Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
Speaker 1: from coast to coast with Caroline Hyde in New York
Speaker 1: and Ed lave Low in sentrances go.
Speaker 2: This is Bloomberg Tech coming up.
Speaker 3: Bloomberg reports Metas considering budget cuts of thirty percent for
Speaker 3: its Metaverse group next year. The very group Mark Zuckerberg,
Speaker 3: once framed as the future of the company, shares.
Speaker 4: Jumped plus in Vidio CEO Jens and Wang is not
Speaker 4: sure China would accept more powerful aichips even the US
Speaker 4: relaxes restrictions on the sales.
Speaker 3: We discuss and we break down the latest tech earnings
Speaker 3: results from Snowflake and Salesforce, and we were joined by
Speaker 3: the UiPath CEO two.
Speaker 4: At first, let's check in on these markets that are
Speaker 4: struggling to find direction. Today, Ed, we've been higher, we're
Speaker 4: now pushing back lower on the nas that one three
Speaker 4: real catalysts were still way to really for next week.
Speaker 4: In the Federal Reserve decision, we get still get that
Speaker 4: myriad of jobs data that we try to digest.
Speaker 5: We're looking though at pickun just coming off by eighteen percent.
Speaker 4: At one point it broke into positive territory for the
Speaker 4: year again. But we're now back to ninety two and
Speaker 4: seventy three. But what are you looking at on the
Speaker 4: individual stocks?
Speaker 3: Yeah, one single name where the stock does have the direction.
Speaker 2: It's our top story.
Speaker 3: Metaches off their session high that up four percent. Bloomberg
Speaker 3: reporting that executives are considering cutting up to thirty percent
Speaker 3: of the budget for its Metaverse initiative as long along
Speaker 3: with wider cuts. Let's talk more about what Meta's plans
Speaker 3: mean for the company with Bloombergs Kurt Wagner, who broke
Speaker 3: the story and joins us with the reporting. Sounds like
Speaker 3: in the last few weeks. Last month Zuckerberg assembled leadership,
Speaker 3: they looked at the budget for next year and Metaverse
Speaker 3: is where they want to focus their cuts.
Speaker 2: Bring us your reporting.
Speaker 6: Yes, so this is an annual thing right looking ahead
Speaker 6: in twenty twenty six budgets In this case, Mark Zuckerberg
Speaker 6: has a nice home in Hawaii where they have a
Speaker 6: serious meetings. Executives come in in the month of November,
Speaker 6: and to your point, they talk about this year ten
Speaker 6: percent cuts sort of across the board, looking at all
Speaker 6: the different teams, but that the Metaverse has been asked
Speaker 6: to cut much more deeply than that. As much as
Speaker 6: thirty percent is currently being discussed, I should point out
Speaker 6: it hasn't been decided yet, but a cut of thirty
Speaker 6: percent would certainly also come with layoffs. So to your point,
Speaker 6: this is an effort that Mark Zuckerberg has touted as
Speaker 6: being the future of the company for years. So it's
Speaker 6: a pretty meaningful change there.
Speaker 4: Let's go back to when he thought it was the
Speaker 4: future of the company. Just take a listen to Mark
Speaker 4: Zuckerberg back in twenty twenty one.
Speaker 7: If we all work at it, within the next decade,
Speaker 7: the metaverse will reach a billion people, host hundreds of
Speaker 7: billions of dollars of digital commerce, and support jobs for
Speaker 7: millions of creators and developers.
Speaker 4: Boy a lot has changed since then, and that was
Speaker 4: a long time ago, kut, but we still will get
Speaker 4: well the idea that will have augmented reality.
Speaker 5: We're still focusing in on the glasses.
Speaker 4: It's just not the actual virtual worlds and working out
Speaker 4: that's right.
Speaker 6: And the virtual worlds aren't going away, to be clear,
Speaker 6: It's still going to be something that they invest in,
Speaker 6: just not quite as aggressively as they had. And what
Speaker 6: was explained to me by sources this week. Is that
Speaker 6: part of that is that the market has not really materialized.
Speaker 8: You know.
Speaker 6: I think they originally spent a lot of money building
Speaker 6: out this Metaverse group, thinking that they would have competition
Speaker 6: from others in the industry, rushing towards a metaverse like
Speaker 6: product as well. That has not happened. And so it's
Speaker 6: not necessarily that Mark Zuckerberg no longer believes in this.
Speaker 6: I'm told that he still does. But clearly they have
Speaker 6: overspent to try to build this thing, and I think
Speaker 6: the ultimate goal is to get to these you know,
Speaker 6: AI inspired glasses and ar glasses, and maybe the metaverse
Speaker 6: was a stepping stone to that all the way.
Speaker 3: So actually it signals a commitment to AI hardware distinct.
Speaker 2: From metaverse hardware.
Speaker 3: I thought it was really interesting that shares of Losutica,
Speaker 3: who they partner with to make the ray band metas,
Speaker 3: kind of rose a little bit after the story and
Speaker 3: all of the analyst notes and there are many actually
Speaker 3: reacting to our reporting say this is probably bullish for
Speaker 3: AI spending. At the same time, Bloomberg reporting that Apple's
Speaker 3: most senior design executive going to meta right, They're.
Speaker 6: Not giving up on hardware right, that the VR virtual
Speaker 6: reality group is expected to be hit by these metaverse cuts, right,
Speaker 6: that is the immersive metaverse product. But they are still
Speaker 6: investing in in AI glasses, the ray bands that you
Speaker 6: mentioned ed. They are still obviously bringing in big talent
Speaker 6: and you know, poaching people to design these things. This
Speaker 6: is what Mark Zuckerberg talks about on earning sculls AI.
Speaker 6: He talks about the glasses. Those things are not going away.
Speaker 6: It is the specific kind of immersive virtual stuff that
Speaker 6: it looks like they're taking a second look at.
Speaker 4: And reallocation of resources. Kurt Wagner, a huge market moving story.
Speaker 4: Thank you for joining us on it. Let's talk more
Speaker 4: about the market moves. Natsy Curtains with us just global
Speaker 4: chief investment officer at ALTI Team and Global and.
Speaker 5: That see you've actually been writing really.
Speaker 4: Saying that we are currently in an innovation driven bull market.
Speaker 4: But what does this move from meta and sort of
Speaker 4: the moving around of capital expenditure tell you about where
Speaker 4: we are in the cycle.
Speaker 9: I mean, I think the thing is about innovation driven
Speaker 9: bull markets and we've had you know, pretty much three
Speaker 9: of them before this one, which is they tend to
Speaker 9: be characterized by a couple of different risks. You know,
Speaker 9: cap expenditure is quite large. Companies need to tap the
Speaker 9: debt markets, and they're shifting perceptions of the winners and losers.
Speaker 9: So volet you know, these these bull markets last longer,
Speaker 9: they go beyond people expect. They tend to come with
Speaker 9: productivity improvements, but you do get some shifting perceptions and
Speaker 9: shifting priorities. So let's just bring that back to Meta.
Speaker 9: You know, they've got a lot of money that they
Speaker 9: want to spend on jen AI. The market hasn't liked
Speaker 9: the fact they've tapped into the debt market to do that.
Speaker 9: You know, they've got less in a way cash flow
Speaker 9: than some of the other companies making similar levels of
Speaker 9: capex spend. So I think this is a good and
Speaker 9: saying reallocation of resources towards AI. Which is the price.
Speaker 3: Nancy, I want to go saying you just said, I
Speaker 3: think it's critically important cash flow. If you look at
Speaker 3: the reaction to this Bloomberg report on Meta, many would
Speaker 3: note that Meta was headed for negative.
Speaker 2: Free cash flow next year.
Speaker 10: That's right.
Speaker 3: This year, the story was about Oracle hitting negative free
Speaker 3: cash flow for the first time since nineteen ninety two.
Speaker 3: Is that a worrying set of data that you're seeing
Speaker 3: on your desk?
Speaker 9: Yeah, because I think the market's being more discerning now.
Speaker 9: It's recognizing that some companies have cash flow that can
Speaker 9: support this, and some companies really need debt. And Oracle
Speaker 9: is a good poster child for not only being late
Speaker 9: to cloud spending quite a lot of money being very
Speaker 9: tied into the open AI in terms of contracts and
Speaker 9: the risks associated with that, but also using debt. And
Speaker 9: I think their debt to ever does like four times,
Speaker 9: so it's in a completely different category.
Speaker 8: You know.
Speaker 9: It's kind of in the core we've department in terms
Speaker 9: of indebtedness, and investors quite rightfully are becoming more discerning
Speaker 9: about the risk associated with you know, financial leverage.
Speaker 5: And then there's the risk of the private markets.
Speaker 4: How are you seeing open AI playing as a virtuous
Speaker 4: or a vicious circle right now? Is it a single
Speaker 4: point of failure or is it the one that you
Speaker 4: need to be allocated to.
Speaker 2: It's a little of both.
Speaker 9: Let's face it. Open AI declared code read yesterday the
Speaker 9: day before yesterday. Look, it's facing competition. It recognizes that
Speaker 9: Gemini is really and if you've used the Gemini three.
Speaker 9: It's pretty it's pretty impressive. It's not as friendly as
Speaker 9: chat GBT and now it's a personal relationship thing going on,
Speaker 9: but it really is quite interesting in terms of nano banana,
Speaker 9: you know, the image editor as well as I would
Speaker 9: say complex reasoning is really quite good in Gemini three.
Speaker 9: So open AIS facing competition, they got to focus. They've
Speaker 9: been spread across a lot of different dimensions. I think
Speaker 9: they're refocusing now on personalization, reliability, speed, and continuing to
Speaker 9: build out that open AI large language model to maintain
Speaker 9: their lead.
Speaker 3: Right, Nancy, We came into this morning when we met
Speaker 3: as a team, thinking probably we focus on salesforce and
Speaker 3: snowflake earnings and then we've got the meta report.
Speaker 8: Right.
Speaker 3: Your thesis is that you have innovation cycles driven by
Speaker 3: heavy CAPEX monetization follows. Actually, if you take the different
Speaker 3: part of the stack with salesforce and Snowflake, tepid outlook
Speaker 3: in terms of profits and top line growth from all
Speaker 3: the AI investment. Is that Is that a fair point
Speaker 3: I've just made, Yeah.
Speaker 9: Because I think that the problem is in innovation ball
Speaker 9: markets as CAPEX starts and you've got to build out
Speaker 9: the Capex and the revenue follows, you know, sometimes years later,
Speaker 9: sometimes within a couple of years, and so investors have
Speaker 9: to extrapolate is the investment really going to deliver the
Speaker 9: revenue and profits and the rate of reach and not
Speaker 9: everyone's going to get there, And that's the risk of
Speaker 9: innovation driven ballmarket. There are some winners, there are some
Speaker 9: losers along the way. But you know, I think the
Speaker 9: key is you've got to really focus on who is
Speaker 9: delivering the revenue today or at least the visibility of that,
Speaker 9: and who has the wherewithal? And just an example, you know,
Speaker 9: I mean, Alphabet's got what one hundred and fifty billion
Speaker 9: of operating income open AIS losing nine billion a year,
Speaker 9: so you know, the wherewithal the financial might probably I
Speaker 9: think investors are thinking may set with Alphabet at the moment.
Speaker 3: We're going to go very deep later in the program
Speaker 3: on the earnings from Salesforce and from Snowflake. But there
Speaker 3: was a very interesting across the board. Look Nancy Ko
Speaker 3: and Global Chief Investment Officer Lty Team and Global thank
Speaker 3: you very much. Like coming up in videos, Gens and
Speaker 3: Wang looks to win over Washington on chip export rules,
Speaker 3: but could it be too late for the AI chip
Speaker 3: maker in China.
Speaker 2: We've got more on that. Next, This is Bloomberg.
Speaker 10: Tech going toe to toe against anyone.
Speaker 11: The American technology industry has nothing to fear. We are mighty,
Speaker 11: were fast, or inventive. We'll take anybody on. In the
Speaker 11: case of China, we should concede the entire market to them.
Speaker 11: They're formidable, But conceding that entire market we are to
Speaker 11: go compute for it.
Speaker 5: In Vida CEO Jenson one.
Speaker 4: They're speaking on American AI leadership at the CSIS conference
Speaker 4: in Washington yesterday. We also met with President Trump to
Speaker 4: discuss export controls on his chips, noting some uncertainty of
Speaker 4: a whether China would even accept the processes if restrictions
Speaker 4: were indeed eased. Here with the latest is Bloomberg Senior
Speaker 4: Tech editor Mike Shephard and Mike we're talking about H
Speaker 4: two hundreds in particular here, and it feels as though.
Speaker 5: Maybe Jensen thinks the ship has already had sailed.
Speaker 4: They're limited in one folk on domestic really.
Speaker 12: Yeah, it's unclear exactly where things stand internally inside the
Speaker 12: administration on the H two hundred and whether Donald Trump
Speaker 12: will give the ultimate green light for those chips to
Speaker 12: be sold to China. You'll remember, just a few weeks
Speaker 12: ago before the holiday, we broke the news that administration
Speaker 12: officials have been deliberating this idea of allowing the H
Speaker 12: two hundred to be sold to China, to be exported
Speaker 12: to China, and this would be a significant relaxation of
Speaker 12: the export controls that have been in place on AI
Speaker 12: chips since twenty twenty two and have really hampered in
Speaker 12: Vidia's ability to sell into China, which is the world's
Speaker 12: second largest AI and chip market right now, and it's
Speaker 12: something that he has made a priority. Even though in
Speaker 12: Nvidia is not putting the China market on its forecasts
Speaker 12: or anything else, yet, he's identified it ad as as
Speaker 12: a fifty billion dollar opportunity for the company.
Speaker 3: The baseline assumption is zero China revenue, right, but Jensenmongk's
Speaker 3: keeping himself in proximity not just to the Administration, but
Speaker 3: to Congress as well. Whether China wants those chips. We'll
Speaker 3: talk about that with Peter Elstrom in just a minute.
Speaker 3: The Gain AI Act is also a part of this
Speaker 3: lobbying effort, and it's an area where maybe in Vidia
Speaker 3: is nearer to a win could just explain the basics
Speaker 3: of legislation or a piece of it that was omitted
Speaker 3: in in Nvidia's favor.
Speaker 12: Oh, of course, and this was actually a big portion
Speaker 12: of his visit to Washington. It was another whirlwind day
Speaker 12: in the nation's capital for Jensen, who has become a
Speaker 12: regular here in Washington, both on Capitol Hill but even
Speaker 12: more so at the White House, where he has forged
Speaker 12: that close bomb with.
Speaker 2: President Donald Trump.
Speaker 12: What Nvidia has been trying to do is fend off
Speaker 12: this gain AI Act, which would prevent or make it
Speaker 12: at least very hard for in Nvidia to sell to
Speaker 12: China and other US adversary nations without explicit permission from
Speaker 12: the US government.
Speaker 10: But he has already get that.
Speaker 12: Look, we don't need these restrictions in place. The Commerce
Speaker 12: Department already has the authority to do so, and there
Speaker 12: is no competition between customers in China and the customers
Speaker 12: here in the US. The bill also would have required
Speaker 12: the company to give first DIBs to American buyers. It
Speaker 12: looks like lawmakers are going to exclude this provision from
Speaker 12: must pass defense legislation that has to be done before
Speaker 12: the end of the year. However, we can't consider it
Speaker 12: completely dead. Our sense is that Congress may try again.
Speaker 12: There is bipartisan support for this idea, and we do
Speaker 12: get a sense that some lawmakers still have concerns about
Speaker 12: allowing China to have access to some of those advanced
Speaker 12: AI chips from Nvidia.
Speaker 3: Bluebogs Mike Sheppard in Washington, DC, thank you. At the
Speaker 3: same time, China's ramping up support for domestic chip production
Speaker 3: to occupy a vacuum that's been left by Nvidia's forced exit.
Speaker 3: According to sources, Beijing based Cambricon is set to try
Speaker 3: triple production of AI chips in twenty twenty six, with
Speaker 3: plans to deliver half a million AI accelerators, the vast
Speaker 3: majority of which are advanced. Bloombo's technology executive editor Peter
Speaker 3: Eldstrom joins us cambricn is another example of a domestic
Speaker 3: player with an AI accelerator product. It is reliant on Smick,
Speaker 3: China's domestic version of TSMC and this is an interesting
Speaker 3: piece of reporting. Bring us the details, but also technologically speaking,
Speaker 3: the differences of where Cambercorn and Spick are versus Nvidia,
Speaker 3: because the scale is completely different.
Speaker 13: Yeah, this is exactly what Jensen Wong is talking about.
Speaker 13: This is exactly what he's concerned about within China that
Speaker 13: after the Biden administration first decided to cut off shipments
Speaker 13: of Nvidio chips into that country, the government and the
Speaker 13: companies there saw the market opportunity, they saw their own vulnerabilities,
Speaker 13: and they decided to invest very very aggressively in their
Speaker 13: own production technologies for chips and also EI designs. So
Speaker 13: always really the primary competitor that we have been talking about,
Speaker 13: they have quite a bit of momentum in building these
Speaker 13: AI chips. They've been used in a number of different
Speaker 13: places there. Camera Con is really the second player. It's
Speaker 13: sort of like the AMD for that market. They're quite
Speaker 13: small at this point. They don't have the kind of
Speaker 13: hef that Huawei does in particular, but they are making
Speaker 13: a lot of progress. So what our sources have told
Speaker 13: us is that their plans are to triple their production
Speaker 13: of AI chips into next year. They'll be a pretty
Speaker 13: significant second to Huawei and supplying those chips. So to
Speaker 13: the broader question about what US export controls due to
Speaker 13: this market, as Jensen Wong is talking about, it certainly
Speaker 13: has opened it up for domestic production Chinese companies are
Speaker 13: being told by Beijing that they should buy domestic chips
Speaker 13: whenever possible. They've also turned down this idea that they're
Speaker 13: going to buy in Vidia's H twenty chips. They don't
Speaker 13: think that those are good enough for the market. So,
Speaker 13: as Mike Shepherd was talking about earlier, there may be
Speaker 13: a discussion of about H two hundreds, but there's no
Speaker 13: putting this genie back in the bottle. China has decided
Speaker 13: they are going to make their own chips domestically, and
Speaker 13: they're making a lot of progress.
Speaker 4: They're making a lot of progress and designing them, but
Speaker 4: then they've got to get them spout out by Smike
Speaker 4: and it feels as though ultimately the production that what
Speaker 4: you're really garnering isn't very many.
Speaker 13: Yeah, that's a very good point. They are way way
Speaker 13: behind the global standards. There is some desperation here that
Speaker 13: if you have to produce that lower standards, you will,
Speaker 13: But if you look at some of the details, it's
Speaker 13: very very interesting. So Smick is still producing these chips
Speaker 13: at seven nanimeters, so well behind the three nanimeter that
Speaker 13: we see from TSMC at this point. Also, the yields
Speaker 13: we got some insights into the yields. Only about twenty
Speaker 13: percent of the chips that they're making right now are
Speaker 13: actually usable, So that's only one out of five chips
Speaker 13: that they produce they're actually able to use. You compare
Speaker 13: that with a TSMC, which is up at eighty or
Speaker 13: ninety percent yields. Their economics are just totally different. But
Speaker 13: it's a sign of how badly Beijing wants to be
Speaker 13: able to catch up in this market that they're just
Speaker 13: going to eat those costs.
Speaker 2: They're going to eat four.
Speaker 13: Times the cost of what it would cost some other
Speaker 13: globally competitive manufacturers to make these chips because they feel
Speaker 13: like from a strategic standpoint, they need to make this
Speaker 13: progress into.
Speaker 4: Alstrom brilliant reporting, Thank you very much. Indeed, shares of
Speaker 4: UiPath having their best day in two years after the
Speaker 4: automation software provider reported earnings. They showed accelerating growth in
Speaker 4: the third quarter. I'm used to stay found a CEO,
Speaker 4: Daniel Dines joins us for more.
Speaker 5: You like the OG.
Speaker 4: You've been doing this for two decades, automating processes.
Speaker 5: You're thinking about repetitive.
Speaker 4: Administ administration and the tasks you can take away from
Speaker 4: a human how you're building an AI agents into that.
Speaker 14: Agents are very complementary to our automation engine. We specialize
Speaker 14: over the year in bringing rule based automations and AA
Speaker 14: agents is bringing something that is much more closer to
Speaker 14: human intelligence.
Speaker 10: We've believed that the.
Speaker 14: Key aspect of bringing reliable AI to enterprises is to
Speaker 14: have a solid foundation of automation and then AI comes
Speaker 14: on the top of it and we connect basically, using
Speaker 14: our orchestration technology, we connect AIA agents with robots and humans.
Speaker 3: Daniel, I've been digging into RPA and trying to think about, like,
Speaker 3: what is new about RPA in an AI world. I
Speaker 3: think that was kind of the root of Caroline's question.
Speaker 3: One of the ideas is that there's a potential addressable
Speaker 3: market for you where desks with less technical staff can
Speaker 3: use your software because it's better at reasoning across documentation
Speaker 3: and those kinds of workloads. Just explain how you kind
Speaker 3: of grow the business beyond your traditional customer base.
Speaker 14: Well, first of all, within our traditional custom more base,
Speaker 14: there is a lot of room for expansion, and we
Speaker 14: are seeing tremendous opportunities in healthcare and financial services, so
Speaker 14: we really are expanding the reach of our RPA technology
Speaker 14: with this new agentic proposition, even for the traditional RPA itself,
Speaker 14: we are bringing the power of GENI to make the
Speaker 14: development faster and in some instances even more reliable when,
Speaker 14: for instance, the applications changes a lot. We are combining
Speaker 14: now computer use type of technology with traditional RPA. So
Speaker 14: this combination of agentic RPA, API and orchestration is really
Speaker 14: what is the crux of our platform and it's resonates
Speaker 14: quite well with our with our customers.
Speaker 4: And again talk about that resonating Daniel, because we're hearing
Speaker 4: more and more that really the barriers at the moment
Speaker 4: adoption or a willingness to pay.
Speaker 5: How are you seeing clients deal with that?
Speaker 14: Because many clients were initially investing mostly in like childboats
Speaker 14: and they don't get really the high you know, the outcomes,
Speaker 14: They don't have an impact on the bottom line. Eventually,
Speaker 14: what do we have ringing on the table is the
Speaker 14: capability of delivering autonomous agentic automation and this is even
Speaker 14: from RBA. We specialize in bringing this autonomous agent and
Speaker 14: now we show to our customers that they can get
Speaker 14: significant benefits and that can go directly into the bottom line.
Speaker 3: Daniel our colleagues at Bloomberg Intelligence, that's our in house
Speaker 3: analysts are a little bit cautious on your subscription revenues.
Speaker 3: If you look at where the street thought they'd be
Speaker 3: basically in line slightly and they're worried about the sustainability
Speaker 3: of subscriptions.
Speaker 2: Are they right or they wrong?
Speaker 14: Well, I think they are totally wrong, guys. I have
Speaker 14: I have yet to see one piece of AI that
Speaker 14: was capable of replacing one of our robots. I think
Speaker 14: this is the most misunderstanding piece of technology when you
Speaker 14: feel that AI can replace RPA.
Speaker 10: R PA, it's a.
Speaker 14: Great last my technology. It's the rule based driven it's fast,
Speaker 14: it is reliable, it's precise. It works very well across
Speaker 14: regulated industries in healthcare, and AI is just a complement
Speaker 14: to it. I would say that a genetic right now.
Speaker 14: Actually it helps improving our subscription business.
Speaker 3: Daniel Dines, CEO of vieu iPath. With the earning spread
Speaker 3: down well back to Bloomberg Tech. Our top story is
Speaker 3: Bloombog's Kirk Wagner reporting that Meta is considering cutting budgets
Speaker 3: for its Metaverse initiative by up to thirty percent next
Speaker 3: year as part of its back budget planning cycle. That's
Speaker 3: all according to our sources. The stock reacting positively to
Speaker 3: the report, up four percent at the moment, on track
Speaker 3: for its biggest jump since July. Nothing's been decided yet.
Speaker 3: There will be an element of layoffs, according to our reporting,
Speaker 3: part of a quite broader look at the company and
Speaker 3: refocusing from metaverse to AI. But really interesting move in
Speaker 3: the stock character.
Speaker 5: Yeah, stock reaction.
Speaker 4: Now, let's get you an analyst reaction, because Bloomberg Intelligence
Speaker 4: has been out there writing that these META cost cuts said,
Speaker 4: along with potential use of Google's TPUs, we could actually
Speaker 4: improve the company's free cash flow at least ten to
Speaker 4: twelve billion dollars. Person helping pen that is Bloomberg Intelligence
Speaker 4: technist man needs sing and many we've been worrying about
Speaker 4: free cash flow Meta the AI capex spend.
Speaker 5: Is this helping offset that concern a bit?
Speaker 10: Yeah?
Speaker 15: And look, I mean based on consensus right now, we
Speaker 15: are talking about at least a fifty percent increase in
Speaker 15: capex formta next year and no one I think would
Speaker 15: mind that given everyone's fees. There will be lift in
Speaker 15: revenue from AI down the line in the near term,
Speaker 15: and I think they needed some offset because the stock
Speaker 15: was very expensive on a free cash flow basis, so
Speaker 15: this is a nice offset. And I think the TPU
Speaker 15: news was also quite productive in that direction, simply because
Speaker 15: they will be spending close to fifty billion dollars on
Speaker 15: accelerator chips next year if one hundred and ten billion
Speaker 15: dollars the capex number, so some portion allocated to TPUs,
Speaker 15: which costs maybe twenty five to thirty percent cheaper. I
Speaker 15: think bring down that free cash like help offset that
Speaker 15: free cash flow which is going to be negative next year, Mandy.
Speaker 3: But a part of why the stock is pushing higher,
Speaker 3: I guess is just the commitment to AI.
Speaker 15: Right.
Speaker 3: The metaverse and Meta's AI ambitions have overlap, but they
Speaker 3: are distinct in many ways. My question is, does is
Speaker 3: there a Bloomberg Intelligence house view on what the story
Speaker 3: is with Meta, metaverse or AI or a hybrid of
Speaker 3: the both.
Speaker 15: I mean, I like to think of you know, metaverse
Speaker 15: ambitions as a moonshot for Meta and look at you know,
Speaker 15: Google's moonshot for examples like self driving very more. That
Speaker 15: is a lot real then in terms of driving you know,
Speaker 15: tangible revenue top line growth compared to what Meta has
Speaker 15: accomplished with that aggregate, you know, seventeen plus billion dollars
Speaker 15: in spend over the last three four years, and to me,
Speaker 15: it's still a moonshot. And that's where you know, pairing
Speaker 15: back and allocating that capital towards probably a more productive
Speaker 15: use case in AI where they will see some top
Speaker 15: line lift is the right thing to do. And I
Speaker 15: think the era of efficiency that Meta had a few
Speaker 15: years that maybe repeat, I think in twenty twenty six.
Speaker 4: It's interesting though, because they've been spending a lot on
Speaker 4: talent and they've just recommitted to talent when it comes
Speaker 4: to hardware and design and then really poaching a key
Speaker 4: executive al and Die over at Apple.
Speaker 5: Is that what you want to see more leaning in
Speaker 5: maybe to the.
Speaker 4: Virtual reality offerings that we've seen that have been amplified
Speaker 4: by AI, the ray Bag glasses for example.
Speaker 15: I mean, I would say at this point virtual reality
Speaker 15: would be de emphasized over the glasses, the Raybang glasses,
Speaker 15: as you said, and clearly you know, if they want
Speaker 15: to distill their model into a smaller version, that would
Speaker 15: run most likely on the augmented reality glasses, and that
Speaker 15: is a much better form factor than the virtual reality
Speaker 15: where they have been subsidizing the hardware costs, but it
Speaker 15: really hasn't seen the kind of adoption that they could
Speaker 15: see with the Raybang glasses, for example.
Speaker 3: I'm smiling Karra Mandy because like the stock being driven
Speaker 3: by metaverse, you just said year of efficiency coming back
Speaker 3: twenty twenty six. It's happening all over again. Man Deep
Speaker 3: Sing from Bloomberg Intelligence, thank you very much for the research.
Speaker 3: Let's turned to Snowflake and look at shares of the company,
Speaker 3: one of the big underperformers big decliners. The company issued
Speaker 3: operating margin forecasts that fell short of analyst estimates, raising
Speaker 3: concerns about the profitability of new AI based tools. Joining
Speaker 3: us now is Derek Wood TD Cowen, Managing director, senior
Speaker 3: analysts covering the stock. Bring us your core on the
Speaker 3: stock and how you've reacted to this earnings print. I'm
Speaker 3: trying to understand how real the anxiety is. It's a
Speaker 3: big move in the stock and Snowflake finding its its
Speaker 3: bottom line in this AI world.
Speaker 8: Yeah, the stock had had a big run into the quarter.
Speaker 8: I think expectations were running high. We were a little
Speaker 8: cautious thinking that the upside on the top line would
Speaker 8: be a little softer than last quarter. We saw that,
Speaker 8: we saw a pullback. I think this is a great
Speaker 8: opportunity to get back in. In terms of the margin out look, yes,
Speaker 8: Q four was below, but the full year was intact,
Speaker 8: was in line. We don't typically see the company raise
Speaker 8: full year margins int a year and so this was
Speaker 8: not a surprise, and the feedback was that they remained
Speaker 8: committed to driving margin expansion. They didn't give guidance for
Speaker 8: next year, but we absolutely expect margins to continue to
Speaker 8: grow next year. So I don't think the Q four
Speaker 8: guide should be of concern and remain you know, constructive
Speaker 8: on the top line. The Q four guide on revenue
Speaker 8: was above and fundamentals remain We're still bullish on it.
Speaker 3: To your point, we were showing a year to date
Speaker 3: gain on the name, which is above fifty percent at
Speaker 3: this point, and that that is important context. Look, I've
Speaker 3: just returned from AWS reinvent in Las Vegas, where you know,
Speaker 3: Snowflake comes up, as does Salesforce, right in the context
Speaker 3: of two companies that will benefit from a move into
Speaker 3: an era of agentic AI. But you know, if you
Speaker 3: look again at the stock, the market doesn't seem to
Speaker 3: believe that Snowflakes are beneficiary of that, at least right
Speaker 3: now in the near term.
Speaker 8: Again near term, their expectations were a little too high,
Speaker 8: but you hear to date performance is great. They gave
Speaker 8: disclosures of hitting one hundred million in arr from AI
Speaker 8: products this quarter. That was one quarter ahead of targets.
Speaker 8: And they did just release Snowflake Intelligence, which is their
Speaker 8: new agentic AI capability that came out one month ago.
Speaker 8: We think that's going to unlock a whole new product
Speaker 8: cycle and really accelerate the adoption on AI. And you know,
Speaker 8: of course Salesforce has their own agenda with Agent Force,
Speaker 8: and we think they both have great swim lanes to
Speaker 8: go after.
Speaker 4: It's interesting, let's compare and contrast the context of both
Speaker 4: of these stocks, because, as you've rightly pointed out, we've
Speaker 4: seen Snowflake up.
Speaker 5: Into the right this year.
Speaker 4: Not so for Salesforce, which has lost about a third
Speaker 4: of its market value so far this year. I'm currently
Speaker 4: seeing off now about a quarter twenty six percent. Did
Speaker 4: it come in with a lack of optimism and therefore
Speaker 4: managed to steer that maybe it'll get back to double
Speaker 4: digit revenue growth next year.
Speaker 8: Yeah, I mean the compara contrast between these two. The
Speaker 8: apps group in software has been under a lot of pressure,
Speaker 8: and it's because they're seat based revenue models. People are
Speaker 8: concerned about employee headcount, people are concerned about disruption from
Speaker 8: AI natives, whereas on the flip side, Snowflake is a
Speaker 8: consumption based pricing model. They're in the data infrastructure and
Speaker 8: so there has been this big divergence between infrastructure software
Speaker 8: and app software and salesforce has fallen in that apps bucket.
Speaker 8: But it was encouraging to see the numbers were you know,
Speaker 8: we're in line and the guide was inline. But there
Speaker 8: were encouraging metrics around agent force and AI that show
Speaker 8: some good signs of acceleration. There are thirty five hundred
Speaker 8: net new paid agent Force customers sign in Q three.
Speaker 8: That was up from two thousand and Q two and
Speaker 8: one thousand and Q one, so we are seeing good
Speaker 8: acceleration on that front. And the percentage of customers that
Speaker 8: are coming back and refueling the tank to buy more
Speaker 8: credits and burn you know, as they're burning more consumption
Speaker 8: that also went up. So both of these metrics going
Speaker 8: in the right direction is highly encouraging on you know,
Speaker 8: starting to see some inflection in agent force.
Speaker 4: I mean, Derek, just broadly, are we getting any signs
Speaker 4: that software's lunch isn't being eaten by the large language
Speaker 4: model providers that they can withstand this.
Speaker 8: There's still a lot to prove, no doubt about that,
Speaker 8: and an investor sentiment is super skeptical right now. I mean,
Speaker 8: we've always thought that twenty twenty six will be the
Speaker 8: year of inflection in the software space around AI. It
Speaker 8: takes a lot longer to go through sales cycles new
Speaker 8: product development than some of the consumer stuff that we
Speaker 8: see taking on so quickly, and so we're hoping that
Speaker 8: twenty twenty six is going to be the year where
Speaker 8: a lot of these new products kicking to new gear,
Speaker 8: people will get through proof of concept, move into production,
Speaker 8: start getting more comfortable with new pricing models, and we're
Speaker 8: hoping that that is going to turn the corner on
Speaker 8: the centiment for investors in the in the in the
Speaker 8: in the application software bucket.
Speaker 4: That would a ten kawen great to get your analysis today,
Speaker 4: Thank you. Coming up, Anthropics CEO Daria Amade's suggesting some
Speaker 4: AI companies taking too much risk by committing to spend
Speaker 4: hundreds of billions of dollars to develop and support AI systems. Remember,
Speaker 4: he's just committed to spending quite a lot to himself.
Speaker 5: We'll discuss that next.
Speaker 4: This is Blue meg Tech, the CEO of AI startup Anthropic,
Speaker 4: So some companies in his industry are making a risky
Speaker 4: move by committing so much money to building out the
Speaker 4: AI ecosystem, Dara Amiday when he's made in these comments
Speaker 4: in an interview at the New York Times deal Book
Speaker 4: summit yesterday, Relmerg's AI editor Seth Figman is here to
Speaker 4: break down why fifty billion that they've just said they're
Speaker 4: going to be spending on data centers.
Speaker 5: An ecosystem is not.
Speaker 4: A yolo, whereas maybe some others in the space are.
Speaker 16: A really modest amount here. I mean, look, it is
Speaker 16: an order of magnitude different than the one point fourty
Speaker 16: trillion dollars Opening the Eyes compiguring. And while Dario did
Speaker 16: not say Opening Eye by name, it was hard not
Speaker 16: to feel that that was the target of his criticism.
Speaker 16: I think the point that he was trying to make
Speaker 16: at a higher level was every AI company right now
Speaker 16: is taking on a certain amount of risk and embracing
Speaker 16: a certain amount of uncertainty. They are trying to anticipate
Speaker 16: what their data center infrastructure needs might be two, three,
Speaker 16: four years down the road based on what they're seeing today,
Speaker 16: because it takes a long time to build this stuff.
Speaker 16: Dario is claiming we're making a measured, though still costly
Speaker 16: bet at fifty to sixty billion dollars. Other firms are
Speaker 16: just going off the rails and spending a trillion dollars
Speaker 16: or more committing to do so. There's a real problem there.
Speaker 3: There's also a sort of methodology difference, which Chef we've
Speaker 3: reported on right the idea that Anthropics probably less focused
Speaker 3: on building its own infrastructure, you know, leasing capacity, doing
Speaker 3: deals with partners.
Speaker 2: Stuff like that.
Speaker 3: Did he explain that kind of technological point of difference
Speaker 3: or business plan point of difference.
Speaker 16: I think his emphasis was a bit more on they
Speaker 16: are not necessarily trying to be the mass market, consumer
Speaker 16: focused company the way that Opening Eye is, which also
Speaker 16: relates to Opening Eyes current anxiety about Google's ascendants. Those
Speaker 16: are two firms that are equally vying to have a
Speaker 16: billion or more users for their aiproducts. What Anthropic is
Speaker 16: obviously doing is going after the enterprise market, getting customers
Speaker 16: who are willing to spend potentially big dollars to deploy
Speaker 16: this internally, and they see that as a higher profit
Speaker 16: margin business and one that may not require the extent
Speaker 16: of buildout that we've seen other firms do.
Speaker 4: Probably helps with profitability more more in line with the future,
Speaker 4: and therefore an IPO more in line with the future.
Speaker 4: We have seen a lot of reporting about potentially Anthropic
Speaker 4: looking to tap the public markets.
Speaker 16: Yeah, I think a lot of the anxiety this week
Speaker 16: for OpenNI I was Google is to send them. But
Speaker 16: I think Anthropic is coming out of from the other
Speaker 16: angle here, where if they get to the markets first,
Speaker 16: if they prove that you can build a credible competitive
Speaker 16: AI development business without incurring the same amount of debt
Speaker 16: and leading as much money in the next decade, you know,
Speaker 16: investors might really gravitate towards that and rethink opening AI's
Speaker 16: value here. So they're kind of being hit on both
Speaker 16: sides right now.
Speaker 3: I think with Anthropic, it's worth reminding the audience about
Speaker 3: who they are beholden to or not beholden to, as
Speaker 3: the case may be. When I was in Vegas, I
Speaker 3: asked Aws CEO Matt Garman why he hadn't mentioned Anthropic
Speaker 3: in his big keynote, given that there's such a big
Speaker 3: investment for Amazon, for example, and Fropic gets so much
Speaker 3: business through Bedrock and Aws, could you just explain who
Speaker 3: their investors are and who they do rely on.
Speaker 16: Yeah, I mean, I think the core backers for Anthropic are,
Speaker 16: you know, certainly Amazon and Google, though recently in video
Speaker 16: and Microsoft have committed to join the FRAY. So on
Speaker 16: the one hand, it was a pretty distinct investor base
Speaker 16: from Opening Eye, but recently they're they're kind of overlapping more. Obviously,
Speaker 16: Microsoft's a key backer of OPENINGI in video, seems to
Speaker 16: be in both, and Google and Amazon have struck some
Speaker 16: deals with Opening I infrastructure. So the caveat for everything
Speaker 16: Dario says is they're sharing investors, they're sharing partners. They're
Speaker 16: also spending a lot of money here, but they're trying
Speaker 16: to position themselves as the more measured and cautious compared
Speaker 16: to Opening I.
Speaker 2: In this cart bloembag, Seth Figeman, thank you very much.
Speaker 4: Time now for talking tech first up shares and Netflix
Speaker 4: under pressure today. Going to CNBC report, the streaming giant
Speaker 4: is actually the front runner for Warner Brothers Discovery in
Speaker 4: the bidding, with a cash offer that comes some eighty
Speaker 4: five of the deal. We understand binding is expected to
Speaker 4: wrap up early next week. Plus, Morgan Stanley said to
Speaker 4: be considering offloading some of its data center exposure YA,
Speaker 4: a significant risk transfer. According to sources, the bank has
Speaker 4: helped preliminary talks with this potential other investors about the transfer,
Speaker 4: and is also exploring other ways to hedge part of its.
Speaker 5: Data center risk and the EU.
Speaker 4: While it's investigating the rollout of new AI related policies
Speaker 4: by Meta's messaging service, WhatsApp, regulators are reportedly weighing interim measures,
Speaker 4: including a temporary ban alleging that WhatsApp's AI tools may
Speaker 4: soon unfairly blocked rival AI providers from offering their services
Speaker 4: through the platform.
Speaker 3: At okay, let's get back to our top story, with
Speaker 3: Meta considering potential budget cuts as high as thirty percent
Speaker 3: for the Metaverse group next year twenty twenty six.
Speaker 2: Minda Smiley joins us for more on this.
Speaker 3: She's a senior analyst at eMarketer focused on social media.
Speaker 3: You know what's interesting about this is the consumer's general
Speaker 3: attitude to technology, right, Am I going to use an
Speaker 3: AI too every day? Or am I going to jump
Speaker 3: head first into the metaverse? It's a big share move.
Speaker 3: But I think what I find interesting about your response
Speaker 3: is that you don't find it that surprising that there
Speaker 3: is being a cut back in the metaverse initiative.
Speaker 17: No, I really don't find it surprising. If anything, I
Speaker 17: think people will wonder why it has why these cuts
Speaker 17: haven't happened sooner, because I think, you know, even though
Speaker 17: AI and social media still remain incredibly popular, the reality
Speaker 17: is that a lot of people are actually trying to
Speaker 17: spend less time on screens, less time with technology. Even
Speaker 17: our own forecasts show that next year, at least in
Speaker 17: the US, we do expect people users on social media
Speaker 17: to spend less time on these social networks. And so
Speaker 17: again that's not to say they still don't spend incredible
Speaker 17: amounts of time on social with AI platforms, with technology
Speaker 17: in general, but there is a.
Speaker 5: Bigger push to pull back, and.
Speaker 17: So I think even a few years ago it really
Speaker 17: wasn't the time for the metaverse clearly, and I think
Speaker 17: now it's definitely is not it.
Speaker 3: To recap this reporting is according to sources and it's
Speaker 3: thirty percent budget cuts for Metaverse, but that will include
Speaker 3: an element of layoffs. I'm trying to understand the difference, right,
Speaker 3: Caroline and I have both spent a lot of time
Speaker 3: using mixed and virtual reality headsets, and I've spent a
Speaker 3: lot of time using RayBan Meta smart glasses. Right through
Speaker 3: one you access the AI the smart glasses voice assistant
Speaker 3: based AI with camera.
Speaker 2: The other you immerse yourself in a virtual world.
Speaker 3: But why isn't there a sort of recognition of the
Speaker 3: overlap of those two domains.
Speaker 17: Yeah, I mean there certainly is some overlap, but I
Speaker 17: think again that there's sort of even when you look
Speaker 17: at Meta's business overall, right, Like we are seeing how
Speaker 17: AI is helping the business incredibly, So it's helping their
Speaker 17: bottom line, it's helping their algorithms become more powerful and
Speaker 17: keep people on the platform longer. But these loftier goals,
Speaker 17: the loftier ideas around super intelligence and even the metaverse
Speaker 17: are we're just still not there yet, and I think
Speaker 17: the demand isn't even quite there yet to be justifying
Speaker 17: these massive amounts of spending. I mean, if we even
Speaker 17: see this with smart glasses, I will say I do
Speaker 17: think the smart glasses are are having a bit of momentum.
Speaker 17: They've had some stumbles recently, but there certainly is a
Speaker 17: momentum there. But it's far from you know, a big
Speaker 17: portion of Meta's business and likely won't be so for
Speaker 17: quite some time. And so yeah, like you said, there
Speaker 17: is some overlap. But I still think there's the reality
Speaker 17: of what consumers are comfortable with now versus what they're
Speaker 17: going to be comfortable with ten twenty years from now,
Speaker 17: which is it's just really hard to predict.
Speaker 4: Okay, minda, let's go to therefore, the vast amounts of
Speaker 4: money being spent on the AI focus, and that's what's
Speaker 4: got investors wild worried about the amount of debt that's
Speaker 4: going to have to be deployed, the potential move to negative.
Speaker 5: Cashflow for example.
Speaker 4: Is that wise when you're thinking about the intertwining of
Speaker 4: AI with social media? For Meta, when you paid off
Speaker 4: because it was more effective and advertisers loved it, but
Speaker 4: what about actually our use cases and how superintelligence is
Speaker 4: going to win for their business model.
Speaker 10: That's exactly right.
Speaker 17: I mean, we are, like I said, we are seeing
Speaker 17: how AI clearly is helping their business. But I think
Speaker 17: they are stumbling a lot more with their consumer facing
Speaker 17: ventures in this space. I mean even recently when you
Speaker 17: look at Meta AI, their standalone app. It of course
Speaker 17: METAAI has been you know, worked into all of their
Speaker 17: major platforms. You can use it on Instagram, Facebook, WhatsApp,
Speaker 17: but the standalone app as of last month only had
Speaker 17: about three and a half million figured users globally, So
Speaker 17: that's I mean, three and a half million is a
Speaker 17: lot of people, but when you look at the billions
Speaker 17: and billions of people that use their other platforms, it's
Speaker 17: actually quite small. So again, the demand for just like
Speaker 17: a pure play AI platform from Meta is still relatively small,
Speaker 17: especially when they are competing with CHATGYBT and some of
Speaker 17: these other players. And so yeah, there's there's sort of
Speaker 17: the business lane and the consumer lane, and I think
Speaker 17: the consumer lane they're really having some struggles there.
Speaker 4: But people are really using AI within WhatsApp, within Instagram.
Speaker 4: And then there's the issue of competition, whether they're stifling
Speaker 4: it over in the you they're worried about perhaps some
Speaker 4: policy changes to what's the offering of which companies who
Speaker 4: basically integrate in the API. And it looks as though
Speaker 4: both Copilot and Microsoft and in the open AI could
Speaker 4: be putting back from WhatsApp.
Speaker 17: Yeah, yeah, for sure. I mean I have to say
Speaker 17: I wasn't surprised to see that you crack down on that.
Speaker 17: We've seen them kind of come down on Meta quite
Speaker 17: a bit recently. But it kind of goes back to
Speaker 17: my earlier point of when I was saying that Meta
Speaker 17: AI doesn't have that many users quite yet. That's why
Speaker 17: they're really kind of relying on putting it in their
Speaker 17: more mainstream platforms, trying to get people to use it
Speaker 17: on WhatsApp, especially in Instagram and Facebook, and so you know, again,
Speaker 17: I wasn't surprised to see that they're making that push,
Speaker 17: but I'm also not surprised to see that that pushback,
Speaker 17: that legal pushback that's happening, especially in an environment where
Speaker 17: Meta has really just been under the regulatory microscope lately
Speaker 17: here in the US of course that it recently want
Speaker 17: its anti trust trial, but when we look into next year,
Speaker 17: I think Meta, but also just social platforms in general,
Speaker 17: they're facing so much regulatory pressure at the moment.
Speaker 4: Well, on the day we put to the one side
Speaker 4: and we see its best to share move since July,
Speaker 4: minda Smiley of E Marketer.
Speaker 5: It's great having some time with you. Now. That does
Speaker 5: it for this edition of Bloomberg Tech.
Speaker 4: But ed, what a day, what a scoop, What a
Speaker 4: market moving story coming from Kurt Wagner.
Speaker 3: Yeah, Kurk's story raises a question for me in the future,
Speaker 3: what is the method for using AI?
Speaker 2: Is it smart glasses, is it smartphone? Is it something else?
Speaker 2: We're back to that debate. Recap the reporting on the podcast.
Speaker 3: You know where to find it on the Bloomberg terminal
Speaker 3: and online on all those platforms listed. From New York
Speaker 3: and from San Francisco. This is Bloomberg Tech.