Speaker 1: From the heart of where innovation, money and power collide
Speaker 1: in Silicon Valley and beyond. This is Bloomberg Technology with
Speaker 1: Caroline Hyde and Ed Ludlow.
Speaker 2: Like from New York, I'm Caroline Hyde and I'm Jackie
Speaker 2: Devalis in San Francisco.
Speaker 3: This is Bloomberg Technology coming up.
Speaker 4: Arm shares are down after a conservative forecast. We get
Speaker 4: the CEO's take on the strength of smartphone and AI demand,
Speaker 4: plus Roadblock shares slump after users and engagement slide. We
Speaker 4: dissect the worst cell of since May, and the CEO
Speaker 4: of Vanguard joins to discuss the company's record fee cuts
Speaker 4: for dozens of mutual funds and ets. But first we
Speaker 4: look at these broader markets. Right now, we're wobbling around
Speaker 4: gains and losses.
Speaker 3: On the NASAQ one hundred.
Speaker 4: More broadly muted, we're up just about a tenth of
Speaker 4: a There are some big moves when you look underneath
Speaker 4: the hood and video on the points upside. Here on
Speaker 4: the downside, we're a little bit anxious about TESLO. Get
Speaker 4: into that later, but move on to see what the
Speaker 4: individual moves are from an earnings perspective. Qui com off
Speaker 4: by four point eight percent one of the biggest points
Speaker 4: drags to the downside. Look, they managed to beat in
Speaker 4: terms of earnings, they've beate in.
Speaker 3: Terms of forecast.
Speaker 4: But the outlook for the smartphone market is where it
Speaker 4: does into investor anxiety. Are we flatlining only seeing flat
Speaker 4: to single digit growth there?
Speaker 5: That?
Speaker 4: Of course smartphone anxiety does feed in a little bit
Speaker 4: to armholdings as well. Key chip designer out there of
Speaker 4: course down some four percent.
Speaker 3: Look, they too beat the street on earnings, on.
Speaker 4: Earnings for share basis, you look at revenue dialing up
Speaker 4: almost twenty percent.
Speaker 3: But again it's a world a.
Speaker 4: Conservative forecast and what this means not only for smartphones,
Speaker 4: but what it means for AI demand as well. We've
Speaker 4: got to get to it with Arms CEO Rene Haas,
Speaker 4: who joins us now. And I put it to you,
Speaker 4: you've been out everywhere at the moment. There's deals being
Speaker 4: done of course, a soft bank and open AI that
Speaker 4: will dig into. But what a this forecast and what
Speaker 4: it signals for your business? Is it just you being
Speaker 4: conservative as a newly public company.
Speaker 6: Thanks Kerley and appreciate you having me on this morning. Yeah,
Speaker 6: I don't know if I agree with the dialogue. Muted forecast.
Speaker 6: We beat our projections for Q three and we actually
Speaker 6: raise guidance for Q four and for the year, and
Speaker 6: we're looking at about four billion dollars of annual revenue,
Speaker 6: which is about twenty five percent.
Speaker 5: Increase over the last year.
Speaker 6: So we're super happy with the trajectory of the business
Speaker 6: and super happy.
Speaker 5: With the performance.
Speaker 3: Maybe just investors are too exuberant.
Speaker 4: They're too exuberant around the fact that you've already said
Speaker 4: your compute platform is going to help open ai and
Speaker 4: SoftBank make good on their Advanced Enterprise AI, the optimism
Speaker 4: around your AI future, as well as how integral you
Speaker 4: are to smartphones. So is it that are people too
Speaker 4: excited about the AI opportunity here.
Speaker 6: I'm going to try to decouple what the market is
Speaker 6: saying about it results and just talk about the results
Speaker 6: in general, which we are again incredibly pleased by. We
Speaker 6: are seeing extremely strong demand for our products across the board.
Speaker 6: We had record royalties. We were up twenty three percent
Speaker 6: year on year. Our Version nine compute subsystems, which drive
Speaker 6: higher world tier rates. We're just growing faster than the market,
Speaker 6: which is what we told investors when we went public
Speaker 6: back in analyst day A year and a half ago plus,
Speaker 6: So yeah, we're not seeing any slow down demand quite frankly, Carolin.
Speaker 6: In fact, we're seeing an acceleration in it, particularly driven
Speaker 6: by all things around artificial intelligence Renee.
Speaker 2: Speaking of future growth, one of the things that ARM
Speaker 2: is also banking on is its high profile partnership in Stargate,
Speaker 2: and you're a big player in that. Could you kind
Speaker 2: of tell us what investors can expect this year to
Speaker 2: gain from that venture.
Speaker 6: I can say, broadly speaking, the way you think about
Speaker 6: Stargate is it's an infrastructure project unlike any other five
Speaker 6: hundred billion dollars one hundred billion dollars will spend initially,
Speaker 6: and these are to build out the world's largest AI
Speaker 6: data centers for training and inference. We are the key
Speaker 6: technology partner around CPU.
Speaker 5: We're the only.
Speaker 6: CPU technology partner that was named, which is terrific obviously
Speaker 6: for us. One can imagine going forward a lot of
Speaker 6: opportunity for technology innovation there. But in a near term
Speaker 6: we'll be linked with the Grace Blackwell ship using the
Speaker 6: Gray CPU which is ARM based and the Blackwell GPU,
Speaker 6: which is video based. But these large frontier models are
Speaker 6: going to require Jackie a huge amount of power for
Speaker 6: training and inference, and we're just so excited about being
Speaker 6: involved in this. It's going to be fantastic.
Speaker 2: Well, at the same time, this project also kind of
Speaker 2: puts you in the middle of this US China tech rivalry.
Speaker 2: You're at the front lines of it, being the top
Speaker 2: supplier to American AI companies. And I'm curious if you
Speaker 2: think that perhaps tying your fortunes so closely to Opening
Speaker 2: Eye is a risk.
Speaker 6: I'm not sure I think about it quite that way.
Speaker 6: Open Ai is a fantastic partner. Arguably, they're the leader
Speaker 6: at the moment in terms of adoption of chat, GPT
Speaker 6: and their APIs and their enterprise suite. We work with everyone,
Speaker 6: though we work very closely with Google, we work closely
Speaker 6: with Meta Aws, you know all the partners. But we're
Speaker 6: very thrilled to be involved with open Ai. They have phenomenal.
Speaker 4: Technology, Renee, We're going to lean into that China US
Speaker 4: story deep seek extraordinary.
Speaker 3: The push and pull it has in the narratives.
Speaker 4: Can you explain as to whether you think we are
Speaker 4: going to need as much compute as we all foresaw before.
Speaker 6: Oh, I think unquestionably, Caroline, And in fact I think
Speaker 6: even more than we probably have been thought about. So
Speaker 6: why is that, Well, if you look at what deep
Speaker 6: Seek has done, which is an amazing by the way
Speaker 6: piece of work they've done what's called distillation, and distillation
Speaker 6: is building on top of an existing frontier model, which
Speaker 6: takes lots of power and lots of compute to generate.
Speaker 6: If you think about GPT four which was hundreds of megawatts,
Speaker 6: GBT five sixty seven, these are in the gigawats. So
Speaker 6: even though you may have models that can distill or
Speaker 6: build a con the frontier models, the frontier models still
Speaker 6: need a lot of power. And then with that that
Speaker 6: drives a huge demand for inference, which is really where
Speaker 6: the larger use loads are. And more efficient inference means
Speaker 6: you can drive AI to much smaller devices, to smartphones, earbuds,
Speaker 6: devices that don't have a lot of capability for power.
Speaker 6: It's great for armed because that's where we are today,
Speaker 6: is where we exist, and now you can run those
Speaker 6: AI workloads on the CPU. So I think actually, what
Speaker 6: deep seat proves is that we're just going to see
Speaker 6: an even more accelerant towards towards compute.
Speaker 2: Well, on that front, you know you have a significant
Speaker 2: business in China. Are you concerned at all about perhaps
Speaker 2: how the slowing smartphone business might affect Arm's future growth.
Speaker 5: Yeah, it's a great question.
Speaker 6: And you know again and what we've seen in smartphones
Speaker 6: with your single digits type of growth, we're in the
Speaker 6: double digits growth in terms of royalties, in some cases
Speaker 6: twenty percent growth.
Speaker 5: And why is that?
Speaker 6: We're putting more technology into these phones, our version nine,
Speaker 6: our compute subsystems drive higher royalty rates, So we're just
Speaker 6: growing faster than the market, and particularly in the premium segment,
Speaker 6: which requires more and more compute. So while the units
Speaker 6: have been slowed in some areas, it actually hasn't impacted
Speaker 6: us very much.
Speaker 5: Just look at our record royalties.
Speaker 6: To have this kind of number in a market where
Speaker 6: people think things are slowing down, just phenomenal record royalties.
Speaker 3: Upside in licensing.
Speaker 4: I would just want to get to the litigation if
Speaker 4: I'm met here, Naam, and briefly, perhaps it hasn't gone
Speaker 4: the way that you thought with Qualcom.
Speaker 3: What does it mean for the future earnings?
Speaker 6: Really, there's no impact on future earnings, Caroline. The trial
Speaker 6: was a mistrial on one of the verdicts, so the
Speaker 6: dispute is still open. But to your question, in terms
Speaker 6: of the future forecast, we have no impact whatsoever.
Speaker 2: Rene Ha, CEO of ARM, thank you for joining us.
Speaker 2: Coming up more with tech earnings with a Yako yoshioga
Speaker 2: from Wealth and here the speaker Caroline, let some quick.
Speaker 4: Check on some other earnings that we've had on deck.
Speaker 4: Peloton is one of them. No, I'm afraid revenue is down,
Speaker 4: but profitability is better. A new management team managed to
Speaker 4: lift the optimism around this name. We're fourteen percent higher,
Speaker 4: but it's only trading at eight dollars sixty eight from
Speaker 4: New York, San Francisco. This's a Bloomberg Technology.
Speaker 2: Back to earnings with roadblocks out this morning and reporting
Speaker 2: daily active users for the fourth quarter that fell short
Speaker 2: of estimates. Let's bring in Bloomberg Cecilia Denastasio to break
Speaker 2: down the numbers. Cecilia break it down for us what
Speaker 2: went wrong here that ultimately spooped investors.
Speaker 7: After many quarters of growth and daily active users, Roeblocks
Speaker 7: unfortunately reported a disap winning decline in how many people
Speaker 7: are accessing the platform in the last quarter. In an
Speaker 7: earnings call today, Roblox's chief financial officer partially attributed that
Speaker 7: decline to Roblox's ban in Turkey over concerns over child safety.
Speaker 4: And what's interesting is child safety affecting Turkey? Of course
Speaker 4: the key country here, But it wasn't long ago that
Speaker 4: Hindenburg research acuse roadblocks have also inflating user numbers and
Speaker 4: time played. Is there any hint that read across in
Speaker 4: these numbers, Cecilia.
Speaker 7: Lots of analysts have cast doubt on those allegations against
Speaker 7: Roblox's user number inflation. Unfortunately, I don't have anything original
Speaker 7: to report on that currently, but Roblox's growth has been
Speaker 7: pretty consistent for a long time. People are very disappointed
Speaker 7: by these.
Speaker 2: Results, Cecilia. What's competition looking like in this space?
Speaker 8: Sure so?
Speaker 9: Right now?
Speaker 7: Growth in the games industry broadly is very challenged. The
Speaker 7: cost of developing Triple A games, your Spider Man's, you
Speaker 7: Know Your overwatches is skyrocketing, and at the same time
Speaker 7: a lot of investors are seeing potential in user generated
Speaker 7: games like the ones that people create on roadblocks. These
Speaker 7: games are often created by amateurs or by very small
Speaker 7: teams using tools that the companies themselves provide. Epic Games,
Speaker 7: which makes Fortnite, has its own platform along these lines.
Speaker 4: As well, and some of them get sold for an
Speaker 4: awful lot of money.
Speaker 3: Cecilia Denastasio, it's great to have you. Thank you for
Speaker 3: running us through roadblocks.
Speaker 4: Let's get more earnings takeaways with Ioko Yoshioka is with
Speaker 4: us for for any manager at the Wealth Enhancement Group.
Speaker 4: And there's been so much to digest. One theme that
Speaker 4: seems to be running through is AI anxiety and smartphone anxiety,
Speaker 4: and I just want to bring up with what we're
Speaker 4: seeing with qualcomon ARMED today and to worry about smartphones
Speaker 4: flatlining and what.
Speaker 3: That means for some of these chip providers.
Speaker 4: What do you make of it, Iaco, I know you
Speaker 4: don't hold qualcommon arm, but what would you make about
Speaker 4: the readA.
Speaker 3: Cross sure so high?
Speaker 10: Caroline? You know, in terms of the overall AI environment,
Speaker 10: I think we're focused on both the short term and
Speaker 10: the long term. Right in the short term for companies
Speaker 10: like Qualcom, you know, they're really impacted by the handset
Speaker 10: slow down. However, you know, I think if you look
Speaker 10: out longer term and where they're going to play is
Speaker 10: really in that you know, inference side, or you know
Speaker 10: where the chips will be able to be in smaller
Speaker 10: devices as the ARM CEO talked about, and things like
Speaker 10: new form factors with like metas ray band glasses. These
Speaker 10: are going to be where you know, Qualcom might have
Speaker 10: additional you know, exposure to which would be a positive
Speaker 10: for Qualcom.
Speaker 4: It's interesting the best points contributor on the day is
Speaker 4: in video and there's a note out of JP Morgan saying, actually,
Speaker 4: like these deep Seak moves, this less compute necessary is
Speaker 4: actually going to win out for them from an inference perspective.
Speaker 4: So where have you come out on this whole divide
Speaker 4: as to whether companies should be spending a lot on
Speaker 4: AIF structure.
Speaker 10: So I think the arms race is on and that
Speaker 10: most companies are going to spend in order to make
Speaker 10: sure that they have all the primary models set, all
Speaker 10: the frontier models that ARM talked about, and then it's
Speaker 10: going to be how best to access you know, all
Speaker 10: the efficiencies that Deep Seek brought are going to be
Speaker 10: you know, explored by many companies. And so I think
Speaker 10: there's a lot of ways to play AI. And you know,
Speaker 10: we're still trying to figure out what the landscape is
Speaker 10: really going to look like, and it's accelerating. It's just
Speaker 10: moving so quickly. You know, every month there's something new on.
Speaker 2: The cloud computing front. We've already seen some mixed numbers
Speaker 2: coming from the hyperscalers Alphabet, Microsoft. What are you expecting
Speaker 2: when Amazon reports later today?
Speaker 10: Sure, so I think everybody's focused again on what the
Speaker 10: Capex guide might be, any sort of color commentary on Capex.
Speaker 10: You know, everybody's looking at that Capex trajectory to see,
Speaker 10: you know, is everybody getting that return.
Speaker 3: On that spend.
Speaker 10: But you know, I think the demand for cloud computing
Speaker 10: continues to increase, and so it makes sense from a
Speaker 10: long term perspective for many of these hyperscalers to continue
Speaker 10: to spend on increasing capacity in the cloud.
Speaker 2: Speaking of demand, one of the things that always surprised
Speaker 2: me about Alphabet's cloud unit is that it had a
Speaker 2: good chunk of business coming from smaller, more nimble AI startups,
Speaker 2: And with some of the numbers that it put out,
Speaker 2: I'm curious if you are thinking if that kind of demand,
Speaker 2: if that vector of growth has kind of run its course.
Speaker 3: I don't think so.
Speaker 10: I think AI is still so relatively new that I
Speaker 10: think there's going to be new innovative players that are
Speaker 10: going to want to access you know, that that AI
Speaker 10: platform through Google, Google or through Microsoft or AWS. I think,
Speaker 10: you know, there's going to be different companies that explore
Speaker 10: different platforms just see what's best for them.
Speaker 4: What's so interesting is Amazon has been making its own chips,
Speaker 4: and so too Alphabet. Actually, even though it shares fell
Speaker 4: on its earnings, broad Com sword because of the CAPEX
Speaker 4: spending and what it means for chip makers for some
Speaker 4: of these cloud computing companies. What do you make of
Speaker 4: how the getting into the vertically AI focus.
Speaker 10: In terms of the overall spend, I think, you know,
Speaker 10: it's just going to continue. That spend going to a
Speaker 10: lot of these you know, chip makers, so whether it's
Speaker 10: Nvidia or Broadcom. Eventually it will come to Qualcomm as well.
Speaker 10: But I think it's going to continue. You know, there's
Speaker 10: so many ways to access AI and build it out.
Speaker 10: I think that it's going to continue to develop over
Speaker 10: the long term.
Speaker 4: The thing that everyone's trying to wrestle with is the valuations.
Speaker 4: So with all this optimism, arm trades that are undred
Speaker 4: times future ournings. Maybe that's why it pulls back from
Speaker 4: the day on what the market says is slightly muted forecasts.
Speaker 4: What do you make of the valuation levels since the
Speaker 4: sell off from deep seacone and video for example.
Speaker 10: Well, and I think that's why Qualcomm's valuation is pretty
Speaker 10: interesting here. You know, it's still in the you know,
Speaker 10: mid teens, low double digits, and you know, I think
Speaker 10: that if you look out far enough, you'll see that
Speaker 10: there's potentially, you know, a lot more growth coming for
Speaker 10: Qualcom in the future. However, you know, you have to
Speaker 10: look at the valuations both in the near term. Nvidia
Speaker 10: does trade at high valuations as well, but again, if
Speaker 10: the buildout continues, if you're really going to need to
Speaker 10: continue to spend so much both you know, Broadcom and Nvidia,
Speaker 10: and probably you know, the earnings are going to grow
Speaker 10: and catch up with a.
Speaker 2: Multiple Ayako Yoshioka from the Wealth Enhancement Group, thank you
Speaker 2: for joining us.
Speaker 4: Elon Musk, who of course leads President Trump's government cost
Speaker 4: cutting efforts, will determine himself if there are conflicts of
Speaker 4: interest between his work reviewing federal spending and his overlapping
Speaker 4: empire of six companies. So all, according to the White
Speaker 4: House's bring in. Bloomberg News's reporter and co host of
Speaker 4: the elon Ink podcast, Max Chafkins. So he's going to
Speaker 4: be his own policeman.
Speaker 9: He's going to be his own policeman.
Speaker 11: And you know, while this is news because we've been
Speaker 11: wondering all along, what is the plan here? I mean,
Speaker 11: Musk has six companies, He is somebody who is his
Speaker 11: empire's rife with conflicts of interest. So it was kind
Speaker 11: of interesting to see how the White House was going
Speaker 11: to handle this, and we're learning basically they're not going
Speaker 11: to handle They're going to let Elon use his judgment,
Speaker 11: which I think was the plan all along.
Speaker 9: And I think.
Speaker 11: Even listening to things that President Trump said when he
Speaker 11: was on the Camp Trent pain Trail made clear that
Speaker 11: part of the point here is the fact that Elon
Speaker 11: Musk has these conflicts of interest. You know, Trump talked
Speaker 11: all about Mars that that is a thing that would
Speaker 11: necessarily involve some of Elon Musk's company. So so yeah,
Speaker 11: we're sort of learning something that I think was pretty clear,
Speaker 11: but we didn't know for sure.
Speaker 9: Max.
Speaker 2: I want to talk about the tech because Elon Musk
Speaker 2: has said that he wants to use AI to find
Speaker 2: cost savings, and he's already mining through medicare and medicaid
Speaker 2: data in search of fraud and abuse. Do we know
Speaker 2: if this is something he could use his own company
Speaker 2: XAI to do.
Speaker 9: We don't know what software they're using.
Speaker 11: It would not surprise me at all if he was
Speaker 11: using some modified version of GROC or you know, some
Speaker 11: some software that he has developed, or is that you know,
Speaker 11: is somehow associated with another one of his companies.
Speaker 9: Musk has done this all the time.
Speaker 11: We've seen you know, SpaceX engineers shuttled into Twitter.
Speaker 9: We're seeing you know, people from his.
Speaker 11: Business Empire now attached in various ways to this doje effort.
Speaker 11: So yes, and of course that raises, you know, interesting questions.
Speaker 11: Where is this data being stored? Are they taking the
Speaker 11: proper precautions. We've definitely seen critics, including you know employees,
Speaker 11: government employees, as well as some of their unions, raise
Speaker 11: questions about this, you know, saying basically, is Elon Musk
Speaker 11: taking enough care of our private data?
Speaker 4: I wonder if investors are wondering whether they're taking enough
Speaker 4: care of his fiduciaries responsibility to Tesla. It's currently down
Speaker 4: almost ten percent on the beginning of the year.
Speaker 3: We're training the lowest since December.
Speaker 4: And meanwhile, he got byd in China announcing that it's
Speaker 4: getting into autonomous vehicles potentially, and Tesla takes another hit.
Speaker 9: Well.
Speaker 11: So, if two things are definitely true, one is that
Speaker 11: Elon Musk for sure is distracted. I mean, you know,
Speaker 11: I understand that he has like an endless amount of
Speaker 11: attention span. He's able to be very good at video
Speaker 11: games while running sales companies. But if you look, he
Speaker 11: has spent a ton of time in Washington, He's essentially
Speaker 11: been parked there in recent weeks.
Speaker 9: He's tweeting all day and all night about Doge.
Speaker 11: That said, so in that sense, you might say, wow,
Speaker 11: like these he's really distracted.
Speaker 9: He's taking his eye off the ball.
Speaker 11: On the other hand, there are clear ways that his
Speaker 11: companies can benefit from this partnership, and I think most
Speaker 11: investors understand that. And if you turn back the clock
Speaker 11: on that stock chart to like the beginning of November,
Speaker 11: you'll see that.
Speaker 9: The stock is still way up.
Speaker 11: So I think, yeah, some of the enthusiasms, some of
Speaker 11: the sense that oh my god, this Trump trade is
Speaker 11: like a home run, has worn off, although there are
Speaker 11: definitely still people who see this as beneficial to Musk
Speaker 11: and his companies.
Speaker 3: That's Bloomberg's match. Chafkin, thanks for joining us.
Speaker 5: Now.
Speaker 3: Today's Tech in.
Speaker 2: Depth newsletter takes a look at two different approaches in
Speaker 2: Silicon Valley on defense and war in Europe. Bloomberg's Mark
Speaker 2: Bergen has more.
Speaker 9: Mark.
Speaker 2: How are these conversations different in defense tech between the
Speaker 2: US and Europe.
Speaker 9: Yeah, I mean I was sort of jumping off.
Speaker 12: We saw a really interesting hire this week from Andresa
Speaker 12: in their American Dynamism Fund, which is their tech defense fund.
Speaker 12: They hired Daniel Penny, who was Gross Perraps most famous
Speaker 12: as he was involved in that choking incident in the subway.
Speaker 12: He was cleared of homicide but kind of became this
Speaker 12: cause celebrat and as far as they know, he's a
Speaker 12: marine veteran. Didn't have it a track record as an investor,
Speaker 12: but clearly something that vice We saw Vice President JD
Speaker 12: Van's tweet about his excitement about this hire.
Speaker 9: It's a signal for that firm, which.
Speaker 12: Has been kind of really leading the vanguard of They
Speaker 12: named the fund American Dynamism that they're leading in on
Speaker 12: this new era of reforming the Pentagon. This proximity between
Speaker 12: the Pentagon and Silicon Valley and in many ways this
Speaker 12: is something that's very different than what's operated in the past,
Speaker 12: where the Silicon valley and venture capitalists didn't really think
Speaker 12: about global borders.
Speaker 4: It's interesting David Ullivitch I interviewed a few weeks ago
Speaker 4: Catherin Boyle also leading that over at A sixteen Z,
Speaker 4: and they have been leaning into defense side Androil for example,
Speaker 4: they're looking at nuclear security. What's interesting though, is last
Speaker 4: time I saw it, A sixteen Z was pulling out
Speaker 4: of London and it's office space there. So what does
Speaker 4: that mean in terms of looking at bringing this across
Speaker 4: the Atlantic.
Speaker 12: Yeah, so, I mean to be clear that they shut
Speaker 12: down their office, their first and only outside the US
Speaker 12: that was a crypto investing arm. They still are making
Speaker 12: some investments in Europe. They have a big position in Mistral,
Speaker 12: the French AI company as far as I know, though,
Speaker 12: they haven't made any investments on the defense side here,
Speaker 12: where you've seen others like General Catalyst. Even Sequoia we've
Speaker 12: reported has been looking. General Catalysts has been fairly aggressive
Speaker 12: in defense in Europe. I mean, it's really interesting. Great
Speaker 12: where Europe is in the middle of this war with Russia.
Speaker 12: You go to these events in Europe, you hear constantly
Speaker 12: about Russia and they need to defend itself. And then
Speaker 12: you have events in the US and I think the
Speaker 12: focus has been shifted to China and Taiwan.
Speaker 4: And meanwhile Palent his own sales internationally were lower in
Speaker 4: weakness in Europe. Matt Bergen, it's great to have you
Speaker 4: go read his Tech in Depth newsletter. In's course from
Speaker 4: Bloomberg's journalists around the world. You can subscribe at blomberg
Speaker 4: dot com slash Newsletters. Welcome back to bloombag Technology. I'm
Speaker 4: Caroline hid in New York. Now, Vanguard has slashed the
Speaker 4: fees for dozens of its mutual funds and ETFs this week,
Speaker 4: in a record move that sent a shockwave through the
Speaker 4: asset management industry. The reduction is the largest Vanguard has
Speaker 4: ever undertaken. For more now on the impact on black
Speaker 4: Rock on Invesco, Bloomberg's Katie Greifeld is standing by for more.
Speaker 8: Katie, we welcome now our TV and radio audiences worldwide,
Speaker 8: and please to say We're joined by Vanguard CEO Salem
Speaker 8: Ramji in an exclusive conversation Slim, great to have you
Speaker 8: with us. So we all saw the report to be here, Katie,
Speaker 8: thank you. We saw the ripple effects from Monday's move,
Speaker 8: and your average female is just seven basis points across
Speaker 8: your line of the industry average for contexts forty four
Speaker 8: basis points set the scene for us.
Speaker 13: Why now, well, you know, in one sense, I will
Speaker 13: say Monday was a pretty joyous day here at Vanguard,
Speaker 13: and it was joyous figures. It really is a reaffirmation
Speaker 13: of our business model. We're owned by our clients, and
Speaker 13: so as a result, as we gain scale economies here
Speaker 13: at the company, we share those back with our clients.
Speaker 13: And that's not just been true since Monday, It's been
Speaker 13: true since nineteen seventy five, since when we founded the company.
Speaker 13: And so this was continuing on a two thousand price
Speaker 13: cuts I think by our tally as of last week
Speaker 13: now it's twenty one hundred and sixty eight price cuts.
Speaker 13: And that's been part of the proposition that investors have
Speaker 13: had with Vanguard for decades.
Speaker 8: And so Salim, I think I'm asking on part of
Speaker 8: your competitors but also investors as well, when I ask
Speaker 8: how low can fees go? You're at seven basis points
Speaker 8: right now? Where is the possible floor?
Speaker 5: Here.
Speaker 13: Well, you know, we don't price products as loss leaders.
Speaker 13: We're not looking to you know, price abnormally low in
Speaker 13: order to get somebody into a higher cost other service.
Speaker 13: And so we really look at it across the board
Speaker 13: in terms of our scale economies. We want to deliver
Speaker 13: great quality and great performance, and I think that the
Speaker 13: thing that sometimes gets lost in the mix. Obviously, index
Speaker 13: prices have been coming down for quite some time, led
Speaker 13: by us over the past several decades. But sometimes it
Speaker 13: gets confused that we were all about index. We're actually
Speaker 13: about active and index. And really, if you go back
Speaker 13: to our origins, what Bogel was against was high fees,
Speaker 13: and so active management at a low fee can really
Speaker 13: outperform over the long term if delivered with the right quality.
Speaker 13: That was Bogel's hypothesis in the seventies and eighties, And
Speaker 13: if you look at our track record, even just in
Speaker 13: something like active fixed income, the empirical evidence backs up
Speaker 13: that hypothesis that he had way back then. Ninety one
Speaker 13: percent of our active fixed income outperforms its peers over
Speaker 13: the past ten years. And one of the reasons why
Speaker 13: is because we price it at just over ten basis points,
Speaker 13: and so at a very low fee. And you know,
Speaker 13: when you speak to our fixed income team, to Sarah Devereux,
Speaker 13: our CIO, and our teams who run our active fixed income,
Speaker 13: part of the reason they're able to outperform is they
Speaker 13: have a much lower headwind from higher fees, and so
Speaker 13: they're able to take risks in a much better and
Speaker 13: more disciplined way. And so what this is really about
Speaker 13: is not just about delivering high quality index management, but
Speaker 13: it's really about delivering high quality investment management at a
Speaker 13: very low fee. And I think whether you're looking at
Speaker 13: active fixed income or whether you're looking at index fixed
Speaker 13: income or index equities, that's really what we've been.
Speaker 8: About, right, Well, Selma, you make the point that a
Speaker 8: lot of people probably think of Vanguard and they don't
Speaker 8: think of active. And you do, have, of course active
Speaker 8: funds out there, but it's a pretty small percentage of
Speaker 8: your overall lineup. Especially if you take a look at
Speaker 8: the ETF side of things, we expect to see more
Speaker 8: active fund launches from you.
Speaker 13: Yeah, you know, our active management the first Vanguard funds
Speaker 13: are actually active funds if you go back to the
Speaker 13: seventies and both we manage our active fixed income within Vanguard.
Speaker 13: We have a whole range of partners subadvisors that we
Speaker 13: work with for our fundamental active equities, and they're unified
Speaker 13: by the principle of being high quality at a low price.
Speaker 13: And yeah, Katie, you already have seen us doing a
Speaker 13: lot more in active ETFs and I think you've seen
Speaker 13: that pick up over the past several months, and I
Speaker 13: hope and expect that that will continue over the next
Speaker 13: you know, this year and next.
Speaker 8: Year, all right, so we'll keep an eye out for that.
Speaker 8: You were talking a little bit about, of course, how
Speaker 8: the ownership structure works at Vanguard. How basically all a
Speaker 8: lot of the extra cash, the extra assets that you
Speaker 8: generate are funneled towards these fee cuts. But I'm curious
Speaker 8: from where you sit, how do you balance slow boring
Speaker 8: fees versus investing in the business. What does that decision
Speaker 8: tree look like.
Speaker 13: Yeah, it's something we do very carefully here. And you know,
Speaker 13: this week is all about our fee cuts and giving
Speaker 13: back to our clients in the form of lower fees.
Speaker 13: We've also stepped up our investments in things like technology.
Speaker 13: That's something that really began about two three years ago
Speaker 13: and is continuing this year and next year, because we're
Speaker 13: always trying to balance making sure that we've got high
Speaker 13: quality products at a low cost and we're delivering the
Speaker 13: right level of service to clients. We're investing in newer
Speaker 13: technologies to make our investing even more efficient, to make
Speaker 13: our client interfaces even more efficient. So that's always a
Speaker 13: balancing act here at Vanguard, just like it is at
Speaker 13: many companies in terms of how do we think for
Speaker 13: the near term and how do we think for the
Speaker 13: medium to longer term. But I'd say one of the
Speaker 13: beauties of Vanguard. I think part of the original genius
Speaker 13: of Vanguard is that when you know we've got a surplus,
Speaker 13: after we've looked at the important investments we need to
Speaker 13: make back in things like technology, the way we give
Speaker 13: back to our owners is through lower fees. And I
Speaker 13: think that's the Vanguard effect that you've been seeing for
Speaker 13: decades all across the company.
Speaker 8: Yeah, that Vanguard effect obviously a good news story for
Speaker 8: your investors, maybe not for your competitors. But I do
Speaker 8: want to talk about the future, and I want to
Speaker 8: talk specifically about private markets and alts. One of the
Speaker 8: big take stories that we have on the terminal right
Speaker 8: now is about PIMCO and fears that PIMCO might be
Speaker 8: falling behind in alts because you take a look at
Speaker 8: the industry right now and a lot of your peers
Speaker 8: have invested heavily in alts in privates to scale up there.
Speaker 8: What is your plan when it comes to those areas
Speaker 8: and do you fear that you're a little bit behind
Speaker 8: right now?
Speaker 13: Well one of the again one of the great benefits
Speaker 13: of our business model, if you go back to the
Speaker 13: origin we had subadvisors. You know, for example, at our
Speaker 13: beginning we are and are still subs by Wellington Management,
Speaker 13: which is still our largest subadvisor today. And so where
Speaker 13: we don't have capabilities within kind of vanguard, we've long
Speaker 13: had an ability to partner.
Speaker 5: With other firms.
Speaker 13: To date, we've generally done that in fundamental active equities,
Speaker 13: but we can do it in things like private markets,
Speaker 13: and there's lots of discussions and explorations we have underway
Speaker 13: to see what's possible. But you know, our north star
Speaker 13: is always about what's right for our clients, and it's
Speaker 13: making sure that whatever it is we do inactive in
Speaker 13: index ourselves or with others, that we keep in mind
Speaker 13: that we're about simplicity, We're about low cost and we're
Speaker 13: about long term returns, and I think that there are
Speaker 13: constructs that will allow private markets to fit in that.
Speaker 13: But that's really part of the exploration that we're doing
Speaker 13: because whatever it is we do, we want to do
Speaker 13: it the Vanguard way, and we want to do it
Speaker 13: in a way that's well suited to our client base,
Speaker 13: which is really looking to us for a certain set
Speaker 13: of things that we've consistently delivered over the years.
Speaker 8: All right, Seleem got to leave it there. I really
Speaker 8: appreciate you taking the time. That is Vanguard's CEO Selim
Speaker 8: Ramj back to.
Speaker 3: You, Katie.
Speaker 4: We get a quick check on these markets. Great interview.
Speaker 4: Let's dig into what's happening in technology right now because.
Speaker 3: Nasak just clinging on too.
Speaker 4: Gains only by about a tenth of percent on the
Speaker 4: higher side, and video powers us up from a points perspective,
Speaker 4: as maybe JP Morgan wais in and says, hey, maybe
Speaker 4: these open source deep seat models on as bad as
Speaker 4: we thought. But you move on to what's happening on
Speaker 4: the downside, and Qualcomm a key significant draw down in
Speaker 4: a points perspective.
Speaker 3: We're off almost five percent.
Speaker 4: This is the worst day that's November the twentieth for
Speaker 4: the stock, even as they managed to beat expectations when
Speaker 4: they come for their earnings in revenue and in earnings
Speaker 4: for share revenue up some eighteen percent. But we're worried
Speaker 4: about the future of the smartphone market, to which Qualcom
Speaker 4: of course is so exposed. Skyworks also on the downside,
Speaker 4: after we see its issues around iPhone representing eighty five
Speaker 4: percent of its business more broadly, and they're having to
Speaker 4: reduce the content loss that they're seeing at the moment.
Speaker 4: iPhone content lost to Skyworks work by twenty four percent.
Speaker 2: Jackie coming up as demand for China's deep so you
Speaker 2: can other open eye source AI models skyrocket, National security
Speaker 2: concerns emerge. We speak to Ben Harberg of Core Values Alpha.
Speaker 2: This is Bloomberg. The rise of AI chatbots and what
Speaker 2: they can bring to productivity is spurring enthusiasm across global industries.
Speaker 2: Bloomberg spoke with riied Hoffman of Greylock Partners. Here's what
Speaker 2: he had to say about utilizing AI in the workforce.
Speaker 14: I actually think programming skill jobs aren't going out the door.
Speaker 14: I think there's human application, but I think it's also
Speaker 14: human application of like EQ as well. So the fact
Speaker 14: that you have a for example, say a medical assistant
Speaker 14: that can help you with something, or a coach that
Speaker 14: might be able to talk to something, doesn't mean you
Speaker 14: don't want a human coach.
Speaker 9: It's more coaches, the better.
Speaker 3: Greid Hoffman of green Up partners there.
Speaker 4: And of course, with the rise of AI chatbots with
Speaker 4: open source models, China based Deep Seek of course is
Speaker 4: actually having to restrict access to its models. Is demand
Speaker 4: overwhelmed server capacity? More in the future of AI open
Speaker 4: source models tech competition with China.
Speaker 3: We're joined by Ben Harveack.
Speaker 4: He is founder at Core Values Alpha and managing partner
Speaker 4: of Nova Capital, which has a call two billion dollars
Speaker 4: in assets under management. We also know that you oversee
Speaker 4: a greater China growth ETF, so we're here for all
Speaker 4: of your expertise. And ultimately, was Deep seekersputneck moment.
Speaker 5: I think it was. I think you know.
Speaker 15: It challenged this hubris and this impenetrability of American AI leadership.
Speaker 9: And the scary thing.
Speaker 15: Was we already saw the Chinese kind of tacking global
Speaker 15: market share when it came to all the kind of
Speaker 15: next generation technologies being electric vehicles, drones, solar panels, and
Speaker 15: this was really the last holdout, and so with that
Speaker 15: bubble being pierced, I think we need to now put
Speaker 15: our foot on the gas and re examine our own
Speaker 15: capabilities and how do we continue to lead in that market?
Speaker 2: Ben, what's the starting point here? What should companies be
Speaker 2: focused on in the wake of deep Seat. We're hearing
Speaker 2: a lot of talk about expanding infrastructure. You saw open
Speaker 2: AI and veil new models just a couple of days
Speaker 2: after the news hit. What should be the focus for
Speaker 2: AI startups in the US?
Speaker 15: I think a space race is great for a competition,
Speaker 15: and it's great for American innovation, and so I hope
Speaker 15: we don't take this as a slight instead use it
Speaker 15: as a motivator. Obviously, AI is a discipline that requires
Speaker 15: a huge interdisciplinary kind of collaboration across energy, talent, technology,
Speaker 15: regulatory availability and all you know, and the open source
Speaker 15: nature of models, and so my view is that this
Speaker 15: has to be a whole country effort. We should be
Speaker 15: looking at this more as a Manhattan Project two point zero,
Speaker 15: where we bring all those factors to bear. And I
Speaker 15: think that the new Trump administration is really looking hard,
Speaker 15: particularly at the regulatory front. How do we stimulate that
Speaker 15: and support on the energy front. You heard this one
Speaker 15: hundred billion dollar number coming out of Open AI and others.
Speaker 15: So I think we need to bring all those together
Speaker 15: and to put our foot on the gas.
Speaker 4: You were pretty heavily involved in the Trump campaign. Are
Speaker 4: they asking you for advice?
Speaker 15: I've done my best, So I've certainly believed that in
Speaker 15: the current environment, we need to put our foot on
Speaker 15: the gas when it comes to extending American technology leadership,
Speaker 15: and that is an interdisciplinary process. Requires that we bring
Speaker 15: together immigration, energy rethinking, education of course, permitting and regulatory reform,
Speaker 15: and subsidies and technology, and so we have to bring
Speaker 15: all these things to bear. And so my advice to
Speaker 15: them has to kind of draw down these walls of
Speaker 15: bureaucracy and siloed different departments and instead kind of get interdisciplinary,
Speaker 15: interagency working groups together. We don't just need a ZAR
Speaker 15: for AI and crypto, We need zars for shipbuilding, drones,
Speaker 15: hypersonic missiles, et cetera.
Speaker 4: What's so interesting about the Great China Growth etf The
Speaker 4: tagline if you go on to have a look, is
Speaker 4: it accessing China alpha without compromising American national security or
Speaker 4: American values.
Speaker 3: How do you.
Speaker 4: Invest in a BYD when suddenly news of potentially BYD
Speaker 4: having autonomous vehicles sends TESA shares down and the biggest
Speaker 4: points drag on the day.
Speaker 5: Yeah.
Speaker 15: So our strapline from a year and a half ago,
Speaker 15: which I think we preempted the market a bit, was
Speaker 15: America First Equities investing. We know people still wanted to
Speaker 15: access China, and we knew one of the things that
Speaker 15: was scaring them away from China was a fear that
Speaker 15: they would be investing in companies that might show up
Speaker 15: on a blacklist or a gray list. We also identified
Speaker 15: their biggest competitor, k Web was CCP owned, so it's
Speaker 15: owned by CICC, which is an SOE asset manager of
Speaker 15: the Chinese government. And so we first determined that we
Speaker 15: could be American owned entity and so we wouldn't have
Speaker 15: any influence from the Chinese government. Second, we'd filter our
Speaker 15: equities by looking at what was coming out of Congress,
Speaker 15: what was coming out of Treasury and Commerce in terms
Speaker 15: of entities lists, gray lists, and then we would even
Speaker 15: go a step further and bring in former government officials
Speaker 15: to kind of vet these names and ensure that they
Speaker 15: weren't compromising American national security or value. So working with
Speaker 15: the PLA, working with organizations that were involved in slave labor,
Speaker 15: some other form of American values.
Speaker 2: Ben, let's stick with your point about access to China.
Speaker 2: Do you expect this administration to take a tougher stance
Speaker 2: on curtailing VC's ability to invest in Chinese companies?
Speaker 15: I think it will. So they call that the Overseas
Speaker 15: Investment Program the OIP coming out of Treasury. I think
Speaker 15: that that program needs to be expanded and be made
Speaker 15: more concrete. Over the Biden administration, it was more of
Speaker 15: a reporting mechanism certain something that dissuaded a lot of capital,
Speaker 15: but didn't specifically restrict it. I do believe that American
Speaker 15: money should be used to develop American innovation, and so
Speaker 15: to the extent that we can keep money at home
Speaker 15: and use it to build the next generation of open ais,
Speaker 15: the next generation of electric vehicles, of drone companies, of
Speaker 15: next generation military defense, that's a critical use of that capital.
Speaker 15: And so I hope to see that program made more
Speaker 15: concrete and expanded. At the same time, I think China
Speaker 15: and the United States are going to be in better
Speaker 15: kind of collaboration when it comes to just day to
Speaker 15: day business dynamics, because there's a lot of the intractable
Speaker 15: issues and fears that were kind of getting in the
Speaker 15: way and wedging during the last administration are no longer there,
Speaker 15: and this is much more of a dollars and cents conversation.
Speaker 2: Well, sticking with policy here, immigration and H ONEB visas
Speaker 2: are also a bit up in the air as it
Speaker 2: relates to AI. AI depends a lot on those two
Speaker 2: things to be able to fuel its pipeline of talent.
Speaker 3: A lot of this talent is coming from.
Speaker 2: Outside the US. Do you think that the administration's position
Speaker 2: could actually undercut our efforts to stain the lead in AI.
Speaker 15: There's clearly a bit of a split here, and we
Speaker 15: saw that battle a few weeks ago that really played
Speaker 15: out over Twitter, and the President i think reaffirmed his
Speaker 15: commitment to the H one B one program. I think
Speaker 15: we need to look at that as a stop gap.
Speaker 15: Clearly one of America's greatest advantages that we attracted the
Speaker 15: world's best minds to our shores through our university system,
Speaker 15: but education as a whole in America needs to be reformed.
Speaker 15: We need to look at maybe, for instance, the German
Speaker 15: model of trade schools, hulk Schule's gymnaseums, where we split
Speaker 15: kids off much earlier and send them to trade schools
Speaker 15: where they can learn a lot of those tooling and
Speaker 15: mechanic type roles that can be brought to bear in
Speaker 15: these next generation technologies, be it defense, American kind of
Speaker 15: smart manufacturing, et cetera. And so I think we need
Speaker 15: to look deeply at education as a whole and not
Speaker 15: just rely on foreign talent as a stopgap, but think
Speaker 15: about how we start training American born citizens for next
Speaker 15: generation technology enabled roles.
Speaker 4: What's interesting is when you were saying you foresaw almost
Speaker 4: this America first idea of investing in China, you understood
Speaker 4: what was potentially going to end up on a gray
Speaker 4: list or a blacklist, but you love and Tencent was
Speaker 4: put on a blacklist. Do sometimes we throw babies out
Speaker 4: with bathwater when we're looking at what is really a
Speaker 4: Chinese military challenge to the United States.
Speaker 15: There are certainly companies that have dual use technologies and
Speaker 15: that have very broad array of different discipline. So, for instance, Alibaba,
Speaker 15: well it's known as an e commerce player, also has
Speaker 15: their own cloud business that bumps up against the likes
Speaker 15: of Amazon, Tencent has cloud, some of them have geospatial
Speaker 15: and other kind of forms of engineering, and so this
Speaker 15: is a constantly evolving process. And that's exactly why we
Speaker 15: think you need an active management because you can't sit
Speaker 15: on an index and just trade these equities. So we've
Speaker 15: got to be able to move in and out of
Speaker 15: them as we think see things coming out of DoD Congress,
Speaker 15: et cetera.
Speaker 4: Natest you might have been exposed if Dominimus was something
Speaker 4: you'd been depending on for some of these e commerce
Speaker 4: players in China. Are we likely to see barriers put
Speaker 4: up to Chinese trade ever more? But even just me
Speaker 4: as a consumer trying to access cheaper goods.
Speaker 15: Well, I think the dominimous kind of tax loophole was
Speaker 15: something that needed to be closed. She and obviously tim
Speaker 15: Wu and others are really putting a lot of American
Speaker 15: companies out of business or eating their market share, be
Speaker 15: it Amazon.
Speaker 9: Or the likes. I think that was doing okay, right,
Speaker 9: they're doing fine.
Speaker 15: But even some of these smaller offline stores I think
Speaker 15: are having some of that market share now eaten by
Speaker 15: the likes of Timu, and they're building their own fulfilled
Speaker 15: by Amazon models. So definitely we want to favor or
Speaker 15: have a level playing field, and so that you know,
Speaker 15: this affects Amazon as well. I think a lot of
Speaker 15: the impact of that that was already baked in the
Speaker 15: actual numbers coming out of tim WU aren't necessarily included
Speaker 15: in PDDs kind of projections, I think, And so our
Speaker 15: view is that PDD is still a strong name even
Speaker 15: in spite of these these new Dominimus regulations.
Speaker 2: That's Ben Harberg of Core Values Alpha. Thanks for joining us.
Speaker 2: Looking ahead to after the closing bell today, Amazon is
Speaker 2: slated to report its earnings and is expected to report
Speaker 2: that revenue grow ten percent in the fourth quarter. Bloomberg's
Speaker 2: Ryan Westellica joins us.
Speaker 3: Now for more, Ryan.
Speaker 2: Aws is the cloud computing titan. What are investors expecting
Speaker 2: to see from that unit today?
Speaker 9: Hey, thanks for having me.
Speaker 16: I think people are expecting a pretty strong quarter, but
Speaker 16: it does come in the wake of disappointments from both
Speaker 16: Microsoft and Alphabet, which are number two and three in
Speaker 16: the sector. So sorting a little bit of a more
Speaker 16: cautious uh, you know, you know lead up going into
Speaker 16: these results.
Speaker 4: It's interesting that that likely to have committed more than
Speaker 4: seventy billion in CAPEX for this year and even more
Speaker 4: going forward.
Speaker 3: To be comfortable with the.
Speaker 4: Amount of spending on AI build out.
Speaker 16: Well, we've seen so many other companies come out and
Speaker 16: really lift their targets. Alphabet earlier in the week, Meta
Speaker 16: not too long ago, Microsoft, These are all the major
Speaker 16: cloud hyperscalers, and it wouldn't be surprising to see Amazon
Speaker 16: do a similar kind of boost. Although you know, some
Speaker 16: of these were like, you know, fifty percent more than
Speaker 16: people were expecting. Whether we see something like that I
Speaker 16: think would be pretty shocking, but it wouldn't be surprising
Speaker 16: to see them bring up their caffects at least somewhat.
Speaker 4: We were just talking to Ben Harberg about Deminimus and
Speaker 4: the impact on Chinese competition for Amazon from an e
Speaker 4: commerce perspective. Briefly, Ryan, what we hear about how it
Speaker 4: will impact the business, the duties on Chinese rivals.
Speaker 9: I'm very curious to see that.
Speaker 16: So far, we haven't seen too much reaction in the
Speaker 16: stock to the idea of you know, a trade war
Speaker 16: or tariffs against China or something like that, but certainly
Speaker 16: to the extent that we see less competition from these
Speaker 16: lower price rivals. That's certainly a good thing for Amazon
Speaker 16: and its e commerce market share where it is, of course,
Speaker 16: you know, still major player here in the States.
Speaker 4: Bloomberg's ran place. Selka, It's great to have you on.
Speaker 4: Thank you, thank you.
Speaker 5: Now.
Speaker 4: That does it for this edition of Bloomberg Technology. You
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Speaker 4: You can find it on the terminal as well as
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Speaker 4: Earnings after the bell Amazon across the deck.
Speaker 3: This is Bloomberg Technology, who took them