,040 --> 00:31:36,440
Speaker 8: need to navigate. We still don't believe that that's going

591
00:31:36,520 --> 00:31:38,600
Speaker 8: to dramatically change, but this is going to be a

592
00:31:38,640 --> 00:31:41,040
Speaker 8: fighter on their hand, and I think that's what we're

593
00:31:41,040 --> 00:31:43,680
Speaker 8: going to see is the strong get stronger. They're going

594
00:31:43,760 --> 00:31:45,440
Speaker 8: to get more scrutiny from the belt.

595
00:31:46,960 --> 00:31:49,680
Speaker 2: I'm kind of curious about what I started off with

596
00:31:50,040 --> 00:31:52,240
Speaker 2: about a broadening in the market. We have seen a

597
00:31:52,240 --> 00:31:55,760
Speaker 2: lot of sectors outperform tech of late. Are you worried

598
00:31:56,400 --> 00:31:58,880
Speaker 2: that we're going to see a pause in some of

599
00:31:58,920 --> 00:32:03,920
Speaker 2: the investment in tech while some of the other areas outperform.

600
00:32:04,320 --> 00:32:06,520
Speaker 2: And if so, is that just a short phase or

601
00:32:06,560 --> 00:32:09,240
Speaker 2: could it does it have the potential for lasting longer?

602
00:32:09,360 --> 00:32:09,479
Speaker 7: Why?

603
00:32:09,800 --> 00:32:12,200
Speaker 8: I view it as a positive because what we're seeing

604
00:32:12,320 --> 00:32:15,360
Speaker 8: just broader earning is coming at financials and others. In

605
00:32:15,480 --> 00:32:20,480
Speaker 8: terms of market breath, but it's it's the torch bear.

606
00:32:20,840 --> 00:32:23,120
Speaker 8: The leaders are going to continue to be tech because

607
00:32:23,160 --> 00:32:25,400
Speaker 8: of the revolution where you see we believe textocks are

608
00:32:25,480 --> 00:32:28,160
Speaker 8: up in our twenty twenty five percent, and I think

609
00:32:28,200 --> 00:32:31,080
Speaker 8: this goes back to this AI party just starting with

610
00:32:31,120 --> 00:32:31,880
Speaker 8: tech leading it.

611
00:32:32,480 --> 00:32:35,400
Speaker 1: What's the downside here? Potentially if the market goes into

612
00:32:35,440 --> 00:32:38,680
Speaker 1: some kind of you know, corrective mode. Maybe it's temporary,

613
00:32:38,680 --> 00:32:40,640
Speaker 1: but is there some downside risk that we need to

614
00:32:40,720 --> 00:32:42,280
Speaker 1: explore very quickly, then.

615
00:32:42,120 --> 00:32:44,200
Speaker 8: Yeah, you could see them down to risk on fed

616
00:32:45,000 --> 00:32:49,520
Speaker 8: jaw boning, things like that, potential black swan events, but

617
00:32:49,640 --> 00:32:52,600
Speaker 8: I believe any sort of those events will be short

618
00:32:52,640 --> 00:32:55,840
Speaker 8: lived with the market that we see going much higher

619
00:32:55,840 --> 00:32:56,240
Speaker 8: this year.

620
00:32:56,400 --> 00:32:59,280
Speaker 2: Okay, your top three picks number one, number two, and

621
00:32:59,400 --> 00:33:00,080
Speaker 2: number three.

622
00:33:00,240 --> 00:33:06,520
Speaker 8: Number one Mango, dB, number two, Microsoft, number three, pound tier,

623
00:33:06,920 --> 00:33:09,120
Speaker 8: those are the three core AI plays.

624
00:33:09,360 --> 00:33:12,600
Speaker 3: Whoa not in video so look in video.

625
00:33:13,240 --> 00:33:15,880
Speaker 8: It goes back to that's been the mean way to

626
00:33:16,000 --> 00:33:18,840
Speaker 8: play it. But now and that we continue to be

627
00:33:18,840 --> 00:33:21,920
Speaker 8: sure bullish on Nvidia and the godfather of AI, but

628
00:33:22,080 --> 00:33:24,640
Speaker 8: now it's focused on what are the names that are

629
00:33:24,680 --> 00:33:27,760
Speaker 8: not reflecting what we see the second, third, fourth derivative

630
00:33:27,840 --> 00:33:31,640
Speaker 8: and it's software that's now taken the rains from chips.

631
00:33:31,960 --> 00:33:34,160
Speaker 1: All right, Dan, good stuff, what was a pleasure? Enjoy

632
00:33:34,200 --> 00:33:36,960
Speaker 1: your time in the Hong Kong. Dan Ives, Managing Director

633
00:33:37,000 --> 00:33:40,600
Speaker 1: also senior equity analyst at Webb Bush Securities, joining here

634
00:33:40,640 --> 00:33:42,240
Speaker 1: on that Daybreak Asia.

635
00:33:42,360 --> 00:33:45,800
Speaker 2: This is the Bloomberg Daybreak Asia podcast, bringing you the

636
00:33:45,880 --> 00:33:49,320
Speaker 2: stories making news and moving markets in the Asia Pacific.

637
00:33:49,560 --> 00:33:52,720
Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more

638
00:33:52,760 --> 00:33:56,520
Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to

639
00:33:56,600 --> 00:34:00,440
Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen

640
00:34:00,680 --> 00:34:03,880
Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

641
00:34:03,880 --> 00:34:05,200
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