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 Vavelow in San Francisco.
Speaker 2: This is Bloomberg Tech coming up Oracle Fools. After reporting
Speaker 2: a jumping in spending on AI data centers and other equipment.
Speaker 3: We're going to discuss the.
Speaker 2: Impact and there is impact on the broader tech sector.
Speaker 4: Plus, Disney agrees to invest one billion dollars in Open
Speaker 4: AI and license characters for use on the Sora generative
Speaker 4: video platform.
Speaker 2: And more tech earnings with Chit design software maker. Synopsis
Speaker 2: our conversation with the CEO later this hour.
Speaker 4: Meanwhile, we turn to some breaking news and it's geopolitical
Speaker 4: in nature at the moment, so ed we are looking
Speaker 4: more broadly at the Ukrainian President Vladimus Selenski floating the
Speaker 4: prospect and putting the shoot of territorial control in a
Speaker 4: piece deal to a referendum. Now, this as Kiev comes
Speaker 4: under mounting pressure to agree to terms to end Russia's war.
Speaker 4: Moscow has insisted that Ukraine withdraw its forces from the
Speaker 4: eastern Donbass region, which the Russian military has failed to capture.
Speaker 4: It in its nearly four year invasion, and I'm afraid
Speaker 4: step aside J Powell. The focus is all on Larry
Speaker 4: Ellison and what is happening at Oracle and how much
Speaker 4: money is being deployed in the buildout of infrastructure ed.
Speaker 3: The anxiety is coming from Oracle.
Speaker 2: This is a two day chart to make a visual
Speaker 2: representation of the point.
Speaker 3: It's a big drop right now on.
Speaker 2: Track if it closes at this level of decline, its
Speaker 2: biggest drop in twenty one years, going twenty four years, sorry,
Speaker 2: going back to two thousand and one, very simply capital
Speaker 2: expenditures several billion dollars beyond what the street thought they
Speaker 2: would be in the quarter. Cloud growth, We're talking cloud
Speaker 2: growth way up there, particularly in the infrastructure unit, but
Speaker 2: just shy of very high expectations. Interesting right now if
Speaker 2: you look at the chip space, Nvidia also like broad Com,
Speaker 2: big declines and at the index level that you were
Speaker 2: just showing us, Caroline, those names are part of the drag.
Speaker 3: So we need to dig into what's going on.
Speaker 4: Yeah, and we've got broad Com numbers after the bell
Speaker 4: as well. Let's focus in on Oracle bunning bugs. Brodie
Speaker 4: Ford has been covering this story and we knew that
Speaker 4: they were spending an awful lot on capital expendit ship,
Speaker 4: but fifty billion and not enough in terms of the
Speaker 4: revenue to show for it.
Speaker 5: Yeah, AI anxiety is right. I mean, the big question
Speaker 5: for Oracle and all of its peers right now is
Speaker 5: is building AI infrastructure a good business to be in.
Speaker 5: Wall Street understands it takes a lot of upfront costs,
Speaker 5: but it seems like every single quarter it's more than
Speaker 5: we thought it would be and the revenue recognition is
Speaker 5: further out than we thought it would be. And so
Speaker 5: Oracle kind of gave the exact message that Wall Street
Speaker 5: wasn't hoping for, which is we're spending more and it's
Speaker 5: taking a little longer than you expected to see the
Speaker 5: revenue uplift.
Speaker 2: But it's a trade off with growth. So I'm just
Speaker 2: going to go through some of the numbers. Right the
Speaker 2: Street thought that capsule expenditures in the quarter would be
Speaker 2: about eight billion.
Speaker 3: They ended up being twelve billion.
Speaker 2: But overall cloud growth get into that and then infrastructure
Speaker 2: growth like that, that is growth. It's just that it's
Speaker 2: basically in line with consensus. What more is it that
Speaker 2: the Street wants?
Speaker 3: Yes, it's big growth.
Speaker 5: But the question is is it empty calories?
Speaker 6: Right?
Speaker 5: I mean, what is it really? I mean the first
Speaker 5: question on the earnings call last night was please tell
Speaker 5: us how much it's going to cost to put up
Speaker 5: these data centers.
Speaker 3: Give us a total number.
Speaker 5: It was a level of you know, i'd say aggression
Speaker 5: that you don't typically hear on an earnings call.
Speaker 3: Because it's just still not clear.
Speaker 5: I mean, no one's put up gigglewat scale data centers
Speaker 5: are for five of them at once. There's a lot
Speaker 5: of questions about when Oracle is putting up these big
Speaker 5: data centers for open ai or meta or in video,
Speaker 5: what is the true cost profile? And the jury is
Speaker 5: just still out.
Speaker 7: The jury is out, and also the questions are abound
Speaker 7: of their overall exposure to one key player. Yes, three
Speaker 7: hundred billion dollars is how much open Ai is saying
Speaker 7: they will invest via Oracle.
Speaker 4: But when are we going to see that? When is
Speaker 4: Oracle actually could be able to book that as real revenue?
Speaker 6: Right?
Speaker 5: A lot of us remember in September when Oracle stock
Speaker 5: went gangbusters and they were the favorite child of the
Speaker 5: market for a couple of days. But since then, what's
Speaker 5: happened is open Ai has made a bunch of commitments
Speaker 5: with really big billions numbers with a lot of other vendors,
Speaker 5: and it's made the market say, wait a second, can
Speaker 5: OAI really pay all of these bills? And so that
Speaker 5: concentration risk on open ai is a key one for
Speaker 5: Oracle and one the company has tried to push away
Speaker 5: by saying, look at the big deals we've had with
Speaker 5: Meta and Video or others.
Speaker 2: The most Brady Ford with the reporting, thank you very much,
Speaker 2: just get more with Alex Zuki, Managing Directors, Senior analyst,
Speaker 2: Covery Enterprise Software, Wolf Research. The price target two hundred
Speaker 2: and seventy five dollars on this start trading at one
Speaker 2: hundred ninety two eighty two. Okay, we accept there's some anxiety.
Speaker 2: They are spending more then New Lot thought they would.
Speaker 2: They have some growth. Where in the equation are they
Speaker 2: sitting for you?
Speaker 8: Yeah?
Speaker 6: I think right now it's a timing mismatch. I think
Speaker 6: we are getting overly penalized for a number of elements.
Speaker 6: I think there's kind of a vote of no confidence
Speaker 6: from this market around the ability to grow and serve
Speaker 6: open Ai, both on the open aye front, quite frankly,
Speaker 6: and the Oracle front, and I think that's a mistake.
Speaker 6: We truly believe the compute demand at the moment is insatiable.
Speaker 6: It's not just insatiable for open Ai, it's insatiable for
Speaker 6: other foundation model companies. It's also insatiable for other hyperscalers.
Speaker 6: I think even on the Microsoft call they noted how
Speaker 6: much more demand that they had in the quarter for
Speaker 6: Azure that they could in supplied. So we're pretty confident
Speaker 6: that the demand is real, that the demand is there,
Speaker 6: and we continue to see accelerating growth, with the company
Speaker 6: stating pretty clearly they A expect to maintain an investment
Speaker 6: grade credit B. They don't believe they will need to
Speaker 6: spend more than and quite possibly significantly less than one
Speaker 6: hundred billion dollars in debt. And on open Ai A
Speaker 6: they believe they're very much good for it, but that
Speaker 6: the demand is truly fungible. And if Opening I can't
Speaker 6: make those commitments, there are a lot of other no.
Speaker 2: No, I appreciate that negative free cash flows ten billion, right,
Speaker 2: and the debt pile you point out is hit one
Speaker 2: hundred and six billion dollars in debt. This chart is
Speaker 2: Oracle five year CDs Oracle CDs at the highest level
Speaker 2: since two thousand and nine, credit default swaps the cost
Speaker 2: of protecting debt against default. It's a chart, but it's
Speaker 2: a reaction, and the three points you just made clearly
Speaker 2: there's a large portion of the market that doesn't share
Speaker 2: that viewpoint with you.
Speaker 9: Yeah.
Speaker 6: Look, I think the CDs chart, I think or it
Speaker 6: was important for Oracle to state that they they expect
Speaker 6: to maintain an investment grade credit worthiness. I think that
Speaker 6: there's also a number of flexible options that they presented
Speaker 6: them call yesterday, like the bring your own chips in
Speaker 6: addition to the ability for customers to lease. So I
Speaker 6: think that they are very vigilant about the level of
Speaker 6: debt that they're willing to take. They have a number
Speaker 6: of other options, including issuing equity. But at the end
Speaker 6: of the day, the overall CDs level is still relatively
Speaker 6: low for a company of Oracle size and stature, and
Speaker 6: we don't believe that that is indicative of any kind
Speaker 6: of risk for them to fail to meet their commitments.
Speaker 4: Alex, I loved your note, and I love the idea
Speaker 4: that is saying this is a tough crowd basically, but
Speaker 4: you did reach rate outperform, but you vastly decreased your
Speaker 4: price target from four hundred dollars to China and seventy
Speaker 4: five dollars. Is that more because the market is just
Speaker 4: not going to push up the stock in the way
Speaker 4: that you actually think could be vindicated. Do you still
Speaker 4: think four hundred could be vindicated? Just the mark's not going.
Speaker 3: To go that Yeah.
Speaker 6: I think it's two points. I think it's important to
Speaker 6: point out that since our last price start at the
Speaker 6: comps have compressed, the relative multiples have come down. And
Speaker 6: number two, look, we are vigilant of current performance as well.
Speaker 6: I think for the stock to work back to some
Speaker 6: of those more lofty angles, I think you need clear
Speaker 6: evidence of meaningful outperformance on cloud revenue and the is
Speaker 6: side not in line or slightly below, And as the
Speaker 6: confidence kind of returns to seeing those investments converting to
Speaker 6: revenue at higher and higher clips, to where at this point,
Speaker 6: you know, it looks like Oracle is going to be
Speaker 6: the fastest growing megacap software company and it is the
Speaker 6: cheapest megacap software company. So as those two things start
Speaker 6: to converge, I think you could get back to those
Speaker 6: lofty highs.
Speaker 4: Alex what's so interesting about your coverage range is that
Speaker 4: you're a software guy. You're also looking at Adobe, and
Speaker 4: we just had Adobe numbers. But of course Oracle has
Speaker 4: made this huge pivot into almost now infrastructure, eclipsing it's
Speaker 4: software revenue that it brings in now. But just taking
Speaker 4: a step back the whole AI bubble debate and whether
Speaker 4: or not we're going to be good for productivity gains
Speaker 4: in the amount that we're currently spending. Do you think
Speaker 4: that there is a bubble or that we're in a
Speaker 4: fine kind of space.
Speaker 6: I think it's always hard to call a bubble when
Speaker 6: you're in the middle of it. We do see a
Speaker 6: tremendous amount of productivity enhancement that is happening in the industry,
Speaker 6: and I think depending on where you are and if
Speaker 6: you're what part you're looking at, you can have a
Speaker 6: completely different picture. I think at this point, if you're
Speaker 6: an engineer or if you're a software developer, you can't
Speaker 6: imagine life without agentic coding. You can't go back to
Speaker 6: a time when you work using one of those tools.
Speaker 6: And the availability the abundance of compute is increasingly leading
Speaker 6: to a renaissance of software development and code creation. I
Speaker 6: think if you're kind of a traditional knowledge worker, you're
Speaker 6: still kind of waiting to see that ten x, one
Speaker 6: hundred x improvement in your capabilities. And I think that's
Speaker 6: natural because those things are a little bit more nuanced
Speaker 6: depending on where you work, what your role is, how
Speaker 6: much data, how much risk your firm's willing to take.
Speaker 6: So I think it's a natural progression, and folks have
Speaker 6: to remember this is a journey. We are still way
Speaker 6: away from that destination, but it's an extremely exciting time
Speaker 6: to be in this space. And I do think that
Speaker 6: we are on an accelerating growth path for many of
Speaker 6: the companies that we cover.
Speaker 2: I think I'm going to recapture really quickly capital expenditures
Speaker 2: slightly ahead a few billion dollars a where the street
Speaker 2: thought it would be, but impressive growth in cloud the
Speaker 2: stock a decline of fourteen to sixteen percent would be
Speaker 2: if we close this level down the most in twenty
Speaker 2: three twenty four years.
Speaker 3: Is Oracle good at technology? Alex very quickly?
Speaker 6: Yeah, I think Oracle's great at technology. I think Oracle
Speaker 6: for multiple decades has been able to make the pivot
Speaker 6: to the new exciting secular domain. It takes time like
Speaker 6: it did for Oracle in the cloud, I would argue
Speaker 6: that they've made the pivot to the AI compute cycle
Speaker 6: much faster, and I think over time that will serve
Speaker 6: in their favor as their ability to take their existing
Speaker 6: customers and convert those customers to both an AI cloud
Speaker 6: first and AI native world with a full stack experience
Speaker 6: not that dissimilar from what Microsoft has done, will put
Speaker 6: them at the forefront of a lot of these secular waves.
Speaker 4: Alex sir Ken, I've wolf research fantastic talking to you,
Speaker 4: Thank you very much, indeed on all things Oracle and
Speaker 4: beyond me. While coming up, Disney it agrees to invest
Speaker 4: one billion dollars in open AI and license characters for
Speaker 4: use on on chatchbt image. We'll dig into it next.
Speaker 4: This is Bloomberg Tech. Disney will invest one billion dollars
Speaker 4: in Open AI and license more than two hundred characters
Speaker 4: for use on the sore regenerative video platform and in
Speaker 4: chatchibt images. Is allso generate, short fan prompted videos and stills.
Speaker 4: Bloomberg News entertainment reporter Hannahmana joins us now along with
Speaker 4: Davely from Bloomberg Opinion and how do I go to
Speaker 4: you for the news first, because this is a big
Speaker 4: step in IP licensing in the world of generative AI.
Speaker 9: Yeah, there's been a lot of anxiety about how AI
Speaker 9: will affect the entertainment industry, and Disney's support its investment
Speaker 9: in open ai is a huge development. I mean, this
Speaker 9: is something that you know, we didn't really expect. There's
Speaker 9: been a lot of tension and controversy with AI in film.
Speaker 2: Davely of Bloomberg Opinion, I get what open ai gets
Speaker 2: out of this a library of creature characters, two hundred
Speaker 2: of them. What does Disney actually get out of it?
Speaker 10: Well, look, I was watching an interview with Bob Iger
Speaker 10: earlier and it struck me that he's been in this
Speaker 10: game a long time, and I think he's actually got
Speaker 10: a very good deal. I think he's gone to open
Speaker 10: ai and he said, your saur app, which people are using,
Speaker 10: is only fun when you use essentially without deals stolen
Speaker 10: material IP from other companies, whether it's Disney or Nintendo
Speaker 10: or even the Premier League. And I think Bob Biber says, right,
Speaker 10: you need this, you need consumer attention. We know there's
Speaker 10: a lot of pressure from Google on open ai and
Speaker 10: So what Disney gets it gets the slice of this
Speaker 10: big exciting AI company. They get that billion dollar investment
Speaker 10: with the chance to do more. They have a deal
Speaker 10: that is only exclusive for a year. So if we
Speaker 10: find that consumers are really into making these short videos,
Speaker 10: which I'm not too sure they will be long term,
Speaker 10: then he can shop it elsewhere and make more deals
Speaker 10: like it. And he also gets to go to Google
Speaker 10: and say, look, you know, open Eye've made a deal,
Speaker 10: so now you should do as well, because that's how
Speaker 10: this is going to run from now one. So I think, yeah, honestly,
Speaker 10: I think bob Byga has Showny's experience here and made
Speaker 10: a very smart deal.
Speaker 2: Indeed, Hannah, the companies also disclosed that basically Disney becomes
Speaker 2: a major customer of open Ai. What are the technology
Speaker 2: work are they going to do together?
Speaker 9: Yeah, I mean it's great that they get to use
Speaker 9: these open ai tools. You know, they will be able
Speaker 9: to give access to chat GPT to their employees. But
Speaker 9: I think what we can see from this is this
Speaker 9: is just the beginning that there could be more down
Speaker 9: the line.
Speaker 4: What's really interesting, Dave, is we've heard in the same
Speaker 4: breath bobb Igo really confirming that he's sent a season
Speaker 4: assist to Google. We know that they've been litigious about
Speaker 4: their IP when it comes to mid journey, when it
Speaker 4: comes to Chinese general to AI opportunities. Are we then,
Speaker 4: after this year of exclusion, just going to see a
Speaker 4: whole myriad of deals being done And what will Hollywood
Speaker 4: and creatives think about it?
Speaker 10: Two sides to it?
Speaker 3: Isn't there?
Speaker 10: I think yes, there'll there'll be deals done, or at
Speaker 10: least there'll be attempts and maybe more lawsuits instead. If
Speaker 10: the deals aren't made, you will see this increased uneasiness.
Speaker 10: And we're already seeing out of Hollywood of people saying, well,
Speaker 10: what's Disney's end game here? If they're going to start
Speaker 10: using open AI's technology. I think this is, if anything,
Speaker 10: quite troubling development for the AI companies, because you know,
Speaker 10: if open eye is going to have to give away
Speaker 10: a billion dollars of its firm to all these people
Speaker 10: who want intellectual property, when then there's not going to
Speaker 10: be enough of the company to go around, And you know,
Speaker 10: I have to think to myself. You know, if if
Speaker 10: you're someone who's backing open ai, you're thinking, okay, we've
Speaker 10: got Mickey Mouse he's not allowed to talk probably and
Speaker 10: they're going to be short clips. Is this really getting
Speaker 10: us the super intelligence? Like, is this an important part
Speaker 10: of that?
Speaker 3: I don't see it.
Speaker 8: Personally.
Speaker 10: I feel quite cynical about this entire deal, I have
Speaker 10: to say, but there's a lot there that I think
Speaker 10: is troubling for AI companies looking to do some of
Speaker 10: the same things next year.
Speaker 2: Dave, Dave, just real quick. That's what I'm trying to understand.
Speaker 2: Who has the balance of power here? Which side needs
Speaker 2: the other more, the studios in Hollywood or the AI labs?
Speaker 10: And do you know what I think the question is
Speaker 10: for the studios in Hollywood, they can live without being
Speaker 10: working with these AI companies, so they might as well
Speaker 10: just get as good a deal as they can get,
Speaker 10: and if they're not happy with that, they can walk away.
Speaker 10: And that's perhaps why Google was in a stronger position.
Speaker 10: It'll be interesting to see how the talks now have
Speaker 10: to you know, carry on with Google and Disney, because
Speaker 10: Open Eye realized that they don't have any other business
Speaker 10: with Disney, so there's no incentive for Disney to sort
Speaker 10: of bend more to their will. I think in Google's case,
Speaker 10: you know, Disney just signed a new multi year deal
Speaker 10: with YouTube TV, for example, So there's a much more
Speaker 10: sort of close meshing there between those companies. I wouldn't
Speaker 10: be surprised if some agreement came out of, you know,
Speaker 10: around SAUA and Google quite soon. But yeah, I think
Speaker 10: that's where we're going to see these sort of interesting
Speaker 10: power plays. But if you're an owner of an intellectual property,
Speaker 10: really good stuff. But if you like I say, like
Speaker 10: Nintendo or football Company, I think you're in a very
Speaker 10: very strong position.
Speaker 4: And really is notable though. I think that some of
Speaker 4: these large language model developers would say in chatbot owners
Speaker 4: are saying, we are amazed at how much people are
Speaker 4: using them for image generation. Even if it doesn't lead
Speaker 4: us to superintelligence, it's an addictive element to the use
Speaker 4: and maybe outperforms therefore, and who wants to be using
Speaker 4: it and keeping eight hundred million people wanting to use
Speaker 4: it every single week? But Hannah, when the power play
Speaker 4: comes back to the worker, you've reported long and hard
Speaker 4: about the strikes that happened in Hollywood. What do you
Speaker 4: think the narrative is Bobiga needs to give to his workforce.
Speaker 9: Yeah, he needs to give reassurance. I mean people are
Speaker 9: worried about their jobs. Hollywood has been through a lot lately,
Speaker 9: you know, from the wildfires to layoffs at major entertainment companies.
Speaker 9: So I think there is a lot of concern here
Speaker 9: about replacement. If you're going to be able to use
Speaker 9: AI tools to enemy, you know, why do you need
Speaker 9: humans behind it?
Speaker 2: Bloomberganese reporter Pana Miller, Bloomberg opinion contributor Davely, thank you
Speaker 2: to you both.
Speaker 4: We are sticking with tech learnings, going to deep dive
Speaker 4: on chip design. Software maker Synopsis Now just out with
Speaker 4: its own fourth quarter results, giving an upbeat first quarter forecast.
Speaker 4: Is following a significant equity investment from Nvidia earlier in
Speaker 4: the month that sent shares hire And maybe we're just
Speaker 4: pairing some of the previous games. We're just down by
Speaker 4: one point two percent on the day, So not so.
Speaker 4: CEO Sasine Ghazi joins us now and even though your
Speaker 4: shares are down a little bit, the analyst seem to
Speaker 4: feel positively about these numbers. But JP Morgan asks that
Speaker 4: maybe you're being slightly conservative on your fall year twenty
Speaker 4: twenty six guidance.
Speaker 11: Are you?
Speaker 12: We're looking at it as being balanced and pragmatic regarding
Speaker 12: Fox twenty six, given the global and the overall environment,
Speaker 12: we guide it at nine point six billion, and that's
Speaker 12: after finishing up Fox twenty five at seven billion. So
Speaker 12: we're very excited about the opportunity.
Speaker 9: You had.
Speaker 2: Chip design right now, there are some bigger picture discussions
Speaker 2: to be had a great debate about companies big and
Speaker 2: small looking at customer A sixty doing more in house
Speaker 2: versus not bothering because why in Nvidia is doing such
Speaker 2: a full stack offering. What are the trends that you're seeing,
Speaker 2: particularly when you think about your backlog susame, because the
Speaker 2: analysts are also talking about your backlog Exensis.
Speaker 12: Yeah, we have a significant backlog entering FOY twenty six
Speaker 12: at eleven and a half billion. And what's driving that
Speaker 12: backlog is this strength across the portfolio. As for your question,
Speaker 12: most hyperscalers they're looking for multiple alternatives to how to
Speaker 12: build and optimize along the stack. The silicon is an
Speaker 12: essential component, as you know, and almost every one of
Speaker 12: these hyperscalers they have a strategy along three vectors. One
Speaker 12: they buy merchant chips from Nvidia, AMD, Intel, etc. And
Speaker 12: they build their software stack. Then there's the custom vector
Speaker 12: or ask and they have their own customer on tooling
Speaker 12: what it's called. We're designed the chip all themselves. All
Speaker 12: three vectors are a fantastic opportunity because you need the
Speaker 12: essentialness of what we provide in order to achieve that
Speaker 12: silicon design all the way up to the system.
Speaker 4: So the first time we've spoken to you since that
Speaker 4: two billion dollar endorsement investment in your stock coming from Nvidia,
Speaker 4: and at the same time in Video is trying to
Speaker 4: gain in roads once again back into China. You've got
Speaker 4: headwinds in the China part of the business. How do
Speaker 4: you see that part of the world evolving.
Speaker 12: So the Nvidia investment was really driven and it's a
Speaker 12: significant endorsement to our strategy to provide engineering solutions from
Speaker 12: silicon to systems, where in Nvidia has been talking about
Speaker 12: the whole physical AI, etc. That cannot happen without having
Speaker 12: physics simulation inside the product development, and that's what Synopsis provides.
Speaker 12: As far as the China market and opportunity f y
Speaker 12: twenty five, we face this significant headwind in China. Our
Speaker 12: business declined by about twenty percent due to these headwinds.
Speaker 12: What we talked about in our FYI twenty six guide
Speaker 12: is will continue on assuming that the environment in China
Speaker 12: will remain status quo, the same stress that we saw
Speaker 12: in twenty five, and we have derisped it out of
Speaker 12: our forecast.
Speaker 2: Susain very very quickly thirty seconds. Why does Nynvidia need
Speaker 2: to have an equity stake in your company?
Speaker 3: Is exactly what Jensen said.
Speaker 12: He sees a great opportunity to make money and to
Speaker 12: make sure that he's participating and aligning. Could both companies
Speaker 12: roadmap in order to accelerate the investment and deliver to
Speaker 12: this opportunity.
Speaker 2: Sono Scia seeing Gasi, It's great to have you on
Speaker 2: Bloomberg Tech. Thank you, Welcome back to Bloomberg Tech. This
Speaker 2: is a story about rising AI spending, and that spending
Speaker 2: rising at a level that is not satisfactory to investors
Speaker 2: who want to see how it will convert into growing revenues.
Speaker 3: The story is Oracle the.
Speaker 2: Stock, and it shares on track for their biggest drop
Speaker 2: in about twenty four years. That's the story capital expenditures,
Speaker 2: in particular billions of dollars ahead of what.
Speaker 3: The market was expecting.
Speaker 2: Let's get out with the Bloomberg Intelligence reaction an A
Speaker 2: rag Rana joins us, Now, I just wanted it to linger.
Speaker 2: It's severe, and we spent all of yesterday's shows saying
Speaker 2: this might happen. That's your reaction and your research. What's
Speaker 2: your thesis when you woke up this morning.
Speaker 13: No, I mean I was surprised that they didn't talk
Speaker 13: a lot about their supply constraints, because you know, we
Speaker 13: heard it from Corvie, we heard it from Microsoft and
Speaker 13: so forth. But they spend a little bit of time
Speaker 13: trying to explain the funding issues. But it doesn't look like,
Speaker 13: you know, the market's happy with their explanation. But you know,
Speaker 13: one of the big things is when their cloud infrastructure
Speaker 13: estimates were sixty nine percent growth in constant currency and
Speaker 13: they came at sixty six And anybody who's followed you
Speaker 13: know what happens with Microsoft, Azure or AWS numbers is
Speaker 13: when you miss on a cloud growth rate by even
Speaker 13: a little bit, I mean, that has an impact on
Speaker 13: your stock. And that's what we are seeing here. On
Speaker 13: top of that, they talked about, you know, increasing their
Speaker 13: topics by fifteen billion dollars.
Speaker 3: That was another thing.
Speaker 13: So there are multiple factors that are affecting the stock.
Speaker 13: But having said that, you know, you also go back
Speaker 13: and see there was one day when they announced that
Speaker 13: big open A ideal, the stock had gone up like
Speaker 13: what twenty five thirty percent at that point, So there
Speaker 13: is a there's a bit of digestion in here, and
Speaker 13: it will take a few years to figure out how
Speaker 13: much or how long will it take to take that
Speaker 13: five hundred billion off backlog and convert it into sales.
Speaker 4: Talking of that backlog, many would say that the moon
Speaker 4: music is still in their favor. Maybe why the shares
Speaker 4: remain higher for the year an rag. I'm looking at
Speaker 4: this really in depth survey that you've done on the
Speaker 4: CC over at Bloomberg Intelligence, and one of the key
Speaker 4: findings really was that all industries cite a shortage of
Speaker 4: AI infrastructure as a roadblock. So when will we know
Speaker 4: the oracle is good for the half a trillion dollars
Speaker 4: in backclock that they have.
Speaker 13: Yeah, it's probably the most important questions for all of
Speaker 13: these companies right now. But you know, you have to
Speaker 13: separate the open AI oracle relationship with the rest of
Speaker 13: the hyperscalers because the rest of the hyperscalers, if let's say,
Speaker 13: you know, God forbid things go bad next year and
Speaker 13: we don't need that much AI infrastructure. You know, It's
Speaker 13: okay for the three hyperscalers because they have a lot
Speaker 13: of other businesses that they can run. They have their
Speaker 13: entire cloud businesses, search businesses, et cetera, for the three
Speaker 13: of them combined together. But for Oracle Open Ai, the
Speaker 13: big question is, you know, open Ai by the end
Speaker 13: of the year is going to do twenty billion of
Speaker 13: A and annualized revenue somewhere in that range, and it's
Speaker 13: made commitments of hundreds of billions of dollars. So this
Speaker 13: is one pocket that needs to be examined a lot
Speaker 13: more carefully than the rest of the equation. But having
Speaker 13: said that, we are very confident from what we learn
Speaker 13: from these executives that AI infrastructure is the biggest Botto
Speaker 13: neeck in deploying you know, all sorts of AI functionalities,
Speaker 13: you know, in any part of whether it's hospitals, financial services,
Speaker 13: or pharmaceuticals.
Speaker 4: Remote intelligence analyst Anna rag Rana with really important research.
Speaker 4: We now want to talk about how that affect your investments.
Speaker 4: Beth Kinding is here with us Need Tech analyst at
Speaker 4: the IO Fund, and Beth we come to you because
Speaker 4: of your semiconductor expertise. But here is Larry Ellison and
Speaker 4: others over an Oracles saying, look, we will put in
Speaker 4: whatever chip you want. We are not beholden on in video.
Speaker 4: But what they do seem to be beholden on is
Speaker 4: a supply issue, not a demand issue. Is that coming
Speaker 4: down to semiconductors or is it more the build out
Speaker 4: of data centers.
Speaker 8: Yeah, I think it's a natural statement for Larry Ellison
Speaker 8: to say that because we know custom silicon will help
Speaker 8: drive down those cavex costs. From my perspective, we really
Speaker 8: are at the crux of this issue to where, for example,
Speaker 8: Oracles estimated twenty six twenty twenty six capex was supposed
Speaker 8: to be nine billion, We're now over twenty billion, low
Speaker 8: twenty billion, assuming no more raises, we are significantly higher
Speaker 8: two and a half x higher than what was originally estimated.
Speaker 8: This is what one analyst is called drunken sailor type spending.
Speaker 3: However, what I.
Speaker 8: Would encourage investors to keep an eye on is the
Speaker 8: moment that there's an inflection. We haven't gotten that inflection yet,
Speaker 8: and that is really what these very smart tech CEOs
Speaker 8: across the border banking on. As an investor, I need
Speaker 8: to pay attention to what these CEOs are saying, and
Speaker 8: they're talking about an incoming wave of monetization to where
Speaker 8: some of these cash flow issues really do get relieved.
Speaker 4: So do you think the cash flow will not be
Speaker 4: negative going forward? At the moment we're seeing well that
Speaker 4: capex is seventy five percent of their full year revenue.
Speaker 8: There will be a moment, I don't know when. I
Speaker 8: don't think it'll be twenty twenty six, maybe not even
Speaker 8: twenty twenty seven where you're able to so rapidly monetize
Speaker 8: AI that it can really absorb these capex costs.
Speaker 3: Now your.
Speaker 8: Bloomberg Intelligence. A correspondent just mentioned open AI. Open air
Speaker 8: is a great example of just how quickly this ramp
Speaker 8: can happen. It is the fastest run rate we have
Speaker 8: seen from zero to twenty billion in all of tech's history.
Speaker 8: That is a clue as to how quickly the inflection
Speaker 8: can actually happen.
Speaker 2: Here, Beth, I just want to go back to what's
Speaker 2: happening now in the market. You know, a single session
Speaker 2: a market does not make but in video is down
Speaker 2: almost four percent, on track for its biggest drop in
Speaker 2: five weeks. Just going back to Kara's original question, why
Speaker 2: what's the anxiety that's spreading to in video?
Speaker 11: Here?
Speaker 8: Tonight Broadcom will report and there are certainly some concerns
Speaker 8: that in Video will start to lose market share to
Speaker 8: competitors such as you know, Merchant potentially merchant TPUs. Right now,
Speaker 8: they're mainly used for internal purposes. If those become commercialized,
Speaker 8: the threat is could that eat into in Video's share. Now,
Speaker 8: I've served some concerns with the market on this stock
Speaker 8: for many, many many years. Technically when I first started
Speaker 8: covering this stock in twenty eighteen twenty nineteen.
Speaker 3: TPUs were a threat actually.
Speaker 8: Back then, and I covered it back then. So you know,
Speaker 8: my just in a nutshell, the AI market will widen,
Speaker 8: it will include more revenue from Broadcom, but that does
Speaker 8: not mean in Videos out of the picture by any means.
Speaker 2: The messaging from Oracle right that not beholden to video
Speaker 2: and Carriage made that point smartly. The debate with A
Speaker 2: six generally like Amazon has this issue is that there's
Speaker 2: not the library of software. You know, that's why in
Speaker 2: video is so good. You know that it's multi purpose,
Speaker 2: easy to use the software, to support the stack it exists.
Speaker 3: Is that inging with TPU that that consideration to your mind.
Speaker 8: Yeah, the Kuda software platform is primarily very badly needed
Speaker 8: on the training side, and video has a near monopoly
Speaker 8: on training. As we move into inference, the Kudo mote
Speaker 8: matters less. But what does continue to matter. But what
Speaker 8: does continue to matter is consider that we are not
Speaker 8: at a static point in videos, R and D is
Speaker 8: world class. It will continue to iterate and improve, just
Speaker 8: as TPUs can finally catch up, and video is already
Speaker 8: going to be on to the next generation of GPUs,
Speaker 8: which will challenge anything that's coming out of big tech.
Speaker 2: Beth Kindig of the Io Firm, we enjoyed that. Thank
Speaker 2: you very much for the next episode of Bloomberg Tech Europe.
Speaker 3: The show profile is.
Speaker 2: ASML Europe's most valuable company and one of the most
Speaker 2: important cogs of the global AI supply chain. Take listen
Speaker 2: to what the company's CEO, Kristuque had to say about
Speaker 2: AI bubble concerns.
Speaker 14: Well, you know, when people talk about AI bubble, I
Speaker 14: think I don't know exactly what they mean, and usually
Speaker 14: I say, there's two ways to look at it. If
Speaker 14: you look at the industry. I don't think there is
Speaker 14: a bubble. So the impact of AI in the industry
Speaker 14: is just starting and the impact on the industry will
Speaker 14: be positive for many, many years to come. So there
Speaker 14: there is no bubble. I think that the value of AI,
Speaker 14: the industrial value of AI, is extremely high, and this
Speaker 14: will be developing over time. There's no bubble because, like
Speaker 14: I said, we're just starting. Sometimes people talk about a
Speaker 14: bubble in a reference to the stock market because we
Speaker 14: have seen some company getting extremely high valuation as a
Speaker 14: resource of the excitement of AI.
Speaker 3: There.
Speaker 14: I think what you will see is more players coming
Speaker 14: over time. So initially a few company where I would
Speaker 14: say very much the only winner out of AI because
Speaker 14: of the demand. Because industry, the industrial demand will be
Speaker 14: so high, we need more players, and you will see
Speaker 14: more and more company designing chips, designing AI, product manufacturing chips,
Speaker 14: et cetera, et cetera. That could create, of course some
Speaker 14: change on the stock market. But you know the two
Speaker 14: are a bit unrelated.
Speaker 15: Because I can make me three hundred million dollars just
Speaker 15: this year, a long from hyper scale is maybe four
Speaker 15: hundred million next year. Yeah, that translates into real orders
Speaker 15: for your kids in the years ahead.
Speaker 14: You start to see it over time and sometimes, you know,
Speaker 14: the last few months, I used to joke with some
Speaker 14: of our investor because they told us, why you know,
Speaker 14: two hundred billion here, five hundred billion here. I say, well,
Speaker 14: I still do not have the equation to translate doorse
Speaker 14: order into order for us, and it takes a bit
Speaker 14: of time, but you're right. Over time that demand translate
Speaker 14: into cheap demand to our customer. This translate into a
Speaker 14: need for more capacity, and this translate into demand for
Speaker 14: ISML and our peers in the industry.
Speaker 15: The infrastructure span from the hyper scales and the kind
Speaker 15: of deal making that open ai has done almost a
Speaker 15: trillion dollars worth of deals committed just by that one
Speaker 15: company alone, which isn't making a profit this year.
Speaker 4: That makes sense to.
Speaker 14: You, Well, I think the investment makes sense overhaul, because
Speaker 14: you cannot play in AI without investing in hyperscaler and
Speaker 14: there may be even a few cycle of investment because
Speaker 14: the investment today is done on certain chips.
Speaker 3: The chips in two three.
Speaker 14: Years from now, if you look at Nvidia announcement, there
Speaker 14: will be a lot more powerful and people may be
Speaker 14: tempted again. In twenty twenty seven to invest again in
Speaker 14: hyperscaler to make use of those chips. So you have
Speaker 14: different cycle and you have a bit of a harm
Speaker 14: rest because if you don't invest today, you're out.
Speaker 4: That was Christopher Forget, CEO and president of ASML, along
Speaker 4: with you. Back to Europe host Tom McKenzie. You can
Speaker 4: find the full episode of Bloomberg Tech Europe tonight. You
Speaker 4: have to stay up a bit late one thirty am
Speaker 4: Eastern but six thirty am over and in London time,
Speaker 4: and we'll be online mean while. Coming up, we'll be
Speaker 4: joined by the CEO of Medra on how the company
Speaker 4: is trying to revolutionize drug development and other life science
Speaker 4: fields the physical AI. This is boombog tech.
Speaker 2: Drug development and other life science fields have relied on
Speaker 2: industrial automation for decades. Startup Medra is aiming to take
Speaker 2: that step further, building software that scientists can use to
Speaker 2: direct lab robots using natural language the way they would
Speaker 2: with the chatbot. The company's just closed a fifty two
Speaker 2: million dollars Series A funding round. There are some big
Speaker 2: names in it. Medra CEO Michelle Lee is with us
Speaker 2: in San Francisco. This is very interesting when you and
Speaker 2: I first met a few years ago, you had an
Speaker 2: idea and a concept.
Speaker 3: Now you have a company moving forward with it.
Speaker 2: I think actually, as a start, let's explain why having
Speaker 2: that degree of interaction with what is a robotic arm
Speaker 2: in that lab environment through natural language is necessary?
Speaker 3: What is it solved for?
Speaker 11: Yeah, so we want to give scientists directly, not just engineers,
Speaker 11: with scientists directly the ability to actually run experiments at scale,
Speaker 11: and that is why we are building the physical AI
Speaker 11: scientist physical AI that allows to allows them to automate
Speaker 11: their scientific experiments at scale, and also the AI scientist
Speaker 11: so they can talk to it. They can copilot design
Speaker 11: experiments with this AI scientist.
Speaker 4: What is it that you bring the others have in
Speaker 4: terms of the physical AI. Is it your data that's
Speaker 4: paramounting on. Is it the fact that your scientists a
Speaker 4: paramount on? Is it the technol plogy?
Speaker 6: What is it?
Speaker 11: It is all of those things and more. Industrial automation
Speaker 11: has been the key way that live sciences has automated
Speaker 11: their labs. But we're seeing a huge paradigm shift across
Speaker 11: every industry that's using robotics, where industries are shifting away
Speaker 11: from industrial automation to physical AI, and that is also
Speaker 11: what Medra is bringing to life science, the ability to
Speaker 11: flexibly automate their lab experiments instead of using brittle lab
Speaker 11: automation technologies from before.
Speaker 2: I want to think about this and I review the
Speaker 2: photos and images. I hope we have some images to
Speaker 2: share with our audience. I think a little bit about
Speaker 2: Tony Stark and Jarvis. It's the idea that there is
Speaker 2: an artificial intelligence that one interacts with through the robotic mechanism.
Speaker 2: When we first spoke, and this is a long time ago, now,
Speaker 2: this was about like efficiency. Labs are difficult environments. It's
Speaker 2: hard to move around them, takes physical strength and time,
Speaker 2: you know, but fifty two million dollars a lot of money.
Speaker 3: You know, you just click your fingers and you can
Speaker 3: suddenly do it. You've solved it.
Speaker 11: No, I mean, we have so much more to be
Speaker 11: building because again it's not just about automating the work,
Speaker 11: but about this idea. Can we automate science itself? Can
Speaker 11: we have a scientific AI that can reason about the science,
Speaker 11: generate hypotheses, design experiments, and when we actually run the
Speaker 11: experiments with our physical AI, once that data is generated,
Speaker 11: can we take that data and then can we think
Speaker 11: about what are the new optimizations and changes necessary to
Speaker 11: make that science better.
Speaker 2: We started the conversation by introducing this as in the
Speaker 2: context of drug development of the life science fields, what
Speaker 2: is the industry there and therefore your customer.
Speaker 11: Yeah, So we are working with some of the leading
Speaker 11: biopharma companies, including Genetech, to help them use our technology
Speaker 11: to really create this lab in the idea, and we
Speaker 11: are working with some of the best machine learning teams
Speaker 11: at our customers where their machine learning teams can then
Speaker 11: propose new experiments they want to run, new ideas they
Speaker 11: want to test, and then again our physical AI scientists
Speaker 11: can take those ideas, those predictions and turn that into
Speaker 11: data that then feeds back into their machine learning models.
Speaker 4: Its fifty two million. Where is it going to be spent?
Speaker 4: Most predominantly talent marketing? Well, all of those again, all
Speaker 4: of those above.
Speaker 11: We are growing our team and expanding our team across engineering, robotics, AI, hardware, software,
Speaker 11: and also on operations and go to market. We're expanding
Speaker 11: partnerships with other biopharma companies and also we will be
Speaker 11: building our own lab. We will be opening up an
Speaker 11: autonomous lab with one hundred robots next year to be
Speaker 11: able to run experiments and generate data at scale.
Speaker 4: Do you think the US is leading Ham Mischelle.
Speaker 11: We want to be leading, and Medro is going to
Speaker 11: be that force that helps the US lead in this area.
Speaker 4: Medra ceo Mislie. Great having some time with you. Congratulations
Speaker 4: on the rays. We appreciate it.
Speaker 2: The new lawsuit claims open ai and its largest investor
Speaker 2: Microsoft are liable for a Connecticut murder suicide. It's the
Speaker 2: latest case to blame chat GPT for dangerous psychological manipulation
Speaker 2: of users. Representatives from both companies declined to comment, and
Speaker 2: open ai CEO s Altman, who's also named in the suit,
Speaker 2: didn't reply to a request for comment was sent to
Speaker 2: open ai representatives on his behalf. I want to get
Speaker 2: more details of Bloomberg AI reporter Rachel Metz. Let's start
Speaker 2: with the suit. What is alleged in the suit and
Speaker 2: some of the most important details in the reporting.
Speaker 16: Rachel, Yeah, Well, this suit is alleging that this man
Speaker 16: used chat GBT over a long period period of months,
Speaker 16: and that it was consistently telling him that these delusions
Speaker 16: that he had were accurate and they were real delusions
Speaker 16: related to him being under surveillance to people wanting to
Speaker 16: kill him, particularly surveillance related to his mother in the
Speaker 16: home where they were living together.
Speaker 4: Rachel sadly Ai psychosis is not the first time we're
Speaker 4: talking about this. It's even got a sort of technical
Speaker 4: name if you go out and look for it. But
Speaker 4: when we hear from Opena are responding to this saying
Speaker 4: we continue to improve chatchipt's training to recognize and respond
Speaker 4: to signs of mental or emotional distress, to de escalate
Speaker 4: conversations and guide people towards real world support. People understanding
Speaker 4: that message, are you seeing signs that on this occasion
Speaker 4: things could have been improved through improvements in the chatbot?
Speaker 16: Through this case, I mean, I guess what I would
Speaker 16: say is through the extens of reporting that I've done
Speaker 16: and work that I've done with my colleague Ellen Hewitt,
Speaker 16: We've seen a lot of o reasonunfold that are really
Speaker 16: similar actually to what we're seeing in this story. This
Speaker 16: story just happened to have a horrible, horrible outcome. So
Speaker 16: I'm not sure if the changes that they've made are
Speaker 16: really going to change how people are using the chatbot.
Speaker 16: It sounds like a lot more is going to have
Speaker 16: to be done as far as both changes and education
Speaker 16: to users in order to make a meaningful change here.
Speaker 16: But we're just going to have to see going forward. Also,
Speaker 16: there are a growing number of these court cases and
Speaker 16: we'll have to see how all of that shakes out
Speaker 16: as well.
Speaker 2: It's a funny thing to ask, but in the landscape
Speaker 2: of generative AI tools and chatbots, is this something that
Speaker 2: other technology companies face as well? You and I have
Speaker 2: discussed character AI, for example, in the context of people
Speaker 2: that interact with the technology, maybe for emotional support or otherwise,
Speaker 2: But that is a very specific design of a chatbot.
Speaker 3: Yes exactly.
Speaker 16: I mean the Opening Eye is absolutely not the only
Speaker 16: company that is facing this either, facing situations where people
Speaker 16: are saying that a powerful chatbot led to or reinforced
Speaker 16: untrue beliefs that they had. But you're also seeing this
Speaker 16: definitely stick with this idea of powerful chatbots. I think
Speaker 16: one thing that I think needs to be looked at
Speaker 16: more is are there certain chatbots that seem more likely
Speaker 16: to lead to.
Speaker 4: These kinds of situations.
Speaker 16: That isn't totally clear to me yet. If Replica AI,
Speaker 16: for instance, is a service that is more intended for
Speaker 16: emotional connections between a person and a chatbot. But does
Speaker 16: it make a difference if a person goes into that
Speaker 16: kind of experience knowing and desiring that.
Speaker 4: I'm not sure. So it'll be interesting to see in.
Speaker 16: The next few years how researchers determine what's actually going
Speaker 16: on here.
Speaker 4: Ratual Matts, it's a thoroughly reported piece. Thank you very
Speaker 4: much indeed for telling it to us and our audience today. Meanwhile,
Speaker 4: that does it for this edition. A Bloomberg Tech ed.
Speaker 2: Yeah, our markets are under pressure, right, and Oracle is
Speaker 2: at the heart of that story. Thought it was really
Speaker 2: interesting that Beth Kinding, one of our guests, talks about
Speaker 2: Broadcom after the Bell and like the similar themes there.
Speaker 2: That Oracle decline of fourteen percent on track for its
Speaker 2: biggest drop in twenty three to twenty four years. That's
Speaker 2: the severity of it. We'll see where it closes. Check
Speaker 2: out the podcast. There were loads of conversations worth recapping.
Speaker 2: This is where you can find it from New York
Speaker 2: City and San Francisco. This is Bloomberg Tech