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Speaker 2: Byde's quarterly adjusted operating income beat expectations by five point
Speaker 2: four percent due to better cost control. However, AI related
Speaker 2: losses deepened and adjusted profit in BYDO was actually down
Speaker 2: seven point one percent, and the stock is trading off
Speaker 2: four point three percent in the early action this morning.
Speaker 2: Joining us now for some analysis is Robert Lee, who
Speaker 2: is senior analyst at Bloomberg Intelligence.
Speaker 3: To take a closer.
Speaker 2: Look, So revenue was up something like six percent. That's
Speaker 2: not particularly good for a company of this ILK really
Speaker 2: in the area of technology for Hong Kong and China.
Speaker 2: But then the expenses, as we mentioned there.
Speaker 3: Were up a lot. Is that likely to continue? Robert?
Speaker 3: And can we see losses going forward?
Speaker 4: Great questions. I think taking a step back the reality
Speaker 4: of what body is today. Although it was seen a
Speaker 4: year ago as China's leading AI play.
Speaker 5: The reality is it's a.
Speaker 4: Search engine business that accounts for the bulk of its
Speaker 4: revenue and the bulk of its earnings. Searches, like in
Speaker 4: most countries, are fairly mature industry. By Doo is the
Speaker 4: number one ranked search engine in China. You know, Google's actually,
Speaker 4: because of geopolitics, etc. Is not operational in China.
Speaker 5: So the issue for the core of Bidou's.
Speaker 4: Business is their search business is advertising driven revenue model,
Speaker 4: which is obviously tied to the underlying economy, and as
Speaker 4: we go into a period of slowing economic growth, obviously
Speaker 4: corporate clibs and advertisers are tightening their belts and that
Speaker 4: we saw early evidence of that coming through in the
Speaker 4: numbers that were reported last night, plus it was referred to.
Speaker 5: On the call.
Speaker 4: So I think that's one issue that impacted sentiment and
Speaker 4: accounts for the decline we're seeing in the market today.
Speaker 4: The sort of other side of the businesses, they have
Speaker 4: a fingers in a lot of different pies on the
Speaker 4: AI side, from autonomous vehicles to their early bot chap
Speaker 4: GBT like product. They do have some traction there on
Speaker 4: the revenue front or their revenues remain very small at
Speaker 4: this moment. They're looking for a few hundred billion of
Speaker 4: revenue this year. That's in the context of a business
Speaker 4: that turns over something like one hundred and thirty billion revenue,
Speaker 4: So it's quite small beer at the moment, and it's
Speaker 4: AI businesses in aggregate and loss making, and those losses
Speaker 4: are likely to increase in the coming year. So you've
Speaker 4: got the core advertising business which is going into a
Speaker 4: period of slow in growth, potentially with some margin pressure,
Speaker 4: and AI businesses that remain very early stage, and arguably
Speaker 4: the losses on those interneture are going to widen. So
Speaker 4: you know, we're not seeing that earning earning kicker come
Speaker 4: through unlike a lot of them, you know, magnificent seven.
Speaker 1: So when it comes to the use of AI in search,
Speaker 1: whether you're by do or here in the States, whether
Speaker 1: you're talking about Google, is there a lot of evidence
Speaker 1: to suggest that the implementation of AI is necessarily going
Speaker 1: to deliver better results where we're kind of conventional search
Speaker 1: is concerned, or we just don't have enough data to
Speaker 1: make that statement.
Speaker 5: Again, great question.
Speaker 4: I think the anecdotal evidence is absolutely there that it
Speaker 4: does it will enhance the search capabilities, etc. But the
Speaker 4: key question is are people going to pay for it?
Speaker 4: Because on the consumer side, and particularly in China, we
Speaker 4: live in.
Speaker 5: A world where people are used to these services for free.
Speaker 4: I mean again, you go on the web, you Google,
Speaker 4: you pay nothing as a consumer. So I think it's
Speaker 4: very difficult for Buydo, and it's peers overseas as well, to.
Speaker 5: Start charging for these services.
Speaker 4: And the other side is again that the corporate users
Speaker 4: going to start paying extra for their advertising on the
Speaker 4: back of any incer enhanced search. And again that remains
Speaker 4: very unclear at the moment. So the monetization efforts are
Speaker 4: very unclear and indistinct at the moment. Not just for
Speaker 4: by Do, I'd say that also applies to a lot
Speaker 4: of the uspers as well.
Speaker 2: So just to remind our listeners that we have our
Speaker 2: reporters in Bloomberg News and then we have our analysts
Speaker 2: in Bloomberg Intelligence. So Robert is giving you his neutral
Speaker 2: analysis of the company. And I want to go back
Speaker 2: to the point you made, Robert, which seems like you're
Speaker 2: saying that the misstep that we see here for by
Speaker 2: Do is really down to weakness in the economy and
Speaker 2: not in fact missteps in strategy management considerations. Is this
Speaker 2: company do you think in good shape with its fundamentals
Speaker 2: and will get better if and when the economy improves.
Speaker 4: It's a profitable business, it's generating healthy free CA flow.
Speaker 4: Its core search business may not be particularly high growth,
Speaker 4: and as I've said, it is tied to the outlook
Speaker 4: for economic growth, but there's no fundamental concern on that front. However,
Speaker 4: as I said, it was certainly a year ago it
Speaker 4: was seen as China's leading AI play. The sort of
Speaker 4: level of AI related revenues is going to generate in
Speaker 4: the next year is relatively.
Speaker 5: Small and they're all loss making.
Speaker 4: So are we going to get that earnings kicker coming
Speaker 4: through from AI in the next year or two.
Speaker 5: It's highly unlikely.
Speaker 4: Therefore, there's nothing fundamentally wrong with by Do in any way.
Speaker 4: But I don't think it, you know, anybody would really
Speaker 4: describe it as a growth company. And I you know,
Speaker 4: and the other thing on the AI side, the China's
Speaker 4: leading Internet giants like Ali, Barbar, ten Cent and Huawei,
Speaker 4: are you know, quite quickly narrowing the technology gap and
Speaker 4: catching up with by Do.
Speaker 5: So theres a competitive.
Speaker 4: Element potentially threatening them over the next three years as well.
Speaker 1: We were just talking the other day about this investment
Speaker 1: that is making in a new AI startup. The name
Speaker 1: escapes me at the moment. I think it was a
Speaker 1: billion dollar leading the funding on the round, and I
Speaker 1: think the startup is valued now at around two and
Speaker 1: a half billion US. Was it Moonshot or something like that, Yeah, yeah.
Speaker 5: Yeah, moon Ai.
Speaker 1: Okay, So generally speaking, when if you had to compare
Speaker 1: what's happening here at the consumer level, where AI is
Speaker 1: kind of intersecting a lot of these platforms, with what's
Speaker 1: going on in China, one of the things that I
Speaker 1: think about in China is the restrictions on the Internet
Speaker 1: more broadly, and if you have to train these models
Speaker 1: on data that is really not as inclusive, I would
Speaker 1: think that that the end, the output is going to
Speaker 1: be very limited. Am I right in that?
Speaker 5: Absolutely?
Speaker 4: Because something like ninety percent or thereabouts of all the
Speaker 4: data and information on the World Wide Web is in English,
Speaker 4: so Chinese language data and information accounts for around ten
Speaker 4: seven and as you've just you know, referred to, their
Speaker 4: are censorship restrictions. So I think and I read something
Speaker 4: interesting last night as well, looking at the longer term
Speaker 4: performance and accuracy of some of these chatbots, and that
Speaker 4: they all sort of average out a sort of similar
Speaker 4: level over time. The key differentiator is access to training data.
Speaker 4: So if China's AI models and chatbots are being trained
Speaker 4: off for a relatively restricted data set, that will impact
Speaker 4: their accuracy and usefulness in the long run. Having said that,
Speaker 4: by Do is China's number one ranked chatbot on the moment,
Speaker 4: and from you know, from where we see at the moment,
Speaker 4: it will likely remain in that position for the foreseeable future.
Speaker 4: But is it making money or is it likely to
Speaker 4: make money?
Speaker 2: We've seen some notable stumbles from Google with Gemini and
Speaker 2: it really set back to start quite a bit. And
Speaker 2: then today we hear that even Microsoft has had some
Speaker 2: issues with its bot as well. And I'm wondering whether
Speaker 2: or not buy Do in China. I'm not sure it
Speaker 2: would be made public. But have we heard anything about
Speaker 2: any mistakes or distorted data coming out of it's AI search?
Speaker 4: Yeah, I think again, going back to censorship in the
Speaker 4: early days, you know, if you want to ask something
Speaker 4: about politics or the president, you know, it gave some
Speaker 4: potentially inappropriate answers which have been clamped down on by sensors, etc.
Speaker 4: But you know, just again anecdotally, obviously myself and my
Speaker 4: colleagues of UC systems and experimented with them in a
Speaker 4: very sort of informal way. I think the accuracy of
Speaker 4: the answers that ernie bot produces versus a chat GPT,
Speaker 4: there is a noticeable lack of detail on the Chinese side. Again,
Speaker 4: whether that's due to the underlying algorithms or the accessibility
Speaker 4: of the underlying data set for training, it's probably more
Speaker 4: the latter, I would say.
Speaker 1: So next week we're looking to the NPC meeting and
Speaker 1: one of the questions that we've been asking is about
Speaker 1: you know, the growth target, yes, but also the focus
Speaker 1: of where this activity, this economic activity is going to
Speaker 1: come from. And I think for the private sector, particularly
Speaker 1: in China, where technology is concerned, there has been a
Speaker 1: little bit of trepidation, big question mark over government policy.
Speaker 1: I think that the people who play in this field
Speaker 1: have sometimes felt as though the rug has been pulled
Speaker 1: out from underneath them perhaps midstream. Do you think the
Speaker 1: leaders in China understand the importance of this technology economy
Speaker 1: in providing a lot of the engine for future growth.
Speaker 4: Absolutely, I think they do, and I speak as someone
Speaker 4: who's British and hopefully independent of everything. No, absolutely, Ali
Speaker 4: Baba and China. Ali Baba, Tencent and Huawei are the
Speaker 4: three and may arguably Bite Dance as well, are the
Speaker 4: three or four large technology giants within the Chinese economy.
Speaker 4: They absolutely underpin not just the growth in the technology
Speaker 4: sector itself, but they're important drivers of economic growth and
Speaker 4: if you look at any pronouncements from the senior leadership
Speaker 4: in China, I think they do understand that.
Speaker 5: However, as a one party.
Speaker 4: States, there are you know, particular issues with the way
Speaker 4: trying to like to manage things, censorship, etc. But looking forward,
Speaker 4: I think we should see a more stable regulatory environment
Speaker 4: going forward. That's a key point which has obviously been
Speaker 4: an area of significant concern in the last few years.
Speaker 2: Well, that fuels my next question, which was kind of
Speaker 2: about politics. So we saw Ali Baba stumble to a
Speaker 2: certain degree because of jack Maa's relationship with policymakers, and
Speaker 2: although it didn't come out in public, ten Cent with
Speaker 2: a little bit of a struggle ponym I had to
Speaker 2: step back a little bit. How is Baidu's relationship with
Speaker 2: the party.
Speaker 4: As far as I'm aware, I think they have good
Speaker 4: relations so it's not so much an issue of that. Again,
Speaker 4: it's fundamentally it do have the monetization model, the right
Speaker 4: revenue model to drive significant earnings growth on these AI tools,
Speaker 4: and you know, it's very unclear. And then from my
Speaker 4: point of view, I think it's highly unlikely we'll see
Speaker 4: that earnings kicker come through, not just this year, but
Speaker 4: in the next two to three years.
Speaker 5: That's the main issue for them.
Speaker 4: It's just an issue of the corporate management and the
Speaker 4: fundamental earnings model.
Speaker 5: It's not an.
Speaker 4: Issue of their relationship with the party or the government, etc.
Speaker 4: I think the government would love to support them as
Speaker 4: in as best they can, but if they don't have
Speaker 4: the right business model there, they're not going to make money.
Speaker 2: Yeah, I probably should have instead said the relationship with
Speaker 2: the party. I probably should have said with policy or
Speaker 2: with the regulators, and that would be a little bit
Speaker 2: less political. And the current always says after coming off
Speaker 2: this program that he really enjoyed his morning workout. Deep breath,
Speaker 2: excel slowly, Glad that's over with Robert. Nice to have
Speaker 2: you playing game with us, playing the game. Robert Lee,
Speaker 2: Senior Analyst, at Bloomberg Intelligence. This is bloom joining us
Speaker 2: to discuss this a little bit further as John Leu,
Speaker 2: who is Bloomberg.
Speaker 3: Executive editor in Beijing.
Speaker 2: So, John, a couple of issues here. One is the
Speaker 2: root of the problem, what's causing people to want to
Speaker 2: short stocks and to make these downside bets. And the
Speaker 2: other is, you know, some of these measures taken by
Speaker 2: quant funds that actually sort of lead to exacerbating the losses,
Speaker 2: are they Do you think policymakers are getting at both
Speaker 2: of those objectives.
Speaker 6: So on the first question, Brian, I think there is
Speaker 6: a lot of pessimism about the outlook for the economy.
Speaker 6: That has been the case for the last probably I
Speaker 6: would say a year or so. That last year, you'll remember,
Speaker 6: there was a lot of optimism coming out of COVID,
Speaker 6: people expecting an economic boom to happen as people got
Speaker 6: out of lockdowns, went out and spent, and that just
Speaker 6: never occurred. And on top of that, we had the
Speaker 6: property crisis that has made things worse. And so we
Speaker 6: come into twenty twenty four with a lot of people
Speaker 6: worried about where the economy is going, and that has
Speaker 6: led to this desire to hedge their positions when it
Speaker 6: comes to the stock market, to short the market when
Speaker 6: it comes to this strategy and quant funds there the
Speaker 6: regulator at this moment has been trying to stop the
Speaker 6: trajectory of the downward trajectory of the market by every
Speaker 6: means that its disposal. We've seen state funds go into
Speaker 6: the market, We've seen regulators step in to tell institutions
Speaker 6: what they can and cannot do, and this is part
Speaker 6: and parcel of that. There was a lot of blame
Speaker 6: placed on this strategy. People saw it as having amplified
Speaker 6: some of the some of the declines that we saw
Speaker 6: at the start of the year, partly because it was
Speaker 6: such a It was a strategy that relies so much
Speaker 6: on leverage.
Speaker 1: Yeah, that was going to be one of my questions,
Speaker 1: the degree of which to which leverage is being used.
Speaker 1: And the other thing, I don't know what the swaps
Speaker 1: market is like in China. Here in the US it
Speaker 1: trades kind of in the over the counter market, so
Speaker 1: there's not an exchange per se that's creating a level
Speaker 1: of visibility into potential counterparty risk. So it just kind
Speaker 1: of exacerbates a little bit of the volatility. And if
Speaker 1: we're talking about using the equity market as a way
Speaker 1: to measure sentiment. Obviously, if you're a retail investor and
Speaker 1: every day you look at you know, media to try
Speaker 1: to gauge an understanding of where equities are trading, just
Speaker 1: to use the equity market as an example, and you
Speaker 1: see a steady decline in the value of those assets,
Speaker 1: I mean it's going to weigh on sentiment in quite
Speaker 1: a dramatic fashion to the downside.
Speaker 7: Exactly.
Speaker 6: So, you know, the swaps market is fairly opaque here
Speaker 6: in China, and a lot of these this direct market
Speaker 6: access the strategy, A lot of it was directly between
Speaker 6: the quant fund and the broker, and so there was
Speaker 6: not a lot of visibility. That was one of the problems.
Speaker 6: You had leverage that was up to three times and
Speaker 6: now the securities regulators saying that has to be rained
Speaker 6: back to one times. Whatever the amount of money is
Speaker 6: being deployed there is especially for the retail investors, if
Speaker 6: you look at the media, I think we have in
Speaker 6: the past few months seen a big attempt by state
Speaker 6: media to put a brave face on things, to try
Speaker 6: and highlight and amplify the positives, and I think the
Speaker 6: biggest thing that's happened so far is so far in February,
Speaker 6: we've mostly had green days, days when the market has
Speaker 6: gone up, mostly because of the regulator's intervention in the market,
Speaker 6: but that is having an effect on centiment.
Speaker 2: Sometimes you read between the lines on what the regulator
Speaker 2: puts out. In this case, it added the CSRC did
Speaker 2: that they would severely crack down on illegal activities. So
Speaker 2: it was this illegal and what sort of message does
Speaker 2: it send that you know that the regulators seem to
Speaker 2: always think that it's because of bad actors rather than
Speaker 2: bad policies, So.
Speaker 7: This strategy is not illegal.
Speaker 6: I think the there have been other actors that have
Speaker 6: been punished by the securities regulator in.
Speaker 7: Recent weeks for activities that were illegal.
Speaker 6: I believe last night the securities Regulator also announced that
Speaker 6: they were taking.
Speaker 7: Some punitive measures against another fund for sort of.
Speaker 6: Controlling unbeknownst to the regulator other funds that they had
Speaker 6: not disclosed, and so that that obviously was in violation
Speaker 6: of rules. And so I think the regulator is trying
Speaker 6: to do two things at once. One is trying to
Speaker 6: rein in strategies that are illegal and allowed, but trying
Speaker 6: to reduce the amount of risks that they they bring
Speaker 6: to the market by raining in how much leverage they
Speaker 6: can take, but at the same time also issuing warning
Speaker 6: to any traders institutions that they have to get their
Speaker 6: acts together and that the regulator, if anything is being
Speaker 6: done that's not up to the rules, the regular is
Speaker 6: going to punish.
Speaker 1: So I'm wondering, as I'm listening to you, John, I'm
Speaker 1: wondering whether at next week's NPC, the National People's Congress
Speaker 1: meeting that gets underway on the fifth, whether the new
Speaker 1: Premier Lee Chiung is going to address any of these
Speaker 1: issues that he will discuss, or at least address the
Speaker 1: issue of maybe tighter regulation in terms of the way
Speaker 1: financial markets have been behaving.
Speaker 6: So I think a good way to look at the
Speaker 6: Premier's address at the NPC is to see it as
Speaker 6: sort of the Chinese form of the state of the
Speaker 6: Union that we have in the United States.
Speaker 7: And so this.
Speaker 6: Address will be will be written in a way to try,
Speaker 6: I believe and still confidence, to make the public feel
Speaker 6: good about the economy. So I would expect a lot
Speaker 6: of verbiage in there about how things are getting better,
Speaker 6: how underlying fundamentals are not as bad as people might think,
Speaker 6: and how things are starting to look better. I think
Speaker 6: he will probably mention the fact that the economy is
Speaker 6: not as great as everybody had hoped, that the families
Speaker 6: across the country are facing hardships, But I think the
Speaker 6: main point he will make is that things aren't going
Speaker 6: to get better.
Speaker 2: John, do you feel that policymakers will feel as though
Speaker 2: they need to be delicate here because if they come
Speaker 2: out with really sweeping policy changes, like let's say, running
Speaker 2: budget deficits spending up over four percent, that it might
Speaker 2: send a worrisome message.
Speaker 3: Is that part of the consideration do you think?
Speaker 6: I think there is a lot of concern within government
Speaker 6: here in Beijing that, let's say, if we lever up
Speaker 6: central government books and sort of borrow kind of borrows
Speaker 6: its way out of this current situation, that that will
Speaker 6: lead to an even worse crisis down there. There is
Speaker 6: a lot of concern about that. But at the same time,
Speaker 6: I think there's a lot of people here who are saying,
Speaker 6: if the house is on fire, you got to put
Speaker 6: the fire out first.
Speaker 7: And so I.
Speaker 6: Think at this point, the government, based on what we've
Speaker 6: heard from the premiere. Just a couple of weeks ago,
Speaker 6: they had a meeting where to discuss his work report
Speaker 6: that he'll deliver at the NPC, and the readout from
Speaker 6: that meeting actually had a lot of verbiage around him saying.
Speaker 7: We got to do more.
Speaker 6: We have to take real, concrete steps to show people
Speaker 6: that the government is responding to the economic situation.
Speaker 7: So I do think in turns aside, they're going to
Speaker 7: try to do what they can.
Speaker 1: So I understand what you're saying in terms of admitting
Speaker 1: that things are really difficult right now, But internally, I'm
Speaker 1: wondering whether what's happening right now in the economy is
Speaker 1: being viewed to something that is or was as serious
Speaker 1: as what we had in twenty fifteen.
Speaker 6: I think the I think the concern is greater at
Speaker 6: this point for a few reasons. One, the relationship with
Speaker 6: the United States is not good. It's much worse than
Speaker 6: it was in twenty fifteen. That was the Obama administration.
Speaker 6: China hosted the G twenty. Barack Obama and Shijiqing stood
Speaker 6: up at the G twenty in Hanjo and announced that
Speaker 6: the US and China we're going to cooperate on carbon goals.
Speaker 6: That period of time has ended. The relationship is much
Speaker 6: more competitive. At the same time, there are other issues.
Speaker 6: The population in China is now shrinking. There's a demographic
Speaker 6: sort of conundrum that is much more pronounced now than
Speaker 6: it was in twenty fifteen. And so those issues I
Speaker 6: think make this current situation much more different.
Speaker 2: Yeah, it does seem it seems a little bit more
Speaker 2: dangerous at the moment, John, Thanks so much for joining us.
Speaker 2: John Liu, Bloomberg, executive editor in Beijing. Doug, if we
Speaker 2: had a political analyst on instead of our own executive editor,
Speaker 2: I might have asked him, is there a gap between
Speaker 2: the premier's approach and the president's approach? Most people would
Speaker 2: say perhaps no, but one seems to want to get
Speaker 2: more aggressive, the other a.
Speaker 3: Little bit more cautious. This is Bloomberg.
Speaker 2: Well, tech stocks have taken a little bit of a
Speaker 2: back seat of late in the US market. We've seen
Speaker 2: a few other sectors like industrials and financials and consumer
Speaker 2: discretionary take a little bit more of a leading role
Speaker 2: in the markets here of fleet.
Speaker 3: Does that continue? Is tech done?
Speaker 2: Let's get to Dan Ives, managing director and senior equity
Speaker 2: analyst at Wedbush Securities. I know that you will raise
Speaker 2: an eyebrow of that comment, Dan, because I know that
Speaker 2: you're still quite bullish on selected stocks in the tech arena.
Speaker 2: We had a guest on earlier this morning who said
Speaker 2: that the dollar has been strong in part because the
Speaker 2: money flows into tech stalks in the US and also
Speaker 2: the oil market expanding in the United States. Is AI
Speaker 2: fueling a mega trend in the US?
Speaker 8: I think that's a great point, because, look, this is
Speaker 8: a revolution that we're talking about, a nineteen ninety five
Speaker 8: type moment star of the Internet, and I think that's
Speaker 8: why what we're seeing with tech and to your point,
Speaker 8: I believe this party is just starting. And there was
Speaker 8: a bitar view that we're in the midst of what's
Speaker 8: going to be a two to three year Tech Bowl
Speaker 8: market and that's something where led by the godfather of AI,
Speaker 8: Jens and Nvidia and of course Microsoft and others. But
Speaker 8: now we're seeing the second, third, fourth derivatives of this
Speaker 8: play out. And that's why we believe unless you have
Speaker 8: a telescope, hard to find this recession that's bullish for
Speaker 8: tech with AI parties just starting.
Speaker 1: Yeah, we were talking a moment ago about the buy
Speaker 1: do numbers and the reflection in the resils else that
Speaker 1: maybe there was a very aggressive tech spend on AI
Speaker 1: that's not yet panning out. I mean, so I understand
Speaker 1: what you're saying in terms of front loading the buying.
Speaker 1: I mean, I remember back in the nineties when Cisco's
Speaker 1: Systems was basically underwriting client purchases of their networking gear.
Speaker 1: Right when that went pair shaped, Cisco was left holding
Speaker 1: the bag. I just wonder if there is a level
Speaker 1: of enthusiasm that may be, in the words of a
Speaker 1: great Sage, irrational exuberance. Yeah.
Speaker 8: Look, and I think that's been the debate over the
Speaker 8: last year. But I think what we've seen over the
Speaker 8: last month with Microsoft's numbers, the godfather of AI, Jensen
Speaker 8: and Video last week named pall and Teer Mangoud deb
Speaker 8: and others the Monizian's happening. See that's the difference is
Speaker 8: someone like myself that's covered tech stocks going back to
Speaker 8: waight nineties. That's why we weave. This is a nineteen
Speaker 8: ninety five moment.
Speaker 7: So.
Speaker 1: Come right, this is like not like pet Dot's it
Speaker 1: will look.
Speaker 8: I mean, there was so much fraud back then, and
Speaker 8: there was the monization was all on the horizon. Stocks
Speaker 8: were training a thirty times revenues and eyeballs. Now we're
Speaker 8: talking about companies that have thirty forty to fifty billion
Speaker 8: of cash.
Speaker 2: But then you know, pets dot Com is probably not
Speaker 2: a good example because it didn't have much in the
Speaker 2: way of earnings. There are a lot of companies then
Speaker 2: that didn't. But there were companies then Cisco has already mentioned,
Speaker 2: that did have earnings and they still went into a
Speaker 2: kind of black hole for about ten to fifteen years.
Speaker 2: You need to pay close attention to valuations and whether
Speaker 2: or not these earnings can continue. Do you see some
Speaker 2: of those parallels and do you worry that some of
Speaker 2: these stocks are getting extended.
Speaker 8: Yeah, Look, I think it all if twenty three, to
Speaker 8: your point, if twenty twenty three was really the start
Speaker 8: of the AI revolution, and obviously all about multiple expansion.
Speaker 8: Twenty twenty four is about showing the numbers. It's not
Speaker 8: about multiple spects. It's showing the numbers. And that's what Look,
Speaker 8: that's what we've seen throughout earnings. Well you look you
Speaker 8: across earns, we've seen that and we believe the mons.
Speaker 8: I think investors the street could be underestimated tech earnings
Speaker 8: by fifteen to twenty percent when we look out next
Speaker 8: two to three years.
Speaker 1: So the techs, the cap x may be there. I
Speaker 1: mean in video, big beneficiarybody wants the you know the
Speaker 1: processors that in video manufacturers. But I'm just wondering, when
Speaker 1: you know the end user, whether they really get the
Speaker 1: bank for the buck, whether their productivity strengthens to such
Speaker 1: a degree, whether it becomes obvious that the AI revolution
Speaker 1: is not only durable but practical.
Speaker 8: Sure, And I think that that hits on the key point.
Speaker 8: It's all about use cases. And from a use case perspective,
Speaker 8: we've over eatey use cases for AI. You go back
Speaker 8: three four months ago, it was fifteen to twenty so
Speaker 8: use cases are exploding. But right now the golden goose
Speaker 8: it's not the consumer, it's the enterprise. The enterprise where
Speaker 8: you're gonna see the use cases. The consumer piece that
Speaker 8: will be twenty five twenty six. That's where Google, Meta
Speaker 8: and others are going to significant benefit. Right now, the
Speaker 8: focus is the enterprise AI revolution.
Speaker 3: So you've mentioned a few names.
Speaker 2: Clearly in Vidia and also Microsoft are among the leaders
Speaker 2: in the AI revolution. What are some other companies that
Speaker 2: you think are quite durable in their approach to AI
Speaker 2: and the benefits that they will derive from AI.
Speaker 3: Yeah.
Speaker 8: I think the best pure play AI play out there
Speaker 8: is that we call them the MESSI of AI pound tier.
Speaker 8: I think from a use case perspective, that is really
Speaker 8: front and center in terms of all of these use cases.
Speaker 8: Other names Mango, dB in terms of what I view
Speaker 8: as a core AI play. I also have used some
Speaker 8: of the software Salesforce, dot Com, Adobe that are going
Speaker 8: to be AI place. Then you look at areas like cybersecurity.
Speaker 8: There's names like varonas that benefits. You look at names
Speaker 8: like Pegas Systems, which is on the developer tools. Our
Speaker 8: point is second, third, fourth derivatives of the revolution is
Speaker 8: what you got to be focused on right now?
Speaker 1: Okay, Well, you mentioned Salesforce after the Bell Company giving
Speaker 1: a disappointing a full year revenue forecast, and I guess
Speaker 1: it suggests to some people that this AI revolution that
Speaker 1: we're talking about, certainly the features that Salesforce has been
Speaker 1: trying to embed in its applications have really not been
Speaker 1: driving a lot of growth. I mean, is that a
Speaker 1: fair statement? Is that the way that you're reading the
Speaker 1: Salesforce results.
Speaker 8: Yeah, so I'd read it. It's a comeback for the
Speaker 8: ages from Benioff and Salesforce. And if you looked up
Speaker 8: conservative guidance in the dictionary, you'd see that.
Speaker 5: And I think that's so.
Speaker 8: I've used Salesforce as a stock that goes much higher
Speaker 8: from here. AI monization will be on the horizon. But look,
Speaker 8: Benioff's flying the plane. I'm very comfortable being in twenty
Speaker 8: nine E watching Netflix.
Speaker 3: Dan, you're here in Asia.
Speaker 2: You're coming presumably because you have a lot of clients
Speaker 2: that you want to see.
Speaker 3: Do they want to see you?
Speaker 5: Well, I mean, look, it's good.
Speaker 8: It's funny because all these empty offices when I come in,
Speaker 8: I thought it was a hint. Maybe I should have
Speaker 8: got no. So but to that point, the demand maybe
Speaker 8: what i'd say here told say this year is dramatically
Speaker 8: different than it was a few years ago.
Speaker 2: Because I was cheating on that, Doug, because one of
Speaker 2: the things we were chatting about before we started the
Speaker 2: session was that he's getting more and more people coming
Speaker 2: to the meetings.
Speaker 3: Dozens and dozens and dozens where it used to be fewer.
Speaker 3: This is Bloomberg.
Speaker 1: It's because Dan's here with us that we've got to
Speaker 1: talk about Apple and one of the things that I
Speaker 1: know you've been bullish on the stock for for quite
Speaker 1: some time. Were you disappointed that they pulled a plug
Speaker 1: on the car?
Speaker 8: I mean, I'd say disappointed in the fact that it
Speaker 8: was a decade long headache where the billions could have
Speaker 8: been spent in other places, but actually happy that they
Speaker 8: finally ripped a band aid off and ended it because
Speaker 8: right now you need to see them leaser focus, all
Speaker 8: hands on deck on AI. That's that's where the focus is.
Speaker 8: This was really a race to nowhere. Rying was in
Speaker 8: the wall. They needed to shut this down.
Speaker 2: You know, A big, big input for in Video was
Speaker 2: getting all these by orders from Meta. You know, he
Speaker 2: had the CEO out crowing about that for a while,
Speaker 2: not not in Video CEO, but Mark Zuckerberg. Is Apple
Speaker 2: going to become the next big customer of Nvidia or
Speaker 2: will they develop some of these chips on their own.
Speaker 6: Oh?
Speaker 8: I think they will be a major customer of Nvidia
Speaker 8: because when we look at their plant, we believe that
Speaker 8: they launched an AI app store this summer, that they
Speaker 8: that they'll talk about WWDC and then I believe AI
Speaker 8: actually gets incorporated into IPHI sixteen. So this is Look,
Speaker 8: this is the start of a renaissance of growth at
Speaker 8: Apple as they further monetized. They are not going to
Speaker 8: be left out as AI party cook and Coopertino tacticians.
Speaker 8: Every time you bet against him, it's been the wrong move.
Speaker 1: Okay, But let's talk about regulatory risk. In Apple's case,
Speaker 1: it's the app store. The Justice Department, we are told,
Speaker 1: is taking a hard look at how the company is
Speaker 1: basically locked out competitors from playing.
Speaker 5: In that space.
Speaker 1: When Apple contracts with a lot of these software developers
Speaker 1: making and writing the latest apps. That's one, and then
Speaker 1: you've got other concerns. Elizabeth Warren just yesterday talking about
Speaker 1: the overconcentration of AI in names like Microsoft, Alphabet even
Speaker 1: Amazon at the exclusion of the startup community. And is
Speaker 1: there a way that you're viewing regulatory risk right now
Speaker 1: in this space?
Speaker 8: Yeah, And I spent a lot of time in DC.
Speaker 8: It's a double edged sword because probably the biggest strength
Speaker 8: right now within the US, especially from a when you
Speaker 8: think from an industry perspective is tech is the community
Speaker 8: is AI. So as the mag seven that has the
Speaker 8: strong have gone strong, that's actually been a huge positive,
Speaker 8: which is part of that double edge short when you
Speaker 8: look at the regulatory I think the lack of consensus
Speaker 8: it continues to make that more noise than reality. I
Speaker 8: think for Apple it's a little different when you could
Speaker 8: DJ and them, you know clearly coming down on the
Speaker 8: app story, looks that's gonna be something that they're gonna
Speaker 8: need to navigate. We still don't believe that that's going
Speaker 8: to dramatically change, but this is going to be a
Speaker 8: fighter on their hand, and I think that's what we're
Speaker 8: going to see is the strong get stronger. They're going
Speaker 8: to get more scrutiny from the belt.
Speaker 2: I'm kind of curious about what I started off with
Speaker 2: about a broadening in the market. We have seen a
Speaker 2: lot of sectors outperform tech of late. Are you worried
Speaker 2: that we're going to see a pause in some of
Speaker 2: the investment in tech while some of the other areas outperform.
Speaker 2: And if so, is that just a short phase or
Speaker 2: could it does it have the potential for lasting longer?
Speaker 7: Why?
Speaker 8: I view it as a positive because what we're seeing
Speaker 8: just broader earning is coming at financials and others. In
Speaker 8: terms of market breath, but it's it's the torch bear.
Speaker 8: The leaders are going to continue to be tech because
Speaker 8: of the revolution where you see we believe textocks are
Speaker 8: up in our twenty twenty five percent, and I think
Speaker 8: this goes back to this AI party just starting with
Speaker 8: tech leading it.
Speaker 1: What's the downside here? Potentially if the market goes into
Speaker 1: some kind of you know, corrective mode. Maybe it's temporary,
Speaker 1: but is there some downside risk that we need to
Speaker 1: explore very quickly, then.
Speaker 8: Yeah, you could see them down to risk on fed
Speaker 8: jaw boning, things like that, potential black swan events, but
Speaker 8: I believe any sort of those events will be short
Speaker 8: lived with the market that we see going much higher
Speaker 8: this year.
Speaker 2: Okay, your top three picks number one, number two, and
Speaker 2: number three.
Speaker 8: Number one Mango, dB, number two, Microsoft, number three, pound tier,
Speaker 8: those are the three core AI plays.
Speaker 3: Whoa not in video so look in video.
Speaker 8: It goes back to that's been the mean way to
Speaker 8: play it. But now and that we continue to be
Speaker 8: sure bullish on Nvidia and the godfather of AI, but
Speaker 8: now it's focused on what are the names that are
Speaker 8: not reflecting what we see the second, third, fourth derivative
Speaker 8: and it's software that's now taken the rains from chips.
Speaker 1: All right, Dan, good stuff, what was a pleasure? Enjoy
Speaker 1: your time in the Hong Kong. Dan Ives, Managing Director
Speaker 1: also senior equity analyst at Webb Bush Securities, joining here
Speaker 1: on that Daybreak Asia.
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