WEBVTT - Tesla Estimates Cut Further, Trump Tariffs 0:00:02.720 --> 0:00:10.520 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.560 --> 0:00:14.520 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.560 --> 0:00:17.799 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.880 --> 0:00:21.000 Business App. Listen on demand wherever you get your podcasts, 0:00:21.320 --> 0:00:23.040 or watch us live on YouTube. 0:00:23.560 --> 0:00:25.799 Stay with Autos for just a moment. Craig Trudella's Bloomberg 0:00:25.800 --> 0:00:29.040 Global Autos Editor and joins us now Craig. At the 0:00:29.080 --> 0:00:31.560 same time, we also got the news that Tesla's estimates 0:00:31.600 --> 0:00:36.159 were cut further by an analyst unquote unprecedented brand damage. 0:00:36.240 --> 0:00:39.040 What's the conversation with zeitgeist around that right now? 0:00:40.440 --> 0:00:44.639 I think over here in Europe it's particularly bleak when 0:00:44.680 --> 0:00:47.440 you look at some of the numbers. Just yesterday we 0:00:47.520 --> 0:00:53.000 saw the full figures for Tesla and Germany in the 0:00:53.040 --> 0:00:55.840 first quarter for them to have some you know, some 0:00:55.880 --> 0:00:58.480 months in the beginning of this year, they were down 0:00:58.520 --> 0:01:01.480 more than seventy percent. And that's in a country where 0:01:01.520 --> 0:01:04.000 they where they build vehicles, where you would think that 0:01:04.040 --> 0:01:06.679 they would perhaps have have built up some goodwill on 0:01:06.720 --> 0:01:10.319 the basis of employing quite a lot of people outside 0:01:10.360 --> 0:01:14.000 of Berlin at their factory, and yet for Musk to 0:01:14.200 --> 0:01:18.360 sort of intervene in the federal election in February in 0:01:18.400 --> 0:01:21.640 a way that was highly unpopular and for some of 0:01:21.680 --> 0:01:23.960 the protests that we've seen across the US to also 0:01:24.240 --> 0:01:26.640 you know carry over here where you know, we've seen 0:01:26.720 --> 0:01:30.600 dealerships get you know, paint tossed on them, cars you know, 0:01:30.640 --> 0:01:35.520 set on fire. It's it's really intense the backlash that 0:01:35.520 --> 0:01:36.600 we've seen against Musk. 0:01:37.240 --> 0:01:40.280 So Craig, I'm trying to get a sense how much 0:01:40.319 --> 0:01:42.959 of their sales weakness is due to some of that 0:01:43.200 --> 0:01:46.840 backlash against Elon Musk versus maybe some of the model 0:01:46.920 --> 0:01:49.840 why introduction and the change over there of lines. Do 0:01:49.880 --> 0:01:53.080 we have make any sense as to what's you know, 0:01:53.120 --> 0:01:54.840 the kind of the percentage between those two. 0:01:56.120 --> 0:01:57.200 It's it's really difficult. 0:01:57.240 --> 0:01:59.200 I think we are going to be spending the next 0:01:59.200 --> 0:02:03.160 you know, probably months, maybe quarters, uh, you know, unpacking 0:02:03.280 --> 0:02:06.480 what exactly the dynamics are here, because you know, to 0:02:06.520 --> 0:02:09.160 your point, they did have a sort of you know, 0:02:09.280 --> 0:02:11.920 self inflicted disruption that I should point out is not 0:02:12.360 --> 0:02:16.120 unusual in the auto industry, even very experienced you know, carmakers, 0:02:16.520 --> 0:02:18.919 when they go from one generation of vehicle to the next, 0:02:18.960 --> 0:02:21.960 they often need to do some retooling and take the factory, 0:02:22.400 --> 0:02:24.880 you know, down a bit, you know, work on the 0:02:24.880 --> 0:02:27.600 production lines. Tesla in this case had to do that 0:02:27.919 --> 0:02:30.280 at all of its factories around the world because they 0:02:30.320 --> 0:02:33.560 make them model y everywhere, and you know, so that 0:02:33.560 --> 0:02:36.680 that was a substantial disruption for them in the first 0:02:36.720 --> 0:02:39.080 quarter that we shouldn't sort of lose sight of. I 0:02:39.120 --> 0:02:42.480 do think that, you know, it can't be a coincidence 0:02:42.520 --> 0:02:45.720 that in a place like Germany, where you've seen a 0:02:45.840 --> 0:02:48.960 Musk poll so poorly, and you know where he so 0:02:49.160 --> 0:02:53.560 asserted himself so emphatically. You know, you look at those 0:02:53.600 --> 0:02:56.360 figures and even as you've seen some some weakness for 0:02:56.440 --> 0:02:59.560 Tesla and other parts of Europe, we haven't seen it 0:02:59.600 --> 0:03:02.360 be as drastic as we've seen it in Germany. So 0:03:02.400 --> 0:03:05.040 I think, you know, to your question, I think there's 0:03:05.080 --> 0:03:07.119 there's absolutely a bit of both, and it's a little 0:03:07.160 --> 0:03:09.320 bit it's going to take us probably some months, maybe 0:03:09.320 --> 0:03:11.919 some quarters to sort out, you know, just how much 0:03:11.960 --> 0:03:14.120 sort of lasting damage has been done here and whether 0:03:14.600 --> 0:03:17.040 you know they can lure buyers back with this fresh product. 0:03:17.720 --> 0:03:19.800 I have to say, you know, you look at if 0:03:19.840 --> 0:03:22.120 you do Tesla equity in the dees. You get all 0:03:22.160 --> 0:03:24.640 the good information on Tesla right away. You look at 0:03:24.800 --> 0:03:27.760 a PE ratio is still one hundred and twelve times. 0:03:27.919 --> 0:03:29.880 You look at the PE ratio of in Nvidia and 0:03:29.919 --> 0:03:32.040 it's thirty two times, just meaning that it is still 0:03:32.080 --> 0:03:36.160 incredibly expensive when you look at it from that metric. Hey, Craig, 0:03:36.200 --> 0:03:38.960 really good perspective. Thank you so very much. Craig Trudel, 0:03:39.000 --> 0:03:42.200 Bloomberg Global Autos Editor, joining us on the overall impact 0:03:42.240 --> 0:03:46.240 of terroriffs but really brand reputational damage when it comes 0:03:46.760 --> 0:03:47.800 to Tesla. 0:03:48.480 --> 0:03:48.760 Wow. 0:03:49.440 --> 0:03:50.080 This is a week. 0:03:51.840 --> 0:03:55.520 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:03:55.600 --> 0:03:58.680 weekdays at ten am Eastern on Apple, Cocklay and Android 0:03:58.720 --> 0:04:02.000 Auto with the Bloomberg Business Up. Listen on demand wherever 0:04:02.080 --> 0:04:06.600 you get your podcasts, or watch us live on YouTube's. 0:04:05.720 --> 0:04:06.680 One of the things we want to do in this 0:04:06.680 --> 0:04:10.080 Bloomberg Intelligence programs talk to the analysts that Bloomberg Intelligence 0:04:10.480 --> 0:04:12.760 and talk to us about their sectors. 0:04:12.960 --> 0:04:13.840 Let's do that right now. 0:04:13.880 --> 0:04:17.280 With Herman changing all was the regional banks for Bloomberg Intelligence. 0:04:18.040 --> 0:04:19.520 I was gonna say, it's never good when you see 0:04:19.560 --> 0:04:21.600 him in studio because it always something is going to 0:04:21.640 --> 0:04:24.880 be blown up we see Herman. Otherwise when we ignore Herman, 0:04:25.000 --> 0:04:26.360 it's like, oh, everything's. 0:04:25.960 --> 0:04:27.360 Fine and kind good. 0:04:28.000 --> 0:04:31.599 So how do you view from the banks perspective a 0:04:31.680 --> 0:04:34.240 world where it seems like we're in a trade war here, right? 0:04:34.440 --> 0:04:37.520 Well, banks are ultimately a reflection of their economies that 0:04:37.560 --> 0:04:42.599 they operate in, and when the economic expectations are in flux, 0:04:42.760 --> 0:04:46.120 then typically there's some pain for the banks, and that's 0:04:46.160 --> 0:04:47.080 where we are today. 0:04:47.720 --> 0:04:49.720 We have while all the. 0:04:49.920 --> 0:04:53.120 Bad news has been reflected in the stocks, the fundamental 0:04:53.240 --> 0:04:57.239 performance is still sort of shaking out. I would say 0:04:57.320 --> 0:05:01.159 that we're coming up on first qu results in the 0:05:01.200 --> 0:05:03.400 next couple of weeks, and so we'll get a better 0:05:03.440 --> 0:05:07.640 picture of guidance changes performance going forward. But right now 0:05:08.440 --> 0:05:11.000 we're still waiting to see where the shoes going to 0:05:11.040 --> 0:05:13.600 drop in terms of loan growth, credit quality, et cetera. 0:05:13.720 --> 0:05:16.080 And that's my question because I understand the big banks 0:05:16.080 --> 0:05:19.479 getting hit in part because the capital markets are just 0:05:19.480 --> 0:05:21.440 going to freeze up, Like forget IPOs, M and e's, 0:05:21.440 --> 0:05:22.719 we're going to put that on the side. Okay, that 0:05:22.800 --> 0:05:24.520 kind of makes sense, But the regional banks may not 0:05:24.600 --> 0:05:26.440 have the same kind of exposure, right, and the real 0:05:26.480 --> 0:05:29.200 economy the hard data is still fine, right, So were 0:05:29.200 --> 0:05:32.279 you surprised at the extent to which your sector got hit. 0:05:32.800 --> 0:05:37.200 Every time there's worries about the economy, these bank stocks 0:05:37.240 --> 0:05:41.400 sort of get hit first and then investors ask questions later. 0:05:41.520 --> 0:05:45.480 So that's where we are today. Valuations have come down, 0:05:45.600 --> 0:05:49.480 and there's just a lot of worries about future credit quality, 0:05:50.120 --> 0:05:54.360 the guidance coming down, loan growth fees coming down, top 0:05:54.400 --> 0:05:56.120 lines coming down. So there's going to be a lot 0:05:56.160 --> 0:06:01.440 of revisions going forward if these terrorists do really materialize. 0:06:02.200 --> 0:06:04.599 So I guess one of the things we're hearing, and 0:06:04.680 --> 0:06:06.760 we've heard it, you know, all the years we're building 0:06:06.800 --> 0:06:08.359 up to this tariff day. Now it's just kind of 0:06:08.360 --> 0:06:12.320 reflected in the financial markets is just I just don't 0:06:12.560 --> 0:06:13.560 feel like doing anything. 0:06:13.600 --> 0:06:13.880 I don't know. 0:06:13.880 --> 0:06:16.240 If I'm a CEO, I don't want to buy a company. 0:06:16.680 --> 0:06:18.120 If I'm a consumer, I don't want to make that 0:06:18.160 --> 0:06:20.760 big expenditure from the washing machine or the car or whatever, 0:06:21.320 --> 0:06:24.560 And that means I probably don't need growth capital, right. 0:06:24.400 --> 0:06:26.280 So if I'm a bank, I'm probably not writing too 0:06:26.279 --> 0:06:28.040 many loans these days exactly. 0:06:28.560 --> 0:06:31.640 And that's actually been happening over the past few years. 0:06:32.080 --> 0:06:35.640 Given the uncertainty with interest rates first and then regulation 0:06:35.880 --> 0:06:38.640 under the Biden administration, there was just a lot of 0:06:39.520 --> 0:06:42.039 demand that was just on the sidelines, and you've seen 0:06:42.080 --> 0:06:44.800 that reflected in loan growth for the industry. It really 0:06:44.880 --> 0:06:47.159 hasn't moved a lot over the past couple of years, 0:06:47.440 --> 0:06:50.880 and the expectations heading into this year was that Donald 0:06:50.880 --> 0:06:54.120 Trump and the administration was really going to unleash more 0:06:54.160 --> 0:06:59.200 activity from a deep regulation. But now the trade spats 0:06:59.200 --> 0:07:01.560 and just the chaos that's happening over the past couple 0:07:01.600 --> 0:07:04.599 of days, everything really continues to be on the sideline. 0:07:04.680 --> 0:07:06.400 Something any kind of like regional m and A that 0:07:06.400 --> 0:07:08.240 we've all been expecting for the last couple of years, 0:07:08.240 --> 0:07:08.720 that's not going. 0:07:08.680 --> 0:07:10.480 To happen banks right right exactly. 0:07:10.960 --> 0:07:14.360 There has been some news that the Discovery Capital wind 0:07:14.360 --> 0:07:17.360 deal could be pushed through with the dj giving the 0:07:17.400 --> 0:07:19.480 green light to that. So now we're waiting on the 0:07:19.520 --> 0:07:22.840 FED and other bank regulators the weigh in, so that 0:07:22.880 --> 0:07:25.400 could be a good litmus test going forward. But still 0:07:25.480 --> 0:07:28.560 there's a lot of uncertainty involved. 0:07:28.440 --> 0:07:31.000 When you see an economy slow down like it. Here's 0:07:31.040 --> 0:07:33.920 the US economy is doing. Where's the first place you 0:07:33.960 --> 0:07:36.960 see it from a regional bank. Is it credit quality 0:07:37.040 --> 0:07:38.240 is slowing loan growth? 0:07:38.240 --> 0:07:39.000 What do you see it first? 0:07:39.200 --> 0:07:41.600 Yeah, well it's going to be slowing loan growth and 0:07:41.640 --> 0:07:44.040 it's going to be sort of the delinquencies, right So 0:07:44.240 --> 0:07:48.360 these thirty day past new metrics, ninety day past new metrics, 0:07:48.360 --> 0:07:51.120 so those will start trickling in. And then there's other 0:07:52.320 --> 0:07:55.280 early warning signs for credit quality that the banks talk 0:07:55.360 --> 0:07:59.560 about that there's some bank bank parlance, it's called criticized loans. 0:08:00.320 --> 0:08:04.160 Loans that may not be passed due yet, but the 0:08:04.200 --> 0:08:06.840 bank knows that there's some problems with the borrower or 0:08:06.880 --> 0:08:09.720 the project, so they'll flag it as a potential problem. 0:08:09.760 --> 0:08:12.160 So those are sort of the metrics that we look 0:08:12.160 --> 0:08:13.960 out for every reporting season. 0:08:15.400 --> 0:08:20.040 Which banks in your coverage are pretty well set up 0:08:20.080 --> 0:08:21.920 to manage this kind of environment right now? 0:08:22.000 --> 0:08:24.360 Yeah, I think the market is telling you some things. 0:08:24.520 --> 0:08:27.240 We just put up something on MRR looking at the 0:08:27.240 --> 0:08:30.320 five day performance of the KBW index, and it shows 0:08:30.840 --> 0:08:34.800 the trust banks like Bank of New York, Mellon Northern 0:08:34.840 --> 0:08:37.880 Trust holding up fairly well. M and T and P 0:08:38.000 --> 0:08:39.600 and C are the ones in my region and bank 0:08:39.640 --> 0:08:42.480 coverage that are holding up very fairly well, and then 0:08:42.480 --> 0:08:45.640 there are others, smaller regionals that are are faring worse. 0:08:47.120 --> 0:08:50.240 Can interest bring some breaking news to Yeah, the NASTAQ 0:08:50.320 --> 0:08:54.480 one hundred just entered a bear market, down twenty percent 0:08:54.559 --> 0:08:57.559 from it. I know it's just numbers, but. 0:08:57.240 --> 0:08:59.800 But no, I mean a bear market. We haven't talked 0:09:00.000 --> 0:09:01.280 out of bear marketing quite some time. 0:09:01.400 --> 0:09:05.000 But they're numbers, but they're also headlines. Yeah, that's you know, 0:09:05.080 --> 0:09:05.880 that's part of it too. 0:09:06.360 --> 0:09:08.520 There's people's iras and the four to one case there. 0:09:08.559 --> 0:09:10.240 I mean, I'm not looking at that. Who's looking at that? 0:09:10.280 --> 0:09:12.160 Any of you guys look at that? Look, I'm not 0:09:13.120 --> 0:09:16.720 one on one care I'm not looking for twenty more years. 0:09:16.760 --> 0:09:17.680 Just gonna sit there. 0:09:17.720 --> 0:09:20.600 And that's the story. Okay, And then before I let 0:09:20.600 --> 0:09:22.599 you go real quick, carman, what is like sort of 0:09:22.679 --> 0:09:25.760 the the type of bank that's going to struggle the most. 0:09:26.040 --> 0:09:30.000 Yeah, it's going to be the banks that have still 0:09:30.000 --> 0:09:33.240 been dinged during the prior regional bank crisis. Probably they'll 0:09:33.280 --> 0:09:35.880 be in the headline still. So yeah, the banks that 0:09:36.000 --> 0:09:38.880 have have sort of weathered it, but there's always that 0:09:38.960 --> 0:09:42.840 recent history that all investors going back to, so banks 0:09:42.960 --> 0:09:47.600 like Western Alliance and and others that that were sort 0:09:47.640 --> 0:09:50.680 of teetering during that time probably get pushed a bit 0:09:50.720 --> 0:09:54.360 more by investors, but we think that they're they're balance 0:09:54.400 --> 0:09:56.880 sheet and the deposits are really strong going forward. 0:09:57.559 --> 0:10:00.320 All right, Herman, thanks a lot, really appreciate it. Herman 0:10:00.360 --> 0:10:02.679 Chan joining us in studio, always good to get your perspective. 0:10:04.320 --> 0:10:08.000 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:10:08.080 --> 0:10:11.440 weekdays at ten am Eastern on Applecarclay, and Android Auto 0:10:11.559 --> 0:10:14.640 with the Bloomberg Business App. Listen on demand wherever you 0:10:14.679 --> 0:10:18.120 get your podcasts, or watch us live on YouTube. 0:10:18.480 --> 0:10:21.199 All right, let's go now to tech and where we 0:10:21.240 --> 0:10:22.719 are in that market after the big sell up on 0:10:22.760 --> 0:10:25.640 a rug run a Bloomberg Intelligence and your technology analysts. 0:10:25.600 --> 0:10:28.040 All right, Honora, what stops the bleeding here for tech? 0:10:29.640 --> 0:10:31.640 That we need a few more of those announcements that 0:10:31.720 --> 0:10:34.360 other countries are willing to negotiate as well, because unless 0:10:34.400 --> 0:10:36.760 that happens, you know, it'll be very tough to figure 0:10:36.800 --> 0:10:39.400 out where the bottom is in terms of fundamentals for 0:10:39.520 --> 0:10:40.520 any of these companies. 0:10:40.920 --> 0:10:43.880 Yeah, Onrack, we had Dan ives in studio earlier this 0:10:43.920 --> 0:10:48.480 morning on surveillance, and it's by far the most cautious. 0:10:48.480 --> 0:10:50.439 I've ever heard him in on Granted he's a very 0:10:50.440 --> 0:10:53.599 bullish analyst by nature, but he's saying, basically, this is 0:10:53.600 --> 0:10:56.240 a black swan event for technology and you know, unless 0:10:56.880 --> 0:10:59.960 it changes, you know, this is a long term head 0:11:00.080 --> 0:11:03.320 win for tech and I guess that kind of goes 0:11:04.160 --> 0:11:06.680 is there. And he even went to the to the 0:11:06.760 --> 0:11:09.600 level on a Raja saying he'd be surprised that if 0:11:09.840 --> 0:11:13.080 many of his companies even provide guidance in the upcoming 0:11:13.120 --> 0:11:16.280 earnings here, So as you talk to clients, what's the 0:11:16.320 --> 0:11:18.319 mood at there? Is there anybody saying I feel the 0:11:18.360 --> 0:11:20.520 bottom here? These are great companies. I can buy him 0:11:20.559 --> 0:11:23.240 cheap here? What are the conversations like? 0:11:24.200 --> 0:11:26.080 I think the biggest thing is like how long is 0:11:26.120 --> 0:11:28.800 this malay is going to last? On the uncertainty side 0:11:28.800 --> 0:11:31.400 of it, because you know, frankly, if you extrapolate and 0:11:31.440 --> 0:11:33.960 see what Nazdak has done over the last three years, 0:11:34.080 --> 0:11:37.000 it has been phenomenal since Chad Gibaut came out. So 0:11:37.200 --> 0:11:38.960 you know, one could argue there is a lot to 0:11:39.040 --> 0:11:42.199 give on the price action point of view, but fundamentally 0:11:42.200 --> 0:11:45.880 these are very strong companies, really amazing balance sheets and 0:11:46.000 --> 0:11:49.040 also the growth profile down the road, and you know, 0:11:49.080 --> 0:11:52.480 we talked about the conference and everybody is looking to 0:11:52.520 --> 0:11:56.439 invest more in more AI related services. So the fundamentals 0:11:56.440 --> 0:11:58.959 on paper are very good. But what happens is when 0:11:59.000 --> 0:12:02.000 you have a shock in this system like this, everybody freezes, 0:12:02.240 --> 0:12:05.600 hiding freezes, spending freezes. So you don't know what to 0:12:05.640 --> 0:12:07.840 do for the next six months. You don't know whether 0:12:07.920 --> 0:12:10.720 the revenue decline, how much is it going to be, 0:12:11.080 --> 0:12:15.480 the margin, you know, pressure because of the tartiffs. So 0:12:15.520 --> 0:12:19.120 there is so much uncertainty right now, and I think 0:12:19.160 --> 0:12:21.079 there's a there's a fair point that the guidance is 0:12:21.120 --> 0:12:22.560 going to be very tough at this point. 0:12:22.800 --> 0:12:24.679 Oh yeah, tough for everyone. I should point out some 0:12:24.720 --> 0:12:27.040 more headlines coming out of President Trump saying that's a 0:12:27.040 --> 0:12:30.800 perfect time perfet shaired j Powell to cut rates. This 0:12:30.840 --> 0:12:32.720 is as Jay Powell is expected to speak in just 0:12:32.760 --> 0:12:36.719 about twenty minutes time. That's going to be a fascinating 0:12:36.760 --> 0:12:41.280 conversation to unfold. That's pretty tough, okay, Anna Rag. When 0:12:41.280 --> 0:12:44.560 we take a look at earnings estimates for these companies 0:12:44.600 --> 0:12:47.360 in your tech space, in what part, in what sub 0:12:47.440 --> 0:12:49.120 sector do they need to rerate more? 0:12:50.440 --> 0:12:52.600 I think software numbers needs to come down quite a 0:12:52.600 --> 0:12:54.719 bit and something we you know, did a note a 0:12:55.040 --> 0:12:57.720 few days ago. We looked at the top fifty software 0:12:57.760 --> 0:13:00.920 companies and saw that the medium growth rate for those 0:13:01.120 --> 0:13:04.240 was thirteen point two percent on December thirty first, so 0:13:04.320 --> 0:13:08.680 that is f FI for calendar twenty five. Just a 0:13:08.679 --> 0:13:11.520 few days ago that number was twelve point four percent, 0:13:11.720 --> 0:13:14.679 so less than one percent decline in the expectations of 0:13:14.720 --> 0:13:17.200 a growth rate. You know, that number needs to come 0:13:17.240 --> 0:13:19.160 down quite a bit. It needs to come down, you know, 0:13:19.240 --> 0:13:22.680 well under ten percent at this point before one could 0:13:22.720 --> 0:13:26.160 say that, Okay, we are at that point where fundamentals 0:13:26.200 --> 0:13:30.040 are now aligned with where the overall economic situation is. 0:13:30.720 --> 0:13:33.880 So let's go down and talk about Apple here. 0:13:33.880 --> 0:13:36.360 It's off another three point six percent today, off twenty 0:13:36.400 --> 0:13:37.839 one percent year to date. 0:13:39.880 --> 0:13:41.640 ANAK, Is there any call here on Apple? 0:13:42.040 --> 0:13:44.280 They're just so and we've known this for years and 0:13:44.280 --> 0:13:47.439 we've talked about it for years, how so dependent they 0:13:47.440 --> 0:13:49.760 are on China, but from a supply chain as well 0:13:49.800 --> 0:13:50.680 as an end market. 0:13:51.040 --> 0:13:54.120 What's your current view on China in this environment? On Apple? 0:13:55.280 --> 0:13:58.120 Yeah, I'm really getting worried about how the you know, 0:13:58.160 --> 0:14:01.559 how consumers will react in China or with this thing, 0:14:01.640 --> 0:14:04.000 because you know, it's one thing to say that, Okay, 0:14:04.040 --> 0:14:06.640 my phone buying has been pushed out by three months 0:14:06.760 --> 0:14:09.079 or six months or so, Okay, the demand comes back 0:14:09.120 --> 0:14:10.760 next year. You know, it's it's not that big of 0:14:10.800 --> 0:14:13.600 a deal. But once you really get a bad feeling 0:14:13.720 --> 0:14:18.360 about a company or a country, that sourness really impacts 0:14:18.360 --> 0:14:20.120 the fundamentals of it. You know, we have seen what's 0:14:20.120 --> 0:14:22.960 going on with Tesla and Europe, for example. You don't 0:14:23.000 --> 0:14:25.440 want Apple to have that same feeling in China where 0:14:25.640 --> 0:14:27.200 consumer is saying, you know what, I don't want to 0:14:27.200 --> 0:14:29.520 touch an American brand. I would rather just buy the 0:14:29.520 --> 0:14:32.200 local one. And that's a very big problem in our 0:14:32.280 --> 0:14:35.400 view because Greater China region accounts for twenty percent of 0:14:35.440 --> 0:14:36.280 Apple's revenue. 0:14:36.440 --> 0:14:37.680 Yeah, and this is what we're talking about. Now, we're 0:14:37.720 --> 0:14:39.920 not even talking super cycles anymore. I feel like six 0:14:39.960 --> 0:14:41.880 months ago is like now it's coming. Then it's well, 0:14:41.880 --> 0:14:44.920 I have wone supercycle. To that point, we've already seen 0:14:44.960 --> 0:14:47.680 save Ford talking about discounting their cars to get people 0:14:47.720 --> 0:14:49.200 in the door. Is this going to be a similar 0:14:49.240 --> 0:14:52.080 case for Apple because they're not a discountery kind of thing. 0:14:52.760 --> 0:14:55.440 No, I don't think so. I mean, I think, you know, 0:14:55.480 --> 0:14:57.680 I think the Apple CEO has played it very well 0:14:57.720 --> 0:14:59.600 when it comes to China. He has gone to China 0:14:59.680 --> 0:15:02.680 few times, He's been seen with the commerce ministers. He's 0:15:02.720 --> 0:15:06.080 talking about investing more money here there, and I think 0:15:06.120 --> 0:15:08.880 he's playing the cards right, because you really don't want 0:15:08.920 --> 0:15:12.160 the world's you know, most nucrative market for your goods 0:15:12.200 --> 0:15:14.880 to basically have a very bad feeling about your products 0:15:15.040 --> 0:15:16.960 because at the end of the day in the US, 0:15:17.080 --> 0:15:19.280 you know, they really cannot grow much. It's a saturated 0:15:19.360 --> 0:15:22.760 market for them. Their growth rate will come from emerging markets, 0:15:22.800 --> 0:15:25.479 whether it's China or in a few years from India. 0:15:25.600 --> 0:15:27.880 But you know, they really have to play it nicely 0:15:27.920 --> 0:15:30.680 in China in order to show growth rate over the 0:15:30.680 --> 0:15:31.880 next three to five years. 0:15:32.160 --> 0:15:35.480 In terms of overall tech spending on a rag, how 0:15:35.520 --> 0:15:39.040 elastic is tech spending broadly defined? It is it something 0:15:39.080 --> 0:15:41.840 that these companies feel like they have to do no 0:15:41.880 --> 0:15:45.600 matter what, or like advertising. We're just talking to Etherrong 0:15:45.640 --> 0:15:48.560 andoth and that is very discretionary spending on a part 0:15:48.560 --> 0:15:49.960 of a company that tech. 0:15:51.200 --> 0:15:53.520 I think you divided in two categories. One is your 0:15:53.560 --> 0:15:56.800 growth capex where you're going to invest for newer products, 0:15:57.000 --> 0:15:59.520 and that will remain the case. You know, AI spending. 0:15:59.760 --> 0:16:02.440 Let's say somebody is spending you know, one hundred dollars more, 0:16:02.520 --> 0:16:05.280 they will probably spend ninety five hundred dollars again, that's okay. 0:16:05.560 --> 0:16:07.520 But the problem comes in now it comes at the 0:16:07.560 --> 0:16:10.000 expense of something else. You know, you are going to 0:16:10.080 --> 0:16:13.280 upgrade the PCs in your department. That's not going to happen. 0:16:13.280 --> 0:16:16.760 You're gonna push it out by six months. Servers, normal 0:16:16.840 --> 0:16:19.720 software that you use for day to day works. You know, 0:16:19.760 --> 0:16:23.360 you're going to scale back on some of those elements. Consulting, 0:16:23.400 --> 0:16:25.120 you know, is off the window at this point. I mean, 0:16:25.160 --> 0:16:28.120 I'd be very surprised to see consulting. I you know, 0:16:28.160 --> 0:16:31.120 one could expect layoffs coming in the consulting world over 0:16:31.160 --> 0:16:34.200 the next few months because if there is no work, 0:16:34.480 --> 0:16:36.640 you know, these companies are going to count out consultants, 0:16:36.640 --> 0:16:39.480 you know, whether it's McKenzie, BCG or some of the 0:16:39.560 --> 0:16:43.040 other services companies. So you have to take money out 0:16:43.040 --> 0:16:44.800 from one to give it to the other person. 0:16:44.800 --> 0:16:46.840 I'd say, is there rotation of money or just a 0:16:46.920 --> 0:16:49.920 non spend of money altogether? Like does one section spend 0:16:49.920 --> 0:16:51.920 more while the other spends less or is this a 0:16:52.040 --> 0:16:52.880 true pullback? 0:16:54.000 --> 0:16:56.200 It was a mix of both. I think reallocation is 0:16:56.240 --> 0:16:59.200 definitely going to go, but I don't expect you know, 0:16:59.200 --> 0:17:01.920 if somebody is investing in AI to improve their operations, 0:17:01.960 --> 0:17:03.920 they're not going to stop that project. But to be 0:17:04.040 --> 0:17:06.959 very frank that number as a percentage of total spending 0:17:07.040 --> 0:17:09.720 is still not that big for a large bank or 0:17:09.760 --> 0:17:12.359 a retail company. It's really the day to day work, 0:17:12.600 --> 0:17:14.520 and that's where you're going to see. I, you know, 0:17:14.560 --> 0:17:17.880 anticipating more layoffs coming in over the next one one 0:17:17.880 --> 0:17:20.440 and a half months from some of these vendors. 0:17:20.800 --> 0:17:24.960 Oh man, that is a grim prediction on that point. 0:17:25.320 --> 0:17:27.800 How fast do you think spending could pick up? Like 0:17:27.880 --> 0:17:29.760 what would be a trigger for reset? 0:17:30.680 --> 0:17:32.960 You know, the news like viatam. Please give me five 0:17:33.040 --> 0:17:34.920 or more of those news releases and all of this 0:17:35.080 --> 0:17:38.280 on turns and everything goes back to normal. Because frankly speaking, 0:17:38.320 --> 0:17:40.680 this is we are really on a thin line when 0:17:40.680 --> 0:17:43.520 it comes to business confidence. And I think really the 0:17:43.520 --> 0:17:45.560 the you know, in our view, these things are really 0:17:45.600 --> 0:17:49.040 they're playing with fire because once it takes the spiral downturn, 0:17:49.240 --> 0:17:51.399 it's very difficult to stop it. So if it stops 0:17:51.400 --> 0:17:53.520 over the next few weeks, I think we have we 0:17:53.640 --> 0:17:56.720 can see a good end to the year. But otherwise, 0:17:56.760 --> 0:17:59.200 you know, once the layoff starts, then it's a vicious cycle. 0:18:00.160 --> 0:18:04.320 So is there any safe names in tech? I mean, 0:18:04.400 --> 0:18:06.240 is Microsoft the safe name is? 0:18:06.920 --> 0:18:09.320 That's a very good point, Paul. You know, we have 0:18:09.359 --> 0:18:11.520 been thinking a lot about it, and you know, discussions 0:18:11.520 --> 0:18:13.280 we have been having and and you know, with with 0:18:13.359 --> 0:18:15.920 works like you, we've been saying that companies that are 0:18:16.000 --> 0:18:19.600 really exposed to the large enterprises, so the Fortune five 0:18:19.680 --> 0:18:23.400 hundred companies or the Fortune one thousand companies, they will 0:18:23.400 --> 0:18:26.320 be less impacted than the ones that are impacted to 0:18:26.680 --> 0:18:28.640 the SMB spending. So I'll give you a very good 0:18:28.680 --> 0:18:32.360 example here is Shopify. Look at how it's completely been 0:18:32.520 --> 0:18:36.119 you know, decimated yesterday and today because the bulk of 0:18:36.160 --> 0:18:39.560 their consumer base or the client base is small and 0:18:39.640 --> 0:18:42.880 medium businesses. Now somebody like a Microsoft or a Workday 0:18:43.200 --> 0:18:47.280 that deals primarily with larger companies and larger enterprises a 0:18:47.400 --> 0:18:50.919 lot less you know, disturbance in their revenue flow, they 0:18:50.960 --> 0:18:53.439 will also get hit. It's not that they're immune, but 0:18:53.560 --> 0:18:55.720 it'd be a lot less than somebody like a Shopify. 0:18:56.119 --> 0:18:58.240 I also have to wonder if this does this change 0:18:58.320 --> 0:19:01.000 the ROI for AI for example, like you got to 0:19:01.080 --> 0:19:03.560 prove it harder and faster in this kind of environment. 0:19:04.800 --> 0:19:06.840 See, one of the things is that's still in the 0:19:06.880 --> 0:19:09.800 experimentation state. So let's say if a company, if a 0:19:09.840 --> 0:19:12.800 bank is spending one hundred dollars in technology spending, you know, 0:19:12.840 --> 0:19:14.800 in total, they're not spending more than a dollar or 0:19:14.800 --> 0:19:16.879 two dollars in AI. So it doesn't really you know, 0:19:16.920 --> 0:19:19.399 that doesn't move the needles. It's really the bulk of 0:19:19.440 --> 0:19:23.320 the big hardware purchases, big computer purchases, that's the one 0:19:23.359 --> 0:19:25.080 that you know, gets gets pushed. 0:19:24.800 --> 0:19:26.199