Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Today
Speaker 2: it's all about earnings. First, in Seoul, Samsung's chip unit
Speaker 2: reported a profit increase of more than fivefold for the
Speaker 2: December quarter, given that robust demand from memory for artificial intelligence,
Speaker 2: and at the same time, Samsung announced a two and
Speaker 2: a half billion dollar stock buyback. In the States, meantime,
Speaker 2: there were a number of key earnings after the US close.
Speaker 2: We heard from Microsoft to Meta as well as IBM,
Speaker 2: along with Tesla. Joining us now for a closer look
Speaker 2: is Daniel Newman. He is the CEO of Futurum Group.
Speaker 2: Thank you so much for being here. Let's start with Microsoft.
Speaker 2: The earnings and revenue for the latest quarter were above estimates. However,
Speaker 2: Microsoft's cloud sales growth seemed to slow and CAPEX spending
Speaker 2: hit a record, so the stock was down quite a
Speaker 2: bit in late trading, around five percent. How do you
Speaker 2: read this price action? What is it telling us?
Speaker 3: Yeah, first of all, it was a pretty good quarter.
Speaker 4: So when you see it fall six percent or so
Speaker 4: after hours, you definitely have to, you know, raise an
Speaker 4: eyebrown and say, what's happening, I actually think the thing
Speaker 4: that spooking investors has more to do with the large
Speaker 4: backlog that was shared by cfo Amy Hood. I think
Speaker 4: it's about six hundred and twenty billion, which is a
Speaker 4: massive number. But if you remember when Oracle did a
Speaker 4: similar thing, shared its big backlog, there's a common denominator
Speaker 4: here and that's open Ai. So while Microsoft is having
Speaker 4: tremendous growth record results and by the way, I think
Speaker 4: the cloud myths that everyone keeps talking about at thirty
Speaker 4: nine percent azure growth against a forty percent a quarter ago,
Speaker 4: so this is minuscule in terms of a miss still
Speaker 4: really strong momentum, but that open ai commitment and the
Speaker 4: relationship between Microsoft Open Ai, and basically right now everything
Speaker 4: that open ai is touching feels a little bit toxic.
Speaker 4: So all the companies that are in the kind of
Speaker 4: ecosystem of Sam Altman's trillions of dollars of committed compute
Speaker 4: spend seem to be penalized because there's a lack of
Speaker 4: confidence in the market as to whether or not SAM
Speaker 4: and open a are going to be able to execute.
Speaker 4: So while some people are pointing to cloud, some people
Speaker 4: are pointing to the CAPEC spending.
Speaker 3: I see it a little differently.
Speaker 4: I think people are a little nervous that there's too
Speaker 4: much of its business committed to being able to support
Speaker 4: open Ai. But I think Microsoft is well diversified, and
Speaker 4: I think that might be an overreaction.
Speaker 2: Before we talk about Meta, I want to explore this
Speaker 2: open ai issue a little bit more visa v. Microsoft.
Speaker 2: Are you saying that open ai potentially could be facing
Speaker 2: a lot more in the way of competition, whether from
Speaker 2: Alphabet or Google essentially, or perhaps Anthropic.
Speaker 3: Yes, one percent.
Speaker 4: I think what we're seeing, and by the way, Meta,
Speaker 4: which we will talk about Meta Google and Thropic. But
Speaker 4: Enthropic has been especially noisy lately, and then a really
Speaker 4: good way we've seen what it's been able to do
Speaker 4: with its code generation. It announced an outsized revenue performance
Speaker 4: for the year. It has five times oversubscribed investment at
Speaker 4: three hundred and fifty billion right now, and while that
Speaker 4: still is smaller than open Ai, there's no question that
Speaker 4: Entropic is executing very well, and it has to be
Speaker 4: creating some jitters within investors that are looking at open
Speaker 4: Ai as large commitments. And then, of course, all of
Speaker 4: the companies attached to it its ecosystem. Google has no
Speaker 4: doubt outperformed. Its market cap has soared. We were long
Speaker 4: very optimistic about Google over the last year. We think
Speaker 4: it's grown into a fair evaluation here, but it saw
Speaker 4: its market cap almost double over the course of twenty
Speaker 4: twenty five. And it's because it's been able to execute
Speaker 4: not only models, but it has its own infrastructure. Microsoft
Speaker 4: and Amazon other companies are just catching up on their
Speaker 4: own homegrown chips. That's going to help with CAPEX. So yes,
Speaker 4: all these things together are very important. But in the end,
Speaker 4: what we're seeing Doug is compute is still the most
Speaker 4: precious resource, and so you're seeing Metago big on investing
Speaker 4: in compute. It's outsized CAPEX commitment. Microsoft is spending, but
Speaker 4: they're spending to support that expected backlog, and so we
Speaker 4: don't think the spending is as much a problem as
Speaker 4: it is whether or not in who the customers are
Speaker 4: that they're spending for. And I think that's what's creating
Speaker 4: some consternation in the investor community.
Speaker 2: So away from the hyperscalers, are you getting a sense
Speaker 2: that we're going to begin for the people who are
Speaker 2: actually investing in artificial intelligence, that we're going to begin
Speaker 2: seeing an ROI, a return on investment.
Speaker 4: We have said that this has to be and we
Speaker 4: do believe it will be the year of ROI, of
Speaker 4: a gentic AI and enterprise AI. And that's basically where
Speaker 4: AI takes action to create greater productivity and efficiencies within business.
Speaker 4: We think service now for instance, this quarter showed a
Speaker 4: really strong perform so did IBM, both companies that provide
Speaker 4: software to enterprises, AI platforms and AI capabilities to enterprises.
Speaker 4: Enterprises are going to be consuming trillions of tokens. So
Speaker 4: while many of us think of AI through the lens
Speaker 4: of us using CHATGBT or using claud or using Gemini
Speaker 4: in our everyday searches, the future is really when we
Speaker 4: start to put AI to work to be able to
Speaker 4: help automate workflows and processes within our everyday businesses. And
Speaker 4: when that starts to scale inside healthcare and financial services
Speaker 4: and inside manufacturing. That's where we think the inflection is
Speaker 4: where business are going to say, okay, I spent X
Speaker 4: dollars on AI software, agents, capabilities, and we are seeing
Speaker 4: twenty thirty forty percent increases in productivity, which is yielding
Speaker 4: greater profits, greater earnings, which.
Speaker 3: Should be what it really appeases investors.
Speaker 2: Tomorrow after the bell, we'll hear from Apple. This company
Speaker 2: has been struggling a bit when it comes to artificial intelligence.
Speaker 2: What will you be listening for or when Apple speaks
Speaker 2: to analysts tomorrow after the bell.
Speaker 4: Yeah, it's like Apple's wearing a fire retardant AI suit.
Speaker 4: It just does not want to get in on AI.
Speaker 4: I don't know why, you know, but it's funny because
Speaker 4: they are sort of the opposite of all of these
Speaker 4: other companies when it comes to their strategy.
Speaker 3: They don't have the big cap ex commits.
Speaker 4: They're really staying loyal to their existing hardware in the
Speaker 4: moat that is their hardware ecosystem, and they're really trying
Speaker 4: to maximize revenue by basically saying, yeah, we don't have
Speaker 4: the models and we don't necessarily have the AI.
Speaker 3: Software, but everybody's using it on our device.
Speaker 4: So the big question for Apple is going to be
Speaker 4: how long of a moat is the handset because that's
Speaker 4: really where all of the momentum for Apple is.
Speaker 3: And you're hearing things about wearables.
Speaker 4: Maybe it's a metaglasses, maybe it's a pin or pendant
Speaker 4: that's going to be worn from open ai. So the
Speaker 4: platform is going to really matter over time. Apple, I think,
Speaker 4: is one of those companies. Though they do the buybacks,
Speaker 4: they continuously are sort of a safe haven because while
Speaker 4: their numbers aren't as exciting as some of these other
Speaker 4: companies for growth, they tend to perform and that's really
Speaker 4: what Tim Cook's great at.
Speaker 3: But I do think they need a leadership change.
Speaker 4: They need to bring a young, aggressive, sort of transformational
Speaker 4: leader to be the next Steve Jobs, the next person
Speaker 4: that's you know, and there's no other Steve Jobs, but
Speaker 4: the next of that ILK that's going to come in
Speaker 4: and really change up Apple, because right now it is
Speaker 4: definitely getting a little bit stale.
Speaker 2: So the former Apple designer Johnny Ive is working with
Speaker 2: open ai right now and developing a physical AI hardware device.
Speaker 2: And before and I heard the criticism that you made
Speaker 2: earlier of open ai, and that just how concentrated it
Speaker 2: is right now in terms of its ability to kind
Speaker 2: of connect with other companies in this AI space and
Speaker 2: the risk that that may present. Is it too soon
Speaker 2: to write off open Ai? I mean, we don't want
Speaker 2: to throw out the baby with the bathwater necessarily, do we.
Speaker 4: It's it would be a huge mistake. I mean, this
Speaker 4: company has grown faster than any other company in history,
Speaker 4: and it has some great capabilities. It is still the
Speaker 4: synonymous brand with Generative AI or LLLMS. Right, you're using Chatchipt.
Speaker 4: Even if you're using Gemini, people say I'm using Chatchipt.
Speaker 4: So they've definitely created a brand an identity in the market.
Speaker 3: But what has happened is a couple of things.
Speaker 4: The first thing to happen is we have seen models,
Speaker 4: and we talked about this earlier, you know, with model parody.
Speaker 4: We're seeing Gemini leap frog and open ai model, and
Speaker 4: then Anthropic and leapfrogs both, and then maybe a Chinese
Speaker 4: open source model leapfrogs all of them in a certain capability,
Speaker 4: and then open ai comes back. But what all these
Speaker 4: companies understand is that the real mote is going to
Speaker 4: be compute power, so all of them and this is
Speaker 4: why Sam was spending so big. This is why Anthropics
Speaker 4: now gone to Google and Amazon beyond Nvidia, this is
Speaker 4: why Microsoft is spending so much on Capex, and of
Speaker 4: course this is why Mark wants to build the Metacloud.
Speaker 4: Sam was right when he was trying trying to go
Speaker 4: out and build these contracts and get all these commitments
Speaker 4: for compute power, because what that gives open ai will
Speaker 4: be the flexibility to continue to innovate, to build, and
Speaker 4: to pivot, knowing that.
Speaker 3: What they're building today may only be the DVD.
Speaker 4: Shipment version of Netflix, and that the future might be
Speaker 4: something that looks more like the streaming version. You know,
Speaker 4: we are going to see great innovation in AI, and
Speaker 4: we don't even know what's going to come next. But
Speaker 4: the one thing that all of these AI labs know,
Speaker 4: that all of these hyper scalers know, that Mark Zuckerberg knows,
Speaker 4: is that they don't have the compute power. They will
Speaker 4: not be able to compete at some inflection in the future.
Speaker 4: So Sam should not be SAM and openet should not
Speaker 4: be written off. But there is very real reason to
Speaker 4: be concerned if the current offerings that Sam has, if
Speaker 4: he doesn't have a trick up his sleeve, because he's
Speaker 4: certainly been caught with companies offering parody, offering competitive products,
Speaker 4: and offering you know, alternatives that he has to deal with,
Speaker 4: and so so that's going to be a big question.
Speaker 4: But it's too soon to say open ai won't be
Speaker 4: the winner.
Speaker 2: So given everything we're talking about, does it really come
Speaker 2: back to in Nvidia. At the end of the day,
Speaker 2: you've got to belong that company because it's involved in
Speaker 2: everything that's going right on right now in the space.
Speaker 4: Look, if there wasn't great indicators from the TSMC results
Speaker 4: from ASML which printed this morning that the insatiable demand
Speaker 4: for compute is still very much intact. If these CAPEX
Speaker 4: numbers aren't proving it, and if in Nvidia isn't the
Speaker 4: biggest winner, I don't.
Speaker 3: Know who is.
Speaker 4: Nvidia is still making up the lion's share of the
Speaker 4: compute It has among the most innovative products at any
Speaker 4: given time. Of course, some may claim one spack or another,
Speaker 4: but they have the deepest moat, the most loyalty in customers,
Speaker 4: the largest backlog and revenue book that we've seen in
Speaker 4: the marketplace, and right now it is the incumbent. And
Speaker 4: also for the investors out there, it's trading at a
Speaker 4: fairly low multiple. If you believe the forecast that it's
Speaker 4: putting out and of course the order book that it
Speaker 4: sees over the next year, you have to be very
Speaker 4: optimistic that NVIDIAs come back to you. As an investor
Speaker 4: and you have to be very positive that is still
Speaker 4: the most likely to win the infrastructure battle over.
Speaker 3: The long run.
Speaker 2: Daniel will leave it there always a pleasure. Thanks so much.
Speaker 2: Daniel Newman is the CEO of Futurum Group. Joining us
Speaker 2: here on the Daybreak Asia podcast. Welcome back to the
Speaker 2: Daybreak Asia Podcast. I'm Doug Krisner. The FED left interest
Speaker 2: rates unchanged on Wednesday, in a move that was widely expected.
Speaker 2: Policymakers pointed to improvements in the American economy as well
Speaker 2: as the job market. Here is Chair J. Powell.
Speaker 5: The US economy expanded at a solid pace last year
Speaker 5: and just coming into twenty twenty six on a firm footing.
Speaker 5: While job gains have remained low, the unemployment rate has
Speaker 5: shown some signs of stabilization, and inflation remains somewhat elevated now.
Speaker 2: As a result, the Fed did signal a more cautious
Speaker 2: approach when it came to future potential cuts in interest rates.
Speaker 2: And that's where we begin our conversation with Jeanette Garatty.
Speaker 2: Jeanette is chief economist at Robertson Stevens. She spoke with
Speaker 2: Bloomberg TV host Sherry on and April Hong.
Speaker 6: And does today's FED decision move the needle at all
Speaker 6: when it comes to great expectations for the rest of the.
Speaker 7: Year, great expectations for the US economy. Perhaps not really,
Speaker 7: I don't think this changes much of anything. First of all,
Speaker 7: it was expected. Second of all, there was actually remarkably
Speaker 7: little discussion in the press conference. I was very surprised
Speaker 7: about the trajectory on interest rates beyond some discussion about
Speaker 7: the next So I think he you know, maybe everybody
Speaker 7: thought they knew what Jerome Powell was going to say
Speaker 7: if they tried to pin him down to the second
Speaker 7: half the year, But there really wasn't a whole lot
Speaker 7: of substance there. And he did a rather interesting thing,
Speaker 7: in my view, which is to shine a light on
Speaker 7: some of the fiscal policy issues, some of the things
Speaker 7: that are bothering people in the US economy right now,
Speaker 7: if you will, do not have monetary policy solutions, only
Speaker 7: have fiscal policy solutions. So that's where I think he's
Speaker 7: saying that the needle is going to move, and he's
Speaker 7: comfortable with monetary policy where it is right now. That
Speaker 7: could change, as it always.
Speaker 6: To your point, a little bit of that ca shaped
Speaker 6: economy that we're seeing, right, the wealthy getting wealthier. But
Speaker 6: also I think a lot of that conversation was crowded
Speaker 6: out by the fact that we were really getting a
Speaker 6: lot of questions around the politics of everything.
Speaker 3: Right.
Speaker 6: I have to ask you, what do you make a
Speaker 6: Governor Waller's dubbish descent.
Speaker 3: Does that sort of.
Speaker 6: Give us a FED put in the months ahead if
Speaker 6: he were to become the next FED chair?
Speaker 7: Possibly The only thing I made of it right now
Speaker 7: actually one that's a bit of a offhand remark, which
Speaker 7: is that he's the only FED governor that the current
Speaker 7: sitting FED voting member who is being contemplated to be
Speaker 7: a future head of the FED. So, you know, he
Speaker 7: voted this way because as perhaps he wanted to single
Speaker 7: signaled to various people that he in fact would be
Speaker 7: rather dummish. The leeway, the theoretical leeway for why he
Speaker 7: did that was in d compous remarks. He did say
Speaker 7: that while he feels and why the majority of the board,
Speaker 7: while the majority of the Board felt that they were
Speaker 7: very comfortably in the neutral range for monetary policy, in
Speaker 7: the neutral rate of interest, that it was at the
Speaker 7: high end, So there could be you know, it's not
Speaker 7: out of bounds that Chris Waller could say, well, I
Speaker 7: think we could have cut a quarter point and we
Speaker 7: would still be firmly in the area of neutral policy stances.
Speaker 7: So that would be the cover for what he decided
Speaker 7: to do.
Speaker 8: And that's just seems to be just focused on the
Speaker 8: puff in the second half for the FED. I mean,
Speaker 8: you look at the way goal has popped, right, the
Speaker 8: expectation of a doubbish shift. What is your sense of
Speaker 8: you know, in the first half, is it fair assumption
Speaker 8: that we're not going to see a cut?
Speaker 7: Well, now you're pinning me down to time and date
Speaker 7: and magnetude, all of that step that economists love to avoid.
Speaker 7: I do think that there will be two cuts this year.
Speaker 7: The timing of it I would see as mostly being
Speaker 7: in the second half, but could come in a little
Speaker 7: bit earlier. But my expectation is premised on an assumption
Speaker 7: then we will actually see some improvements in the inflation
Speaker 7: numbers because of the way that the numbers are calculated
Speaker 7: and because of other general trends in the economy. And
Speaker 7: I'm making a grand assumption that there won't be any
Speaker 7: unexpected terrriff announcements. But if that doesn't happen, then then
Speaker 7: I don't know about those two cuts, and we could
Speaker 7: we could have a very confrontational environment if inflation starts
Speaker 7: to go the other way. I don't see that right now.
Speaker 7: I think two cuts are in the mix. See it
Speaker 7: starting at midyear.
Speaker 8: Okay, so a couple of caveats to those Outlook, what
Speaker 8: is your sense of the dollar whiplacks that we've been
Speaker 8: seeing this week and the overall negative trajectory for the
Speaker 8: green bag. How might that affect the US economy?
Speaker 7: It will have macroeconomic effects. It will have effects on
Speaker 7: prices in the United States. So the weaker dollar makes
Speaker 7: those goods coming in from overseas that much more expensive.
Speaker 7: We always we always see that in play. I think
Speaker 7: Scott Bessant and Jerome Pwell are being economically intellectually honest
Speaker 7: here in recognizing that, first of all, you can't do
Speaker 7: very often what you want to do for the domestic
Speaker 7: economy if you are trying to do something for the
Speaker 7: something in the global markets, for example, at the same time,
Speaker 7: you usually have to pick one perspective to determine policy.
Speaker 7: It's domestic and that's what they're going to stick with.
Speaker 7: There's there's obviously a lot going on. I'm not sure
Speaker 7: how much of what is going on honestly reflects the
Speaker 7: fundamentals as I see it. This is still a very point,
Speaker 7: you know, and so it should the dollar should not
Speaker 7: weaken this much.
Speaker 6: Yeah, I mean to your point on the inflationary effects
Speaker 6: of the US dollar. We saw a long term treasure
Speaker 6: yields actually move as the dollar was falling, and actually
Speaker 6: moving the opposite direction as the dollar rebounded.
Speaker 4: Right.
Speaker 6: I want to take you to the earlier point that
Speaker 6: you were making about this bifurcation in the US economy
Speaker 6: as well, because we have seen the Fed now perhaps
Speaker 6: shift towards UH their focus on the stabilization of the
Speaker 6: job market, but that key shaped economy that we continue
Speaker 6: to see in the US. How problematic could this be?
Speaker 7: Well, it's very problematic from a political standpoint. It's problematic
Speaker 7: for monetaries, for the Federal Reserve because it partially goes
Speaker 7: to the heart of what they feel they are there
Speaker 7: to do, which is to protect the general fabric of
Speaker 7: the US economy, which is usually expressed in terms of
Speaker 7: inflation and employment, but it covers a number of other things.
Speaker 7: So I don't think they like necessarily what they're seeing there,
Speaker 7: but their tools are not tools that are designed to
Speaker 7: do something about many of these things, and so that's
Speaker 7: why I think there was Jerome Powell correctly mentioned, well,
Speaker 7: it's understandable why from a spending standpoint, we are seeing
Speaker 7: stronger spending in one sector of the economy, because that's
Speaker 7: a sector that attempts to hold more ox and bonds,
Speaker 7: more real estate. Those are areas where prices have gone up,
Speaker 7: and so they're spending it. But the fundamental problem of
Speaker 7: affordability and employment availability in certain sectors, that's a hard
Speaker 7: one for the FED to address.
Speaker 2: That was Jeanette Gerritty, chief economist at Robertson Stephens, speaking
Speaker 2: to Bloomberg TV host Sherry On in April home bringing
Speaker 2: it to you here on the Daybreak Asia podcast. Thanks
Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia
Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug prisoner and this is Bloomberg