WEBVTT - Slok on Fed Rate Cuts, The Week in Tech 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:47.240 the Bloomberg Terminal, and the Bloomberg Business App. We turned 0:00:47.240 --> 0:00:49.280 out of Torston Slock. Paul, you read the note, I 0:00:49.280 --> 0:00:51.800 didn't read the note. Why don't you bring in Slock 0:00:51.920 --> 0:00:52.960 of Apollo Management? 0:00:53.200 --> 0:00:53.680 Absolutely? 0:00:53.760 --> 0:00:57.440 Torson Slock joins us here. He is the Apollo partner 0:00:57.440 --> 0:01:00.920 and chief economist Torston. A lot of the parlor game 0:01:00.960 --> 0:01:04.839 here on Wall Street is when will the Federal Reserve 0:01:04.920 --> 0:01:08.759 cut interest rates in twenty twenty four and by how much? 0:01:09.040 --> 0:01:11.080 You came out with a note today saying whoa whoa, whoa, 0:01:11.080 --> 0:01:13.240 whoa whoa. There's a reasonable. 0:01:12.880 --> 0:01:15.319 Argument that they won't cut rates in twenty twenty four, 0:01:16.080 --> 0:01:19.360 tell us what you're thinking, I and I. 0:01:19.440 --> 0:01:21.839 Thanks for having me, Paul and Tom. I think that 0:01:22.280 --> 0:01:25.680 the reality now is that we can no longer ignore 0:01:26.120 --> 0:01:29.760 how much financial conditions have eased since the December thirteen 0:01:29.920 --> 0:01:33.120 FMC meeting. We have seen the stock market reaching new 0:01:33.200 --> 0:01:35.520 all time highs. Of course, every day at the moment, 0:01:35.560 --> 0:01:38.559 as we know, we're seeing credit spreads titan a lot 0:01:38.680 --> 0:01:41.959 in investment grade, in high yield in loans. We're also 0:01:42.000 --> 0:01:45.039 seeing it issuings in January, and now it looks like 0:01:45.080 --> 0:01:48.920 in February also would be the highest January and highest 0:01:48.960 --> 0:01:51.280 beginning of the year that we have had ever in history. 0:01:51.480 --> 0:01:54.760 High yield issuance has been strong, loan issuance has been strong. 0:01:54.960 --> 0:01:57.520 On top of that, IPO activity has been picking up. 0:01:57.800 --> 0:01:59.880 M and A activity has been picking up. It really 0:01:59.920 --> 0:02:04.840 is not surprising, with this significant rebound in capital markets activity, 0:02:05.080 --> 0:02:07.640 that the employment report for January was strong, and it 0:02:07.720 --> 0:02:10.520 is really also not surprising that the inflation data also 0:02:10.639 --> 0:02:12.880 was strong. So the bottom line is I think that 0:02:13.080 --> 0:02:16.240 the market now has to realize that the data is 0:02:16.320 --> 0:02:18.960 just not slowing down, and the fat pivot has given 0:02:19.000 --> 0:02:22.920 an additional tailwind to the economy. And to financial markets 0:02:22.919 --> 0:02:25.919 and financial conditions, and to capital markets, and all that 0:02:26.120 --> 0:02:30.760 is likely to continue to be supporting growth in consumer spending, 0:02:30.800 --> 0:02:34.560 in captic spending, in hiring for most likely the better 0:02:34.600 --> 0:02:35.320 part of this year. 0:02:35.960 --> 0:02:38.560 Is there a scenario for you where the Fed actually 0:02:38.800 --> 0:02:40.280 hikes rates in twenty twenty four. 0:02:41.320 --> 0:02:43.520 So I know Larry Summers and several others have been 0:02:43.520 --> 0:02:46.280 talking about this as a possible scenario. I do think 0:02:46.320 --> 0:02:48.760 that they would be reluctant and very reluctant to do that. 0:02:49.639 --> 0:02:51.919 But I do think at the same time that it's 0:02:51.960 --> 0:02:54.880 clear that the market has, on the back of the 0:02:54.880 --> 0:02:58.320 fit pivot, declared victory and said that inflation is no 0:02:58.400 --> 0:03:00.840 longer a problem. And the problem is that if indeed 0:03:01.360 --> 0:03:05.080 looking like it's becoming a problem again, you're having Obviously 0:03:05.320 --> 0:03:07.520 average hourly earnings is in the reins of four to 0:03:07.639 --> 0:03:10.040 five percent. This has to come further down. This is 0:03:10.080 --> 0:03:13.359 not consistent with a two percent inflation target. If you 0:03:13.360 --> 0:03:17.000 look at the NFIB survey, both for wage expectations and 0:03:17.120 --> 0:03:20.560 selling price expectations, they are all beginning to go up. 0:03:20.760 --> 0:03:24.160 And finally, you also have a number of other indicators 0:03:24.520 --> 0:03:27.520 that are leading in terms of what inflation is doing, 0:03:27.840 --> 0:03:30.200 and all those continue to point in particularly we look 0:03:30.200 --> 0:03:32.000 at some of the underlying trends in the trim mean 0:03:32.040 --> 0:03:34.640 and the media inization to also more upside. So the 0:03:34.680 --> 0:03:38.280 conclusion is we are simply not done fighting inflation, Turstan. 0:03:38.840 --> 0:03:41.720 The hallmark of your work at Deutsche Banking nowt Apollo 0:03:42.080 --> 0:03:45.880 has been a holistic approach to economics. What's the character 0:03:46.080 --> 0:03:50.360 of our nominal GDP? Everybody, not everybody near, everyone's got 0:03:50.360 --> 0:03:54.680 it wrong. What's the character of our animal spirit out 0:03:54.720 --> 0:03:55.920 two in three years? 0:03:57.320 --> 0:03:59.360 I think this is a really important question, Toron, because 0:03:59.640 --> 0:04:01.960 as should said, first of all, let's think about and 0:04:02.040 --> 0:04:07.960 let's evaluate our own meaning, the market's ability to forecast 0:04:08.080 --> 0:04:10.600 things going into twenty twenty three and twenty twenty four 0:04:10.600 --> 0:04:14.720 and twenty twenty three. Everyone everywhere, including most likely also 0:04:14.760 --> 0:04:17.640 the Fed, forecast the consensus. The market was saying we 0:04:17.720 --> 0:04:19.760 will have a recession, and we turn out to not 0:04:19.800 --> 0:04:23.279 have a recession. They continue strength in the economy. Surprised everyone. 0:04:23.680 --> 0:04:24.120 This year. 0:04:24.240 --> 0:04:26.320 Everyone came in and said, oh, the Fed will cut 0:04:26.440 --> 0:04:28.680 rates the six times, maybe even seven times at some 0:04:28.760 --> 0:04:31.520 point because we will get that slowed down. And now 0:04:31.520 --> 0:04:33.680 we're sitting here a few months into the year and 0:04:33.720 --> 0:04:36.760 the economy has simply not slowed down. The employment report 0:04:36.800 --> 0:04:39.320 in January, at more than three hundred thousand jobs created, 0:04:39.640 --> 0:04:41.760 was just really, really strong. So I think a very 0:04:41.760 --> 0:04:45.360 important dimension to your question, Tom is that the US 0:04:45.400 --> 0:04:50.120 economy is just incredibly diversified. It is really difficult for 0:04:50.160 --> 0:04:52.640 the Fed to cool things down. It has turned out 0:04:52.680 --> 0:04:55.800 to be that the consume is much less sensitive to 0:04:55.880 --> 0:04:58.360 rate hikes. Corporates a lessonses to rate hikes. One of 0:04:58.600 --> 0:05:01.320 the consequence the diverse, tight economy continues to do. 0:05:01.320 --> 0:05:03.800 Well, and the scale of it, folks, I think the media, 0:05:04.080 --> 0:05:06.600 and I'm guilty of this as well, does a terrible 0:05:06.680 --> 0:05:10.880 job of showing the size of the American economic experiment 0:05:11.040 --> 0:05:14.080 versus other nations. We're on Apple car Play, We're on 0:05:14.160 --> 0:05:18.840 YouTube type in Bloomberg Podcasts. We've had a huge response 0:05:18.880 --> 0:05:21.520 to YouTube. Paul and I are humbled by at least 0:05:21.520 --> 0:05:23.560 as not humbled by it. Paul and I are humbled 0:05:23.560 --> 0:05:25.799 by it. And there's a live chat there where someone 0:05:25.920 --> 0:05:29.000 just told me their mother throughout their varsity jacket and 0:05:29.040 --> 0:05:31.880 they've been in therapy for thirty eight years. Why don't 0:05:31.880 --> 0:05:35.320 you continue with Torston slock is important research note this. 0:05:35.240 --> 0:05:37.760 Morning, absolutely, Tom, we are speaking with Torston Slack Apollo 0:05:37.800 --> 0:05:41.520 partner and chief economists. Torston, just from an optics perspective, 0:05:41.600 --> 0:05:44.880 not an economics perspective, but from an optics perspective, how 0:05:44.880 --> 0:05:48.080 difficult would it be for bet Cherman Jpel not to 0:05:48.200 --> 0:05:52.400 cut rags this year after I don't know, strongly hinting 0:05:52.480 --> 0:05:54.359 in December that that was going to be the scenario. 0:05:55.680 --> 0:05:57.600 Yeah, I know, But I mean I think that the 0:05:57.680 --> 0:06:00.719 modics have been only interpreting what the Fed actually has 0:06:00.760 --> 0:06:04.760 been saying. He was at the press conference in December 0:06:04.839 --> 0:06:08.800 actually reasonably balanced. He was just saying that, well, for now, 0:06:08.800 --> 0:06:11.520 we're on holes and this was certainly the clear message. 0:06:11.920 --> 0:06:14.880 But more recently several from C members have been coming 0:06:14.920 --> 0:06:17.760 obviously out and saying, well, maybe we do need to 0:06:17.800 --> 0:06:20.640 stay higher for longer. So with that backdrop, I actually 0:06:20.720 --> 0:06:23.560 don't think that it's quite it's quite simple for the 0:06:23.600 --> 0:06:26.240 Fed to just continue to say, well, maybe the risks 0:06:26.240 --> 0:06:30.279 have now tilted more towards some more upside risk, both 0:06:30.440 --> 0:06:32.479 on both sides of the dual mandate, both when it 0:06:32.480 --> 0:06:35.960 comes to employment and when it comes to inflation. So 0:06:36.160 --> 0:06:39.119 on that front, I think that the FED communication challenge 0:06:39.240 --> 0:06:43.800 is actually much much more straightforward relative to the significant 0:06:43.880 --> 0:06:46.400 roller coaster that markets had been through from first again 0:06:46.480 --> 0:06:49.440 pricing six or seven cuts to now pricing three cuts, 0:06:49.800 --> 0:06:52.719 and maybe as the data again we had jobless claims 0:06:52.720 --> 0:06:55.320 that was wrong yesterday, we had inflation chaken up a 0:06:55.360 --> 0:06:57.960 bit high yesterday on the month and month. All that 0:06:57.960 --> 0:07:00.240 would make the market where a lot of the action 0:07:00.520 --> 0:07:02.080 and a lot of the movements needs to be. 0:07:02.520 --> 0:07:05.880 But Turstan, we're here among friends, nobody's listening. That's a Friday. 0:07:06.600 --> 0:07:12.160 Hasn't ISLM theory and aggregate demand supply theory been overwhelmed 0:07:12.800 --> 0:07:19.080 by bulk productivity across America? Hasn't basically the is curve 0:07:19.520 --> 0:07:22.880 taken over from the LM analysis? 0:07:22.920 --> 0:07:25.080 True? I mean, there's certainly a lot to think about it, 0:07:25.080 --> 0:07:28.080 because another way of saying that is this question whether 0:07:28.680 --> 0:07:31.480 was it supply that drove inflation up and now down 0:07:31.840 --> 0:07:34.600 or was it actually also demand? And the San Francisco 0:07:34.680 --> 0:07:37.680 Fed studies that have looked at this have found that 0:07:38.160 --> 0:07:41.240 indeed supply played a role. There two thirds of the 0:07:41.280 --> 0:07:44.640 increase the supply chains was because of supply chains that 0:07:44.680 --> 0:07:47.240 got clocked up and now being straightened out. But one 0:07:47.280 --> 0:07:51.000 third was demand. So that's why the issue now becomes Well, 0:07:51.000 --> 0:07:53.360 if demand did play a role, and maybe now we 0:07:53.440 --> 0:07:56.040 have more demands simply because of the wealth effect, because 0:07:56.040 --> 0:07:59.160 the stock market going up because of the easier financial conditions, 0:07:59.280 --> 0:08:02.000 then maybe we're having a shift in the ISLM curve 0:08:02.280 --> 0:08:04.200 where we now set the hand that is demand that's 0:08:04.240 --> 0:08:07.240 beginning to play a role in driving in nation higher. Yes, 0:08:07.320 --> 0:08:10.000 yesterday's story was that it was supply, but looking ahead, 0:08:10.160 --> 0:08:12.280 it looks like demand is beginning to become more important. 0:08:12.440 --> 0:08:17.400 Turston. One final question, Paul asks, Paul didn't want to 0:08:17.400 --> 0:08:20.680 be rude. Are you buy holders sell on Apple? Which 0:08:20.680 --> 0:08:21.320 way would you go? 0:08:21.440 --> 0:08:26.520 Tourst So I don't have any of you on individual stocks, 0:08:27.040 --> 0:08:29.400 but I would say that my main conclusion from an 0:08:29.400 --> 0:08:32.320 investing perspective is that if there's one thing that we 0:08:32.320 --> 0:08:34.760 should do as investors, it is to listen very carefully 0:08:34.760 --> 0:08:36.360 to what is the FED trying to tell us. 0:08:36.440 --> 0:08:41.160 And you now you're supposed to say, you're supposed to say, 0:08:41.160 --> 0:08:44.240 you have to listen to Bloomberg surveillance Bloomberg. 0:08:46.080 --> 0:08:48.920 If the Fed says they will keep right higher for longer, 0:08:49.200 --> 0:08:51.080 then they will probably keep right higher for longer. So 0:08:51.120 --> 0:08:54.359 that means front end fixed income continues to look attractive. 0:08:54.559 --> 0:08:55.800 Did we get an answer there? 0:08:56.960 --> 0:08:57.679 I'm sure you. 0:08:58.640 --> 0:09:06.640 Turston Slock, thank you so much. Un joining us now, 0:09:07.120 --> 0:09:09.920 and you know, Paul, this is the romance you've lived 0:09:09.960 --> 0:09:12.880 on the cell side. You get on the plane, it's 0:09:13.000 --> 0:09:16.319 romantic and all that. We're looking at him on YouTube here, Dan, 0:09:16.400 --> 0:09:18.960 Iives looks like you could blow him over. He's so tired. 0:09:19.280 --> 0:09:22.200 He's in Bangkok, Thailand right now. We're thrilled. I wanted 0:09:22.240 --> 0:09:24.800 to join us on an Asian tour. Dan, how long 0:09:24.840 --> 0:09:27.880 does it take you to get done with jetlag coming 0:09:27.960 --> 0:09:28.800 back from Asia? 0:09:30.440 --> 0:09:34.520 I mean, look it depends. I mean look it's these 0:09:34.600 --> 0:09:38.600 trips not too well worth it, but yeah, you always 0:09:38.600 --> 0:09:41.880 have some jet lag going in after that twenty one hours. 0:09:42.360 --> 0:09:44.079 For those of you on Apple car Play, you can 0:09:44.160 --> 0:09:47.240 just see that Ives's channeling Deborah Kerr and the King 0:09:47.280 --> 0:09:49.560 and I here, it's the same color scheme as what 0:09:49.600 --> 0:09:53.560 Deborah was doing with Yule Brenner. Dan, serious conversation now, 0:09:53.600 --> 0:09:56.719 and you are more than qualified. I understand AI and 0:09:56.880 --> 0:10:00.240 Vidia AI Microsoft. Paul explains to me they're gonna make 0:10:00.280 --> 0:10:04.480 fancy chips. Apple's not going to do that what's the 0:10:04.679 --> 0:10:07.800 AI plan you glean for Apple? 0:10:09.720 --> 0:10:14.319 Look within Cooper Tino. The next big thing I think 0:10:14.480 --> 0:10:18.120 comes out WWDC. I mean obviously German breaking the story 0:10:18.600 --> 0:10:21.000 how they ripped the band aid off on evs, but 0:10:21.200 --> 0:10:24.000 now it's all focused on AI. We believe the AI 0:10:24.160 --> 0:10:28.720 app store, a separate AI app store, will be the 0:10:28.800 --> 0:10:32.880 first step. And I think for developers that's important because 0:10:33.000 --> 0:10:37.040 for consumers, they're going to be able to now over 0:10:37.080 --> 0:10:41.200 the next one two years be buying separate AI driven 0:10:41.240 --> 0:10:46.320 apps off of an iPhone sixteen that has exclusive AI 0:10:46.520 --> 0:10:50.920 capabilities in llms built in. This is the next phase 0:10:50.960 --> 0:10:52.720 of the growth story within Cooper Tino. 0:10:53.480 --> 0:10:55.520 So Dan, I mean, I think what we've seen and 0:10:55.559 --> 0:10:57.840 you've certainly explained it to us very well over the years, 0:10:57.880 --> 0:11:00.840 that Apple doesn't feel the need to be first, even 0:11:00.880 --> 0:11:03.480 in iPhones, for example, they just need to come in 0:11:03.559 --> 0:11:06.559 with the best and most elegant product. 0:11:06.679 --> 0:11:09.280 Is that kind of the strategy we're seeing with AI. 0:11:09.280 --> 0:11:12.200 Either's certainly not first, they're certainly not leading edge, but 0:11:12.920 --> 0:11:15.360 do you fully expect them to have a play here 0:11:15.360 --> 0:11:17.320 in angle book? 0:11:17.360 --> 0:11:19.800 I mean there's two point two billion reasons. I mean, 0:11:19.840 --> 0:11:23.080 that's the amount of iOS devices for them, they don't 0:11:23.200 --> 0:11:26.520 have to be first because they have a golden install 0:11:26.559 --> 0:11:29.720 base that's unrivaled. Then clearly right now, I mean sentiment's 0:11:29.840 --> 0:11:32.520 negative on Apple out there, and I believe what the 0:11:32.600 --> 0:11:36.080 streets missing is going to be this renaissance of growth, 0:11:36.360 --> 0:11:40.199 not just AI into the Apple ecosystem, but I think 0:11:40.200 --> 0:11:43.360 it's gonna respawn just more and more upgrade opportunities we 0:11:43.400 --> 0:11:46.079 go into the next you're called twelve eight, ten months, 0:11:46.080 --> 0:11:48.800 and that's that's gonna be huge for the some of 0:11:48.800 --> 0:11:51.760 the parts. You know, Keen talked about AI in terms 0:11:51.840 --> 0:11:55.560 of Nvidium, Microsoft, but now it's the second, third, fourth 0:11:55.559 --> 0:11:58.520 derivatives of this AI revolution that hit. 0:11:59.760 --> 0:12:02.800 So, Danny, you're in Asia as we speak. 0:12:03.160 --> 0:12:08.480 What's the feeling there about China and Apple and as 0:12:08.480 --> 0:12:12.719 an end up market for Apple products going forward there? 0:12:12.720 --> 0:12:15.880 Because as you are, well, that's probably the big issue 0:12:15.920 --> 0:12:17.280 for the stock right now. 0:12:18.200 --> 0:12:20.760 Yeah, earlier this week in Hong Kong and you're in 0:12:20.880 --> 0:12:26.800 around China. It's a it's like the the video thriller, 0:12:27.760 --> 0:12:30.320 the negative the horrors show right in terms of the 0:12:30.400 --> 0:12:34.960 view right now of China tech and I think fears 0:12:35.040 --> 0:12:37.840 about just the economy and China, I think when he 0:12:37.880 --> 0:12:41.440 looks at Apple, it all comes down to what does 0:12:41.559 --> 0:12:45.560 demand look like in economy like that. We believe to 0:12:45.679 --> 0:12:49.880 that point it has started to stabilize. I believe the 0:12:49.920 --> 0:12:53.000 streets factoring in a lot more negative than we're seeing here. 0:12:53.440 --> 0:12:56.320 I think the overall sentiment right now is basically anything 0:12:56.400 --> 0:13:01.199 but China and you own us tech revolution. No one 0:13:01.280 --> 0:13:05.360 wants to be outside the bar. At ten pm, Win 0:13:05.440 --> 0:13:06.480 it goes to four am. 0:13:06.480 --> 0:13:08.160 I'm gonna talk with Paul Sweeney on this, and then 0:13:08.160 --> 0:13:09.480 we're going to go to Dan. I I want to 0:13:09.480 --> 0:13:11.920 hear from both you on this. There's got to be 0:13:11.960 --> 0:13:15.960 a point where operating officers of any visible company just 0:13:16.000 --> 0:13:19.560 get angry. Yeah, and the CFO turns to the CEO 0:13:19.840 --> 0:13:23.000 and says, look, we're modeling this out the next eighteen months, 0:13:23.000 --> 0:13:26.000 Paul Sweeney, let's do it now. Is that where Apple 0:13:26.120 --> 0:13:26.680 is now? Paul? 0:13:27.200 --> 0:13:29.280 You know, I think for China and Dan. I'll get 0:13:29.320 --> 0:13:29.679 to Dan on this. 0:13:29.880 --> 0:13:31.840 But for China, it's twenty percent of their sales, it's 0:13:31.880 --> 0:13:34.280 a huge part of their infrastructure. They have to be there. 0:13:35.120 --> 0:13:36.960 Tim Cook is over there all the time trying to 0:13:36.960 --> 0:13:39.240 make it work here. So Dan, I mean, is there 0:13:39.240 --> 0:13:44.400 a scenario where China is not, you know, a critical 0:13:44.440 --> 0:13:45.200 market for Apple. 0:13:47.360 --> 0:13:51.319 Look, I mean it's the hearts and lungs of Apple 0:13:52.080 --> 0:13:55.119 in term, not the growth of course from a supply perspective. 0:13:55.720 --> 0:13:59.640 And that's that's the reality. And I think Apple recognizes 0:14:00.760 --> 0:14:03.800 you have two hundred million iPhones in China. They've gained 0:14:03.800 --> 0:14:06.680 threeing bits of market share the last eighteen months. Just 0:14:06.720 --> 0:14:08.800 because of what they're going through. They're not throwing in 0:14:08.800 --> 0:14:09.480 the white towel. 0:14:09.600 --> 0:14:11.680 But dad, come on, let's see it for they got 0:14:12.200 --> 0:14:14.880 nobody's got a profit machine like Apple. Let's start with 0:14:14.920 --> 0:14:18.880 it basic summary here, there's almost a point where just 0:14:19.080 --> 0:14:23.480 put on Apple they go enough and do something financially 0:14:24.120 --> 0:14:26.160 to write the ship. Is that feasible? 0:14:27.840 --> 0:14:30.800 Look, I think for app anything's possible, and there was 0:14:30.800 --> 0:14:33.840 like all all options are on the table in terms 0:14:33.840 --> 0:14:37.160 of where they can navigate things. And for Apple right 0:14:37.200 --> 0:14:39.960 now they are in just a massive position of strength 0:14:40.000 --> 0:14:43.520 because of the installments, and I think they recognize cook 0:14:44.040 --> 0:14:47.040 they'll they'll navigate headwinds. And China it's again to the 0:14:47.080 --> 0:14:51.560 other side is because of what's on the horizon. It's 0:14:51.560 --> 0:14:54.520 start with the vision bro then it's Ai app store, 0:14:54.560 --> 0:14:56.840 and then it's AI with an iPhone. 0:14:57.040 --> 0:14:58.920 Get one more in here? Can I stay off the 0:14:59.040 --> 0:15:03.440 WACC in a Bulberg terminal? The return on invested capital 0:15:03.480 --> 0:15:07.520 for this dog of Coopertino is fifty five percent. I've 0:15:07.520 --> 0:15:10.440 never said that number of folks in I'm teen years exactly. 0:15:10.480 --> 0:15:14.160 Hey, Dan, real quickly, what's the prognosis here on the 0:15:14.200 --> 0:15:17.280 Apples decision to back out of the car business. 0:15:18.760 --> 0:15:21.080 I think that was just Ryan Wisner law where they 0:15:21.200 --> 0:15:23.480 to rip the band aid off focus on on AI. 0:15:23.720 --> 0:15:28.000 Obviously a decade lost, but for them, you can't keep 0:15:28.040 --> 0:15:30.640 putting good money after bad. They got focused on AI. 0:15:31.280 --> 0:15:34.120 This is no different than Zuckerberg and Meta you know, 0:15:34.320 --> 0:15:37.360 taken away from metaverse going toward AI. It's the smart 0:15:37.400 --> 0:15:40.680 move they needed to do it, and look it was. 0:15:40.840 --> 0:15:43.000 It was a painful learning lesson I think. 0:15:42.880 --> 0:15:47.320 For Cook, right, Dan, seriously, safe travels, your trooper, love 0:15:47.360 --> 0:15:49.680 what you're doing. I don't you know, I don't agree 0:15:49.680 --> 0:15:52.840 with them, but you know, small detail, Dan, the wet bush. 0:15:53.000 --> 0:15:55.440 It's not that we agree or disagree on bihled cell. 0:15:55.760 --> 0:15:58.960 Mister Reive's leading the charge for the enthusiasts YEP of 0:15:59.160 --> 0:16:15.120 artificial intelligence, and this is our technology Conversation of the month. 0:16:15.160 --> 0:16:19.680 It's March first, but we're done, Paul after mister Narrier, 0:16:19.720 --> 0:16:22.760 Antonio Nairy of HPE, their CEO, and I'm going to 0:16:22.800 --> 0:16:24.680 put up here for those of you on YouTube you 0:16:24.720 --> 0:16:29.120 can see one of my most beloved Hewlett and Packard artifacts. 0:16:29.480 --> 0:16:33.240 This is the twelve see that got me into this 0:16:33.440 --> 0:16:37.440 chair with the obligatory CFA stick around it and Sweeney's 0:16:37.480 --> 0:16:42.560 got their killer Antonio Nairy HP twelve c app on 0:16:42.640 --> 0:16:45.760 his Apple iPhone. Mister Nay, honored to have you with 0:16:45.840 --> 0:16:48.760 us today. I want to carry on from Chris Miller's 0:16:48.800 --> 0:16:53.080 wonderful Chip Wars, the battle of say Silicon Graphics coming 0:16:53.120 --> 0:16:57.560 into HPE, and all of his hot air about AI. 0:16:58.240 --> 0:17:02.280 You've got Hpe, Green Lake. How are you going to 0:17:02.440 --> 0:17:07.520 join in Vidia? In Microsoft? You're good competitors in the 0:17:07.640 --> 0:17:12.240 excitement of AI. What's the path over the next two years? 0:17:13.880 --> 0:17:15.960 Well, good one and Tom and Paul, thanks for having 0:17:16.000 --> 0:17:20.440 me today. And obviously we are living an massive inflection 0:17:20.560 --> 0:17:22.600 point where the AI, where I think you know, is 0:17:22.640 --> 0:17:25.520 the most revolution of technology or lifetime, is going to 0:17:25.600 --> 0:17:28.080 change everything the way we work with where we live. 0:17:28.960 --> 0:17:32.040 And when you think about that opportunity I think about 0:17:32.080 --> 0:17:35.439 the opportunity to change everything from a technology standpoint, but 0:17:35.480 --> 0:17:38.920 also from the business standpoint, and so US with HP 0:17:39.040 --> 0:17:42.679 Green Lake, we have a unique opportunity to democratize these 0:17:42.800 --> 0:17:47.080 AI technology to everyone because today AI has been only 0:17:47.280 --> 0:17:50.720 used for the large institution its government and academia. But 0:17:50.840 --> 0:17:53.920 going forward, enterprise have to ads those technology. 0:17:53.920 --> 0:17:58.879 I get like Sid, I get the AI idea within 0:17:59.040 --> 0:18:02.480 computer science. It's like what you've done in your leadership 0:18:02.880 --> 0:18:06.320 over the US at Hewlett Packard. But what I don't understand, 0:18:06.359 --> 0:18:08.479 and I think there's a lot of doubters when you 0:18:08.560 --> 0:18:12.840 say an HPE Greenlake you're going to unleash the potential 0:18:13.000 --> 0:18:17.320 of your people. What does it actually mean two years out. 0:18:18.400 --> 0:18:21.560 Well, it means you now a significant amount of automation 0:18:21.880 --> 0:18:24.840 and business inside that you can gather through the data 0:18:24.920 --> 0:18:29.480 and the application these technologies. We see that across multiple 0:18:29.840 --> 0:18:38.040 vectors or industries, the robotics in manufacturing, through finding cures. 0:18:36.840 --> 0:18:38.080 For major diseases. 0:18:38.119 --> 0:18:40.800 We have some amazing use cases we're working today with AI, 0:18:41.400 --> 0:18:45.520 finding an asserting a queue for Alzheimer's and dementia. You know, 0:18:45.640 --> 0:18:47.639 one of the things we're doing is trying to model 0:18:47.920 --> 0:18:52.199 entirely neural neurological brain to find what the protein is 0:18:52.240 --> 0:18:57.120 that causing those issues, but also better climate research and forecasting. 0:18:57.440 --> 0:18:59.440 But when you bring it to enterprise, it's all about 0:18:59.440 --> 0:19:02.800 productive you know, in the legal space and the finance space, 0:19:02.920 --> 0:19:06.720 in the operation space, and this large language model accelerates 0:19:06.800 --> 0:19:09.440 that set of capabilities, Antonio. 0:19:09.480 --> 0:19:10.960 What I think a lot of investors are trying to 0:19:10.960 --> 0:19:13.679 figure out here in these early innings of AI is 0:19:13.680 --> 0:19:17.840 how much of this AI spending in terms of capital 0:19:18.760 --> 0:19:22.000 expenditures is incremental or how much of it is taken 0:19:22.040 --> 0:19:23.680 away from other tech budgets. 0:19:23.680 --> 0:19:26.480 Maybe it budgets for example. What's your experience so far. 0:19:27.760 --> 0:19:30.280 Yeah, Paula, I will say AI has a life cycle 0:19:30.359 --> 0:19:33.560 from training to fine tune into inferancy. Most of the 0:19:33.680 --> 0:19:36.840 action in the last five quarters or so since we 0:19:37.000 --> 0:19:39.960 have going through this hype has been on the training side. 0:19:40.280 --> 0:19:43.360 These are companies, unique companies that are building large language 0:19:43.400 --> 0:19:47.560 models now exceeding a trillion parameters if you will, and 0:19:47.600 --> 0:19:49.840 they need a lot of compute power right to keep 0:19:49.880 --> 0:19:52.800 training and retraining the model, to reduce the cost of 0:19:52.840 --> 0:19:55.760 those models, but also to make it more accurate so 0:19:55.800 --> 0:19:59.720 you can trust it. Enterprises are in the early stages, 0:20:00.040 --> 0:20:02.199 and I don't think they're going to build the models itself. 0:20:02.200 --> 0:20:04.280 They're going to take a model, They're going to give 0:20:04.359 --> 0:20:07.479 context to the model with their data in a location 0:20:07.560 --> 0:20:10.040 where they can afford. Honestly, I think that's the why 0:20:10.200 --> 0:20:12.800 reason why grileg is important in as a service model, 0:20:12.800 --> 0:20:15.920 you only pay for what you consume. Versus are laying 0:20:16.160 --> 0:20:18.800 tens of millions of dollars of capex upfront, and then 0:20:19.160 --> 0:20:22.600 the value comes from the infancy where you deploy the model, 0:20:22.760 --> 0:20:26.280 where the data is generated so you can actually deliver 0:20:26.359 --> 0:20:30.040 the outcome, whether it's in all processing, video surveillance, or 0:20:30.080 --> 0:20:33.280 whether it is you know, in the manufacturing floor to 0:20:33.400 --> 0:20:36.879 automate processes. This is where we are in the early stages, 0:20:37.359 --> 0:20:39.960 and I think you know that's gonna you know, it's 0:20:40.000 --> 0:20:41.960 going to be one of the biggest growth in twenty 0:20:42.000 --> 0:20:42.880 four and twenty five. 0:20:43.480 --> 0:20:45.840 Antonio, you just reported earnings. You took your four year 0:20:45.880 --> 0:20:49.520 guidance down. That was in part due to the networking 0:20:49.560 --> 0:20:52.040 business leading to that miss, and that was one of 0:20:52.080 --> 0:20:55.680 your better performing businesses last year. What's changed for you 0:20:55.720 --> 0:20:56.600 in that business? 0:20:56.880 --> 0:21:01.119 You know, it's a little bit the the success we 0:21:01.160 --> 0:21:03.680 have had, right so, in the last two years, we 0:21:04.400 --> 0:21:08.040 raised our revenues in the networking business by two billion dollars. 0:21:08.040 --> 0:21:11.399 We took share from Cisco, and we have an amazing portfolio. 0:21:11.840 --> 0:21:14.119 And I just came back from all Congress. You can 0:21:14.160 --> 0:21:16.359 see the use cases of inferencing at the edge of 0:21:16.359 --> 0:21:20.280 the network, for example, the monetization of five G and 0:21:20.320 --> 0:21:24.040 private five G. But what's going on now, Customers are 0:21:24.080 --> 0:21:28.119 digesting the last two years purchases. We're very significant. We 0:21:28.160 --> 0:21:31.639 grew over forty percent year over year, and so this 0:21:31.760 --> 0:21:34.280 comes back. But this is why the merger with Juniper 0:21:34.400 --> 0:21:36.920 in the networking space is going to be a terrific 0:21:37.280 --> 0:21:41.200 addition to our portfolio and the creation for us going forward. 0:21:41.240 --> 0:21:43.639 We have time, sir for one more question. I've just 0:21:43.640 --> 0:21:46.600 got to go back and folks, full disclosures. I'm going 0:21:46.640 --> 0:21:48.639 to redo it as a book of the summer chip Wars, 0:21:48.880 --> 0:21:53.600 Chris Miller's fabulous book. Antonio Seymour Kray was with controlled 0:21:53.680 --> 0:21:56.960 data and all that, and he made a wonder computer 0:21:57.200 --> 0:22:01.840 of my childhood out of Wisconsin and Minnesota. After three mergers, 0:22:01.880 --> 0:22:05.920 Silicon Graphics and all Hewlett Packard Enterprise, which people think 0:22:06.000 --> 0:22:09.600 is stodgy, picks up one of the magic names in 0:22:09.680 --> 0:22:13.320