Speaker 1: From my Heart where innovation, money and power Collie in
Speaker 1: Silicon Valley, NBN. This is Bloomberg Technology with Caroline Hide
Speaker 1: and Ed Ludlove.
Speaker 2: And Caroline Heinda Blomberg's weldad quarters in New York and
Speaker 2: Ludlow who's off. This is Bloomberg Technology coming up full
Speaker 2: earnings coverage ahead.
Speaker 3: Netflix sept for its worst day.
Speaker 2: Of the year, that says its outlook full short of estimates.
Speaker 2: Will break down the results. Plus, let's look at Tesla's
Speaker 2: results as Elon Musk warns and more blows to the
Speaker 2: company's profitability, and Chip Giant TSMC drops as it warns
Speaker 2: the AI frenzy may not last. We'll have that and
Speaker 2: so much more ahead. First, let's get you up to
Speaker 2: speed with a lackluster day in the markets.
Speaker 3: We send it over to Blomberg's affaguilty a little.
Speaker 4: It is a little lackluster, Caroline. In fact, it feels
Speaker 4: like the first worst down day in many days for
Speaker 4: the major indexes here in the US, because we've had
Speaker 4: this melt up. But some of the big tech reporters
Speaker 4: reports while putting a bit of a wrinkle in that
Speaker 4: right now we have Tesla down six point four to
Speaker 4: two percent of course on its report. That's where profitability
Speaker 4: is an issue. Elon Musk even talking about the idea
Speaker 4: that if rates continue to rise, they will have to
Speaker 4: bring prices down that could weigh on profitability more so.
Speaker 4: And then the fears around some of the other big
Speaker 4: tech companies that have not yet reported, Meta, Alphabet and
Speaker 4: Apple all lower ahead of those reports. This idea that
Speaker 4: we were talking about yesterday. So much movement to the upside,
Speaker 4: but will these reports deliver? Now if we flip up
Speaker 4: the boards, we are going to see that what this
Speaker 4: means for the s and P five hundred and the
Speaker 4: NASAC well, we are looking at a down day, of course,
Speaker 4: and the nicy Fang Index down even more, down three
Speaker 4: point two percent. The socks not immune from this. We
Speaker 4: have been video down quite a bit. We also have
Speaker 4: AMD down. And then finally, if we take a look
Speaker 4: at the other big earnings a lagger that is Netflix,
Speaker 4: So I think we have a chart of that here.
Speaker 4: We're going to see, Wow, gosh, the worst day I
Speaker 4: believe since April twenty twenty two. And Caroline, there's this
Speaker 4: continued puzzle. I'm sure you're going to solve it on
Speaker 4: this show. In the next hour. But record blowout subscribers. Well,
Speaker 4: I don't know if a record, but blowout subscribers. But
Speaker 4: where's the revenue And they're talking about still keeping that
Speaker 4: double digit for the end of the year.
Speaker 3: Putting a lot of pressure on the fourth quarter.
Speaker 2: Quite frankly, Yeah, Bank of America looking optimistic towards that
Speaker 2: second half, but as you say, for now, the revenue
Speaker 2: not quite following that uptick in subscriptions. Let's go back
Speaker 2: to Tesla for a moment, because it is falling hard too,
Speaker 2: warning of more hits to its already shrinking profitability. CEO
Speaker 2: Elon Musk said the company will have to keep lowering
Speaker 2: the prices of its evs is interest rates continues to rise.
Speaker 5: I think it makes it does make sense to sacrifice
Speaker 5: margins in favor of making more vehicles because we think
Speaker 5: in the not to do in the future they will
Speaker 5: have a chromatic valuation increase. I think the Tesla fleet
Speaker 5: value increase of the point which we can upload full
Speaker 5: of you know, full self driving, had it's approved by regulators,
Speaker 5: will be the single biggest step change in asset value
Speaker 5: maybe in history.
Speaker 2: He's got more analysis than mention. Akaine as an Austin
Speaker 2: In Shawn, I don't really understand why the market's so
Speaker 2: surprised by this. These price cuts, This focus on volume
Speaker 2: over profitability has been.
Speaker 3: A theme all year, But were they're hoping for some
Speaker 3: sort of change.
Speaker 6: I think, you know, if you look at the cuts
Speaker 6: that they've made and the subsequent adjustments, there have been
Speaker 6: a couple of little price pumps over the last month
Speaker 6: or so, they have flattened out a bit, certainly not
Speaker 6: as volatile as they were in the first quarter. So
Speaker 6: I think maybe we have some investors who were expecting
Speaker 6: that to be completely closed, and especially given the fact
Speaker 6: that there was a chance maybe we were done with
Speaker 6: interest rates hikes, people were thinking that maybe this was
Speaker 6: all over. But obviously Elon Musk says that if interest
Speaker 6: rates keep going up, they're willing to cut. I mean,
Speaker 6: he said last quarter, and he sort of reiterated it.
Speaker 1: In that clip.
Speaker 6: He's willing to cut even deeper to the bone because
Speaker 6: he believed so much in the ability to deliver full
Speaker 6: autonomy and what that would do to Tesla's margins. You know,
Speaker 6: he's so bought into that idea that he really kind
Speaker 6: of doesn't care about the margins, right now, so I
Speaker 6: think it's part that and also part Remember they've added
Speaker 6: like five hundred billion dollars to their market cap this year.
Speaker 6: They've had a pretty big rise over the last couple
Speaker 6: of weeks and months, and so you know, maybe this
Speaker 6: is just some resetting of expectations.
Speaker 3: I mean, good context there, Sean.
Speaker 2: What's interesting about this focus on autonomous driving is the
Speaker 2: need for compute right now, and of course a supercomputer
Speaker 2: Dojo takes limelight a billion in.
Speaker 3: Terms of investment in that area.
Speaker 2: That seemed to surprise people, even though the CFO tried
Speaker 2: to calm some nerves.
Speaker 6: Yeah, yeah, there was a funny moment. It was probably
Speaker 6: one of the more maybe lively moments of the call,
Speaker 6: which was otherwise pretty straightforward. You know, Elon coming out
Speaker 6: and saying basically about exactly how much or at least
Speaker 6: in the ballpark of what they want to spend on
Speaker 6: a super coupeter over the next year. And you know,
Speaker 6: something important to remember, this is a specific use case
Speaker 6: type of supercomputer in the sense that he's not using
Speaker 6: it to try to be something that they could throw
Speaker 6: at his AI effort. But he just announced last week
Speaker 6: and do large language models on this. He says, this
Speaker 6: is very tailored to processing video and images. It's something
Speaker 6: that is specifically made to help improve the driving software
Speaker 6: Antesla's cars. And so now we finally had a ballpark.
Speaker 6: And yeah, immediately after we got this sort of lawyered
Speaker 6: dep response from the CFO, who said, hey, you know,
Speaker 6: that sounds like a lot of money. But we baked
Speaker 6: this into the guidance that we've been giving you guys,
Speaker 6: so you may have a little bit more clarity on
Speaker 6: exactly how we're spending some of that. But don't get spooked.
Speaker 6: This isn't some sort of new expense.
Speaker 2: Nevertheless, expenses racking up, well, perhaps the profitability that margin
Speaker 2: under pressure at just eighteen point one percent, seawann O Caine.
Speaker 2: Great to get your analysis. We thank you, and let's
Speaker 2: got to invest to Tate now a peace to Welcome
Speaker 2: to the show. Sylvia Jabronski defines ets CEO CIO overseeing
Speaker 2: nine hundred million dollars an assets onder management of course
Speaker 2: Tesla when your key holdings and your pure electric vehicle
Speaker 2: ETF and Sylvia, were you upended by this still focus
Speaker 2: on volume of a profit or had you anticipated so?
Speaker 7: I anticipated that you know, the earnings announcement and call
Speaker 7: was sort of go like this. There was so much
Speaker 7: focus on what will profit margins look like when you
Speaker 7: take out kind of the tax credits and you know,
Speaker 7: different types of incentives coupled with the lowering of prices,
Speaker 7: and you know, the street didn't like it, but I
Speaker 7: actually thought it was a great call, and I would
Speaker 7: have said that there's actually calls for the stock to rally.
Speaker 7: You know, what Elona Musk is doing is continuing to
Speaker 7: corner the EV market by making EV vehicles accessible. You know,
Speaker 7: there is a volume game here, so while you're sacrificing
Speaker 7: some margin in the near term, you're increasing you know,
Speaker 7: capacity to produce more vehicles, interest in purchasing vehicles because
Speaker 7: they're affordable and really you know, taking that stake while
Speaker 7: everybody else is trying to catch up.
Speaker 1: I also think that you know, he has enough of
Speaker 1: kind of you know, shots to fire here.
Speaker 7: He has the cyber talk coming out, and that's arguably
Speaker 7: going to be an expensive type of vehicle that people
Speaker 7: seem to be you know, really seeking and waiting for.
Speaker 7: And you know, so when you have days like this,
Speaker 7: when when a stock like Tesla kind of falls precipitously
Speaker 7: in one day from you know, what looks like bad
Speaker 7: news but is actually really good news.
Speaker 1: And then you know the other EV makers fall in
Speaker 1: line with it.
Speaker 7: I mean, this in my mind is a great kind
Speaker 7: of dollar cost averaging day on you know, the top
Speaker 7: EV stocks.
Speaker 2: Okay, so buying in on the weakness even though it's
Speaker 2: still priced what eighty times forward earnings?
Speaker 3: How do you vindicate that valuation?
Speaker 2: Are you the person who's also in this idea of
Speaker 2: a ROBOTAXI the idea that ultimately there's a big bump
Speaker 2: in valuation.
Speaker 1: I am, and you have to be right. You have
Speaker 1: to be if you're buying the stock at those valuations.
Speaker 1: It's a fair point.
Speaker 7: But there is a whole lot of evidence that, you know,
Speaker 7: the R and D is moving there in the right direction.
Speaker 7: Of course, you know investors want everything to happen more
Speaker 7: quickly than it usually does.
Speaker 1: But this is very much a growth stock. You know,
Speaker 1: they're they're working on things that do not yet exist,
Speaker 1: and this is what you want when you invest.
Speaker 7: In innovation, the future of EV. So there's a few things.
Speaker 7: One TV market was fourteen percent of sales globally. That's
Speaker 7: projected to be thirty percent by twenty six percent. We
Speaker 7: know that Tesla has you know, sixty percent of the market.
Speaker 7: Now that shrinks, but they get more orders, more volume,
Speaker 7: so I think they continue to kind of benefit there.
Speaker 7: Number two is the new you know vehicle, the cyber truck.
Speaker 7: Number three is you know that you mentioned the dojo before,
Speaker 7: the potential for AI their their self you know, kind
Speaker 7: of driving database, data center computer. The technology looks like
Speaker 7: it's kind of being set up to support them. And
Speaker 7: I think the robotaxi thing, if anyone is going to
Speaker 7: get it done, it will be Tesla, and I you know,
Speaker 7: we have no reasonably that he's not going to get
Speaker 7: it done.
Speaker 3: Sylvia, what about the global nature of this company?
Speaker 2: Of course they're talking about perhaps having to slow down
Speaker 2: on some of the factory output as they update them.
Speaker 2: Of Course they've got exposure in Berlin here in the US,
Speaker 2: but also China, and I noted that byd Lee Auto
Speaker 2: Ready managing to ramp up their own deliveries at the moment.
Speaker 2: What's competition like globally?
Speaker 7: Yeah, and I think that you know, when you're in
Speaker 7: bad staying in the EV space. This sort of makes
Speaker 7: the argument for having a basket of all of these
Speaker 7: names right, because you want the test, you want Tesla,
Speaker 7: and then you also want who is the Tesla of China?
Speaker 1: Right?
Speaker 7: Is that Xkig, is that Li Auto? And it's good
Speaker 7: to kind of have that broad based diversification. I think
Speaker 7: the answer is that these are all going to be winners.
Speaker 8: You know.
Speaker 1: The piece of the entire pie of EV again is
Speaker 1: growing globally.
Speaker 7: Right, we talked about that fourteen percent going to thirty percent,
Speaker 7: So massive upside for anyone who sort of gets it right.
Speaker 1: In terms of Tesla.
Speaker 7: The fact that they're talking about building a factory that's
Speaker 7: larger than Volkswagen and BMW in you know, Germany, the
Speaker 7: home of German autos, which is like you know, I mean,
Speaker 7: the Michigan of Europe is just mind boggling to me.
Speaker 7: So that tells you that the demand will continue there
Speaker 7: and the opportunity for car sales continues there.
Speaker 1: There's some amazing stats out there.
Speaker 7: If you look at EV sales last year in China,
Speaker 7: fifty percent of evs sold or fifty percent of car
Speaker 7: sold were EV's and the Nordics, though it was eighty
Speaker 7: nine percent of all vehicles sold and Europe that numbers
Speaker 7: closer For sixty percent, So you know, he's following the
Speaker 7: of interest.
Speaker 3: There at a time where macro headwinds also there.
Speaker 2: Just that's ran out of this conversation a little bit
Speaker 2: with where you know, Musk started to focus on interest
Speaker 2: rates still rising and the impact on the consumer.
Speaker 3: How are you feeling about the macro picture right now?
Speaker 1: Yeah, I'm actually a little more bullish on the macro picture.
Speaker 7: And you know, we've talked Caroline before about some of
Speaker 7: my stock picks that were getting crush last year in
Speaker 7: twenty twenty two with interest rates rising.
Speaker 1: On the tech space, and I think that that's playing
Speaker 1: out now.
Speaker 7: You know, there was a bear market last year and
Speaker 7: tech interest rates were rising, and now we're coming to
Speaker 7: the end of that. So I am in the camp
Speaker 7: of if we get another hiker two, okay, it's it's
Speaker 7: sort of manage what we're already there. I think that,
Speaker 7: you know, the economy has withstood a major recession. Perhaps
Speaker 7: you get a soft landing, but in terms of rates
Speaker 7: specifically towards ev or other goods and services, you know,
Speaker 7: I don't see prices necessarily kind of coming down, but
Speaker 7: inflation is coming down. Prices will probably stabilize and it
Speaker 7: will become you know, kind of easier to borrow money
Speaker 7: to produce more vehicles, to you know, to take on
Speaker 7: debt for innovation for growth companies.
Speaker 1: So I think we'd have you know, some arrange bound volatility.
Speaker 7: It will be kind of a slower year into the
Speaker 7: year end, but if earnings hold up, then I think
Speaker 7: the rally continues.
Speaker 2: A little bit of dissinflation visa v deflation right now,
Speaker 2: Sylvia Jablonsky, really great to have your take across Macro,
Speaker 2: and of course so Micro and Tesla CEO and CIO
Speaker 2: of Defiance ETF.
Speaker 9: Only a small percentage of our members are on the
Speaker 9: ads to here, even with the moves we just mentioned.
Speaker 9: Nice growth in the ads to here, but still off
Speaker 9: a small base, and we're really early in terms of
Speaker 9: paid sharing impacts including extra member for the reasons that
Speaker 9: Greg mentioned, that's going to build up over multiple quarters.
Speaker 3: That's a newman there.
Speaker 2: Netflix is CFO and trying to articulate why they're all
Speaker 2: so early in this shift towards an advertising model. That's
Speaker 2: continuing the conversation with Julie Alexander, director of strategy over
Speaker 2: at Parent Analysts, and it was a really interesting set
Speaker 2: of numbers. The fact that Netflix is down the most
Speaker 2: it's Eightril twenty twenty two. Clearly people had some anxiety
Speaker 2: around the fact that the revenue just doesn't seem to
Speaker 2: be following the uptick in subscriptions.
Speaker 1: Yeah, I think it speaks too.
Speaker 10: I mean, let's be clear, Netflix had a really great
Speaker 10: quarter when we're looking at Netflix's previous quarters.
Speaker 11: This is the kind of uptic that we are hoping
Speaker 11: to see from Netflix.
Speaker 1: But that softer revenue is concerning.
Speaker 10: It's only concerning if we think about this in terms
Speaker 10: of that ARM number, that average revenue permember. Other companies
Speaker 10: refer to this as typical RPO, that average revenue per user.
Speaker 1: And so we see that three percent decline year over year.
Speaker 10: Now that we know that as Netflix tries to onboard
Speaker 10: these new subscribers, right, so we see that nice subscriber
Speaker 10: growth in the most recent quarter. The question is what
Speaker 10: are revenue are they generating for these customers that now
Speaker 10: have different pricing options. They can come in at a
Speaker 10: cheaper add tier, which actually is better for Netflix overall.
Speaker 10: The ARM front because of that advertising revenue alongside the
Speaker 10: subscription review is really strong. But a lot of these
Speaker 10: countries where they're experimenting with the password sharing crack, and
Speaker 10: where they're looking at how to kind of increase their
Speaker 10: subscribers and leading into this immense demand that they see
Speaker 10: across their portfolio. The questions are these members coming in
Speaker 10: at a cheaper plan that maybe does not include subscribers
Speaker 10: We know that Netflix includes options, for example in Latin America,
Speaker 10: for some of these subscribers who are getting kicked off
Speaker 10: their parents' plans, are getting kicked off their friends'.
Speaker 11: Plans to go in and say, hey, I want to
Speaker 11: come in a cheaper tier for the service.
Speaker 10: And so how much revenue is Netflix really generating on
Speaker 10: average across these different subscribers is going to be the
Speaker 10: long term question. I think that's why you see Spencer
Speaker 10: and you see Greg and you see tests Rando's. The
Speaker 10: co CEOs, Greg Peters and teds Rando's speak to this
Speaker 10: really important aspect of pushing people towards the advertising tier,
Speaker 10: taking away certain plans like these basic ad free plans
Speaker 10: right and kind of moving into this idea of having
Speaker 10: a better position pricing power to really generate the revenue
Speaker 10: that they need, especially.
Speaker 1: As they kind of level out content spending.
Speaker 2: So JUDI they did do that of course in the
Speaker 2: UK and the US countries where people, of course canford
Speaker 2: they uptake, can decide Okay, I'll go for the AD
Speaker 2: supported cheap A model, or I'll have to pay more
Speaker 2: to get AD free.
Speaker 3: What do they do about emerging markets?
Speaker 2: How do they ensure that they can have the revenue
Speaker 2: they need from areas that they're still able to grow in.
Speaker 10: Ultimately, I think what's really smart about Netflix's plan, And
Speaker 10: let's be clear, I think there would actually be more
Speaker 10: of a concern if the ARM didn't change, in part
Speaker 10: because Netflix was not experimenting with its pricing power. I
Speaker 10: think the fact that Netflix is saying we're going to
Speaker 10: experiment with pricing power, We're going to experiment in markets
Speaker 10: that we know local content is really important, and we
Speaker 10: know that customers don't necessarily have the disposable income that
Speaker 10: customers in the US, the UK, Canada tend to have.
Speaker 10: We really want to figure out how we can be
Speaker 10: the local, dominant entertainment source and all these different countries
Speaker 10: right where Netflix is trying to monopolize attention is not
Speaker 10: just as the global distributor of one type.
Speaker 11: Of content, but being a local powerhouse and then sitting under.
Speaker 1: This global umbrella that is Netflix.
Speaker 10: And so when we think about that, what Netflix is
Speaker 10: really I think building is the s of having a
Speaker 10: prestige type of platform, a premium platform and then a
Speaker 10: casual platform, and the casual platform and the premium platform,
Speaker 10: unlike in other companies where that might be limited access
Speaker 10: to certain titles, whether that might be.
Speaker 1: The inability to actually access certain things on the platform.
Speaker 10: And think about how Peacock has Premium Plus, how HBO Max,
Speaker 10: how they differentiate between or now max rather how they
Speaker 10: differentiate between the ad free platform and the ad supported platform.
Speaker 10: Netflix is taking this into account of well, if we
Speaker 10: get if we get rid of these basic plants that
Speaker 10: don't have advertising, and we can make up that kind
Speaker 10: of average revenue per member by bringing people into that
Speaker 10: ad free plan, sorry, that ad supported plan, and then
Speaker 10: continuing to build upon that and actually bringing an additional revenue.
Speaker 1: Then in these.
Speaker 10: Markets where we can keep our pricing really low and
Speaker 10: see increased household penetration, especially in markets like in VR
Speaker 10: or parts of Europe where the linear and paid TV
Speaker 10: system is still pretty fundamental.
Speaker 1: These are countries where they don't necessarily need streaming.
Speaker 10: Internet access is still being developed in many ways, or
Speaker 10: they're still kind of moving on to those types of plans.
Speaker 10: Netflix is saying, we know that we need to penetrate,
Speaker 10: and we know that that is our first goal. You'll
Speaker 10: got a country like India where they're seeing strong penetration,
Speaker 10: but they're taking it at a stronger loss on the
Speaker 10: revenue front.
Speaker 11: And unlike Disney, who's who's suggesting with Bob Buyer's recent.
Speaker 10: Comments, we might move out of this market a little bit,
Speaker 10: you have Netflix saying we really want to double down.
Speaker 10: How can we use two different pricing power plans globally
Speaker 10: to ensure that our revenue does not kind of see
Speaker 10: these consistent slowdowns as we bring on these new customers.
Speaker 2: Juday, what about content, Because what's interesting is is perhaps
Speaker 2: Netflix less exposed to some of the strikes here in
Speaker 2: the United States because they can make much more content
Speaker 2: locally in these local markets.
Speaker 1: Yeah.
Speaker 10: I mean, you know, just some quick data points from
Speaker 10: our firm, parent Analytics. You know, Netflix leads the pack
Speaker 10: when it comes to on platform demand share, and what
Speaker 10: that really suggests to us is this ability to retain customers.
Speaker 10: This idea that when people are looking at an entire
Speaker 10: platform across original licensed programming, rarely spending the majority of
Speaker 10: their time.
Speaker 11: Netflix has actually beaten out Hulu in Q one twenty
Speaker 11: twenty three.
Speaker 10: In Q two it beat out HBO Max again now
Speaker 10: Max and with those combined Discovery plus Max assets, and
Speaker 10: so Netflix still is kind of the home in many ways,
Speaker 10: especially in the United States, to a lot of these customers.
Speaker 10: Where Netflix is most insulated is that Netflix has two
Speaker 10: or three main advantages. It has this global pipeline, and
Speaker 10: we've seen demand for global content to increase. Now, I
Speaker 10: want to be very clear here, the story of squid
Speaker 10: games should not be that Netflix can create global hits
Speaker 10: on the fly. It should be that they can create
Speaker 10: really strong local hits that might be able to find
Speaker 10: audiences outside of those territories and therefore increase the revenue
Speaker 10: that they that they originally had planned for that.
Speaker 1: And so if we think about we'll have to wrap
Speaker 1: it up.
Speaker 2: We've loved there's so much meat to the bones of
Speaker 2: everything that you're bringing in terms of your proprietary data
Speaker 2: and analytics, and we'll get into it a lot more later.
Speaker 2: But thank you so much that that was a very
Speaker 2: wide ranging conversation when it comes to all things Netflix
Speaker 2: parent analytics Judio Alexander. Meanwhile, coming up a conversation with
Speaker 2: our investment CEO and founder Kath Wood.
Speaker 3: This is a bit back technology with tech earnings upon us.
Speaker 2: How much will we actually see AI driver of revenue
Speaker 2: or more just a driver of conversation? And what are
Speaker 2: the risks still posed by the technology? Talked about all
Speaker 2: of this and much more with the Arch investment CEO
Speaker 2: and founder Kathy would and that Christie's art and tech summuch.
Speaker 3: Take a listen.
Speaker 12: One of the questions we get we're asked a lard
Speaker 12: is about the displacement of jobs. I think you're worried
Speaker 12: about the nefarious uses of artificial intelligent of humanity.
Speaker 3: The people seem to be talking.
Speaker 12: Yeah, so that on the second, all technologies can be
Speaker 12: used for nefarious purposes. I think what's scaring people is
Speaker 12: that this one is evolving so quickly. And one of
Speaker 12: the reasons it's evolving so quickly is the rate at
Speaker 12: which costs are declining. So AI training costs are dropping
Speaker 12: seventy percent per year. And why is that it's actually
Speaker 12: twice as fast as Morse law. It's the pace is
Speaker 12: the learning curve associated with this technology, So just to
Speaker 12: get put help people understand what this means. So chat
Speaker 12: GPT came out of GPT three. If that model had
Speaker 12: been developed in twenty fifteen, it would have cost eight
Speaker 12: hundred million dollars. Instead it was twenty twenty cost four
Speaker 12: and a half million dollars inceday, energy usees, intent, the
Speaker 12: cost yes, the cost of yes, developing the model to
Speaker 12: hardware software today, So eight hundred million eight years ago,
Speaker 12: two and a half years ago, four and a half
Speaker 12: million today less than four hundred thousand dollars. Now we're
Speaker 12: building bigger models, but the costs are collapsing and the
Speaker 12: opportunities therefore are exploding.
Speaker 2: Is it exploding just for private companies for closed source
Speaker 2: foundational models? Are you thinking that open source which in
Speaker 2: many ways the art world is trying to struggle with
Speaker 2: this sort of ownership versus sharing model as well. What
Speaker 2: do you think will end up being the AI models
Speaker 2: or can they all live together?
Speaker 12: So we're studying this very carefully. So foundation models, the
Speaker 12: open AI anthropic metas Lama, Google's palm. Now we have AJX,
Speaker 12: the foundation models. We thought we're going to commoditize, and
Speaker 12: we actually still think they will. You do open AI
Speaker 12: and Microsoft together now announcing charges for all of these
Speaker 12: AI assistants and so forth. But you have challengers. You
Speaker 12: have Meta out there saying no, we're not, We're not.
Speaker 12: This is open source. You have academic researchers, You've got
Speaker 12: people in the technology community who who are passionate about
Speaker 12: this open source movement.
Speaker 2: Kathy with there, we'll talk much more about open source
Speaker 2: in our VC spotlight. Wellcome back to bling back technology.
Speaker 2: I'm Caroline Hyde in New York. Let's get you a
Speaker 2: check on the market's halfway through this trading day, and
Speaker 2: we are seeing negativity warries, particularly in the tech space.
Speaker 2: We're looking over all, and then as that pulls down
Speaker 2: one point three percent, those earnings looking lackluster for some
Speaker 2: of the key tech names. How much can we justify
Speaker 2: a record first half for the NASA one hundred in particular.
Speaker 2: Now remember this is just falling that little bit lower,
Speaker 2: but it is the worst day that it was see
Speaker 2: since Dune the seventh for this index two year yield.
Speaker 2: Also a movement away from the bond market is we're
Speaker 2: seeing basis points move nine almost ten basis points on
Speaker 2: the two years. So once again perhaps we see that
Speaker 2: there's going to need to be a tackle of inflation.
Speaker 2: Maybe this is more what's just ultimately happening in some
Speaker 2: of the sell off that we've seen in terms of
Speaker 2: yields pushing lower over the last few weeks, that we've
Speaker 2: seen the CPI print come in, and we look forward
Speaker 2: to all other inflationary prints we've had. Over in the UK,
Speaker 2: it was looking good, and indeed in Europe we're seeing
Speaker 2: the Bloomberg Commodity Index though up on the six tenths percent.
Speaker 2: Maybe this is what's feeding into anxiety as to why
Speaker 2: the Fed might still have to continue to increase interest rates.
Speaker 2: It's because inflation is still evident, particularly in grains. We're
Speaker 2: thinking of wheat pushing higher. Therefore, the Bloomberg Commodity Index
Speaker 2: just on the upside. Moving on, let's look at the
Speaker 2: individual names when it comes to our sector. Right here,
Speaker 2: when I'm looking at tech IBM, look I focused on
Speaker 2: one of the very few big tech names are on
Speaker 2: the higher side today, IBM up more than three percent
Speaker 2: as they managed to actually releave some anxiety about their
Speaker 2: forward guidance in terms of yes, their second quarter didn't
Speaker 2: perhaps match expectations on current but people really feel that
Speaker 2: this is still a turnaround story that they're managing to
Speaker 2: bring in the free cash flow at the moment.
Speaker 3: So some analysts liking that number.
Speaker 2: SAP, I'm showing the American Depository receipts of this German company.
Speaker 2: It's the biggest software company over in Europe with down
Speaker 2: more than five percent, even upgrade their outlooks for profitability,
Speaker 2: but not enough and maybe some of the second quarter
Speaker 2: looked a little bit shy, were worried about spending on
Speaker 2: it over in Europe. And Tesla, I mean, down by
Speaker 2: more than seven percent. Pretty crushing day. But remember how
Speaker 2: far we have rallied on this particular stock as we
Speaker 2: look at a company that's still focuses.
Speaker 3: On volume over profitability.
Speaker 2: Interesting that also Tesla was talking about that supercomputer that's
Speaker 2: going to be driving its autonomous driving. We understand the
Speaker 2: billion being spent there, dojo. Let's move across to another supercomputer, Cerebras,
Speaker 2: known for its AI compute processes and cloud services. It's
Speaker 2: operating and managing one of the largest AI supercomputers in
Speaker 2: the world.
Speaker 3: It's called Condoor Galaxy one or CG one for short
Speaker 3: hows in Santa Clara, California.
Speaker 2: It can be built to help train generative AI models
Speaker 2: at a faster rate than ever before. They claim, CG
Speaker 2: one has already been purchased by one of its strategic
Speaker 2: partners based over an Abidabi. Let's talk now to the CEO,
Speaker 2: Andrew Feldman of Cerebras. Andrew, it's great to have some
Speaker 2: time with you. And look, it's a lot of money,
Speaker 2: what one hundred million for one of these supercomputers, and
Speaker 2: I'm interested as to what Abu Dabi is going to
Speaker 2: be using it for.
Speaker 1: Well.
Speaker 13: First, you know, today we announced a strategic partnership with
Speaker 13: G forty two and the first deliverable from that strategic
Speaker 13: partnership was one of the largest AI supercomputers in the world.
Speaker 13: And as you and your audience knows, there's a yawning
Speaker 13: demand right now for AI compute. And this demand is
Speaker 13: not just domestic in the US. We're seeing it globally,
Speaker 13: and by working together with G forty two, we think
Speaker 13: we can build a constellation not just one, but nine
Speaker 13: AI supercomputers and fundamentally change the global inventory of compute.
Speaker 2: Okay, Chris, many might rightly or wrongly have really put
Speaker 2: all their eggs in the in video basket, feeling that
Speaker 2: is where we're going to be satiated in terms of
Speaker 2: our compute power and necessity. And you're saying that's not true,
Speaker 2: or at least we don't need to just focus on
Speaker 2: some of these large, big tech American players.
Speaker 13: I think that's exactly right. I think first, all your
Speaker 13: eggs in one basket has historically been a poor strategy.
Speaker 13: I think dependence is anywhere in your supply chain is
Speaker 13: probably not the right strategy. But there are visionary companies
Speaker 13: like G forty two around the globe. We're seeing models
Speaker 13: both foundation in closed source and open source in Europe,
Speaker 13: coming from the Middle East, coming from Abudhabi, coming from Singapore,
Speaker 13: from Japan, from South Korea. And this is a phenomena
Speaker 13: that extends well beyond the six or seven US hyperscalers. Right,
Speaker 13: this is a need for compute that we thought a
Speaker 13: partnership with G forty two could help me to a
Speaker 13: global demand.
Speaker 3: Can you push us into the future a little bit.
Speaker 2: We were talking with Kathy Wood about closed source open
Speaker 2: source and you over at Cerebris are basically helping train
Speaker 2: GPT models and then putting them into the open source community.
Speaker 3: Why are you doing that?
Speaker 2: What do you think ultimately the AI landscape looks like
Speaker 2: in five years or so.
Speaker 13: Ok. I think one of the things she spoke about
Speaker 13: in her session was just how fast the AI community
Speaker 13: is moving. And it's been moving that quickly in part
Speaker 13: because of the open source and not just open source,
Speaker 13: but open publishing mentality. People have put ideas into the
Speaker 13: space again and again, and within weeks or months, those
Speaker 13: ideas are built on, they're improved, they're furthered and this
Speaker 13: is produced a sort of a Cambrian explosion of ideas.
Speaker 13: And we have been leaders in putting large models into
Speaker 13: the open source community. Our partner G forty two through
Speaker 13: its companies, has been pushing open source models into the community,
Speaker 13: and many others have. We're not alone at all, other
Speaker 13: hardware makers, other software makers. I think the community, the
Speaker 13: ecosystem is more healthy if it's not just a small
Speaker 13: number of compute providers and a small number of model makers.
Speaker 3: What about the China US divide, though.
Speaker 13: It's an important divide, and you know there we have
Speaker 13: to think carefully that there are no easy answers about
Speaker 13: powerful technology and the right way to manage their distribution
Speaker 13: around the world. I think it's it's an extraordinarily challenging
Speaker 13: problem and one that the politicians have to have to
Speaker 13: work through.
Speaker 2: Meanwhile, though, the politicians have to balance the risks with
Speaker 2: the real wards. Many would say key rewards being the
Speaker 2: application of AI in science and healthcare and the like.
Speaker 2: Which industries have you been most impressed with the way
Speaker 2: in which they've adopted and used AI, particularly using your supercomputer.
Speaker 1: That's exactly right.
Speaker 13: I think the regulation has to balance the drive for
Speaker 13: innovation and how startups like ourselves and large partners of
Speaker 13: startups like G forty two can drive innovation. I mean,
Speaker 13: just recently we've seen through our partnership with G forty
Speaker 13: two use of AI models and healthcare. We have partners
Speaker 13: who do drug design with AI models. We see digital
Speaker 13: assistance helping the elderly. We see in nearly every realm
Speaker 13: of life and how we live, or work or play,
Speaker 13: there's a role for AI. And you know you're showing
Speaker 13: some of our customers, ask Zeneca, Total Bear, Jasper all
Speaker 13: using AI in profoundly different ways, I think, and G
Speaker 13: forty two will use it in still different ways too.
Speaker 13: I think they are underrepresented languages. Arabic is one of
Speaker 13: them where there's an opportunity for tremendous expansion in.
Speaker 3: The role of AI.
Speaker 13: But I think we have to work together. I think
Speaker 13: your point about export is real and a challenge. But
Speaker 13: the community has come together.
Speaker 1: In the past.
Speaker 13: We've built standards together, competitors come together and said this
Speaker 13: is the standard. We can overcome geopolitical challenges as well.
Speaker 2: Andrew Fellman, thanks for the time and the insights. The
Speaker 2: CEO A cerebris No, it's a pleasure.
Speaker 13: Thank you for having me.
Speaker 2: Meanwhile, let's talk about the power of artificial intelligence and
Speaker 2: what is US lawmakers doing about it? Scrambling to impose
Speaker 2: limits on AI disinformation in particular ahead of twenty twenty
Speaker 2: fours elections. So far, Democrats have unveiled some pretty modest
Speaker 2: proposals calling for more transparency and campaign ads. One bill
Speaker 2: seeks labeling on political ads the use of deep fakes
Speaker 2: and other forms of AI. But Republicans it's been kind
Speaker 2: of slow to sign on. Nevertheless, both actual sides of
Speaker 2: the aisle have been pretty slow to grasp for really
Speaker 2: comprehensive understanding, Like many of us are the rebby evolving technology,
Speaker 2: and in fact we understand there at least months away
Speaker 2: from introducing comprehensive legislation to mitigate AI's most serious disinformation threats. Meanwhile,
Speaker 2: let's look at us social media giants or ready taking
Speaker 2: action in India complying with the government. There, Facebook, Google
Speaker 2: and Twitter are already removing a violent video There was
Speaker 2: actually from May, but that's gone viral overnight. According to
Speaker 2: people familiar, some social media companies began removing photos and
Speaker 2: videos of an incident as it violated their rules even
Speaker 2: before New Delhi issued emergency blocking orders. Video triggered the
Speaker 2: first public comments from Prime Minister Modi on the violence
Speaker 2: in Manipur state, where ethnic groups have clashed for nearly
Speaker 2: two months. Though some journalists have voiced concerned about blocking
Speaker 2: orders are obstructing news publishers' ability.
Speaker 3: To report on the event.
Speaker 2: Meanwhile, coming up, why all companies will need to incorporate
Speaker 2: II into that operations to survive. Calling to a Gray
Speaker 2: Lot partner Jerry Chen, we'll discuss that this is blue
Speaker 2: meg technology.
Speaker 3: Time Now for VC roundup.
Speaker 2: First up, Sequoia Capital shaking up its team after a
Speaker 2: turbulentlyar of market upheaval, a breakup, and at least five
Speaker 2: investor departures, including two crypto focused investors Michelle Frodin Daniel Chen.
Speaker 2: In the breakup, the firm also spun off Sequoia Heritage.
Speaker 2: It's a wealth management business, which Michael Morrits will be
Speaker 2: focusing on following his departure. Meanwhile, m and A and
Speaker 2: investment activity at the largest tech in life science firms
Speaker 2: finished the first half of twenty twenty three on a
Speaker 2: disappointing streak, with pending and completed deals down forty five
Speaker 2: percent compared to the start of twenty twenty two. If
Speaker 2: it continues on twenty twenty three, total deal count could
Speaker 2: be one of the lowest for Silicon Valley decades. Plus,
Speaker 2: a US Congressional committee is investigating for Benure Capital firms
Speaker 2: for their investments in Chinese tech companies GGV Capital, GSR Ventures,
Speaker 2: Walden International, and qual Con Ventures. We're all being probed
Speaker 2: at the moment. This is both the White House and
Speaker 2: members of Congress acrafting policies to track and potentially block
Speaker 2: US investments in certain fields in China. Well, let's get
Speaker 2: more into the micro of what checks are being written
Speaker 2: right now in the world of Benure Capital, and on
Speaker 2: today's VC Spotlight, I'm pleased to bring in Jerry Chen,
Speaker 2: partner at gray Lot Partners. Who's focus I'm sure, along
Speaker 2: with a lot of your capadres at the moment, has
Speaker 2: been artificial intelligence. How much are your current portfolio companies
Speaker 2: managing to embrace and a D maybe pivot towards it.
Speaker 14: Hey, Caroline, thanks for having me today. Everything's AI today.
Speaker 14: So I think we said in a recent blog the
Speaker 14: new new modes, it's AI or die. So it's not
Speaker 14: like am I AIVC or is this AI VC fund?
Speaker 14: Pretty much AIS touching healthcare, fin tech, consumer tech, door, storage, security,
Speaker 14: So pretty much every partner at graylock folks on AI,
Speaker 14: my self included.
Speaker 2: Can you help us understand where the immediate opportunities are?
Speaker 3: What's sort of been interesting.
Speaker 2: There's been various reporting about perhaps how Jasper's been having
Speaker 2: to cut back on its headcount, how actually experimental CEOs
Speaker 2: and their engineers within big companies are willing to adopt
Speaker 2: maybe open source models rather than purchasing the sort of
Speaker 2: easier just plugins that many anticipated they would go with. First,
Speaker 2: how are you seeing actual adoption of some of the
Speaker 2: companies you've been investing in.
Speaker 3: So I would say two things.
Speaker 14: One, your interest from customers consumers is spot On. So
Speaker 14: it'd say, like fifteen years ago, every at large customer
Speaker 14: header had a cloud strategy, right, they had to talk
Speaker 14: about how we're going to move to Amazon or as
Speaker 14: or a Google cloud. Now every company out there, big
Speaker 14: and small, has to have an AI strategy. So first
Speaker 14: and foremost every portfolio company, Graylock is kind of benefiting
Speaker 14: from the instant AI. But then the second question asked
Speaker 14: is the difference between plugins, between models, between open source
Speaker 14: and that's a question we had Graylock have been asking,
Speaker 14: like where are the motes right? Where are the defential
Speaker 14: business models in AI going forward? These some world where
Speaker 14: we have chat GBT or Lama tea for Meta or
Speaker 14: Palm from Google, Like what can you do to build
Speaker 14: a mote around the AI models?
Speaker 3: And so we've been debating that.
Speaker 14: In one hand, you can talk about system engagement like chat,
Speaker 14: like chat Gibt or bard. Chat has also become the
Speaker 14: way to interact to AI, and it's debatable what that
Speaker 14: persists or not. We're investors in a company called Pie
Speaker 14: Inflection starre by Mustafa and my partner Ried Hoffmann. That's
Speaker 14: all about using chat to talk to AI. There's infrastructure layers.
Speaker 14: Companies like Lama Index, a new investment we just did
Speaker 14: that talks about taking your enterprise data, interacting with these
Speaker 14: open source models, and then comes like adept or inflection
Speaker 14: and building these fundamental models themselves.
Speaker 15: Carolyn.
Speaker 14: So it's pretty cool because we're investing up and down
Speaker 14: the stack. I think it's early innings to try to
Speaker 14: figure out where all the money's going to accrue to.
Speaker 3: Do you think at the moment some of the money
Speaker 3: is being spent wrongly?
Speaker 2: Have we got a sort of mini bubble on our
Speaker 2: hands in terms of valuations and where it's being allocated.
Speaker 15: I don't think it's it's right or wrong.
Speaker 14: I think we're going to look back in time in
Speaker 14: five or ten years to say that was a mistake.
Speaker 14: I think there's a lot of experimentation going on right.
Speaker 14: I think we're experimenting at the foundation models. We're experimenting
Speaker 14: as a chat layer, we're experimented infrastructural layer. So I
Speaker 14: think there's a lot of experimentation on how AI is
Speaker 14: going to change a consumer tech, enterprise, tech security. I
Speaker 14: think in the next two or three years we're going
Speaker 14: to figure out where one which models work too, which
Speaker 14: verticals make sense, be I, legal, be a healthcare be
Speaker 14: a CRM. I think we're going to figure that out
Speaker 14: over time, and then I think as investors we're going
Speaker 14: to learn also, you know what business models make sense,
Speaker 14: And you know my bias or my spoiler alert is
Speaker 14: I think you know the old modes of our network
Speaker 14: effects go to market strength, brand marketing. All those weapons
Speaker 14: you employ as a startup founder in the past apply
Speaker 14: even more going forward in AI. Right, So AI is great,
Speaker 14: but I think Carolyn, like, the things that made money
Speaker 14: in the past will make money in the future.
Speaker 3: Where are those founders, sorry, where are the founders?
Speaker 14: Well, I mean I think founders today AI are largely
Speaker 14: coming out of two areas. One, they're coming from research
Speaker 14: around AI. So you see a cluster of AI researchers
Speaker 14: from open AI, from meta, from Google, folks that actually
Speaker 14: know the deep technology. Number Two, I think you see
Speaker 14: a cluster of founders coming out of domains.
Speaker 3: So people are thinking like, Okay, I want to.
Speaker 14: Apply AI, but I really know healthcare, legal, CRM customer
Speaker 14: support very very well, and trying to marry the two together.
Speaker 1: So I think we're investing in deep.
Speaker 14: Tech founders, you're really academic researchers. And then we're investing
Speaker 14: in domain experts that say, hey, I understand what the
Speaker 14: problem here is. Oh holy shoot, Like I can solve
Speaker 14: this problem with AI that I could in the past.
Speaker 14: And AI is unlocking these domain ex first to do
Speaker 14: things they can do.
Speaker 16: Three four years ago, jey Chen with the applications of AI,
Speaker 16: still trying to come to some really where all the
Speaker 16: value is going to come from, as we will our partner,
Speaker 16: a great up partner, is really interesting to have some
Speaker 16: time with you.
Speaker 3: Thank you. Meanwhile, let's stick with.
Speaker 2: The world of bench Capital because mag so how many
Speaker 2: changs sat down with Benchmark general partner Bill Gurley to
Speaker 2: discuss the keys to his success over the decades long
Speaker 2: career as a tech investor.
Speaker 3: Is his take on what it takes to be a
Speaker 3: great VC.
Speaker 15: To be great at it requires a level of hustle
Speaker 15: that's really hard to explain. And the reason is you're
Speaker 15: trying to maximize the optionality that you get in front
Speaker 15: of a home run pitch, and to do that, you
Speaker 15: have to look under every rock you possibly can. And
Speaker 15: so if you're not studying some new business model or
Speaker 15: new platform, you know, AI, if you're not just in
Speaker 15: every meeting, then you're lowering the chance that you're going
Speaker 15: to be success. So it's an exhausting games.
Speaker 2: Catch the whole conversation circle with them and chang tonight
Speaker 2: ten pm A New York on Bloomberg Television, or stream
Speaker 2: it at eight pm on Bloomberg Originals.
Speaker 17: Going to have a profound impact on virtually every element
Speaker 17: of the global economies. Obviously some areas more than others.
Speaker 17: There are businesses that will be more vulnerable. If you
Speaker 17: think about lower value add service businesses, maybe a call
Speaker 17: center business, You've got to be cautious. There'll be businesses
Speaker 17: like data centers where we've seen a step function increase
Speaker 17: in demand.
Speaker 2: Backstam president John Gray on the impact, of course of AI,
Speaker 2: and let's stick with it again, artificial intelligence and well,
Speaker 2: the infrastructure that sort of powers it TSMC out with earnings.
Speaker 2: The chip maker is cutting its annual outlook for revenue more.
Speaker 2: Let's bring in Kunjin Sivanni from Bloomberg Intelligence. Well, it
Speaker 2: seemed to me that we had first and foremost a
Speaker 2: high profile executive saying we don't know if AI is
Speaker 2: here to stay, if this frenzy in demand is going
Speaker 2: to be long term.
Speaker 8: Yeah, So I think from TSMC perspective. What the guidance
Speaker 8: suggests that the macroeconomic headwinds, especially demand weakness in China,
Speaker 8: is expected to result in a continued slow down in
Speaker 8: consumer markets like smartphones and PCs, where we are seeing
Speaker 8: a sluggish inventory digestion playing out. On the positive side,
Speaker 8: the AI frenzy driven growth was a positive tailwind, but
Speaker 8: was not enough to offset the global weakness in other markets.
Speaker 2: And remind us, I mean, there was the double whammy
Speaker 2: of perhaps slow down, certainly for consumer based chips, but
Speaker 2: there's also the fact that they're trying to boost supply,
Speaker 2: particularly here in US and Arizona, but they can't get
Speaker 2: the right labor.
Speaker 3: They're seeing spiraling costs. This supply chain issue is clearly
Speaker 3: a headache.
Speaker 8: It definitely is. But you know, the Arizona project is
Speaker 8: again of course come out in the future, so it
Speaker 8: does not impact their supply currently. However, speaking of supply
Speaker 8: and going back to your question about the AI frenzy,
Speaker 8: whether it's short term or not, I think we are
Speaker 8: in the very early, early leaning subgenerative AI cycle. I
Speaker 8: don't think this is a short term frenzy. In fact,
Speaker 8: we are seeing very strong demand and a higher percentage
Speaker 8: of wallets spent in data center and enterprise shift towards AI.
Speaker 8: But what we are limited right now is the supply interesting.
Speaker 2: So would what do you think would give t SMC
Speaker 2: the confidence to see and gain your sort of optimism
Speaker 2: that generator AI is just at its early innings that
Speaker 2: they should be focused on supply that this is ultimately
Speaker 2: demand that steady for the long term.
Speaker 8: I think one would be orders from the chip makers,
Speaker 8: which again translates into the backlocks of the chip maker.
Speaker 13: And we are seeing.
Speaker 8: Significant demand for the AI chip makers, like in media,
Speaker 8: they're having backlog and they're just not able to ship enough.
Speaker 8: So I think that's a good proof point that gives
Speaker 8: TSMC to backup supply and start shipping towards it. But again,
Speaker 8: it doesn't happen over a quarter, so I don't expect
Speaker 8: chip makers in AI to see a significant revenue step
Speaker 8: up quarter over quarter as we saw with in Vida
Speaker 8: last quarter. It will more be a steady growth until
Speaker 8: supply really catch yourself.
Speaker 2: And to that end, do you think that more supply
Speaker 2: will be being based here in the United States? Will
Speaker 2: we see more openings such as Arizona despite the hold.
Speaker 8: Up I'll be shuled. I mean, there might be some
Speaker 8: delay in the timing of the milestones, but we definitely
Speaker 8: don't think it will be postponed or I mean or canceled.
Speaker 8: We definitely will see. And beyond TSMC, we have players
Speaker 8: like Intel right which have announced their foundry strategy and
Speaker 8: are going all in on that, so we'll definitely see
Speaker 8: steps taken in that direction the near term. Gyrations might
Speaker 8: just slow it down and.
Speaker 2: Jen great perspective context. Thank you so much. Conjen Savanni.
Speaker 2: There bloombag Intelligence all Things and the chip and AI sphere. Meanwhile,
Speaker 2: that does it for this edition of Bloombag Technology. Do
Speaker 2: not forget, though, to check out our podcast. You can
Speaker 2: find it on the terminal have one as well as
Speaker 2: online on Apple, Spotify, and iHeart from New York.
Speaker 3: This is pretty bad technology.