Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is live
Speaker 1: from coast to coast with Caroline Hide in New York
Speaker 1: and Ever though in San Francisco.
Speaker 2: This is Bloomberg Tech.
Speaker 3: Alphabet, Amazon, Meta, and Microsoft all out with earnings and
Speaker 3: big AI dreams.
Speaker 4: Four companies ED are expected to spend as much as
Speaker 4: seven hundred and twenty five billion dollars in twenty twenty six,
Speaker 4: but the key question being whether that massive spending is
Speaker 4: providing tangible results. We'll discuss throughout this hour, and we
Speaker 4: fixate on these numbers.
Speaker 5: And you said it best. It was in seventy seconds.
Speaker 5: The fire hose ensued last night and Alphabet is the
Speaker 5: clear winner. We're at a record high.
Speaker 4: Google really posting strength in its cloud division one than
Speaker 4: sixty percent growth. Yes, they are opping their capital expenditure
Speaker 4: to one hundred and ninety billion dollars. Amazon also committing
Speaker 4: its capital expenditure. Look all together, this is actually growing GDP.
Speaker 4: We saw the numbers for the US economy strengthen on
Speaker 4: the business outlaws that Amazon puts to work with again,
Speaker 4: growth in its aws twenty eight percent growth. That was enough,
Speaker 4: but still maybe we're coming off of our near record
Speaker 4: highs in that stock.
Speaker 3: All four have the capital expensure story in common alphabet,
Speaker 3: Amazon and Microsoft. They had the cloud growth metric in common.
Speaker 3: Azure grew forty percent in the quarterer. Their briefing modest
Speaker 3: acceleration of cloud growth in the second half of this year.
Speaker 3: Meta is the outlier. It is down nine percent on
Speaker 3: one point, on track for its biggest drop since October.
Speaker 3: It told us the capital expenditures up to one hundred
Speaker 3: and forty five billion dollars this year. It gave us
Speaker 3: an outlook for sales that was in line with consensus.
Speaker 3: But then there was not that one extrametric about how
Speaker 3: AI is being justified, how the payoff is translating to
Speaker 3: them with their go to market.
Speaker 4: Yeah, let's try and translate therefore, because yesterday's frenzy and
Speaker 4: offered eight glimpse and just how some of the world's
Speaker 4: biggest tech companies are doing in AI. And this is
Speaker 4: what some of the big tech leaders had to say
Speaker 4: post earnings release.
Speaker 6: Looking ahead. Our ability to invest in this moment and
Speaker 6: stay at the frontier, you know, I think puts us
Speaker 6: in a strong position, and I think we are doing
Speaker 6: it based on tangible demand signal sphere, seeing.
Speaker 7: Nobody has a better sort of chips across AI and
Speaker 7: CPU workers in aws with training and Gravitan.
Speaker 8: And we're unusually well positioned for this AI inflection.
Speaker 4: We're in the early stages of experiencing.
Speaker 5: From CEOs to the investor. Take Ioka.
Speaker 4: Yes, that's portfolio consulting director at Wealth Enhancement Group, who
Speaker 4: I'm pleased to say has exposure to all of the
Speaker 4: four names. I Okay, let's start with a winner. Alphabet
Speaker 4: blew the market away. Is it justified the increase in.
Speaker 9: Spending absolutely, you know, they continue to see this exponential
Speaker 9: demand in AI, whether it was through Google Cloud or
Speaker 9: through their backlog doubling quarter over quarter. So yes, the
Speaker 9: spending is definitely justified. And they've been doing a great
Speaker 9: job of being a low cost token provider for AI.
Speaker 9: So we continue to think that there is some momentum
Speaker 9: here with Alphabet.
Speaker 4: And in many ways that's because of the vertical integration
Speaker 4: one that is replicated over at Amazon and we're seeing
Speaker 4: a huge backlog more than three hundred and sixty billion
Speaker 4: dollars worth of coming to business for Amazon and AWSKA.
Speaker 4: What did you make of Amazon's numbers in the flywheel effect.
Speaker 9: Sure, Now, it's great to see that acceleration in AWS growth.
Speaker 9: I mean we're talking big numbers here, and so to
Speaker 9: see an acceleration of AWS growing twenty eight percent year
Speaker 9: every year versus last quarters twenty four percent, we haven't
Speaker 9: seen these kinds of acceleration in these growth rates from
Speaker 9: AWS in quite some time, and so it's really nice
Speaker 9: to see, and it really sort of doubles down on
Speaker 9: the demand that everybody is seeing on the AI front.
Speaker 3: MG, give me the capital expenditures numbers for all four
Speaker 3: and let's show shares of Nvidia, and now YOURKO explain
Speaker 3: this to me, right, the overall CAPEX environment has been
Speaker 3: raised for twenty twenty six. Nvidia, which you think would
Speaker 3: be the biggest beneficiary, is down three and a half
Speaker 3: percent in the in the session and one of the
Speaker 3: biggest point drags at the index level.
Speaker 9: Why so, I think there was so much conversation yesterday
Speaker 9: regarding you know, whether it's Trainium, Graviton, Google talking about
Speaker 9: their TPUs, you know, customs, Silicon and you know, the
Speaker 9: sort of shift as we move more towards inference that
Speaker 9: is really going to be a benefit to you know,
Speaker 9: things like companies like Broadcom right, and so I think
Speaker 9: perhaps people are thinking that Nvidia isn't going to be
Speaker 9: the beneficiary as this infrastructure continues to build out. But
Speaker 9: I do think Nvidia is going to be the base
Speaker 9: layer here and you're going to continue to need to
Speaker 9: build out those large language models. You're just going to
Speaker 9: get that added additional benefit from CPUs as well going forward.
Speaker 3: So I wanted to take that sort of halftime pause
Speaker 3: before we move on to the other two Microsoft and
Speaker 3: Meta Microsoft, I guess it was an issue of language, right,
Speaker 3: they showed forty percent Azure growth and said modest acceleration
Speaker 3: into the second half of this year. The stock is
Speaker 3: actually down more than you might think it would be.
Speaker 9: Absolutely with Microsoft, you know, I think it was still
Speaker 9: a very solid earnings growth number, and it's it's you know,
Speaker 9: it got caught up and a lot of the software
Speaker 9: downdraft that we saw in the first quarter of this year.
Speaker 9: But Microsoft is continuing to you know, deliver solid earnings.
Speaker 9: We think that, you know, this is a great opportunity
Speaker 9: to continue to own these shares and that acceleration you'll
Speaker 9: see in the back half. I think Copilot is you know,
Speaker 9: one of the AI use cases in which enterprise are
Speaker 9: going to gravitate towards first, and so we continue to
Speaker 9: think there's some value there.
Speaker 4: So you would be adding to Microsoft in this weakness
Speaker 4: because actually it was one of the only names that
Speaker 4: was down on the year leading into these numbers.
Speaker 9: Absolutely. I mean, you know, I think the biggest issue
Speaker 9: for all of these companies is the free cash flow numbers.
Speaker 9: You know, as the CAPPAC spend continues to rise, you know,
Speaker 9: despite these double digit revenue growth numbers that they're posting
Speaker 9: along with solid profit margin and expansions, the free cash
Speaker 9: flow continues to sort of dwindle. And I think that's
Speaker 9: the biggest issue in terms of how much do you
Speaker 9: pay for these companies as that free cash flow continues
Speaker 9: to be pressured and how long will it continue to
Speaker 9: be pressured.
Speaker 3: Okay, so let's the three of us try and unpick
Speaker 3: what happened with Meta. The stocks down ten perent on
Speaker 3: track for its biggest drop since October thirtieth. The outlook
Speaker 3: for revenue in the current period was a range of
Speaker 3: fifty eight to sixty one billion dollars, basically bang in
Speaker 3: line with consensus, and then there wasn't another number right,
Speaker 3: There wasn't another metric Yoko that said all of this
Speaker 3: investment into AI is paying off.
Speaker 2: You know.
Speaker 9: I think we saw some nice numbers in terms of
Speaker 9: ad pricing. You know, that was up twelve percent, and
Speaker 9: so I think it was it was solid, but not great.
Speaker 9: I think it wasn't a blowout or some sort of
Speaker 9: acceleration there. And then we haven't had some you know,
Speaker 9: great efficiency numbers or any kind of quantifiable, tangible numbers
Speaker 9: coming out of news Spark and what that means.
Speaker 5: So you know, just I.
Speaker 9: Think there's a little bit of impatience relative to investors
Speaker 9: for Meta, but I think that that's going to come
Speaker 9: around and again metas in control of that cat back spend,
Speaker 9: so they can dial it back if they need to.
Speaker 9: I think the higher CAPBAC spend does reflect a lot
Speaker 9: of the additional costs that you're seeing from an in perspective,
Speaker 9: whether it's energy or memory chips, those are all flowing through,
Speaker 9: So I'm not sure they're intentionally spending that much more.
Speaker 9: I think a lot of this is that cost a
Speaker 9: push that is impacting CAPBAC spend.
Speaker 4: Yees seasonly talking about those component PRICESCO pushes forward you
Speaker 4: alsow an a Apple comes after the bell. Can they
Speaker 4: show some resilience that they can compete in the AI
Speaker 4: space even if they're not having to invest in the
Speaker 4: same solch fog.
Speaker 7: Yeah.
Speaker 9: Now, Apple's been, you know, a great follower in technology, right.
Speaker 9: They tend to perfect the user experience when it comes
Speaker 9: to new technology, and so we continue to think that
Speaker 9: they're working on that, whether it's with new enhancements to Siri,
Speaker 9: and you know, we do think that they continue to
Speaker 9: be very diligent when it comes to their free cash flow,
Speaker 9: and you continue to see that they're not spending as
Speaker 9: much when it comes to this arms race for ai.
Speaker 3: Oyoko Yoshioka from Wealth Enhancement Group, thank you very much
Speaker 3: for joining us on Bloomberg Tech. Another story out of Asia.
Speaker 3: Overnight Samsung shares actually kind of modestly lowered down two percent,
Speaker 3: but record profits over the March quarter. In fact, we're
Speaker 3: talking about the chip division where profits sored forty eightfold.
Speaker 3: It's a story about AI spending, just as we've been discussing,
Speaker 3: but also what Bloomberg's now call calling the memory chip
Speaker 3: super psychle Samsung exposure to both on the fab side,
Speaker 3: on the memory side, as well shares kind of in
Speaker 3: career pretty muted Cara.
Speaker 4: Now Quilcom's got exposure to both, and this is a
Speaker 4: story of trying to pivot into the world of AI
Speaker 4: spending and more away from the complete exposure it had
Speaker 4: to mobile phones up seventeen percent, stop us down after hours.
Speaker 4: The volatility is extraordinary. We've all focused on this mystery
Speaker 4: leading Hyperscala Customs silicon engagement that they've got that they
Speaker 4: say is on track initial shipments later.
Speaker 5: This calendar year.
Speaker 4: This is the pivot that many want to see in
Speaker 4: the Avesta base. Yes you're in automotive, Yes you're in
Speaker 4: the phones, Yes you're in the IoT space, but are
Speaker 4: you in data centers? They're saying they're going to be soon.
Speaker 4: And look at the CEO, Christiano Amon's going to be
Speaker 4: joining us later. This out to tell us a little
Speaker 4: bit more what a ride Now coming up, we're all's
Speaker 4: going to be diving into anthropics ride, the push to
Speaker 4: ramp up fundraising, weighing a fresh round that would value
Speaker 4: the startup more than nine hundred billion dollars. That was
Speaker 4: your conversation that you had ed with Anthor. Well, you've
Speaker 4: been helping focus on throw. But you're also be having
Speaker 4: a conversation with the Stripe president John Collinson.
Speaker 5: After the company.
Speaker 4: Announced new AI tools and a new partnership with Google.
Speaker 5: There's a blueberg Tech.
Speaker 3: Anthropic has begun weighing a fresh funding round that could
Speaker 3: value the AI developer at more than nine hundred billion dollars,
Speaker 3: according to sources, potentially over taking long time rival open
Speaker 3: Ai is the world's most valuable AI startup. Bloomberg's and
Speaker 3: the Sasha Mascaraneus part of the team that break the
Speaker 3: story with us. Now, I think we've got to be
Speaker 3: very specific with this. This is investors going to Anthropic
Speaker 3: and saying, let's do this, but take that and give
Speaker 3: us the details that we have so far.
Speaker 10: Yeah.
Speaker 5: Sure.
Speaker 10: So last week we talked about unsolicited term sheets getting
Speaker 10: headed Anthropics way at around an eight hundred billion valuation.
Speaker 3: Which we said Anthropic rebuffed. They basically said no, thank
Speaker 3: you exactly.
Speaker 10: The update now is that Anthropic is actually engaging in
Speaker 10: those conversations at her nine hundred billion valuation even higher.
Speaker 10: But no term sheet has been signed. So this is
Speaker 10: not one of those deals where we expect to see
Speaker 10: a press release.
Speaker 5: The ink dry by end of day.
Speaker 10: This is one of those deals where Anthropic is hearing
Speaker 10: his offers and is responding to the investors that have
Speaker 10: approached them, And it comes in the backdrop of you know,
Speaker 10: Google and Amazon putting tons of capital into Anthropic at
Speaker 10: around a three hundred and fifty billion valuation. So to me,
Speaker 10: this is a really interesting example of there being kind
Speaker 10: of two tales of capital raising at the same time.
Speaker 5: Yeah, Natasha, why the change of hot? Is it a
Speaker 5: change of hot?
Speaker 4: Is there a need that the fool they could tap
Speaker 4: the public markets because we're all been talking about an
Speaker 4: IPO for this.
Speaker 5: Year, you know.
Speaker 10: It's it's pretty much the standard dance in AI fundraising
Speaker 10: these days, is how I see it. When investors approach
Speaker 10: a company with an offer to invest a million, things
Speaker 10: could be you know, wrong, so to speak. It could
Speaker 10: be the wrong investor, the wrong price. With Anthropic, we
Speaker 10: all know very clearly that they need capital to fund
Speaker 10: their compute needs. It's why they've brought on so many strategics.
Speaker 10: It's also what financial investors are frankly, you know, taking
Speaker 10: advantage of by saying, listen, we'll come to you before
Speaker 10: you go public. We'll offer you a fresh you know,
Speaker 10: tranch of capital, get it all ready and then go public.
Speaker 10: And so is it a change of heart? I would say, yeah,
Speaker 10: It's different than them completely ignoring the offers. These are
Speaker 10: serious investors that are approaching them with real capital offers.
Speaker 10: The next thing to break is who they'll accept and
Speaker 10: at what price. Like we said right now, it's at
Speaker 10: above a nine hundred billion valuation, which if accepted, would
Speaker 10: surpass their biggest rival, Open AI.
Speaker 5: Natasha Mascariness.
Speaker 4: It's great reporting along Psyde colleagues, including ed we appreciate it.
Speaker 3: Now.
Speaker 4: Sticking with anthropic, the National Security Agency has been testing
Speaker 4: the startups new AI model Mythos to find cybersecurity vulnerabilities
Speaker 4: in popular software, including Microsoft products.
Speaker 11: Now.
Speaker 4: That's according to a US official and a source who
Speaker 4: say that an essay officials studying the Mythos model, well,
Speaker 4: they've been impressed. Right speed is sufficiency in searching for
Speaker 4: potential security flaws it.
Speaker 3: White House officials have spent months preparing a memo that
Speaker 3: outlines requirements for AI deployment by national security agencies.
Speaker 2: Sources help bloombag.
Speaker 3: The wide ranging policy will touch on issues that have
Speaker 3: been at the center of the feud between the Pentagon
Speaker 3: and Anthropic. Let's get more with Bloomberg's Maggie Eastland in DC. Maggie,
Speaker 3: what are you reporting?
Speaker 12: Yeah again, Ed, as you said, the White House is
Speaker 12: preparing this National Security memo. It aims to essentially set
Speaker 12: one standard for how a swath of agencies can work
Speaker 12: with and contract with AI companies. But what's especially interesting
Speaker 12: is it addresses each of those key fault lines that
Speaker 12: we saw come up as Anthropic and the Pentagon we're
Speaker 12: in this very tense feud that resulted in a legal
Speaker 12: supply chain designation.
Speaker 5: So the fault lines, let's dig in.
Speaker 4: Does this end up allowing federal agencies a workaround here,
Speaker 4: an ability to keep on using Anthropics technology.
Speaker 12: Some officials said that they do view this as a
Speaker 12: workaround now. One senior official that we talked to disputed that,
Speaker 12: but they one of the key terms here is this
Speaker 12: idea that it directs agencies to diversify the model companies
Speaker 12: that it's working with. Now, some view this as a
Speaker 12: way that the Pentagon could drop some of the more
Speaker 12: extreme legal measures that would force it to fully excise
Speaker 12: Anthropic and instead point to this memo, which says that
Speaker 12: the supply gene risk can be dealt with simply by
Speaker 12: working with other AI providers, which the Pentagon is already
Speaker 12: doing in its agreements with open Ai and Xai.
Speaker 4: Totally fascinating reporting Bloomberg's Maggie Eastland, thanks for bringing it
Speaker 4: now to another closely watched AI story. Elon Musk is
Speaker 4: set to take the stand again today in his lawsuit
Speaker 4: over open AI's pivot from a charity to a for
Speaker 4: profit business.
Speaker 9: Now.
Speaker 4: Elon Musk became visibly irritated during cross examination yesterday, clashing
Speaker 4: with open AI's lawyer over the exact amount he contributed
Speaker 4: to the startup. Now, the billionaire is set to wrap
Speaker 4: up his testimony today, and we followed by his longtime
Speaker 4: well maybe we call him Fixer and Neuralink CEO Joed Burchill.
Speaker 3: Stripe is partnering with Google to let businesses transact inside
Speaker 3: of AI mode and the Gemini app. This was part
Speaker 3: of a slew of announcements made a Stripe's annual customer conference.
Speaker 3: We cut up with stripe president and co founder John Collison.
Speaker 7: I think when people talk about this it seems really
Speaker 7: far off, and maybe part of that is, you know,
Speaker 7: the the examples people give almost sounds incredibly far off
Speaker 7: where it's like, oh, I'll just have my AI agent
Speaker 7: plan my entire summer vacation. You know, in transfer, it's like, no,
Speaker 7: you love planning to the subberfication, you want to do
Speaker 7: that yourself. Whereas if you say, okay, you just give
Speaker 7: your AI this is the recipe I'm making tonight by
Speaker 7: the things I don't have in the fridge already. Like
Speaker 7: that's the kind of delegation that you know, people are
Speaker 7: much more comfortable with, and so we think people and
Speaker 7: AI services will kind of work their way up the
Speaker 7: trust curve. Where again, it's already the case that the
Speaker 7: research you're doing, the research you're doing, you do within
Speaker 7: the AI app. You're probably still confirming that directly, but
Speaker 7: it might get the case where you're allowing the AIS
Speaker 7: make small decisions for you and especially as it gets
Speaker 7: to know you. And so again, on the developer side,
Speaker 7: imagine you're building a website and you need a hosting
Speaker 7: provider or you need to buy a domain name for us.
Speaker 7: Today it's the case that you go and you like
Speaker 7: find the domain name buying service yourself, and you could
Speaker 7: go fill out the form and everything like that. You
Speaker 7: just want a domain name, you can get it for
Speaker 7: multiple providers. You'd probably be okay with cloud code or
Speaker 7: Codex or cursor, you know, whatever you're using actually choosing
Speaker 7: how to buy a domain for you. And so it's
Speaker 7: already the case that people are doing a lot of
Speaker 7: interactive buying with AIS where they're improving the final step.
Speaker 7: We think people are already starting to have a little
Speaker 7: bit in a huge amount of what we announced today
Speaker 7: is those little decisions. People are delegating them to the
Speaker 7: ice buying your domain name. Again, it's the example I
Speaker 7: would give, and then as they start to see that
Speaker 7: it works really well, people will just give them more
Speaker 7: and more.
Speaker 9: Rope.
Speaker 3: Google has not historically led in payments. The partnership that
Speaker 3: you've been through today and the changes in integrating Stripe
Speaker 3: in to AI mode in Gemini, does that change their
Speaker 3: fortunes in that market.
Speaker 7: I mean, I think Google has done a phenomenal job
Speaker 7: in commerce generally, and I mean again, Google pay is
Speaker 7: very large and successful within the Android ecosystem, and so
Speaker 7: I don't think that will be quite a fair characterization.
Speaker 7: I think they've done a phenomenal job enabling commerce. And again,
Speaker 7: this is a new tool in the toolbox for them
Speaker 7: where now they're enabling within Gemini these amazing agenda commerce experiences,
Speaker 7: which again we think just has to be the future
Speaker 7: because it's so much more convenient for consumers. It's never
Speaker 7: been the case in technology when you get a way
Speaker 7: more convenient way of working for consumers. But they picked
Speaker 7: the less convenient one.
Speaker 2: It's never happened.
Speaker 4: That was Strike President co founder John Collison, creat interview ed.
Speaker 4: Now we've got to get back to earnings. We're going
Speaker 4: to be getting back with them with Brad Erickson from
Speaker 4: OBBC Capital Markets. To believe Alphabet's future growth and multiple
Speaker 4: expansion are constrained some extent not constrained on the market
Speaker 4: right now, are we alphabet best point added to to
Speaker 4: then as that one hundred leads the way and we're
Speaker 4: at a record high.
Speaker 3: We're trying to find the common story between all four companies, right,
Speaker 3: Capital expenditures is probably it, but I think that you
Speaker 3: know what all four companies said is that they are
Speaker 3: constrained in capacity, right, they cannot build the infrastructure that
Speaker 3: they need quick enough to service. In the case of
Speaker 3: alphabt Amazon and Microsoft external demand and one thing carry
Speaker 3: you probably get this right, you know, Meta is internal
Speaker 3: demand for workloads, not necessarily something that's consumer facing, and it's.
Speaker 5: Getting more expensive.
Speaker 4: Maybe the one hundred and forty five billion dollar that
Speaker 4: they guided to gets less banned for the buck when
Speaker 4: memory prices have sawed, when component prices have sawed. This
Speaker 4: is something that we saw Susan Lee really talk about
Speaker 4: the fact that pricing pressure is going up, and so
Speaker 4: maybe that impacts how much capex they have to spend.
Speaker 4: What's interesting there is the kapux is firm for the
Speaker 4: infrastructure layer.
Speaker 5: Why then is Nvidio down.
Speaker 4: It seems as though a lot of them are talking
Speaker 4: up their own inn house chips.
Speaker 3: Things could be true. It could be that the TPU
Speaker 3: is coming for them, as outlined on the call last night.
Speaker 3: It could be sell the news, and it could be Qualcom,
Speaker 3: which we'll get to later in the programs. They are
Speaker 3: the data center business.
Speaker 4: Welcome back to Bloomberg Tech and let's take a look
Speaker 4: at today's big number. We've talked about it already, seven
Speaker 4: hundred and twenty five billion dollars. That is how much Amazon, Alphabet, Meta,
Speaker 4: Microsoft together alone are expected to spend in twenty twenty six,
Speaker 4: upping their AI spending plans after their March quarter, but
Speaker 4: with still a key question when will we see return
Speaker 4: on all this AI spending. Well, we saw it from
Speaker 4: Alphabet and people are applauding the numbers because Google Cloud
Speaker 4: on farm more than sixty percent growth and we're seeing
Speaker 4: really it doing the flywheel effect because they're vertically integrated
Speaker 4: business model and the fact that you people are using
Speaker 4: their AI tools up seven percent record high Amazon, that
Speaker 4: fly will effect are still there. They create and have customs.
Speaker 4: But of course they're also making moves on Cloud Aws
Speaker 4: twenty and eight percent growth.
Speaker 5: But maybe we come off near.
Speaker 4: Record highs on that share price down five percent is
Speaker 4: Microsoft and.
Speaker 5: That's more interesting.
Speaker 4: Yes, they also are spending more, leaning into one hundred
Speaker 4: and ninety billion dollars spend for the year. They're also,
Speaker 4: though maybe not managing to ramp up the asual growth
Speaker 4: as much as people anticipated, but it's still going to
Speaker 4: be a healthy forty percent in future quarters. It's at
Speaker 4: thirty nine percent of this particular quarter. Move on and
Speaker 4: see what's happened. In terms of Meta. I'm afraid we
Speaker 4: are not applauding Meta's commitment to capital expenditure because they
Speaker 4: don't have a cloud offering.
Speaker 5: Thus yet let's just have a little listen to what
Speaker 5: Mark Zuckerberg really had to.
Speaker 4: Say about well, where his spending is going yesterday.
Speaker 8: We are increasing our infrastructure capex forecast for this year.
Speaker 8: Most of that is due to higher component costs, particularly
Speaker 8: memory pricing. But every sign that we're seeing in our
Speaker 8: own work and across the industry gives us confidence in
Speaker 8: this investment. That said, we are very focused on increasing
Speaker 8: thefficiency of our investments.
Speaker 3: Let's get into it with RBC's Internet analyst Brad Erickson,
Speaker 3: whose pre earnings report flagged metas quote elevated investment cycle.
Speaker 2: And yeah, that's what we got.
Speaker 3: Meta is a company that operates social media platforms and
Speaker 3: it makes money from advertising, and at the same time
Speaker 3: it will spend at the high end one hundred and
Speaker 3: forty five billion dollars in infrastructure to support its work
Speaker 3: in AI. For me, there just wasn't that number that
Speaker 3: explained this is the result of that investment. This is
Speaker 3: how our AI work is getting traction with the world.
Speaker 3: Is that your tape, Brad, Yeah, I.
Speaker 13: Think that's a very fair way to sort of look
Speaker 13: at it. You know, each quarter that ticks off with
Speaker 13: all of these companies, right, we fair or unfair, We
Speaker 13: have to evaluate kind of what have you done for
Speaker 13: me lately relative to that spend. And clearly the cloud
Speaker 13: commercial cloud vendors last night are the ones showing sort
Speaker 13: of the best return, particularly with that margin upside, whereas
Speaker 13: with Meta you've got a deceleration. Just start there, right,
Speaker 13: the revenue was fine in the quarter, but you do
Speaker 13: have a little bit more deceleration in their guidance for
Speaker 13: Q two, And then they were the only ones to
Speaker 13: raise the capex guide at least on an organic basis, Right,
Speaker 13: Amazon and Google. Google had to raise their capex, but
Speaker 13: it wasn't It was because of an acquisition, not because
Speaker 13: of higher component pricing. So yeah, it's just a tough
Speaker 13: combination for you know, kind of that next day stock reaction.
Speaker 3: I use Meta AI. I'm sure Caroline uses Meta AI too,
Speaker 3: but I don't pay for it. I use it within
Speaker 3: the Instagram app for example. Or I'm awarer of ray
Speaker 3: Ban metas and you know voice based assistant version of
Speaker 3: Meta AI. A parallel example was Alphabet giving us data
Speaker 3: quarter on quarter for Gemini's enterprise growth. You know, Meta
Speaker 3: doesn't have that sales channel, so what is it that
Speaker 3: Mark Zuckerberg can say other than meuse spark The latest
Speaker 3: model is making ads better that will convince the street. Yeah,
Speaker 3: let's keep going with this.
Speaker 13: Yeah sure, yeah, I mean there's always going to be optimization, right,
Speaker 13: They drive you know, more content recommendation gets people staying
Speaker 13: on there for longer, they show more ad impressions, they
Speaker 13: find people with better ads that convert more. So there's
Speaker 13: all sorts of value creation that's still going to happen there.
Speaker 13: But yeah, I kind of agree with you. I think,
Speaker 13: you know, clearly, on the enterprise, there's a far more
Speaker 13: compelling argument for you know, enterprise developers adopting things like
Speaker 13: Gemini or Anthropic or chat GPT, where I think the
Speaker 13: idea though, that we're kind of broaching for people. We
Speaker 13: call it born on Meta, and what it means is
Speaker 13: we actually think there's big opportunities that are probably underappreciated
Speaker 13: for meta to almost start to like help small businesses
Speaker 13: start exist and execute entirely on meta.
Speaker 2: We think that's a possibility in the future.
Speaker 13: Right today, you start a small business somewhere else, you
Speaker 13: come to Meta to market.
Speaker 2: It's certainly helpful for the business.
Speaker 13: But they've only participated in kind of that advertising portion
Speaker 13: of it. Imagine if meta ai started like helping you idate, originate,
Speaker 13: literally start businesses on the platform that were specifically geared
Speaker 13: around success with the ads. Right, Like, there's a connection
Speaker 13: there that I think the Superintelligence group is aiming to make.
Speaker 13: And I think it's subtle at this point, but it's
Speaker 13: a topic we're kind of trying to elevate for people
Speaker 13: because I think that might be the more compelling way
Speaker 13: that they use meta AI in the future.
Speaker 4: Briefly, there was lip service given by in a statement
Speaker 4: Susan Lee that there's the regulatory overhang and that could
Speaker 4: impact future revenues. How much is that What if you
Speaker 4: at the moment, Brad, you.
Speaker 13: Know, that's a you know you're here to it referred
Speaker 13: to as kind of the big Tobacco moment. I mean
Speaker 13: that would be relative to kind of social media usage
Speaker 13: broadly in today's world, that would be such a seismic change.
Speaker 2: It's a risk. We worry about a lot of stuff
Speaker 2: on stocks.
Speaker 13: That's something that's completely out of sort of everyone's control
Speaker 13: at this point. But yeah, if that happens and they
Speaker 13: are forced to kind of throttle usage for users below
Speaker 13: a certain age. It will absolutely meaningfully impact the business.
Speaker 13: It's also just one of those things. A it's totally unpredictable.
Speaker 13: Be you know, there will be like years of appeals involved,
Speaker 13: and so I don't want to say a fine or
Speaker 13: a settlement looks more likely, but historically we've seen that
Speaker 13: be kind of the primary outcome of these types of situations.
Speaker 4: Obviously's Internet analyst Brad Erics. I'm really glad we could
Speaker 4: dig into metal with you, Thank you very much. Indeed, look,
Speaker 4: we've got more earnings Apple reports later today its first release.
Speaker 4: Is the iPhone maker really announced the hardware chief, John Turners,
Speaker 4: will succeed the CEO, Tim Cook.
Speaker 5: Let's get the details of what to expect.
Speaker 4: Mumbo's Mark Gumman like almost is it a sideshow of
Speaker 4: the earnings?
Speaker 2: Yeah, I mean this is going to be quite interesting.
Speaker 14: Right a week ago they announced that Tim Cook is
Speaker 14: stepping down September first, being replaced by John Turnis.
Speaker 2: As we anticipated.
Speaker 14: I'll be looking out for any other new color on
Speaker 14: the transition. If Turnus is going to speak and gives
Speaker 14: some insights to Wall Street for the first time, I'm
Speaker 14: going to be interested.
Speaker 2: To see how that all gets split.
Speaker 9: Up.
Speaker 14: Obviously, from a numbers perspective, we're expecting some pretty numbers, right,
Speaker 14: thirteen to sixteen percent year every year revenue increases. What
Speaker 14: Apple guided a few key factors in there. The biggest
Speaker 14: one is pent up demand for iPhones seventeen, Pro and
Speaker 14: Promax that launched last September. Obviously, but there were some
Speaker 14: supply chain constraints through the tail end of the first quarter,
Speaker 14: which means that some sales led into the second quarter,
Speaker 14: so we'll see a bit of an iPhone increase because
Speaker 14: of those products.
Speaker 2: And then they had their wave.
Speaker 14: Of new Mac and iPad and iPhone seventeen launches very
Speaker 14: much at the tail end of the March quarter, which
Speaker 14: obviously contributed as well. The MacBook Neo has been a
Speaker 14: strong seller, so you're likely to see a big jump
Speaker 14: in Mac revenue as well.
Speaker 3: Mark, I think we're showing Apple shares up modestly half
Speaker 3: percentage point, treading water until tonight, but we should probably
Speaker 3: address how much of a leading indicator Qualcomm is right
Speaker 3: they told us that the Android market in China will
Speaker 3: bottom in Q three. Memory pricing is clearly an issue.
Speaker 3: What data do we have about Apple facing similar issues?
Speaker 14: You know, the Qualcom stuff is interesting. Actually, it's hard
Speaker 14: to put two and two together at this point, just
Speaker 14: because the android market is not selling well in particular
Speaker 14: parts of the world like China. You know, there's no
Speaker 14: telling if that means that the iPhone is also not
Speaker 14: selling well. It's possible if the android market is not
Speaker 14: selling well because people are buying iPhones instead. So I
Speaker 14: probably wouldn't read too much into.
Speaker 3: It, Okay, bluebos Mark Gunman on deck after the market
Speaker 3: closed today for a big Apple print, Thank you very much.
Speaker 3: One three seven Ventures as raised seven hundred million dollars
Speaker 3: split across two new funds. The firm has put money
Speaker 3: behind some familiar names like Anderil, Gusto Ramp, and SpaceX.
Speaker 3: Justin Fishner Wolfson, founder and managing partner at one three seven.
Speaker 2: Joins us here in San Francisco. Good morning.
Speaker 3: This is interesting how you've done this.
Speaker 6: This is.
Speaker 3: Two funds where each sub's a purpose. It takes your
Speaker 3: assets on the management to fifteen billion dollars. And I
Speaker 3: mean this justin with respect. Your firm's gone a little
Speaker 3: under the radar and now here you are arriving at
Speaker 3: this moment.
Speaker 15: I mean, I think we've just been focused on investing.
Speaker 15: So maybe I think within the venture ecosystem people know us.
Speaker 3: I want to talk about one of the funds in particular.
Speaker 3: I find this very interesting. The idea of some of
Speaker 3: the capital is that you offer liquidity right to founders,
Speaker 3: that you back their employees in different forms, why specifically
Speaker 3: earmarks some money for that.
Speaker 15: So if you kind of rewind the clock, right, we
Speaker 15: started the firm about sixteen years ago, and you know,
Speaker 15: our thesis was that companies were going to stay private longer,
Speaker 15: and the challenge of companies staying private longer was going
Speaker 15: to be that founders, executives, employees were going to need liquidity.
Speaker 2: Like working capital. I mean, look, if.
Speaker 15: You start a company when you're twenty five and then
Speaker 15: you know you end up being thirty five, right, Like
Speaker 15: your life is different, Maybe you want to buy a house,
Speaker 15: right in the same way, like all these companies need
Speaker 15: more growth capital, right, And so we've seen the availability
Speaker 15: of that expand in the private markets. And so you know,
Speaker 15: our general view is if companies stay private longer, they're
Speaker 15: going to be more opportunities to invest in them.
Speaker 5: And opportunities.
Speaker 4: Boy did you take you first invested in SpaceX for example,
Speaker 4: in twenty ten, you've written two dozen checks. It tells
Speaker 4: me into SpaceX since how much now do you own
Speaker 4: a SpaceX if you're.
Speaker 5: Able to do that.
Speaker 15: I mean, I think at this point where I think
Speaker 15: we own well over ten billion dollars, So it's a
Speaker 15: it's a pretty big position for us. And we've had
Speaker 15: a lot of conviction in the business over the last
Speaker 15: fifteen sixteen years.
Speaker 2: So yeah, we're excited.
Speaker 4: I mean, if you were in in twenty ten, what
Speaker 4: sort of returns can the LPs be expecting on this?
Speaker 15: Oh gosh, some of those some of those investments I
Speaker 15: think are probably like kind of X investments at this point.
Speaker 3: It's interesting. You know, ten billion dollars of position is
Speaker 3: SpaceX I think would be around one percent of the company. Yeah,
Speaker 3: but you've got a decision to make. So if we're
Speaker 3: right and Bloomberg's reporting that a label the rook is
Speaker 3: always right, Bloomberg is very often right. But we're reporting
Speaker 3: that SpaceX, you know, goes public in late June and
Speaker 3: evaluation of let's up to two trillion whatever, it ends
Speaker 3: up raising seventy five billion dollars. You keep talking about
Speaker 3: the whole point of the firm is to invest in
Speaker 3: companies over that longer time horizon. In that case, companies
Speaker 3: were staying private longer. What do you do for your
Speaker 3: LPs or for your firm in an IPI scenario? Do
Speaker 3: you stick with it or what's the strategy?
Speaker 15: I mean, I think the exciting part about SpaceX is
Speaker 15: like the next twenty years of the business. And so
Speaker 15: I agree with your question. I think it's a hard decision. Ultimately,
Speaker 15: let's see where we get to. Right, We'll find out
Speaker 15: what the company price is at. As you know, these
Speaker 15: things tend to happen that night before, right, So I
Speaker 15: think there's a lot of information between now and when
Speaker 15: the IBO happens, and I think we're going to be
Speaker 15: happy with all outcomes, but we're sort of excited for
Speaker 15: the next couple decades.
Speaker 3: I wanted to look backward a little bit. You know,
Speaker 3: the first investment around twenty ten. You had already had
Speaker 3: a history of SpaceX from your time at Founder's Fund.
Speaker 3: But if you did do two dozen checks over fifteen
Speaker 3: sixteen years, what was that like. We make a lot
Speaker 3: on this program of Google and Fidelity Founders Fund coming
Speaker 3: in in these bigger rounds, but you were able to participate.
Speaker 15: I mean, I think really the thing that we did
Speaker 15: is consistency.
Speaker 6: Right.
Speaker 15: We were excited about the business, We had conviction about
Speaker 15: the business, and so we kept investing, right, and some
Speaker 15: people wrote it one check and that obviously was a
Speaker 15: huge outcome. But we kind of showed in your We
Speaker 15: showed up, you're in, you'ar out, and that's really paid off.
Speaker 4: And now new people show up SPV access to retail.
Speaker 4: Is that what naturally has to happen if we're going
Speaker 4: to get these companies staying private longer, what's the tension there?
Speaker 15: I mean, once the company is public, obviously everyone will
Speaker 15: have an opportunity to invest in it. I think, you know,
Speaker 15: as we've seen more capital become available in the private markets.
Speaker 15: I mean you've seen, you know, some of the large
Speaker 15: crossover funds get involved. So I mean there's just there's
Speaker 15: an incredible increase in the amount of capital available in
Speaker 15: the private markets relative to you know, ten or fifteen
Speaker 15: years ago. And so I do you think some of
Speaker 15: these things are sort of the natural evolution of the
Speaker 15: private markets.
Speaker 3: Well, I SPVs, Sorry, I just wanted to you know,
Speaker 3: I want to get an answer to your question because
Speaker 3: on the show, we talked a lot about claimed ownership
Speaker 3: of company SpaceX as a prime example, but Anderils sorts
Speaker 3: about this as well. There are people out there purporting
Speaker 3: to have a position, but they bought in through some
Speaker 3: SPV structure ahead of an IPO. What's the reality of that.
Speaker 3: What happens when when the real ownership becomes clear?
Speaker 15: Well, I mean, I think the greater concern is just
Speaker 15: fraud in the private markets, right, and so just because
Speaker 15: people there's clearly been fraud in the SpaceX market, in
Speaker 15: the andro market, and you know, so I think that
Speaker 15: people need to be thoughtful about why who they're partnering
Speaker 15: with and who they're doing business with, because I think
Speaker 15: we'll find out, I don't know, a year after the IPO,
Speaker 15: when people think they're getting shares and they don't get them, right,
Speaker 15: what actually happened that as of a lock up period.
Speaker 15: There'll be some kind of lock up period or whatever.
Speaker 15: But I just think it takes a while for people
Speaker 15: to like actually actually start demanding the shares that they
Speaker 15: thought they owned. And I think that's going to be
Speaker 15: an unfortunate consequence of you know, some somember of bad
Speaker 15: actors in the market and a.
Speaker 4: Big claim and one I'm sure regulated to be looking
Speaker 4: at one Blue Meg will continue to report on justin
Speaker 4: Fishtahls and it's great to have some time with the
Speaker 4: founder managing partner at one three seven Venture Now investors
Speaker 4: look at how they're cheering Qualcomm's entry into AI, sparking
Speaker 4: the biggest inter day rally after their earnings since October.
Speaker 4: This is after the company revealed it will ship custom
Speaker 4: aichips to a major hyperscaler later this year, joining US now.
Speaker 4: Qualcom CEO Cristiano a'mon, who is the Hyperscala Christiano.
Speaker 11: I'll tell you all about it on June twenty four.
Speaker 11: It's going to be It's going to be three days
Speaker 11: after my birthday, June the twenty fourth.
Speaker 4: We've got to hold on to But what does this
Speaker 4: signal about? You have been a man who's committed to
Speaker 4: telling the market that you are expanding the market. It's
Speaker 4: not just about mobile phones while Qualcom has really dominated
Speaker 4: the market share, but chips now in automotives, in IoT,
Speaker 4: but really in the data center. What sort of town,
Speaker 4: what sort of expansion of Colcom's business will this.
Speaker 5: Mean for you?
Speaker 11: Yeah, look, you know this is a great question, and
Speaker 11: I want to maybe start the answer by saying, you
Speaker 11: know why we're not anybody you know bet on qualcom
Speaker 11: diversification efforts. We started as a mobile company. If you
Speaker 11: look at what we're doing right now, we expanded into PC,
Speaker 11: we became one of the largest providers of semiconductor to automotive,
Speaker 11: We're going to industry, we're going to robotics, we're going
Speaker 11: to broadb in a networking and I think the data
Speaker 11: center was a natural thing. We have been working on
Speaker 11: this for the past couple of years. We've been consistently
Speaker 11: saying we're building assets, we acquire companies psy Alpha Wave,
Speaker 11: we have a pretty good CPU, a very good accelerator.
Speaker 11: We're not a small company. We shipped forty billion chips,
Speaker 11: So I actually I don't know why people will bet
Speaker 11: against Qualcom, but I think it's okay. We're just being
Speaker 11: on this road to execution like we have done on
Speaker 11: the other business, and we're very exciting because I think
Speaker 11: what's really happening right now as we enter this next
Speaker 11: phase of AI. We went from training to inference now agents,
Speaker 11: which actually would generate demand for tokens. It provides an
Speaker 11: opportunity across the entire Qualcum business. All of those devices
Speaker 11: where people are going to have agents running, where there's
Speaker 11: phones and PCs, they're auto, they're going to go to
Speaker 11: an upgrade cycle, and then from the assets that we
Speaker 11: build create opportunity for data.
Speaker 3: Center Christiano, specificity is so important here you said, and
Speaker 3: you can correct me if I'm wrong. You said it
Speaker 3: was an asick product, which I think the markets looked
Speaker 3: at and is a little bit surprised. So you are
Speaker 3: not doing your own chip, you're not doing merchant silicon,
Speaker 3: your own designs for market. You're doing an a sick
Speaker 3: with someone.
Speaker 11: So we have said that our data center product and
Speaker 11: I need to make sure I don't front run my
Speaker 11: investor day, but trying our data Yeah, I understand that
Speaker 11: my data center. My data center product offering includes twe vectors.
Speaker 11: One is CPU. We are developing a CPU and we're
Speaker 11: very flexible. We can provide we can provide a full
Speaker 11: so SoC we can provide chip. So that's one asset.
Speaker 11: The other asset is an accelerator. We have the accelerator
Speaker 11: with innovative memory architecture. We don't need HBM for the
Speaker 11: disaggregated inference. The other one is the ability to do
Speaker 11: custom chip, which when we acquire Alpha Wave, they have
Speaker 11: both a lot of IP which is important for CUSTOMERSIC
Speaker 11: as well as a custom chip team. When you put
Speaker 11: everything together, it creates a lot of opportunities for Qualcom.
Speaker 11: Now here's what is important to understand. The data center
Speaker 11: market is highly concentrated. Is correctly there are but six
Speaker 11: to eight companies that represent the majority of it. And
Speaker 11: when you see what's happening in the market right now,
Speaker 11: a lot of solutions are becoming bespoke. They're no longer
Speaker 11: just merchant solutions. So I think as Qualcom entered the space,
Speaker 11: you should expect that we will offer a lot of
Speaker 11: flexibility and we'll leverage our supply chain and our design
Speaker 11: capability to do spoke products. And I think that's what
Speaker 11: we're doing.
Speaker 3: Four to six companies. That's interesting. So this depends on
Speaker 3: your definition of hyperscaler. Like, for example, Meta is not
Speaker 3: a cloud computing company, but it operates at hyper scale
Speaker 3: its own data center infrastructure. So maybe that's what we're
Speaker 3: talking about here, the definition of what is or is
Speaker 3: not a hyperscaler.
Speaker 11: Look, I'm just gonna cut to the chase. We're talking
Speaker 11: about a large hyperscalers. You should be thinking about one
Speaker 11: of the large cloud companies day we have today. It's
Speaker 11: a scale business, so I think that's what we're talking about.
Speaker 5: Oh, getting closer.
Speaker 4: The potential customers therefore are four to six, but they're
Speaker 4: huge and maybe they're even more than that. So just
Speaker 4: can you get specific about how big the opportunity is
Speaker 4: for this particular part of the business, how much you
Speaker 4: think it could ramp up revenues, So that's something you're
Speaker 4: able to push ahead before the investment meeting.
Speaker 11: Look, we're not getting I don't want to get ahead
Speaker 11: of our skis. We're executing. We're very pleased with the
Speaker 11: engagement and what we said is it will be material
Speaker 11: in fiscal twenty seven. Now, if you look at the
Speaker 11: skill of the Quocom revenue base, so I think you know,
Speaker 11: anything material to Qualcomm is probably in the multiple of
Speaker 11: billion dollars in physical twenty seven. But look, we're just
Speaker 11: starting and we're very happy with the progress we're making.
Speaker 3: Christian, I think back very fondly to when you and
Speaker 3: I are on stage together at the Bloombog Tech Summit.
Speaker 3: I think it was three years ago now, and we
Speaker 3: talked about the world where we switch to inference running
Speaker 3: on device. But actually Qualcomm's story has really changed in
Speaker 3: that time. Right, So in this world where we're moving
Speaker 3: to inference and we're moving to a gentic how are
Speaker 3: you positioning Qualcomm?
Speaker 1: Right?
Speaker 3: The CPU is important, but you must think differently to
Speaker 3: how you did three years ago.
Speaker 11: Look, frankly, it's it's actually playing out actually the way
Speaker 11: we thought. And I know we have a limited time.
Speaker 11: But when you start running agents, and when you start
Speaker 11: running things like open Claw and a bunch of other claws, Actually,
Speaker 11: what is fascinating to see what's happening in the phone industry.
Speaker 11: Every Android OEM right now is launching their own claw.
Speaker 11: And the way agents work, they actually operate your device
Speaker 11: for you. So what you're going to see at the end,
Speaker 11: you're going to see a lot of activity in the cloud,
Speaker 11: and you're going to see also activity on the device
Speaker 11: and it's all going to magically work. I almost like
Speaker 11: to say this, I am sure you have probably two
Speaker 11: hundred apps on your phone or close to that. We
Speaker 11: never have a discussion, we never have a discussion about
Speaker 11: how much each app is doing on the cloud or
Speaker 11: doing on the device.
Speaker 2: It just works.
Speaker 11: And I think that's how we see those agents working.
Speaker 11: They look at your data, they look at things on
Speaker 11: your device, they do things for you, and they do
Speaker 11: stuff on the cloud. And I think that's why I
Speaker 11: believe this actually builds into the Qualcom assets and the
Speaker 11: factor are present everywhere our engagement with the cloud companies
Speaker 11: right now they look at our devices at endpoint for AI,
Speaker 11: and that's also exciting. I think we're talking with all
Speaker 11: the AI companies about their new and exciting devices.
Speaker 4: What's less exciting is when supply chain disruption. But you
Speaker 4: were really clear with investors and they liked it quickly.
Speaker 4: With thirty seconds memory, you see an endpoint at least
Speaker 4: in China.
Speaker 6: Yeah.
Speaker 11: Look, the reality is everything needs memory, and AI drives
Speaker 11: more memory demand. If we drove a lot of the
Speaker 11: men of the data center, it CAUs a crunch on
Speaker 11: the consumer electronics. The good thing is we now see
Speaker 11: the bottom, as I said in the call, where under
Speaker 11: shipping market demand, we look at customer activations of devices
Speaker 11: and cell thual data, we see how what the demand is.
Speaker 11: That's now we can call the bottom and you know
Speaker 11: there's going to be more supply and more suppliers and
Speaker 11: we'll see how this is going to play out.
Speaker 3: The market is taking this really serious. See Qualcomm having
Speaker 3: its best day since April twenty nineteen. Qualcom's Christiana, I'm on.
Speaker 3: Thank you very much, Caroline, that I don't know for
Speaker 3: me in the ten years I've been here in extraordinary
Speaker 3: Technology earnings twenty four hours and that does it for
Speaker 3: this edition of Bloomberg Tech.
Speaker 4: Super Bowl seventy second super Bowl. All came yesterday, but
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