Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is a breaking news update from Bloomberg, instant reaction
Speaker 2: and analysis from our three thousand journalists and analysts around
Speaker 2: the world.
Speaker 3: Carol Masser along with Tim Stanovik live in our Bloomberg
Speaker 3: Interactive Brokers studio. As we mentioned, those big three of
Speaker 3: the MAGS seven reporting right now, Meta is up about
Speaker 3: four and a quarter percent. Microsoft down about five percent
Speaker 3: off its after market lows. Tesla has also bounced back here.
Speaker 2: I want to bring in Bloomberg Intelligence Senior technology analyst
Speaker 2: on orog Rana. He joins us in Bloomberg's Chicago bureau.
Speaker 2: Microsoft down five percent right now. Taking a look at
Speaker 2: some of the headlines on arog dot crossed, I know
Speaker 2: you've only had a few minutes to actually look at these.
Speaker 2: Second quarter Azure and other cloud revenue XFX was up
Speaker 2: thirty eight percent, meeting estimates. Second quarter revenue for the
Speaker 2: company beat estimates at eighty one point two seven billion dollars.
Speaker 2: Second quarter intelligent cloud revenue beat estimates. We also saw
Speaker 2: forty three hundred Microsoft three sixty five commercial seats grew
Speaker 2: six percent. Forty five percent of commercial RPO was driven
Speaker 2: by Open Ai commitments Commercial Remaining Performance Obligation six hundred
Speaker 2: and twenty five billion dollars. What's not to love here?
Speaker 2: Is it all about capex?
Speaker 4: No? I think it's usually high expectations, and you know
Speaker 4: the fact that they only met Azure growth rates, which
Speaker 4: was thirty eight percent. I think that's probably weighing on
Speaker 4: the stock because you know, one would have expected them
Speaker 4: to blow out that number. It has been around thirty
Speaker 4: nine percent the last couple of quotos, so I think
Speaker 4: that's where a little disappointment could be. But that could
Speaker 4: also be because of supply constraints. That's something we have
Speaker 4: highlighted in our research before. But you know, if you
Speaker 4: look at some of the other numbers, such as our
Speaker 4: PO you mentioned above, six hundred billion, that's very impressive,
Speaker 4: and we already know the capex was going to go up,
Speaker 4: So I think in tandem, that's the only number that
Speaker 4: sticks out that they didn't beat by a decent amount.
Speaker 3: All right, So then I don't know, what do we
Speaker 3: want to dig into a little bit more deeper? It
Speaker 3: does Microsoft's quarter includes net gains from investments.
Speaker 5: In open Ai.
Speaker 3: Are we going to get a little bit more of
Speaker 3: a picture about that and what's going on there?
Speaker 4: I think the question I have is, you know, there's
Speaker 4: a big number that you know, that six hundred and
Speaker 4: ninety six hundred plus billion RQO you mentioned, there is
Speaker 4: a large portion of that comes from OPENINGI. So the
Speaker 4: big question is, you know, how is Opening I going
Speaker 4: to fund this thing? Do they have the capital to
Speaker 4: actually fund let's say two hundred plus billion dollar commitment.
Speaker 4: But other than that, what are other clients spending that
Speaker 4: are not Open EI? And you know, how is that
Speaker 4: business going? And if that wasn't the case, how should
Speaker 4: we look at as your growth in the coming quarters.
Speaker 4: I think those are the big questions that we need
Speaker 4: answered right now.
Speaker 2: I don't remember where I saw this. I don't remember
Speaker 2: if it was on a program yesterday. I think I might.
Speaker 2: My brain is mush. I'm sorry on rock, but was it?
Speaker 6: It was all.
Speaker 2: About Claude from Anthropic competing with Copilot and Claude offering
Speaker 2: products and services at a fraction of the cost or
Speaker 2: even free versus what companies are paying for. When it
Speaker 2: comes to Microsoft Copilot, how big of a threat is that?
Speaker 7: Oh?
Speaker 4: Actually, I mean to be very honest, right now, the
Speaker 4: entire software sector has been absolute under threat because of
Speaker 4: a lot of what you are mentioning, whether it's claud
Speaker 4: or whether it's opening Eye tools, or whether it's open source.
Speaker 4: I mean, look at the valuations of software companies. They've
Speaker 4: been completely destroyed over the last six to nine months,
Speaker 4: and a large portion of that is driven by what
Speaker 4: you just said.
Speaker 3: So interesting, Well, you know, yeah, I mean, so is
Speaker 3: it in flux still safe to say, Ana Rag in
Speaker 3: terms of who ultimately are going to be the leaders
Speaker 3: when it comes to this AI world or will there
Speaker 3: be multiple big players.
Speaker 4: So we are absolutely influx right now as to who
Speaker 4: will own the final product, and that's partially the reason
Speaker 4: when you have these valuations go all over the place.
Speaker 4: But I would you know, comfortably say, when it comes
Speaker 4: to somebody like a Microsoft's cloud portfolio or Amazon's cloud
Speaker 4: portfolio or Google's cloud revenue, I think these three companies
Speaker 4: will dictate a large portion of that market share just
Speaker 4: because they have the capital to do it, they have
Speaker 4: massive market shares, and they have also the distribution. So
Speaker 4: these three I think will remain the way it is,
Speaker 4: the rest of the industry will shift around. We still
Speaker 4: think software has a place in this world and you know,
Speaker 4: there will be some damage, but it's not going to
Speaker 4: get completely blown up. And let's see how that shapes up.
Speaker 2: What's the damage That will say in your view, what's
Speaker 2: your production.
Speaker 4: So if you are just selling a tool out there
Speaker 4: in the public to an enterprise or a small business,
Speaker 4: you may not get the same kind of premium that
Speaker 4: you were before. Remember software a business with eighteen ninety
Speaker 4: percent gross margin business. But if you can spin some
Speaker 4: of that coded up, you know, using wipe coding or internally,
Speaker 4: you may not need some of those tools out there. Now.
Speaker 4: We think, at least on the enterprise side, having a
Speaker 4: core system of record something like you know, the one
Speaker 4: that's sold by SAP or a workday they're far more
Speaker 4: important and people are not going to rip them apart
Speaker 4: and use white boarding tools internally out there. But if
Speaker 4: you are a visualization software or some kind of connected
Speaker 4: in between, you may not need to have that software.
Speaker 4: So there is a lot that's going to happen over
Speaker 4: the next three to five years.
Speaker 7: You know.
Speaker 3: Interestingly, you know, looking at Microsoft Meta this year and
Speaker 3: last year, how the stock the stocks have done. They
Speaker 3: definitely underperformed some of the other mags seven names and
Speaker 3: certainly some of the other large.
Speaker 5: Cap tech names. But I'm just curious.
Speaker 3: You know, the concerns have been about the AI spend
Speaker 3: and whether it's going to pay off signs here for
Speaker 3: Microsoft analog that you're seeing that it does make sense
Speaker 3: this spend that Microsoft is doing.
Speaker 5: The ROI is there.
Speaker 4: Yeah, well, Microsoft, it's definitely there. I Mean. The only
Speaker 4: I would say, the long term hangarp is you know
Speaker 4: what happens when the opening air relationship breaks through? I mean,
Speaker 4: all goes up way. That's the only big risk for
Speaker 4: Microsoft in the long run. They'll have to figure out
Speaker 4: their own LLM by then. But other than that, I mean,
Speaker 4: their cloud infrastructure product is pretty good and you know,
Speaker 4: it's gaining market share and according to our calculations, it
Speaker 4: will overtake Amazon in the next you know, let's say
Speaker 4: three audios or so.
Speaker 2: On a rock. Do they really have to figure out
Speaker 2: their own LLM? I mean, how much of open ai
Speaker 2: do they own?
Speaker 4: But it just doesn't matter if they own or not,
Speaker 4: because they have the IP rights only until I think
Speaker 4: it's twenty thirty two, one of those years, and after
Speaker 4: that they can't use those models after that, So remember
Speaker 4: that part of it as well, not the financial part
Speaker 4: will stay. But it's the actual engine that is driving copilot,
Speaker 4: that's driving GitHub copilot or the Microsoft three sixty five
Speaker 4: copilot that you talk about. You know, that's the intelligence
Speaker 4: that goes into that model.
Speaker 2: How do you do that? How do you do that?
Speaker 2: From just a resources perspective, if you have if you
Speaker 2: have spent so many billions of dollars supporting open ai
Speaker 2: and chat GPT, well.
Speaker 4: They have their own models that are going on. It's
Speaker 4: just not as good as whether it's opening a lot
Speaker 4: at this point, but they are putting a lot of
Speaker 4: effort behind it, and most of our leads that and
Speaker 4: that's where we need to see what kind of ROI
Speaker 4: do we see there and do they actually get their
Speaker 4: act together over the next few years.
Speaker 3: All right, I want to go over to IBM, which
Speaker 3: actually outperformed Microsoft last year. It was up about thirty
Speaker 3: five percent, and we are seeing this stock up about
Speaker 3: eight point four percent following its earnings release. Here they
Speaker 3: post revenue that topped estimates. They talked about software gains,
Speaker 3: specifically at software unit revenue up twelve percent to nineteen
Speaker 3: point seven billion in the fourth quarter, software business jumping
Speaker 3: fourteen percent to just over nine billion dollars and the
Speaker 3: company projecting that revenue will grow more than five percent
Speaker 3: this year, and the company's CEO saying, quote, we enter
Speaker 3: twenty twenty six with momentum and in a position of strength.
Speaker 3: I don't know if you've had a chance to look
Speaker 3: at IBM an a rag walk us through what we're
Speaker 3: seeing with this company.
Speaker 4: Yeah, I was a bit surprised. Actually, the nine percent
Speaker 4: number on the software side is a witch shocking. I mean,
Speaker 4: for them to be, you know, total growth rate of
Speaker 4: nine percent and software in double digits, I mean, we
Speaker 4: were not expecting that. So there's a lot to feel
Speaker 4: in that particular one and go back and see, you know,
Speaker 4: which segments outperformed. Now there's a tiny bit of MNA there,
Speaker 4: but even without that, I mean, I think this is
Speaker 4: very good. And the big number for one us is
Speaker 4: that the cash flow is going to go up by
Speaker 4: a billion dollars next year. So I think IBM's turned
Speaker 4: them around very well. I think the strategy is executing
Speaker 4: well and Urvan's done a good job in this case.
Speaker 2: The acquisitions red Hat Hashi Corp, Confluent. That's a big
Speaker 2: part of the spend is that like looking to sort
Speaker 2: of what Salesforce has done in recent years growing through
Speaker 2: these acquisitions.
Speaker 4: I think there's nothing wrong in growing through acquisitions if
Speaker 4: you don't pay enough for them. If you pay the
Speaker 4: right amount, and in this case for IBM, every two
Speaker 4: years they'd go out and buy something that would help
Speaker 4: their gross margins, that would help their adjusted EBITA, that
Speaker 4: would help their free cash flow, and they use that
Speaker 4: cash flow to buy more. But they're already concentrated in
Speaker 4: certain areas such as hybrid cloud or the ability to
Speaker 4: make sure that the internal IEA infrastructure of a company
Speaker 4: or the enterprises is something that they have a good
Speaker 4: handle on and I think they're doing executing it very well.
Speaker 3: Listen, there are bookings for their AI business at IBM
Speaker 3: exceeded twelve point five billion.
Speaker 5: Since mid twenty twenty three.
Speaker 3: That's an increase from the nine and a half billion
Speaker 3: disclosed during its prior earnings report. A bit more than
Speaker 3: eighty percent of the bookings come from the consulting unit,
Speaker 3: with the rest in software. According to the CFO in
Speaker 3: an interview, their AI exposure, I mean this is something
Speaker 3: that has been I think helping the struggling along struggling
Speaker 3: consulting division.
Speaker 5: So are we seeing improvement.
Speaker 4: But the consulting division only grew up one percent, So
Speaker 4: even though they are getting a lot of that, as
Speaker 4: you said, eighty percent of those bookings from consulting, it's
Speaker 4: not driving the entire division up because, as we know
Speaker 4: from some of the other vendors and we'll find out
Speaker 4: today also, the non AI spending is pretty bad right
Speaker 4: now throughout the ecosystem, so people are cutting back on
Speaker 4: that and deploying those funds into AI related services, and
Speaker 4: that's something that's hurting IBM as well. But imagine, even
Speaker 4: with consulting growing only one percent, the total compan growth
Speaker 4: rate was nine percent, and I think that's something to
Speaker 4: be proud of.
Speaker 3: All Right, Bloomberg Intelligence Senior technology analyst Anna Ragrana, just
Speaker 3: stay with us for a moment, because we do want
Speaker 3: to bring in James chockmac partner and chief investment officer
Speaker 3: at Clockwise Capital with about seventy million in assets under
Speaker 3: management of fund that we often talk about owns and
Speaker 3: invest in a lot of these big cap names. I
Speaker 3: want to go back to Microsoft, Jim, James, tell us
Speaker 3: your take on what we got from Microsoft the stock
Speaker 3: right now?
Speaker 5: Data about four and a quarter percent.
Speaker 2: Yeah, it's interesting.
Speaker 1: Right before earnings came out, I was getting the latest
Speaker 1: Bogie numbers for the Azure number, and you know, it
Speaker 1: remained in the high thirties, around thirty nine percent, and
Speaker 1: that's kind of where the numbers landed right around there.
Speaker 1: And uh, I was saying, I'm telling our team that,
Speaker 1: you know, this is a pretty lofty expectation, especially the
Speaker 1: fact that you know it's retraced somewhat heading into the quarter.
Speaker 1: So you know, a lot of I expectations on all
Speaker 1: these companies, Microsoft right on up there with all of them,
Speaker 1: and the valuation it is where it is, with that
Speaker 1: double digit times sales, you know you want it. It's
Speaker 1: great that it's a subscription asset, it's a recurring revenue business.
Speaker 1: But at the end of the day, you know, you've
Speaker 1: got to deliver the growth and it's all about the
Speaker 1: growth relative to expectations. And in this case, it was
Speaker 1: just inline on Microsoft.
Speaker 2: James, you own Microsoft in your clockwise US core equity
Speaker 2: TF ticker time it's the sixth biggest holding, about four
Speaker 2: point six percent of the fun It's down three point
Speaker 2: six percent after hours four sixty four roughly would you
Speaker 2: buy at these levels out to your position.
Speaker 1: No, No, I think what we're maintaining it. The way
Speaker 1: we're looking at it is, you know, we're about half
Speaker 1: the weight of where it is in the Nasdaq. You know,
Speaker 1: we feel comfortable being underweight that, and that's on a
Speaker 1: growth basis. We actually have hedges within the ETF as
Speaker 1: well where we're short the NASDAC and the SMP, so
Speaker 1: the net weight is actually closer to four percent, So
Speaker 1: you know, it is a top top ten weight within
Speaker 1: the fund. But you know, we think that you know,
Speaker 1: where you want to be overweight is outside of big cap.
Speaker 1: You know, we're looking at small cap, We're looking at
Speaker 1: continue to look at commodities. We think that's where the
Speaker 1: money is going to go.
Speaker 3: James, We're going to broaden out. But safe to say
Speaker 3: you're not that impressed with Microsoft.
Speaker 5: It sounds it was.
Speaker 1: It was a whole hump. You know, it's kind of
Speaker 1: what we expected. It just didn't surpassed expectations. But does
Speaker 1: the results do not warrant to change in our view?
Speaker 5: All Right, We're going to broad out.
Speaker 3: In just a moment, I want to bring in anorog
Speaker 3: Rana back from our Bloomberg Intelligence team. He's senior tech analyst.
Speaker 3: Just a final thought, James isn't impressed?
Speaker 5: Should he be?
Speaker 4: Well, the thing is, think about it this way. The
Speaker 4: backlog is up and the capexis up, then why is
Speaker 4: in growth accelerating? And I think that's the biggest question
Speaker 4: for all of us. I personally think it's a supply problem.
Speaker 4: But it's a temporary problem. But as you know, we
Speaker 4: know right now people the trade is to sell software
Speaker 4: and buy semis and I think you know, I don't
Speaker 4: see that changing tomorrow morning.
Speaker 3: All right, we're going to leave it there. Hey, listen,
Speaker 3: we'll be checking out your research an ourang, Thank you
Speaker 3: so much. Bloomberg Intelligence Senior technology analyst Anna rog Rana.
Speaker 3: James Schachmak though still with us right now. We want
Speaker 3: to get more meta platforms. Bloomberg New Senior Technology reporter
Speaker 3: Kurt Wagner with us. He is author of Battle for
Speaker 3: the Bird, Jack Dorsey, Elon Musk and the forty four
Speaker 3: billion dollar Fight for Twitter. So he's out there in
Speaker 3: the Bloomberg San Francisco bureau.
Speaker 5: Take it away, meta.
Speaker 3: What jumps out for you, because right now we're looking
Speaker 3: at a stock that's up here in the aftermarket.
Speaker 8: Yeah, I mean it's it's pretty much all good news,
Speaker 8: especially if you believe in this AI vision that Mark
Speaker 8: Zuckerberg has the Q four holiday quarter sales where it
Speaker 8: beats the Q one projection, We're beat. The real, maybe
Speaker 8: surprising thing was just how high the capital expenditures are
Speaker 8: supposed to be in twenty twenty six. I think the
Speaker 8: estimate was around one hundred and eleven billion metas forecasting
Speaker 8: in between one fifteen and one thirty five billion. But again,
Speaker 8: if you are a believer in this sort of AI
Speaker 8: world that we're living in right now, that's an exciting thing.
Speaker 8: I mean, this is a company that is going absolutely
Speaker 8: full steam ahead into AI, and you know, I think
Speaker 8: those numbers reflect that.
Speaker 2: Not into the metaverse. We should note that meta shares extend.
Speaker 2: They're getting to more than five percent right now. So
Speaker 2: there are a lot of people out there, Kurt, who
Speaker 2: who are believing this story. It's not like this though
Speaker 2: every quarter. There have been quarters of late where meta platforms,
Speaker 2: almost at Facebook comes out and says we're spending more
Speaker 2: money than you want us to spend and you and
Speaker 2: then investors do not reward them for it. What is
Speaker 2: different this time.
Speaker 8: Well, not just quarters of late, how about just last order? Right,
Speaker 8: this is exactly what we talked about in Q three.
Speaker 8: They didn't have these specific numbers, but they basically said, hey,
Speaker 8: our capex is going to increase meaningfully. In twenty twenty six,
Speaker 8: the stock went down fourteen percent. Everyone was very concerned
Speaker 8: with this added spending. And yet today when the numbers
Speaker 8: come out and they're they're higher than estimate, sessimate's presumably
Speaker 8: built in that commentary from last quarter, it doesn't seem
Speaker 8: to be as much of a problem. My guess is
Speaker 8: that they are seeing, you know, this Q one revenue,
Speaker 8: for example, which is going to come in two three
Speaker 8: four billion dollars higher than expected. They're just seeing this
Speaker 8: ads business that is completely churning money out. And so
Speaker 8: if you feel that you have the money coming in,
Speaker 8: maybe you stomach those higher numbers than you would have expected.
Speaker 3: Yeah, I mean on the live blog, you guys, I
Speaker 3: think you put this out Kurt Family daily active people
Speaker 3: three point fifty eight billion, an increase of seven percent
Speaker 3: year over year, and then the average price per AD
Speaker 3: increase by six to nine percent year over year for
Speaker 3: the fourth quarter and full year twenty twenty five, respectively.
Speaker 3: So I mean this is showing that they're investing in AI.
Speaker 3: We're seeing it on the platform, we're seeing it in
Speaker 3: the ad dollars.
Speaker 6: Yeah.
Speaker 8: I mean my guess is that we're going to jump
Speaker 8: on this earnings call here in a minute or two,
Speaker 8: and you're going to hear the company talk a lot
Speaker 8: about how AI is impacting the ads business, because that's
Speaker 8: what they need to do to sell this right now.
Speaker 6: Right, it's hard to say are they right?
Speaker 5: But current is it?
Speaker 4: Like?
Speaker 5: Are we seeing it in the numbers?
Speaker 8: It is in part because you see that that rise
Speaker 8: in average cost per AD, that's because people are getting
Speaker 8: more granular, more targeted. They're spending less to create some
Speaker 8: of this ad copy because AI can do it for them.
Speaker 8: There's a bunch of ways that AI can truly improve
Speaker 8: the ads business.
Speaker 6: You just don't.
Speaker 8: It's not as sexy, right, It's not as obvious, maybe
Speaker 8: because a lot of it's happening incrementally behind the scenes.
Speaker 8: That is a story in a narrative that this company
Speaker 8: needs to sell. Because if you're just simply saying trust
Speaker 8: us for building a fifty billion dollars data center in Louisiana,
Speaker 8: and you'll see the returns of that in seven years.
Speaker 8: That's the hard pitch.
Speaker 6: But if you say, hey, look, check it out.
Speaker 8: The ads business is growing quarter after quarter because of
Speaker 8: these AD improvements, these AI improvements we're making. That's the
Speaker 8: narrative that they're going to want to sell to people today.
Speaker 2: Kirk Wagner, you got to go. You got some work
Speaker 2: to do. I want you to I want to let
Speaker 2: you get back to that work. Thanks so much for
Speaker 2: joining us. That's Kurt Wagner, senior technology reporter who covers
Speaker 2: social media. He's the author of Battle for the Bird Jackdoor,
Speaker 2: c Elon Musk in the forty four billion dollar Fight
Speaker 2: for Twitter's soul.
Speaker 3: All right, right now, we're looking at Meta shares. They're
Speaker 3: up about six point two percent as we speak. We've
Speaker 3: got Microsoft down about three point six percent. Tesla is
Speaker 3: up three and a quarter percent. And then check this out.
Speaker 3: IBM been around for a while. It's up about eight
Speaker 3: percent here in the aftermarket.
Speaker 4: All right.
Speaker 3: James Chokmak, we're talking with him, partner and chief investment
Speaker 3: officer at Clockwise Capital with us from Miami.
Speaker 5: He is not going anywhere.
Speaker 3: Ed Lulow also with as Bloomberg Tech a co host
Speaker 3: on Bloomberg Television. He's out there in the bog San
Speaker 3: Francisco bureau. He has been glued to his phone and
Speaker 3: computer watching all of the results since he did his
Speaker 3: broadcast earlier on BTV. Hey, ed, what's jumping out? You know,
Speaker 3: I don't know where do you think we should start with?
Speaker 3: Whether it's Meta, Microsoft or Tesla.
Speaker 9: I would start with Tesla, but only because you know,
Speaker 9: the story that jumped out wasn't the story we were
Speaker 9: prepared for, and I think that it's important to be
Speaker 9: honest about that. And that is Tesla pulling the trigger
Speaker 9: on a two billion dollar investment in Xai. If you
Speaker 9: guys remember, this was a non binding shareholder resolution in
Speaker 9: November as part of the annual shareholder meeting, and the
Speaker 9: outcome was kind of weird because a lot of shareholders
Speaker 9: abstained from voting. That told us that that even though
Speaker 9: the board wasn't bound to the outcome, a lot of
Speaker 9: shareholders were like, h do we really want to go
Speaker 9: down that route?
Speaker 6: Well, Tesla's done it.
Speaker 9: Not only are they investing two billion dollars into Xai
Speaker 9: through Xai's recent Series E round, but they now have
Speaker 9: an agreement in prace what they call a framework to
Speaker 9: work on technology and product together. Okay, and it's this
Speaker 9: like closer inter mesh of Elon Inc.
Speaker 2: Right, So, what's the sales pitch to investors in Tesla
Speaker 2: as a car company, in Tesla as a robotaxi company,
Speaker 2: in Tesla as a robot company that says, you know,
Speaker 2: this is in the best interests of shareholders to make
Speaker 2: an investment in Elon's ai company XAI.
Speaker 6: There are like ten different answers to that.
Speaker 9: I mean, the first thing to state is that this
Speaker 9: was believe it or not a double check the Bloomberg
Speaker 9: the first annual revenue decline that Tesla's ever had, so
Speaker 9: revenues overall revenues from all its divisions drop three percent,
Speaker 9: and they blame that on lower vehicle deliveries and sales
Speaker 9: and lower regulatory tax credits. So that's kind of interesting.
Speaker 9: But this shareholder deck is about the future where Tesla
Speaker 9: doesn't sell vehicles as its principal line of business. It
Speaker 9: does physical AI through robotics and through robotaxi, and as
Speaker 9: it relates to XAI. There were definitely two schools of thought.
Speaker 9: There are the Tesla bulls that basically said if they
Speaker 9: invest in Xai, all of this stuff will happen quicker
Speaker 9: because Xai is so good at the software side of AI.
Speaker 9: They're very bullish Tesla shareholders that were like, whoa this,
Speaker 9: Xai is a company that burns billions of dollars a quarter.
Speaker 9: Do you want Tesla to be the entity that's propping
Speaker 9: that up? If Tesla's already doing work internally on software.
Speaker 9: So this was a really interesting deck. The quarter's numbers gone,
Speaker 9: the quarter gone, I mean, it doesn't really mean anything
Speaker 9: at this point.
Speaker 3: James Chakmark come on in and you know, highlighting that
Speaker 3: Tesla greet to invest about two billion in Elon Musk's
Speaker 3: Xai startup. We talked with you a little bit about
Speaker 3: Tesla before, a small position in your fund. What's how
Speaker 3: significant do you think that is? Does it make it
Speaker 3: more interesting the Tesla story here?
Speaker 1: Yeah, I mean it'd add another element to the story.
Speaker 1: But you know that's not why we're investors in it.
Speaker 1: I don't think that that's going to be something that's
Speaker 1: you know, factored in in a material way one way
Speaker 1: or another at the at the current time. So you know,
Speaker 1: we're looking at it from a long term standpoint. The
Speaker 1: optionality on all those areas that you listed, from robotics
Speaker 1: to self driving, autonomous driving, and you know that's where
Speaker 1: the opportunities lie, and that's why we're invested in it.
Speaker 1: But at the valuations that it's at, and you know,
Speaker 1: question marks around you know, the demand side, and give
Speaker 1: it a macro backdrop. You know, we just think, you know,
Speaker 1: it's prudent to be cautious with it, but still maintain
Speaker 1: a small position in the portfolio.
Speaker 2: Uh, but keep that small position and not get not
Speaker 2: make it any bigger.
Speaker 1: At this time, I got to listen to the calls,
Speaker 1: see see what happens.
Speaker 2: I mean, but you could hear you could hear something today.
Speaker 2: You could hear something today that would make you change
Speaker 2: your mind.
Speaker 1: If and only if it provides a change in my estimates.
Speaker 1: Because really one of the things that I focus on,
Speaker 1: I prioritize is what is the degree of the change
Speaker 1: in the estimates and absolute terms, and also what is
Speaker 1: the percentage change and estimates and what is the percentage
Speaker 1: change in the rate of growth Because these companies with
Speaker 1: these valuations, you have to be able to show the
Speaker 1: sustainability of those growth curves. Without that sustainability then you
Speaker 1: come into questions about the sustainability of the valuations. And
Speaker 1: with these valuations being where they are, not only from
Speaker 1: a stock perspective, but the market perspective. You know, one
Speaker 1: little thing can cause things to break. I mean, you
Speaker 1: saw what happened with Intel last week, down seventeen percent
Speaker 1: on that quarter. And you know this is a company
Speaker 1: that the White House is backing. So you know what,
Speaker 1: it doesn't take. It takes an instant, you know, to
Speaker 1: break the valuation. Even though it takes a long time
Speaker 1: for that value, we should to expand.
Speaker 6: So you gotta be careful, all right, We got to run.
Speaker 3: Hey, James, thank you so much hanging around with us
Speaker 3: for about forty five minutes. Really appreciate going through all
Speaker 3: these earnings with you. James chock Mak, partner and chief
Speaker 3: investment officer at Clockwise Capital, joining us from Miami. Still
Speaker 3: with us, of course, our own Ed Ludlow, Bloomberg Tech
Speaker 3: co host on Bloomberg TV. You know, Ed, I was
Speaker 3: thinking about what you were talking about with Xia.
Speaker 5: What would you want to ask? What do you hope
Speaker 5: is asked on the call with the company here?
Speaker 9: Oh, just the why they decided to go ahead? What
Speaker 9: like the more specific rationale was so you know, the
Speaker 9: concerns were well stated, the worry that Tesla would be
Speaker 9: kind of the cash cow to fund the loss making business.
Speaker 9: But they have explained in detail, you know that there's
Speaker 9: a plan for them to work both on products and
Speaker 9: technology sharing and that and that was you know, those
Speaker 9: that were more sorry, guys, Chelsea have just taken the
Speaker 9: lead in the eighty four.
Speaker 2: The only thing and the only thing, the only sorry,
Speaker 2: your attention away.
Speaker 9: That's if the boss if the bosses are watching, I'm
Speaker 9: really sorry. My phone's going ballistic because it means we
Speaker 9: qualify for the next phase automatically. Anyway, you know what
Speaker 9: your guest was just talking about, though, Like the thing
Speaker 9: that Tesla's done in the shareholder deck in a lot
Speaker 9: more detail than it's done before, is talk about how
Speaker 9: these future products are currently contributing to top and bottom line.
Speaker 9: Tesla has always done the plus and minus columns of
Speaker 9: revenue and profit, but actually they started giving a bit
Speaker 9: more data. So for example, as of the fourth quarter,
Speaker 9: there will one point one million FC paid subscribers active subscribers. Okay,
Speaker 9: and in the profit column they are saying that our
Speaker 9: profit has been boosted by those revenues, by those software
Speaker 9: revenue sales, and so like extrapolate out to XAI.
Speaker 6: You can just envisage your world like I drive every
Speaker 6: day using.
Speaker 9: FSD to work, and in the cockpit of the car,
Speaker 9: I use the Grock voice assistant to communicate like how
Speaker 9: do they monetize that you'd expect and to talk about
Speaker 9: that kind of stuff on the cool I think.
Speaker 2: This is this is okay, this is what I'm interested in.
Speaker 3: Well, so let's wait. You know what, we want to
Speaker 3: throw another voice into this. Do not go, Do not
Speaker 3: leave us at Ludlow. We want you still here. I
Speaker 3: think our own Steve Man, a Bloomberg Intelligence Global Autos
Speaker 3: and Industrials research manager, is here with us as well.
Speaker 5: Steve, come on in too.
Speaker 3: Hopefully you've been listening to what Ed has to say.
Speaker 3: What what jumps out for you in this Tesla results?
Speaker 7: Well, I think on the car side, nothing nothing of surprise,
Speaker 7: uh with you know, margins a lot better than we expected,
Speaker 7: but that's only from higher production. But what's really interesting
Speaker 7: for us is really now you know, Elon must have
Speaker 7: been talking a lot about rolling out Groobo Taxi. It
Speaker 7: was just top but now it's kind of codified in
Speaker 7: the in the presentation now that they're going to roll
Speaker 7: out in nine cities beyond Austin. So I think a
Speaker 7: lot of the investors are expecting, you know, the timeline
Speaker 7: of that scaling up on robo taxi, and I think
Speaker 7: we're seeing that.
Speaker 3: But the only thing is like, I'm going to go
Speaker 3: to our live blog and Ed, come on back in here.
Speaker 3: I'm looking for it on the live blog. But how
Speaker 3: that they have made promises before to kind of roll out, and.
Speaker 2: I mean, it's like it just hasn't happened. That's part
Speaker 2: for the course for Elon.
Speaker 3: No, I know, and we used to have a clock thing,
Speaker 3: I think on the Bloomberg like tracking, you know, Elon
Speaker 3: and his promises.
Speaker 9: We did an episode of Wall Street Week last month
Speaker 9: on robotaxi, right, and the opening line was, you know,
Speaker 9: five years ago, Elon Musk promised that there would be
Speaker 9: robotaxis all over public roads by the end of that year.
Speaker 9: And here we are at the beginning of twenty twenty
Speaker 9: six and in a very limited ten vehicle pilot. Tesla
Speaker 9: has just removed the safety monitor from those vehicles that
Speaker 9: are in Austin, Texas for ROBOTAXI WEAIMO, by comparison, has
Speaker 9: many hundreds more than that on public roads, charging a
Speaker 9: fair no human in in operation. The thing is that
Speaker 9: your last guest deluded to this. You're like pressing him
Speaker 9: on why he had the conviction in this this thesis.
Speaker 9: But for lots of people, it's the idea that Elon
Speaker 9: Musk makes many projections and gives many timelines, and even
Speaker 9: though he misses those dates, he often gets there in
Speaker 9: the end. And I suspect that I've said that sentence
Speaker 9: toe debatam many hundreds of times before.
Speaker 2: So Steve Man, come on back here? Does he? Does
Speaker 2: he get there this time? With the ROBOTAXI rollout?
Speaker 3: Is?
Speaker 2: Are we going to be riding in robotaxis when we
Speaker 2: go to visit places apart from Austin anytime soon?
Speaker 4: Yeah?
Speaker 7: I mean, I think the fact that he's, you know,
Speaker 7: putting the plan on paper says a lot. You know,
Speaker 7: from my perspective, it's not just talking anymore. He's making
Speaker 7: a big commitment to the investors, and that's what the
Speaker 7: investor are expecting. So yeah, nine cities, mostly down south.
Speaker 7: I think it. Look, I think the rollout will continue
Speaker 7: to be slow. I mean, and Tesla is a big name.
Speaker 7: They don't have much room to make a mistake, so
Speaker 7: they're going to take it slow. They're probably going to
Speaker 7: have safety drivers in those cities initially, similar to what
Speaker 7: Weimo has done, and then startly removing those safety drivers
Speaker 7: in once they gain confidence. But at the end of
Speaker 7: the day, the point is we're expecting scaling up of
Speaker 7: that business and to drive a new revenue stream for
Speaker 7: the company, and looks like it's happening sooner than later.
Speaker 4: Now.
Speaker 3: It's fascinating. I feel a little managed Edla Low come
Speaker 3: on in here. I mean, it's just amazing that we're
Speaker 3: talking about Tesla and really not focusing on a less expensive.
Speaker 2: Callay, focusing on Chelsea versus Napoli.
Speaker 5: No no, no, no no.
Speaker 3: But I just know it's fine. It's part of what
Speaker 3: we love about you. But I mean, it's just interesting
Speaker 3: that we're like, Okay, it's these taxis and it's robots
Speaker 3: and it may take a.
Speaker 5: While, but we're in. We're in.
Speaker 3: And we talked to Kathy Wooden. She's like, this is
Speaker 3: the company going forward?
Speaker 6: Yeah.
Speaker 9: I mean, you know, I don't want to speak on
Speaker 9: his behalf, but Steve's point is echoed by by many
Speaker 9: that either are bullish or bearish on Tesla. They've put
Speaker 9: this in the shareholder deck. It's in writing the explanation
Speaker 9: of what they plan to do, plus some timeline in it,
Speaker 9: plus the impact to top and bottom line that you
Speaker 9: know it's in there. Steve wrote in his January twelfth
Speaker 9: research without putting him on the spot, that twenty six
Speaker 9: is the year that Tesla pivots to physical AI for
Speaker 9: many people, that that is something that started in twenty
Speaker 9: twenty five. But there is still an element with Tesla
Speaker 9: right the stocks up less than three percent in after
Speaker 9: hours that Elon Musk will likely say something on the
Speaker 9: call that will move the needle, and it's about, you know,
Speaker 9: whether investors do or don't believe him. The one little
Speaker 9: teaser that I will leave with you is there's a
Speaker 9: line on the deck that talks about deeper vertical integration.
Speaker 9: And you know, Dana Hole, you know, messaged me right
Speaker 9: away saying did you see that?
Speaker 6: What do you think? That means? Don't know?
Speaker 9: But Elon's talks about all kinds of things, building its
Speaker 9: own chip fab. Where does SpaceX factor into this? One
Speaker 9: of the most voted up retail questions because you know,
Speaker 9: test of fields questions from retail investors is will Tesla
Speaker 9: A shareholders get priority access to a SpaceX ipo.
Speaker 6: All of these things keep people looking to the horizon.
Speaker 2: It depends on where the planets are aligned, I think
Speaker 2: is the.
Speaker 3: It's great, this is on our live blog. We will
Speaker 3: manage the businesses such that we ensure a strong balance sheet,
Speaker 3: maintaining sufficient liquidity to fund our product roadmap, long term
Speaker 3: capacity expansion plans, including further vertical integration, and other expenses.
Speaker 3: And as you said, Dana writes, would love more details,
Speaker 3: and it sounds like you would would too.
Speaker 2: You didn't even mention you didn't even hear my planetary
Speaker 2: alignment joke.
Speaker 3: Oh sorry, okay, ed laugh Johnnie Steve Mann final thoughts
Speaker 3: from you thirty seconds here when it comes to Tesla.
Speaker 7: Yeah, you guys talked about a little bit about the
Speaker 7: two billion dollar investment in Xai. It totally makes sense
Speaker 7: for me because, look, Grock is starting to be integrated
Speaker 7: into Tesla vehicles. You know, especially in the navigational you
Speaker 7: can tell groc basically, you know, I want to go home,
Speaker 7: but in between I want to stop at Starbucks or
Speaker 7: stop at the grocery store and actually will help you
Speaker 7: navigate to those different points. And look that that you
Speaker 7: know they're testing it out now, that system won't be
Speaker 7: on the robotaxi because you know there's no driver there.
Speaker 7: So it's if you take a step back and look
Speaker 7: at this thing, this whole elon must AI thing. I
Speaker 7: wouldn't be surprised if there's going to be more kind
Speaker 7: of cross investments between the companies that are all going
Speaker 7: to be tied together on this AI endeavor.
Speaker 5: Wait, did I hear circular financing again? I don't know.
Speaker 3: I don't know anyway, fascinating faster, Steve Man, thank you
Speaker 3: so much. Bloomer Intelligence Global autos and Industrial's research manager
Speaker 3: joining us here. Hey real quickly ed thirty seconds for
Speaker 3: you go anywhere. Whether it's Meta which is rowling about
Speaker 3: nine percent in the aftermarket, Microsoft down five percent, Tesselas
Speaker 3: up three percent, where do you want to go?
Speaker 6: The stories are really straightforward.
Speaker 9: Meta said that revenue growth strong, and then they boosted
Speaker 9: the capex range for the year beyond consensus.
Speaker 6: It's a simple formula. We're repeating.
Speaker 9: Microsoft's Azure cloud unit growth thirty eight percent, in line
Speaker 9: with estimate consensus, but at the top end, people were like,
Speaker 9: where's my forty percent growth? And they told us about
Speaker 9: their capital expenditures and those kind of exceeded, and still
Speaker 9: the market was disappointed. It's a very high bar on
Speaker 9: a simple formula that we've discussed. Endlessly spend more on
Speaker 9: AI investment in infrastructure, but show us very strong top
Speaker 9: line growth as a direct result of it.
Speaker 3: You rock, go back to the match, all right. Of course,
Speaker 3: that's Ed Lovelow as OA is. He is co host
Speaker 3: of Bloomberg Tech on Bloomberg TV. Catch him at eleven
Speaker 3: am Wall Street Time Monday through Friday.
Speaker 7: H m hmm.